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



     A REVIEW OF THE ADMINISTRATION'S FY2005 HEALTH CARE PRIORITIES

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 10, 2004

                               __________

                           Serial No. 108-100

                               __________

       Printed for the use of the Committee on Energy and Commerce


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                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              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                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, 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.........................................    23
Material submitted for the record by:
    American College of Surgeons, prepared statement of..........    64

                                 (iii)

  

 
     A REVIEW OF THE ADMINISTRATION'S FY2005 HEALTH CARE PRIORITIES

                              ----------                              


                       WEDNESDAY, MARCH 10, 2004

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:15 p.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Hall, Bilirakis, 
Upton, Gillmor, Greenwood, Cox, Deal, Burr, Whitfield, Norwood, 
Cubin, Shimkus, Shadegg, Pickering, Buyer, Bass, Pitts, Bono, 
Walden, Terry, Ferguson, Otter, Sullivan, Dingell, Waxman, 
Towns, Pallone, Brown, Rush, Stupak, Engel, Wynn, Green, 
McCarthy, DeGette, Capps, Allen, Solis, and Gonzalez.
    Staff present: Patrick Morrisey, deputy staff director; 
Nandan Kenkeremath, majority counsel; Chuck Clapton, majority 
counsel; Patrick Ronan, majority counsel; Cheryl Jaeger, 
majority professional staff; Jeremy Allen, health policy 
coordinator; Eugenia Edwards, legislative clerk; Bridgett 
Taylor, minority professional staff; Amy Hall, minority 
professional staff; and John Ford, minority counsel.
    Chairman Barton. Today we are going to have a hearing on 
the priorities of the Bush Administration's health care 
policies. Before we do our opening statements, I want to make a 
personal announcement for Chairman Tauzin. He informed myself 
and other members of the committee by telephone yesterday that 
he has been diagnosed with stomach cancer. He is undergoing a 
series of tests, is going to take a leave from the Congress for 
at least a month, will be operated no in the very near future, 
expects a full recovery, expects to be back in the House late 
spring.
    He asked that I make this announcement, and I ask everyone 
to pray for himself and his family and help get them through 
this. But he is very optimistic. His doctors are very 
optimistic, and he expects a full recovery and to be back his 
usual active Cajun self this summer.
    So with that I would also like to make an announcement that 
we have the Secretary with us until 5 p.m. this afternoon. 
Every member is entitled to make an opening statement. The 
chairman, ranking member of the subcommittee and full committee 
each are allowed 5 minutes. All of the members are allowed 3 
minutes.
    Any member who wishes to defer his or her opening statement 
will be given an additional 3 minutes in the question period.
    So with that, the Chair would recognize himself for a 5-
minute opening statement.
    I want to welcome you, Secretary Thompson to the full 
committee hearing on the administration's 2005 fiscal year 
health care priority budget. Health care is a cornerstone of 
this committee's jurisdiction and has been for decades.
    We have advanced significant health care through the Energy 
and Commerce Committee that have improved the quality of life 
for millions of Americans. Whether it affected Medicare, 
Medicaid, private insurance, FDA drug efficacy, medical device 
approval, or basic health care research and public health 
programs, this committee has played a pivotal role in the 
creation or modification of our most important health care 
policies.
    As the chairman of the committee, I hope to carry on the 
fine tradition of my predecessors who have made strong 
commitments to increasing consumer's access to health 
insurance, to creating an affordable health care system, and to 
improving our Nation's public health infrastructure. It is my 
intent, and I am going to make it my policy to pursue these 
goals on a bipartisan basis.
    We have acted, Republicans and Democrats, on a bipartisan 
basis in the recent past and have passed numerous critical 
health care bills. The Public Health Security and Bioterrorism 
Preparedness and Response Act, the creation of the Homeland 
Security Department, accelerated approval of devices in the 
FDA, and Project Bioshield are just a few of the bipartisan 
bills that this committee has pass into law.
    On a not quite so bipartisan basis, we have also acted 
recently to enact comprehensive Medicare legislation that will 
provide our Nation's seniors with better access to prescription 
drugs and real relief from the high cost of some of those 
products.
    I am looking forward, Mr. Secretary, today to hear you 
testify about how you plan to implement this new law that will 
benefit seniors and the specific ways you think it will reduce 
prescription drug prices.
    There are many innovative, cost containment measures in the 
bill that is now law, and those really have not received too 
much attention, and so I hope that you will inform this 
committee of some of those issues.
    The new Medicare law does many good things for our seniors. 
It has got a new prescription drug count discount card so that 
some seniors can receive an immediate reduction on their drug 
prices. You told me that 105 groups had applied to provide that 
card, and I am sure you will elaborate on that in your 
testimony.
    We provide very generous low income subsidies for Medicare 
beneficiaries who need the most help, and the new bill will 
begin to modernize some of the most antiquated parts of the 
Medicare program.
    Last year's passage of the Medicare law was not universally 
popular with this committee, but beginning today, I hope that 
friends on both sides of the aisle, Republicans and Democrats, 
who had some concerns about the bill, and I will put myself in 
that camps--I had some concerns about the bill, too--can focus 
on ways to insure that the law, now that it is the law, is 
fairly implemented in the way that will help Medicare 
beneficiaries the most.
    Now is not the time to play politics and to try to reopen 
old wounds. I hope that we can work together to implement this 
on a bipartisan basis.
    Finally, as you know, we are about to go through a new 
budget process. I would like to note to my consternation, quite 
frankly, many health care programs under this committee's 
jurisdiction are currently being funded without being 
authorized.
    I have been told anecdotally, and I am trying to tie this 
down at the staff level, that 80 percent of the health care 
programs under the committee's jurisdiction are currently not 
authorized. I do not think that this is a responsible practice, 
Mr. Secretary, and I hope that you will work with the committee 
to begin the reprioritization process to determine how best use 
our precious Federal health care dollars.
    It would be my goal over time to reauthorize or authorize 
all of the programs under the committee's jurisdiction. 
Programs that do not have an authorization at some point in 
time should not receive the same level of funding as they have 
in the past. Some may see this as controversial, but I believe 
it should be an important long-term goal of our committee.
    I do not mind having a disagreement on how a program should 
be authorized, but I think that if we are going to spend 
Federal dollars, all programs that are spending Federal dollars 
should be authorized.
    I want to work with you, Mr. Secretary, and the President 
and all the other members of the Cabinet and members of this 
committee to make progress on the important health care matters 
before us. We appreciate the fact that you are here today, and 
we appreciate the good work that you have done in the past, and 
we look forward to working with you in the future. We have a 
lot of work to do.
    I will now recognize Mr. Dingell an opening statement.
    Mr. Dingell. Mr. Chairman, I thank you for this courtesy.
    Mr. Secretary, welcome. I want to begin by expressing my 
high personal regard for you and to say to the committee that 
you are distinguished and able and a dedicated public servant, 
and we are delighted to have you before us.
    I am here to speak today to the concerns and the feelings 
of the members on this side of the aisle. I confess myself 
severely disappointed by the President's proposed budget on 
health care. Rather than making advances to protect the health 
and welfare of Americans young and old, the budget, in fact, 
undermines key programs in the area.
    Referring first to the issue of Medicare, the President's 
budget is noteworthy not for what is included, but rather what 
is not included. The budget includes no money to fix the gaping 
holes in the flawed Medicare prescription drug benefit bill 
passed last year. Seniors continue to face the doughnut hole 
that keeps getting larger. Drug prices keep skyrocketing, loss 
of existing quality retiree coverage, steep cuts to physician 
services over the next 10 years, and erosion of a program, 
Medicare, that has served them so well for better than 40 
years.
    Medicare will soon no longer be the program for millions of 
seniors to depend upon. It has changed and in many was not for 
the better. Yet there is not one dollar in the budget to 
address these shortcomings, nor does the President's budget 
include needed funding to shore up Medicaid.
    This is a program that provides health coverage for 51 
million Americans, and the Children's Health Insurance Program, 
CHIP. The $20 billion in State fiscal relief is set to expire 
at the end of June, while the States are still struggling to 
overcome record budget deficits caused by the downturn in the 
economy.
    And each of my colleagues here in the committee knows what 
this means to their own State. There is nothing in the budget 
to replace this.
    Another $1.1 billion in funding for CHIP is set to expire 
in September, but there is no money in the budget for that 
either. According to the Kaiser Commission on Medicaid and the 
uninsured, the number of uninsured has increased by more than 
$3.7 million under this administration. Yet not only does this 
administration's budget include no money to improve the 
situation. It fails even to hold the line on the coverage that 
people have today.
    Worse yet, the budget slashes the Medicaid program by $23.5 
billion. This is done under the guise of eliminating 
unspecified fraud and abuse. It is quite possible that there is 
fraud and abuse in this situation, but it is equally probable 
that this will not be found, and so we will have to find a 
large amount of money to make this project whole or else to 
confront the problem of having States without the means to 
provide the necessary health care for deserving and needy 
Americans.
    States are already in a $21 billion hole as a result of the 
President's budget under funding Medicaid and CHIP, but the 
President proposes slashing another $23 billion. This will 
leave a shortfall of better than $43 billion to State insurance 
programs in the coming decade.
    The President's budget is similarly problematic with 
respect to public health programs. In the word of president for 
the Coalition of Health Funding, and I now quote, ``By flat 
funding, cutting, or under funding with less than significant 
increases, the overall public health system is being strained 
to the breaking point. It is akin to death by 1,000 cuts, a 
slow dismantling of programs stretched beyond their limit by 
increasing demands. The budget misses important opportunities 
that public health agencies and programs provide to address the 
twin peril of increasing numbers of uninsured and unsustainable 
rising health care costs.''
    The budget also contains gimmicks such as interagency 
transfer. For example, the entire budget of the Agency for 
Health Care Quality and Research is funded from money 
transferred from the National Institutes of Health. This is the 
time that the National Institutes of Health are supposed to be 
receiving significant increases in funding to meeting plans 
announced earlier by the administration, and the demoralized 
and wasteful outsourcing programs are continued.
    I hope, Mr. Secretary, that you will consider these hurtful 
cuts and remember that these are safety net programs upon which 
Americans depend.
    We should also be working together to shore up programs to 
protect children, pregnant women, those with disabilities, the 
elderly, and working families from seeing their health 
insurance coverage and other benefits eroded. But this 
administration's determination to enact tax cuts at any price 
prevents bipartisan work desperately needed to protect the 
health of Americans and the well-being of our citizens. I 
greatly regret this is the case.
    I thank you, Mr. Chairman.
    Chairman Barton. Thank you, and I would note that both 
myself and Mr. Dingell were right on the 5-minute mark. So that 
is a good standard to start the opening statements.
    Does the distinguished subcommittee chairman, Mr. Bilirakis 
wish to make an opening statement?
    Mr. Bilirakis. Mr. Chairman, I am going to focus my 
questioning on the reimportation issue and would prefer that 
the Secretary have the excess time for that. So, therefore, I 
would defer and ask unanimous consent that my written statement 
be made part of the record.
    Chairman Barton. Without objection.
    [The prepared statement of Hon. Michael Bilirakis follows:]

   Prepared Statement of Hon. Michael Bilirakis, a Representative in 
                   Congress from the State of Florida

    Thank you, Mr. Chairman. I am pleased that today we will be hearing 
from Health and Human Services Secretary Tommy Thompson. Secretary 
Thompson has appeared before this Committee a number of times in the 
past, and we welcome him back today and look forward to his testimony 
and his views on the Administration's fiscal year 2005 budget request 
for the Department of Health and Human Services.
    Mr. Secretary, you have a formidable task ahead of you. While your 
budget request contains a number of new policy proposals, I think we 
both agree that your biggest job will be to oversee the implementation 
of the Medicare Modernization Act. As you are well aware, this new law 
represents the largest expansion of Medicare since the program was 
first created in 1965, and I look forward to working with you and your 
department to implement this landmark legislation.
    I am particularly interested in hearing your perspective on the 
implementation of the Medicare prescription drug discount card and 
transitional assistance program. These new discount cards will be the 
first tangible benefits Medicare beneficiaries will enjoy as a result 
of the Medicare Modernization Act, and I know we share a mutual goal of 
ensuring that this program is as successful as possible.
    I was also pleased to see that the Administration's request 
includes an increase of $219 million for the community health centers 
program, which as your budget request notes will result in services for 
an additional 1.6 million individuals in 330 new and expanded sites. As 
Congress continues to grapple with the best way to deal with the 
problem of the uninsured, I'm glad that we can come together behind 
this critical component of our healthcare safety net.
    I'm interested in hearing more about the Administration's 
bioterrorism preparedness initiatives. While we have been fortunate in 
that our nation has not fallen victim to a major bioterrorist attack, 
the recent discovery of ricin in the Senate office building complex has 
highlighted our need to remain vigilant in our efforts to guard against 
biological and chemical weapons attacks.
    Mr. Secretary, your department's budget request contains a number 
of other new initiatives, covering the spectrum from limiting the use 
of Medicaid intergovernmental transfers to encouraging healthy family 
development. I'm sure that today's hearing will highlight the fact that 
some of these initiatives are not without controversy. That's why I'm 
glad you were able to join us today to shed some further light on your 
fiscal year 2005 budget request and the thinking behind it. Thank you 
Mr. Chairman, and I yield back the balance of my time.

    Chairman Barton. Does the distinguished ranking member of 
the subcommittee, Mr. Brown, wish to make an opening statement?
    Mr. Brown. Yes, I do. Thank you.
    Chairman Barton. The gentleman is recognized for 5 or is it 
3 minutes.
    Mr. Brown. Three. You had said 5 a minute ago.
    Chairman Barton. I thought so.
    Mr. Brown. Okay. I will do 3, and I thank you.
    Thank you, Mr. Secretary, for joining us.
    The President's health care budget is representative of his 
budget as a whole. It simply does not make sense as a response 
to the concerns of everyday Americans. The budget only makes 
sense if the President prioritizes tax cuts tilted toward the 
wealthiest Americans ahead of health care access and every 
other concern weighing on American families.
    Whether you look at the funding set-aside for health care 
access, medical research, public health priorities, this budget 
treats health care like the redheaded stepchild. Last year, in 
his State of the Union address, the President told us that one 
of his major goals was high quality, affordable health care for 
all American. Keep that in mind when you look at how this 
administration treats Medicaid, the Nation's largest health 
insurer.
    Medicaid covers 46 million Americans, and even through 
Medicaid is the only reason the uninsured rate didn't explode 
during the economic downturn, even though Medicaid covers 70 
percent of nursing home care in this country, even though the 
States desperately need help keeping Medicaid afloat, the 
President's budget actually cuts Medicaid funding by $24 
billion every 10 years.
    Look in the context in a State like mine. One out of six 
manufacturing jobs has disappeared in the last 3 years; 300,000 
unemployed. This Congress will not extend unemployment benefits 
to the 800,000 Americans who have seen their benefits expire in 
the last 3 months.
    How exactly does stripping away health care coverage for 
millions of Americans contribute to the goal of assuring high 
quality, affordable health care for all Americans?
    The President's State of the Union said our goal is to 
insure that Americans can choose and afford private health 
coverage that best fits their individual needs. I did not 
notice any funding in the President's budget to assure access 
to private coverage for 44 million uninsured Americans, much 
less the 46 million who rely on Medicaid. There are associated 
health plans. There are health savings account proposals in the 
Bush budget, but neither of these is actually paid for, and 
both of them undercut the broad pooling of risk that is 
essential to stable insurance markets.
    No matter what mechanism the administration uses to drain 
dollars from Medicaid, starving the Medicaid program will hurt 
the same people: 20 million children, 13 million low income 
adults, 8 million disabled Americans, 5 million seniors who 
rely on Medicaid today, and frankly, every other American 
because Medicaid serves as a safety net when people lose their 
jobs and health care in times of economic hardship.
    I have several questions about the President's priorities. 
For instance, I question why the President cited a laundry list 
of things the Nation must do, but did not once mention the need 
to control spiraling prescription drug costs. Strategies to 
rein in drug costs are conspicuously absent from the budget. 
They were, if you recall, prohibited strategies to rein in 
costs, prohibited in the actual Medicare bill that passed.
    I question why the Bush Administration spend millions of 
taxpayer dollars on educational Medicare ads that don't 
actually educate, especially when you consider the Medicare 
drug benefit is not available for2 more years.
    But the most important question is how can the President 
turn his back on the 46 million Medicare beneficiaries who are 
enrolled in that program.
    I thank the chairman.
    Chairman Barton. We thank the gentleman.
    Does the gentleman from Michigan, Mr. Upton, wish to make 
an opening statement?
    Mr. Upton. I am going to defer and take the 3 minutes.
    Chairman Barton. Does the gentleman from California, Mr. 
Waxman, wish to make an opening statement?
    Mr. Waxman. I'm going to defer on an opening statement. I 
just want to welcome the Secretary, and I will use additional 
time for questions.
    Chairman Barton. The gentleman from Pennsylvania, he wishes 
to defer?
    Mr. Greenwood. I defer.
    Chairman Barton. Okay. The gentleman from New Jersey, Mr. 
Pallone.
    Mr. Pallone. I have an opening, Mr. Chairman.
    Chairman Barton. The gentleman is recognized for 3 minutes.
    Mr. Pallone. Thank you, Mr. Chairman.
    President Bush's 2005 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, while shoring up exorbitant amounts of money for 
corporate interest. 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 proposal to 
overhaul the Medicaid program, to overpay HMOs enormous amounts 
of money under the guise of providing a prescription drug 
program, and to provide a health tax shelter for primarily 
wealthy Americans.
    During these difficult economic times, the President's 
budget is particularly cruel to the uninsured, poor and 
disabled, children and adults alike that rely on Medicaid and 
SCHIP 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, the amount of money that the President is 
planning on committing to Medicaid reform is grossly inadequate 
in providing health care to our Nation's most vulnerable 
populations.
    In addition, any short-term relief that States receipt up 
front under the block grant will have to be paid by at the end 
of the 10-year budget window, and this is simply unacceptable. 
This proposal would not only harm Medicaid and SCHIP 
recipients, but also aggravate fiscal problems plaguing most 
States, including my own State of New Jersey, which would be 
forced to pick up the slack.
    We need to strengthen, not undermine the Medicaid and SCHIP 
programs by providing another direct infusion of money to 
States this year in order to insure health insurance for 
millions of low income Americans.
    I am also deeply disappointed with the outcome of the 
Medicare bill that the President signed into law. It is 
painstakingly clear in the President's budget that his priority 
is to provide a rich benefit to HMOs, not seniors.
    During debate on the bill, it was evident that HMOs were to 
be paid billions of dollars in order to entice private plans to 
enter the market to compete with Medicare. But the budget now 
reflects $46 billion in overpayments to HMOs, about $30 billion 
more than previously estimated.
    And last, $70 billion in the budget for tax credits that 
will cover less than 5 percent of the uninsured population is a 
total waste. Those dollars can certainly be better spent on 
expanding programs that work, like expanding SCHIP to cover the 
parents of children in the program, strengthening Medicaid and 
implementing an elderly Medicare buy-in program.
    Mr. Chairman, the number of uninsured Americans is a record 
44 million. Fifteen out of every 100 Americans do not have 
health coverage, and the numbers are on the rise, and I think 
that that should be addressed, not the kind of money that we 
are spending here that is primarily helping wealth people and 
not doing enough to help the poor and the uninsured.
    Thank you, Mr. Chairman.
    Chairman Barton. We thank the gentleman from New Jersey.
    Does the gentleman from Georgia wish to make an opening 
statement?
    Mr. Deal. No.
    Chairman Barton. Does the gentleman from Michigan, Mr. 
Stupak, wish to make an opening statement?
    Mr. Stupak. Yes, Mr. Chairman.
    Chairman Barton. The gentleman is recognized for 3 minutes.
    Mr. Stupak. Thanks for holding this hearing, and, Secretary 
Thompson, thanks for being here today.
    I ask that my full statement be made part of the record.
    Chairman Barton. Without objection.
    Mr. Stupak. Mr. Chairman, the President's budget cuts 
Medicaid by $10 billion over 5 years, and yesterday the Senate 
Budget Committee just passed their bill with a $11 billion cut 
in Medicaid over 5 years.
    An $11 billion cut to Michigan means it would be losing 
approximately $385 million, or $77 million per year, in 
critically needed Federal funding. How does a State whose 
Medicaid enrollment has increased 30 percent in the last 4 
years fill a $385 million hole?
    But I look forward to hearing from the Secretary today 
about Michigan's multi-State prescription drug purchasing pool 
proposal. As the Secretary knows, Michigan has joined with 
Vermont to put forward an innovative approach to help save the 
States and the Federal Government money. They have proposed a 
multi-State prescription drug purchasing pool that Michigan 
estimates will save them $40 million a year.
    Other States like the approach and want to join, including 
Nevada, Alaska, Minnesota, and New Hampshire.
    In the year since Michigan and Vermont made their proposal, 
CMS has put up one bureaucratic barrier after another. Michigan 
and Vermont repeatedly modified the plan in negotiations with 
CMS, but then in February CMS said it was going to deny the 
program.
    Michigan's proposal makes sense to me. It combines the 
State's purchasing power, complies with CMS guidance on 
supplemental rebates, will save the States, Federal Government, 
and taxpayers money, and is based on a free market bidding 
using a commercial model. So I ask: what is the problem?
    In a July 1, 2003, national public radio interview, former 
CMS Director Tom Scully said, ``States have every right to 
negotiate and use their market power to get the best possible 
prices they can.'' He continued by saying, ``The drug 
companies, I mean, obviously they are worried about their 
margins. They're worried about the States getting too organized 
and too powerful.'' So my question today will be to the 
Secretary: why is the administration blocking the Medicare 
Vermont-Michigan prescription drug pooling program?
    And so I would look forward to your answering that question 
later.
    Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman Barton. Thank you, Mr. Stupak.
    Does the gentleman from Kentucky wish to make an opening 
statement?
    Mr. Whitfield. Defer.
    Chairman Barton. Okay. The gentleman from Texas, Mr. Green, 
wish to make an opening statement?
    Mr. Green. Thank you, Mr. Chairman.
    And like my colleagues, Mr. Secretary, I want to welcome 
you back before our committee. I appreciate your coming over 
the last few years and to also appear before it to defend the 
budget, the administration's budget, and I hope it is a good 
defense.
    We all know that the red ink is flowing in Washington, and 
we need to tighten our belt to get through the economic 
downturn, but I remind the members of this committee that our 
economic predicament is the result of the flawed policies of 
this administration.
    When they arrived in Washington 3 short years ago, the 
administration inherited a strong economy and a $5.6 trillion 
10-year surplus. It was squandered and turned into a projected 
deficit of $2.9 trillion. Now they blame the War on Terrorism 
or the bad economy, but in reality the administration's 
irresponsible tax cuts have caused this situation, and now they 
are trying to solve it by starving programs that are already 
under funded.
    For example, the Community Access Program, which received 
$105 million in fiscal year 2004, was cut in the President's 
budget to $10 million for 2005. The CAP Program helps agencies 
improve access for all levels of care for uninsured and under 
insured, grants to communities across our country.
    And I know in my own hometown of Houston the CAP grants 
have been critical in helping us secure more funding for 
community health centers and setting up of a hot line to 
improve access to health information and insuring the materials 
that are appropriate for Houston's averse culture.
    If this budget is adopted, 193 CAP grantees are going to be 
out of luck and be the uninsured individuals, and their 
communities will suffer. But that is not the only program.
    The Medicaid Program, possibly the most critical component 
of our health care safety net, suffers from cuts totaling $23.5 
billion. And while I support efforts to curb waste, fraud, and 
abuse, I have a feeling these cuts will do much more damage to 
the program.
    I also am concerned that the program does not help States 
that are already grappling with their escalating Medicaid and 
CHIPs costs. Last year my home State of Texas was forced to cut 
CHIP due to budget downturns. Since the CHIP enrollment has 
dropped from 507,000 to 399,000. That is 106,000 children in 
the last 6 months that have been dropped from CHIP in Texas 
alone, and more are adding every day.
    Dental, vision, Hospice benefits are being eliminated. 
Children must wait 90 days for CHIP coverage to begin, and 
copays and premiums have increased, and coverage has been 
reduced from 12 months to 6 months. And our Nation's low income 
children cannot afford anymore sacrifices.
    Mr. Chairman, I appreciate the time, and again, Mr. 
Secretary, welcome and I look forward to your testimony.
    Chairman Barton. I thank you, and I think, Congressman 
Green, you might want to make an introduction. Your county 
judge just walked into the room at the back of the room if you 
would like to introduce him.
    Mr. Green. Well, I would. My County Judge Robert Eackles, 
we served in the legislature, and he is here not to talk about 
CHIP, but to talk about transportation funding.
    CHIP is a problem in Harris County. Thank you, Mr. 
Chairman.
    Chairman Barton. Always glad to have one of our county 
judges from Texas before the committee.
    Does Mr. Norwood wish to make an opening statement?
    Mr. Norwood. Mr. Chairman, after a couple of the 
statements, I am almost inclined, but out of respect for the 
Secretary, I will ask that mine just be submitted for the 
record.
    Chairman Barton. Without objection.
    Does the gentlelady from Missouri wish to make an opening 
statement?
    Ms. McCarthy. No, Mr. Chairman. I am just so glad the 
Secretary is here and look forward to his testimony.
    Chairman Barton. Does the gentlelady from Wyoming wish to 
make an opening statement?
    Ms. Cubin. Mr. Chairman, I will defer mine.
    Chairman Barton. Okay. Does the gentlelady from California 
wish to make an opening statement?
    Ms. Capps. Just to say welcome.
    Chairman Barton. Okay. Does the gentleman from Illinois 
wish to make a statement?
    Mr. Shimkus. Waive.
    Chairman Barton. Okay. Does the gentleman from Texas, Mr. 
Gonzalez, wish to make an opening statement?
    Mr. Gonzalez. Waive.
    Chairman Barton. Okay. The gentleman from Arizona?
    Mr. Shadegg. Mr. Chairman, I have less self-discipline than 
some of my colleagues, and so I am not going to waive my 
opening statement.
    I simply cannot sit by----
    Chairman Barton. The gentleman is recognized.
    Mr. Shadegg. Thank you.
    Mr. Secretary, thank you for being here. Thank you for all 
you are doing for health care.
    Mr. Chairman, thank you for holding this hearing.
    I simply cannot sit here and watch the political comments 
that have been made so far in opening statements and sit 
silent. It is not in my nature.
    I think, quite frankly, on the issue of prescription drugs 
you can debate the merits of that bill. You and I did, in fact, 
debate them the night that it passed. I think, quite frankly, 
one point is true; this administration saw a need, and after 
years and years and years of nothing happening, this 
administration passed a bill.
    Now, as you know, I have some problems with that bill, but 
it is now the law of the land, and its critics want to just 
drag it down. I think instead we ought to be talking about 
improving it. And I think American seniors ought to at least 
acknowledge that we have tried to do something.
    I know that prescription drugs are a critical part of 
health care for everyone in America. Indeed, you cannot have 
health care if you do not have access to the prescription drugs 
which are the marvel of today's modern medicine. I myself am on 
several.
    And it seems to me that after failing for year after year 
after year after year, those who did not help us pass it just 
want to carp at it. I think it is important to say thank you to 
you and your administration for getting a piece of legislation 
passed.
    I would like to see it improved. As you know, I think PPOs 
should play a larger part in that particular piece of 
legislation. I particularly think non-risk PPOs should be 
playing a larger part in that legislation. But at least we have 
something on the table, and so I compliment you for that.
    I also want to compliment you for the President's 
acknowledgement of the importance of tax credits for the 
uninsured. There have been comments made here today that we are 
not spending enough. We are not doing enough. We are not 
spending enough for the uninsured.
    But the President said in his State of the Union, if he 
could get this Congress to act, he would support tax credits 
for the uninsured, and they are the way to address this 
problem.
    I keep telling my Republican colleagues that right now we 
are providing health care to all Americans under EMTALA. You 
walk into an emergency room in America today and you get health 
care, but you get it in the most expensive and, I would argue, 
least efficient venue when you walk into an emergency room and 
you ask to have a cold treated.
    And yet we have already made the decision as a nation that 
no one in this country should go without a basic level of 
health care. We can continue to deliver that health care 
through emergency rooms the way this Congress is doing under 
EMTALA and waste billions of dollars in resources, or we can 
step up to the plate as the President has called for us to do 
and pass tax credits to deal with the problems of the 
uninsured. Give every American who is uninsured a tax credit 
and tell them that they have got to use that tax credit to go 
out and buy health insurance.
    And it can be an affirmative tax credit that we actually 
pay to them, and it can be an advancable tax credit so that 
they get the money in advance and they apply it to their 
insurance company, and they get health care coverage so that 
they quit showing up at emergency rooms, and they could go to a 
doctor or a clinic where they deserve to get health care.
    And so I applaud the President for trying to lead in that 
direction. The alternative of continuing to having them come to 
an emergency room is simply unacceptable.
    I hear the discussion of SCHIP. I will tell you the history 
of SCHIP. SCHIP is one more government program where it is 
difficult to get people to sign up. If we give tax credits, 
people would be anxious to come and sign up, and they would be 
sold those policies, and we would get coverage, and we would 
deal with the problems.
    Chairman Barton. The gentleman's time has expired.
    Mr. Shadegg. So I applaud the gentleman, and I urge you to 
continue in the direction you are going.
    Chairman Barton. We thank the gentleman.
    Does the gentlelady from California, Ms. Solis, wish to 
make an opening statement?
    Ms. Solis. Yes. Thank you, Mr. Chairman.
    Chairman Barton. The gentlelady is recognized for 3 
minutes.
    Ms. Solis. Thank you, and good afternoon.
    I would also like to submit my statement for the record, 
but just make a few comments, if possible.
    Chairman Barton. Without objection, so ordered.
    Ms. Solis. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. It is good to see you here.
    I also have some concerns that have been previously 
expressed by some of the members here, especially with respect 
to the Medicaid budget cuts that are being proposed in the 
President's budget.
    While our economy and our State in California are suffering 
dramatically, I wonder why the administration would choose to 
punish a health care program that is designed to particularly 
help low income and disabled people.
    And I know that the administration's proposal to seek to 
limit the use of intergovernmental transfers, IGTs, within the 
Medicaid Program would have a dramatic effect in California. We 
have been using it efficiently. I know the purpose there is to 
cut down on fraud and abuse, but I think California, which is 
the sixth largest health care provider in the States who has a 
large proportion of uninsured, could truly benefit from a 
continuance in flexibility and use of this particular program.
    I also want to mention that I hope that you will talk today 
about racial and ethnic health disparities. The landmark 2002 
Institute of Medicine report titled ``Unequal Treatment 
Confronting Racial and Ethnic Disparities in Health Care'' 
really opened America's eyes to health disparities facing 
communities of color in our country.
    Whether it is the fact that Latinos face diabetes rates 
twice that of whites or Asian Americans who have the highest 
tuberculosis rates in the country, disparities in health care 
are one of the most critical issues in health care today. It is 
simply unfair that Americans face different health care 
outcomes and diseases simply because of the color of their skin 
or their ethnic background.
    I encourage the administration to take more active steps in 
curbing health care disparities.
    And one last thing I would like to say is that I hope the 
administration could take a better look to insure that 
regulations that are currently pending would actually increase 
access for limited English proficient individuals and require 
that federally funded health care providers meet the 
nondiscrimination requirements of Title VI in the Civil Rights 
Act.
    I know that is something that you have talked about in the 
past. I would really like to see more substantive enforcement 
of those measures on the books.
    And then just last, I would say that in the State of 
California, we are very concerned about not only accessing 
health care for uninsured, but making available career paths 
for low income in under represented communities, and in that 
vein, I would ask that we really do as much as we can to 
provide up front funding so that Latino health care 
professionals will, indeed, be able to enter into the field and 
become those first responders and providers in our community.
    Cutbacks in those programs are very vital. I had a recent 
conference that we held, the Hispanic Task Force on Health, in 
New York where 200 health care professionals came. That was one 
of the most outstanding priorities for the conference, to talk 
about how we could increase health care professions in minority 
communities.
    So with that, I would just submit my statement and hope 
that you can answer some of our questions.
    Thank you.
    Chairman Barton. We thank the gentlelady.
    Does the gentleman from Indiana wish to make an opening 
statement?
    Mr. Buyer. I defer.
    Chairman Barton. Okay. Does the gentleman from Maryland, 
Mr. Wynn, wish to make an opening statement?
    Mr. Wynn. Thank you, Mr. Chairman.
    Let me begin by saying welcome, Mr. Secretary. We are 
delighted to have you with us.
    I want to open by saying thank you for your support of the 
consolidation of the Food and Drug Administration facility at 
White Oak in my district. It is a great facility, and I think 
when completed it will do a wonderful job for our Federal 
employees who will work there and also a great service to the 
country.
    I want to mention a couple of items that I am concerned 
about and hope that you will also consider. The first has to do 
with the issue of health care. I recognize the administration 
is attempting to move in this direction with its tax credit 
proposal.
    I believe the proposal is too limited. It would only cover 
about a quarter of the 43 million people who are uninsured.
    I worked with my Republican colleague, Ms. Kay Grange of 
Texas, on a bipartisan bill that uses the tax credit approach, 
but has a much more generous benefit package that would cover 
at least half of the uninsured, and also provide catastrophic 
coverage beyond that which the administration has considered.
    So I would say to you that the first step of the 
administration is just too limited, and I hope you will 
consider an option to provide a much more generous benefit to 
help more people to make it a really successful program.
    Second, on the issue of malpractice, there seems to be a 
great deal of apathy for tort reform as a solution to medical 
malpractice premiums. The fact of the matter is even where you 
have had caps in States, they have not resulted in a decline in 
malpractice premiums.
    And so I think this approach ought to be reconsidered, and 
the so-called panacea of tort reform as the answer to 
malpractice should be rejected. It has not, as shown in 
California where only some form of price control was able to 
bring down the medical malpractice rates.
    I have worked on this issue in this committee and suggested 
what we need to do is study insurance company investment 
practices because there seems to be a correlation between that 
and rising malpractice insurance rates. I think that is an 
approach that the administration ought to consider or at least 
look at rather than just focus on tort reform.
    And finally, on the issue of drug reimportation, I think 
Congress has spoken very loudly, as well as many State 
governments that they believe that reimportation is a viable 
approach. Your agency has basically said that you do not think 
that this ought to be done or can be done safely, and I think 
that that ought to be reconsidered.
    I think it can be done safely even if you take a Canada 
only approach. There is clearly a demand to bring down the cost 
of drugs. It does not do any good to have a program, such as 
was passed this past year, if the price of drugs keeps going 
up.
    Even if you give a discount card, even if you have Federal 
assistance, if the price of the drugs are not brought down, we 
will not address that problem.
    And, finally, I think you need the jurisdiction to 
negotiate drug prices to bring prices down and to benefit 
seniors. Obviously, the administration and my Republican 
colleagues see that issue differently, but I have to say in 
candor that that is something that I think you ought to be in a 
position to do.
    Chairman Barton. The gentleman's time has expired, 
unfortunately.
    Mr. Wynn. And with that I will relinquish the balance of my 
nonexisting time.
    Thank you, Mr. Chairman.
    Chairman Barton. Thank you.
    The gentlelady from California, Ms. Bono.
    Ms. Bono. Thank you, Mr. Chairman. I will pass.
    Chairman Barton. Okay. The gentlelady from Colorado, Ms. 
DeGette.
    Ms. DeGette. Thank you, Mr. Chairman.
    I will submit my full opening statement for the record.
    Let me just take an opportunity to greet the Secretary and 
talk about an issue that we both care a lot about, which is 
stem cell research.
    As we all know, stem cell research is just one of many 
promising scientific discoveries made in the last decade. There 
is a lot of belief in the scientific community that stem cells 
have the potential to cure many diseases, like diabetes, 
Parkinson's, nerve damage, and that is just a few, and we are 
really on the brink of exciting discoveries in stem cell 
research.
    But despite this important research, President Bush's 2001 
Executive Order has greatly inhibited its potential. When the 
President declared a moratorium on Federal support for stem 
cell creation in August 2001, the President restricted the 
research to only existing and, as it turned out, minimal 
numbers of stem cell lines.
    The policy has not only had the effect of making people 
wonder about what this research is supposed to be. It has also 
had a chilling effect on scientists applying for any NIH money 
to conduct the research.
    After 2 years, what we have found out is instead of the 
promised 78 embryonic stem cell lines, today we only have 15, 
and there is general agreement that these lines which have aged 
and may be contaminated with mouse feeder cells maybe 
unsuitable for therapeutic use in humans. Instead of the 
promised $100 million in funding for the NIH stem cell 
research, only $17 million was allocated in 2003.
    These unfulfilled promises have forced universities and 
private entities to step in. I know the Secretary is aware, as 
I am, last week Harvard University announced that it had 
created 17 new stem cell lines which now more than doubles the 
world's supply. Harvard is offering these new lines to 
researchers for free, but no Federal research can use these 
lines because of the President's policies.
    This means that researchers who are committed to finding 
cures cannot use these lines, and because of the limited supply 
nd quality of the NIH stem cell supply, their research is 
severely constrained.
    In the meantime, scientists around the world are making 
advances, and the U.S. is literally relegated to the sidelines.
    Well, some people say science should be allowed to proceed 
with this research unchecked, and it is great that private 
entities are developing the lines. I disagree though. The 
actions of some scientists may be unethical. There may be 
corporate greed if this research continues without Federal 
oversight and Federal support.
    And so, Mr. Secretary, I guess I would ask you to continue 
to join in the fight to expand stem cell research and not to 
limit it because Americans are dying every day, and we can cure 
diseases for millions of people in this country and around the 
world.
    Thank you, Mr. Chairman.
    Chairman Barton. I thank the gentlelady.
    Does the gentleman from Oregon wish to make an opening 
statement?
    Mr. Walden. Yes, Mr. Chairman, I would.
    Chairman Barton. The gentleman is recognized.
    Mr. Walden. My colleague from California and I were just 
discussing the fact that by the time we get down to us for the 
round of questions, the answerer may have to leave. So I 
decided to go ahead and pose my questions now so that perhaps 
they can be addressed in the future, Mr. Chairman.
    Three things really, Mr. Secretary. One is thank you for 
your leadership not only on Medicare and implementing the new 
law, but also in banning ephedra. it is an issue I raised after 
the tragic death of Steve Beckler, the Baltimore Orioles 
pitcher in our oversight investigation subcommittee, and I was 
pleased to see the FDA take on that issue.
    I do have an issue though about some of the ephedra free 
supplements that have now flooded the market and are advertised 
to accomplish basically the same things, and I hope that your 
department will watch those closely and take a good look, 
especially some of those as well as herbal supplements and 
anabolic steroid precursor supplements which ingested sometimes 
metabolize in the body into anabolic steroids. So that is 
certainly an issue we are concerned about.
    Also, Mr. Secretary, the issue of Medicare rural health 
flexibility programs which we have briefly discussed, FLEX, is 
so important in our rural communities. I recognize that the 
Medicare Modernization Act will provide more than $20 billion 
in payment adjustments to rural providers.
    However, these adjustments address the longstanding 
inequities in the Medicare payment system and serve to bring 
rural providers closer to a level playing field with their 
urban counterparts. So I have some concerns about the funding 
levels in FLEX and the reasons behind that reduction.
    And finally, Mr. Secretary, if you could give us some sense 
of what portion of the $1.8 billion budget recommendation for 
health centers will be dedicated to new start applicants versus 
funding expansions of current sites, and the reason that is 
especially important to me not only as a co-chair of the Rural 
Health Care Caucus, but also representing what is about the 
seven of the largest congressional district in America, I have 
one clinic in specific that serves an area where there are .8 
persons per square mile, and so it is a very remote, rural 
area, no doctors, no hospitals, a clinic that is struggling to 
survive. These funds would obviously be important, and they are 
looking at applying for them.
    So those are my three questions, Mr. Chairman, at this 
point, and I yield back the balance of my time, and I thank the 
Secretary for his leadership on a multitude of these issues.
    Chairman Barton. We thank the gentleman from Oregon.
    Does the gentleman from Maine wish to make an opening 
statement?
    Mr. Allen. I do not.
    Chairman Barton. Okay. Does the gentleman from Nebraska 
wish to make an opening statement?
    Mr. Terry. No, I do not.
    Chairman Barton. The gentleman from Oklahoma wish to make 
an opening statement?
    Mr. Sullivan. Waive.
    Chairman Barton. Seeing no other members present, all 
members not here shall have the requisite number of days to 
have their opening statements in the record.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman. I know everyone is eager to hear from our 
witness today, so in the interest of time, I will get right to the 
point of my statement.
    My primary concern in the budget is its overall effect on rural 
states. For those of you who may be unfamiliar with my home state of 
Wyoming, we are very much a frontier state.
    According to the Webster's dictionary, ``frontier'' is defined as a 
region that forms the margin of settled or developed territory; a new 
field for developmental activity. In health care terms, frontier refers 
to an area with 6 people or less per square mile.
    As a region with roughly 100,000 square miles, and 500,000 people, 
with rugged mountainous terrain, and an unforgiving climate, Wyoming is 
perhaps this country's last frontier.
    So when vital health programs are reduced or cut from the budget, 
patients in my district scramble for care, and many health care 
professionals pack up their desk and head home for good.
    That is not an exaggeration.
    I am very pleased with the President's budget increases for the 
National Health Service Corps and Community Health Centers because 
Wyoming relies a good deal on these programs. I applaud the 
Administration for its continued support in these areas.
    I am however concerned about the cuts to a variety of other rural 
health programs that directly benefit my state.
    Examples include: State Offices of Rural Health, the Health 
Professions Program, and Rural Health Outreach and Network Development 
Grant--to name a few.
    While I understand budgetary constraints, we simply cannot cut the 
legs out from under rural health communities across this country. The 
effects could be devastating.
    The Medicare bill did provide more than $20 billion in payment 
adjustments for rural providers. Again, I applaud the Administration 
for its support of that. However, those adjustments in the Medicare 
bill addressed the long-standing inequities in the Medicare payment 
system.
    Those provisions serve to bring rural providers closer to a level 
playing field with their urban counterparts.
    However, we cannot assume the provisions in the Medicare bill 
eliminate the need for grant programs that specifically address the 
health needs of rural communities.
    I look forward to having the Secretary address these rural programs 
and, with that, I yield back the remainder of my time.
    Thank you.
                                 ______
                                 
   Prepared Statement of Hon. Vito J. Fossella, a Representative in 
                  Congress from the State of New York

    Thank you, Secretary Thompson, for appearing before the House 
Energy and Commerce Committee to present the priorities of Department 
of Health and Human Services. I appreciate your continuing work on 
implementation of the Medicare Prescription Drug, Improvement, and 
Modernization Act and look forward to working with you to ensure a 
smooth transition to a more efficient and effective Medicare program 
and new prescription drug benefit to ensure Medicare beneficiaries have 
access to affordable healthcare.
    Your assistance to Congress during the formation of this law was 
invaluable, particularly your coordination of all relevant agencies 
with Congress to establish a meaningful and workable pancreatic islet 
cell demonstration program. As you know, Diabetes affects approximately 
17 million individuals in the U.S. today, and the prevalence is rapidly 
increasing. I share your dedication to fighting this disease through 
education, prevention, treatment, and research toward a cure.
    A primary factor in the rising occurrence of Diabetes is unhealthy 
lifestyle habits and choices. Sixty-four percent of Americans are 
overweight or obese, leading to increased health risks including Type 
II Diabetes, heart disease, stroke, cancer, osteoarthritis, and 
premature death. According to a CDC study released on March 9, 2004, 
poor diet and inactivity will soon become the leading cause of 
preventable death in the United States. Already, there are an estimated 
400,000 deaths per year caused by poor diets and inactivity. In 
addition to causing premature death, obesity drastically reduces the 
quality of living for obese individuals and costs our nation over $117 
billion per year in medical expenses alone.
    Because obesity and the deadly and debilitating health risks 
associated with it are largely preventable, there is great hope for 
solutions to these challenges. That hope rests with individuals whose 
responsibility it is to change the trend. We in Washington must provide 
the necessary tools for Americans to modify their habits and become 
healthier and more fit. HHS' efforts to educate the public on 
nutrition, exercise, and the health consequences of obesity is the 
right approach. In the short time since these initiatives have been 
established, we have seen promising results. In the past two years, the 
Department of Health and Human Services has implemented several 
innovative education and prevention programs to urge Americans to 
improve their nutrition and physical activity habits, including Steps 
to a HealthierUS and the Healthy Lifestyles and Disease Prevention 
initiative. I am pleased to see those programs are working. Last month, 
the CDC reported a 34 percent increase in physical activity among 
American youth attributable to the VERB multicultural youth media 
campaign. I encourage you to continue this work.
    In my District, Brooklyn and Staten Island have the second and 
third highest rates of obesity in New York City. These communities are 
responding with the help of healthcare providers, businesses, and not-
for-profit organizations by establishing local programs to educate the 
community and prevent obesity. I look forward to working with you to 
coordinate these local efforts with HHS' healthy-living initiatives.
                                 ______
                                 
Prepared Statement of Hon. Mary Bono, a Representative in Congress from 
                        the State of California

    Mr. Secretary, I would like to take this opportunity to thank you 
for allowing us time to speak with you today regarding our nation's 
health care. I commend the efforts undertaken by your administration 
during this critical juncture in health care. I look forward to hearing 
your answers to what will inevitably prove to be a wide array of 
questions.
    Seniors, which comprise nearly 20% of my district, are finally 
confronted with more choices and more savings, as the Medicare Bill 
becomes implemented. I am most proud that our work in both Congress and 
the Administration has now guaranteed providing all senior citizens 
prescription drug coverage under Medicare a reality.
    While I am looking forward to speaking with you later today 
regarding your department's positions on AIDS funding, the Women's 
Initiative, and the need for healthier living, I do want to express my 
concerns regarding the stability of the Medicaid program. As I am sure 
you are aware, the MediCal program in my state is in financial despair. 
One of my greatest fears is that safety net hospitals will not receive 
the funding guaranteed them by the Medicare bill due to Medicaid cuts 
in this year's budget. As you know, I feel that it's of critical 
importance to ensure the continued funding for safety net hospitals 
across the country. These facilities, which include public hospitals, 
children's hospitals and private safety net hospitals, are integral to 
the access to care for low-income individuals. With no budget 
allocation for IGTs, California's DSH hospitals are in jeopardy. I 
intend to work with my colleagues on the Energy and Commerce to find a 
workable solution.
    Mr. Secretary, I want to once again thank you for the work you and 
your staff put in to focusing on real progress in improving health care 
not only for seniors, but for all Americans. Thank you for your time in 
allowing me to share my thoughts today.
                                 ______
                                 
Prepared Statement of Hon. John Sullivan, a Representative in Congress 
                       from the State of Oklahoma

    Thank you Chairman. I would like to thank Secretary Thompson for 
appearing before the Committee today to discuss the Administration's 
health care funding priorities this year. As a member of the Speaker's 
Prescription Drug Task Force, I am well aware of the Medicare 
prescription drug plan and I look forward to working with your 
Department to bring the benefits of this landmark plan to the American 
people as soon as possible.
    I would also like to mention a very important issue to my state, 
and that is the uninsured. Oklahoma ranks fourth in the nation for the 
number of uninsured. Over 150,000 Oklahomans are employed by the health 
care industry in a variety of fields and I believe that your Department 
and this Committee are well-placed to help change that situation not 
just in Oklahoma, but across the nation.
    Thank you and I look forward to the testimony today.
                                 ______
                                 
   Prepared Statement of Hon. Edward J. Markey, a Representative in 
                Congress from the State of Massachusetts

    Thank you Mr. Chairman.
    Secretary Thompson, when you testified before the Committee a year 
ago, I asked for your support for my efforts to exempt homebound 
beneficiaries--with permanent and severe disabilities--like late-stage 
Alzheimer's, Parkinson's and ALS--from restrictions on their departures 
from the home. Patients with these debilitating conditions are not 
trying to exploit or cheat the home health program rather, they and 
their loved ones depend on it to provide a measure of comfort in the 
face of extremely difficult circumstances. Last year, I succeeded in 
attaching an amendment to the Medicare bill to create a two-year 
demonstration project that exempts this vulnerable Medicare population 
from restrictions on their departures from the home. The demonstration 
will begin by June of this year. I greatly appreciate your support for 
this initiative and look forward to continuing to work with you and the 
CMS staff to ensure the success of this demonstration and secure 
ultimate repeal of the outdated homebound restrictions.
    I encourage CMS to continue to build on the work it has begun 
designing the demonstration project. CMS staff members have been 
working closely with my staff and Committee staff, and I am confident 
that this good work will continue while the confirmation process moves 
forward.
    In addition to helping the homebound, there are a number of other 
important health care priorities that I look forward to discussing with 
you at today's hearing.
    A generation has passed, 39 years since President Lyndon Johnson 
signed the Medicare bill into law. On that day, President Johnson told 
the American people: ``No longer will this nation refuse the hand of 
justice to those who have given a lifetime of service and wisdom and 
labor to the progress of this country.''
    While the Medicare program has done much to improve the health of 
our nation's seniors, today they face new injustices in seeking access 
to affordable health care. Current policy tells the elderly that they 
cannot buy prescription drugs from Canada where such drugs are 
accessible and affordable. It allows the pharmaceutical companies to 
place an embargos on vital medication so they can protect their profit. 
It bans the Federal Government from using its massive purchasing power 
to negotiate lower of prescription drug prices for our senior citizens, 
the disabled and others who are most in need of affordable prescription 
drugs.
    Because of our healthcare policies hard working low- and middle 
income families either uninsured or underinsured are put in a position 
were their financial stability is undermined by any medical expense. 
The Bush Administration's budget would allow the Children's Health 
Insurance Program funds to expire, a $1.1 billion cut that shows that 
some in the Administration still do not recognize that it is cheaper to 
maintain childhood health than to pay for chronic care resulting from 
childhood disease.
    Another area of great concern to me is inadequate funding for 
medical research. Over the last 5 years the NIH funding has doubled. 
This has allowed great advances to be realized, including treatments 
for such ruinous conditions such as Alzheimer's disease. However a 2.6% 
increase in NIH funding for 2005 will not allow us build on the 
tremendous advances now being made. Just a few days ago, the 
Congressional Alzheimer's Task Force heard from researchers and 
families about the damage that will be done to ongoing research if we 
fail to continue to provide a higher level of funding.
    American citizens also must be concerned about who has access to 
their private health and concurrent private financial information.
    Doctor/patient confidentiality today is no longer what it used to 
be. In the world of integrated health systems anywhere from 80-100 
employees may legitimately have access to a patient's medical records.
    If patients perceive that they no longer can trust in medical 
confidentiality, patients are likely to withhold vital information or 
avoid seeking health care services all together. When we OFFSHORE our 
medical information to countries that do not recognize the sanctity of 
private information, how can we have faith that our private information 
will remain confidential. The Department of justice has recently 
stated, federal law ``does not recognize a physician-patient 
privilege.'' DOJ has said that patients ``no longer possess a 
reasonable expectation that their histories will remain completely 
confidential.'' I would like to know if the Secretary agrees with such 
statements. If so, aren't we risking destruction of the fundamental 
trust that patients relay on for peace of mind? Will we not undermine 
the quality of medical care by destroying the doctor patient 
communication that has existed before Hippocrates?
    I look forward to hearing the testimony of the Secretary this 
afternoon, and I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress 
                      from the State of California

    Thank you Mr. Chairman for holding this hearing, and thank you 
Secretary Thompson for coming to talk with us today.
    Mr. Secretary, while there is much to be concerned about in this 
budget, I'm very pleased that it included an increase of $26 million to 
ensure medical devices are safe, effective and available to Americans 
as quickly as possible.
    I encourage you to remain steadfast in ensuring public health and 
safety is not jeopardized. I look forward to working with you to ensure 
that patients continue to have safe access to the lifesaving treatments 
they need, and deserve.
    Having said that, I'm very discouraged with this year's budget 
proposal and its health care program. I'm especially disheartened to 
see that the President wants to block grant Medicaid.
    The President is once again advancing an agenda that includes 
capped allotments for state Medicaid programs.
    Mr. Secretary, I support giving states more flexibility to use the 
funds we provide them with. However, caps on Medicaid spending will 
reduce the flexibility of the program, not increase it. It's this 
flexibility that permits states to respond to economic recessions and 
uninsurance.
    Specifically, Mr. Secretary, I'm most troubled with the President's 
proposal to put limits on the intergovernmental transfers (IGTs). IGTs 
are legitimate funding mechanisms for the states--approved by both 
Democrats and Republicans. To change this program overnight at a time 
when states are in a fiscal crisis, when there is a rising number of 
Medicaid beneficiaries and uninsured, is reckless.
    IGTs are the funding mechanism for the Disproportionate Share 
Hospital (DSH) Program in my state of California. These DSH funds are 
essential for California's safety net hospitals to be able to provide 
health care services.
    Restriction of the IGTs would have a severe impact on the state of 
California.
    There has got to be a better way and I'm committed to working with 
you and my colleagues on both sides of the aisle to develop it. I hope 
you're willing to work with us.
    I'm also deeply concerned about the President's funding for the 
NIH. I was so disappointed to see that the President has increased the 
NIH budget by a mere 2.7 percent.
    Not only do discoveries supported by the NIH help patients, but the 
funding that NIH provides for research is so often the catalyst for 
future innovation that stimulates our economy and increases investment 
in burgeoning industries such as biotechnology.
    I'm also concerned about the President's limits on federal 
financing for embryonic stem cell research. Scientists will soon need a 
wider variety of cell lines for research and clinical applications--I 
hope the Administration is supportive. We cannot and must not restrict 
advances in the promising future of human biology.
    Lastly, Santa Cruz County, California is experiencing a severe 
drain of physicians to neighboring counties due to disparity in 
physician payment rates. Several other large California counties are 
affected by the same conditions.
    Congress delegated the responsibility to CMS to manage physician 
payment localities. I've encouraged CMS to work to ensure that practice 
costs are properly linked to Santa Cruz County reimbursements. I met 
with then CMS Administrator Scully in July 2003 but CMS has failed to 
address this issue since then. We need a resolution to this now.
    I intend to follow-up on this issue during my question time.
    Thank you and I look forward to your testimony Secretary Thompson.
                                 ______
                                 
 Prepared Statement of Hon. Eliot Engel, a Representative in Congress 
                       from the State of New York

    Mr. Chairman, thank you for having this hearing today, and thank 
you Mr. Secretary for taking the time to come before us today to 
discuss the President's budget.
    In looking over the President's budget I was disappointed to see 
that there is little in the way of bolstering health care for the 
uninsured, aside from a modest increase for community health centers. 
Further, the budget highlights priorities aimed at reducing a state's 
ability to care for the uninsured, such as further restrictions on the 
use of intergovernmental transfers. The budget calls for almost $10 
billion in savings over 5 years by ``curbing'' the use of 
intergovernmental transfers.
    Mr. Chairman, I and other Members of this Committee fought hard to 
reach an agreement a few years ago that allowed some intergovernmental 
transfers to remain in place if the money was used for health care 
purposes. New York has always used money generated from 
intergovernmental transfers to plug holes in the very fragile health 
care safety net in the state. At a time of soaring unemployment, fiscal 
crisis in states, and record numbers of uninsured Americans, I think it 
is highly irresponsible to cut $2 billion per year in vital health care 
funding that states have come to rely upon. Mr. Secretary, I would like 
to hear some details of this proposal and hope to work with you to 
ensure that New York, and other states, are not adversely affected by 
the additional restrictions in the President's budget. When I hear that 
President Bush is trying to save money by cutting health care funding, 
it boggles my mind because in the end we will either pay now or we will 
pay a much heavier price later. In this case, with a floundering 
economy and those without jobs and insurance on the rise, we will pay a 
very heavy price by saving money on the backs of those most in need.
    Mr. Chairman, in my limited time I could not begin to talk about 
all the problems within the President's budget proposal but I believe 
that the move to cut $10 billion in Medicaid funding exemplifies what 
this budget stands for: an attack on the poor and uninsured and a lack 
of vision in regards to what our countries needs are. The budget does 
not adequately address problems with Medicare, Medicaid, hospital 
payments, disaster preparedness, AIDS program funding, NIH and health 
research funding and many, many more important health initiatives that 
are simply struggling to survive due to lack of funding. Mr. Chairman, 
I hope that my colleagues on this Committee recognize that the 
initiatives in this budget need vast improvement and I look forward to 
working with you to achieve that goal.
    Thank you for your time Mr. Secretary and I yield back.
                                 ______
                                 
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri

    Thank you Chairman Barton and Ranking Member Dingell for convening 
this hearing to discuss the HHS budget and our nation's health care 
priorities. I also want to thank Secretary Thompson for taking the time 
to discuss national health concerns with the committee.
    Health care remains a critically important priority in my district 
in Kansas City and across the nation. Last September, the nonpartisan 
Kaiser Family Foundation released a survey which revealed that employer 
based health care premiums soared 13.9 percent in 2003, the largest 
single year increase since 1990 and the third straight year that 
insurance premiums have increased by double digit percentages. 
According to a recent US Census report, Almost 11 percent of Missouri's 
citizens were without any form of health insurance in 2002. That 
represents a full percentage point increase since 2001, equivalent to 
roughly 56,000 individuals without care in my state. Often the last 
resort for the uninsured, Kansas City clinics and community health 
centers which offer assistance to the uninsured have seen their 
resources stretched to the limit. As record numbers of Americans 
struggle to afford health care, national leadership is needed to 
address health care access and affordability issues.
    Secretary Thompson, you and I continue to be steadfast supporters 
of efforts to maintain fitness and to ensure that Americans have access 
to exercise as preventive care. Americans spend billions each year on 
prescription drugs to fight diabetes and cholesterol. Encouraging good 
health habits and preventive measures can easily yield greater benefits 
for a fraction of the cost. I want to commend your efforts to encourage 
healthier lifestyles and for your recently announced public education 
campaign encouraging Americans to take steps to improve their overall 
physical fitness.
    I am lead sponsor of H Con Res 34, bipartisan legislation to 
recognize the efforts of employers and insurers who are taking steps to 
promote healthy lifestyles through exercise, thus reducing health care 
costs. I appreciate your support of that effort and look forward to 
working with our new Committee Chairman to advance this cost effective 
legislation through our committee and the House this year.
    I also look forward to hearing the Secretary's explanation of the 
Administration's decision to cut funding from both the CDC's 
bioterrorism training account and the Health Resources and Services 
Administration. Both of these programs help fund bioterrorism 
prevention efforts in my district and across the nation. I recently 
visited two impressive Truman Medical Center (TMC) facilities. Last 
year, TMC received $18,000 to help purchase equipment and train staff 
to handle a bioterrorist incident. The proposed cuts could endanger 
this important source of funding and put citizens in my district at 
risk. I hope you will address this important issue.
                                 ______
                                 
Prepared Statement of Hon. Hilda L. Solis, a Representative in Congress 
                      from the State of California

    Good morning. I am pleased that the committee is holding today's 
hearing and I welcome Secretary Thompson.
    To begin, I would like to express my concerns with the Medicaid 
budget cuts contained in the President's budget. With the troubling 
economy and state budgets nearing the breaking point, I am surprised 
that the Administration would choose to punish a health care program 
designed to assist low-income and disabled people. These are our most 
vulnerable populations, and it is unfair to put their health care at 
risk by scaling back services. I know that the Administration's 
proposal seeks to limit the use of intergovernmental transfers (IGT) 
within the Medicaid program. However, the state of California has 
appropriately used IGTs to fund safety net hospitals, emergency room 
services, and other vital programs. It would be unfair to punish 
California, which has the sixth largest proportion of uninsured 
residents in the country.
    Another issue facing California--and the entire country--is that of 
racial and ethnic health disparities. The landmark 2002 Institute of 
Medicine report Unequal Treatment: Confronting Racial and Ethnic 
Disparities in Healthcare really opened America's eyes to the health 
disparities facing communities of color in this country. Whether it's 
the fact that Latinos face a diabetes rate twice that of whites, or 
that Asian Americans have the highest tuberculosis rates in the 
country, disparities in healthcare are one of the most critical issues 
in health care today. It is simply unfair that Americans face different 
health outcomes and diseases simply because of the color of their skin 
or their ethnic background. I encourage the Administration to take a 
more active role in curbing health disparities.
    One important step the Administration could take right now 
concerning disparities would be to ensure that your pending regulations 
concerning access for limited English proficient individuals require 
federally-funded health care providers to meet the nondiscrimination 
requirements of Title VI of the Civil Rights Act. The Congressional 
Hispanic Caucus and Congressional Asian Pacific American Caucus have 
expressed our strong support for strengthening the proposed guidelines 
you issued last year to ensure that limited English proficient 
individuals enjoy the meaningful access to federally-funded health care 
services they are guaranteed under the law.
    With respect to the shortage of health professionals in medically 
underserved communities, I was extremely disappointed to see that the 
Bush budget slashes funding for health professions training programs by 
96%--from $294 million last year to just $11 million this year. As you 
know, these programs are a key source of doctors and nurses in 
medically underserved areas. The Congressional Hispanic Caucus recently 
held a forum in New York City to talk to Latino health professionals 
about the need to recruit more doctors and nurses into underserved 
areas. Time and again, these health professionals told us that federal 
programs that help with loan repayment and training costs are key to 
attracting more health care personnel into underserved areas.
    Finally, I want to express my strong support for the work done by 
the Centers for Disease Control and Prevention's National Center for 
Environmental Health. The community I represent has many environmental 
problems that are impacting the community's health. Whether it's gravel 
pits impacting asthma rates or groundwater contamination forcing 
families to buy bottled water for fear of their health, environmental 
health is an issue that is key to the San Gabriel Valley and East Los 
Angeles area I represent. The prevention and research being done by the 
CDC is extremely important to the families I represent, and I encourage 
the Administration's strongest support for the agency.
    Thank you, I look forward to the Secretary's testimony.

    Chairman Barton. Mr. Secretary, we welcome you to the 
committee, and we recognize you for such time as you may 
consume to elaborate on your formal statement.

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

    Mr. Thompson. Thank you very much, Mr. Chairman. It is a 
pleasure for me to address you in that capacity.
    Mr. Dingell, who is not here but is a friend, and 
Congressman Bilirakis and members on both sides whom I have 
gotten to know over the 3 years and truly respect and 
appreciate this opportunity.
    Thank you, Mr. Chairman, for inviting me to discuss the 
President's fiscal year 2005 budget for the Department of 
Health and Human Services.
    In my first 3 years at the department, we have made 
tremendous progress in improving the health, the safety, and 
the independence of the American people. We continue to advance 
in providing health care to seniors and to lower income 
Americans and improving the well-being of children and 
strengthening families and in protecting the homeland.
    We have reenergized the fight against AIDS at home and 
abroad. We increased access to quality health care especially 
for minorities, the uninsured, and the under insured.
    We are helping smokers free themselves of their 
debilitating habit through a national quit line which I 
requested the department to fund internally, and we now have 
done that and set it up.
    And with your help, 3 months ago President signed the most 
comprehensive improvements to Medicare since it was created 
nearly four decades ago.
    To expand on our achievements, the President proposes $580 
billion for HHS for fiscal year 2005, an increase of $32 
billion, or 6 percent, over fiscal year 2004. Our discretionary 
budget authority is $67 billion, an increase of $819 million or 
1.2 percent over fiscal year 2004, but an increase of 26 
percent since 2001.
    Before this committee, this includes a broad range of 
activities, such as Medicaid, Medicare, and the Public Health 
Service. Internally, we have improved the efficiency of the 
department and have improved programs' outcomes. We have 
consolidated information technology contracts for the eight 
major operating divisions down to one, and we have consolidated 
the HHS E-mail system.
    HHS is the managing partner of grants, DOTGOV. It provides 
a single, unified, and streamlined interface for citizens to 
find and apply for Federal grants from all Federal agencies.
    In order to strengthen our bioterrorism preparedness and 
public health system, we have requested $4.1 billion, up from 
$300 million in 2001.
    Community health centers increase access to health care for 
the uninsured. We are proposing $1.8 billion for health centers 
to provide health care services to 15 million Americans. As you 
all know, I am a big proponent of information technology. That 
is why we provided a computer language called SNOMED to 
providers at no charge.
    We are leading the way in developing standards for 
electronic medical records, and last month I announced and FDA 
ruled to prevent medication errors by requiring bar codes on 
medicines and blood products.
    Last September, my department announced 12 steps to a 
healthier U.S., grants totaling more than $13 million to 
support community initiatives to promote better health and 
prevent disease. These included 23 communities, including one 
tribal organization, 15 small cities and rural communities, and 
seven large cities.
    The department will expand the program this year with an 
additional $44 million, and we have requested $125 million for 
these programs in 2005.
    Through our new Freedom initiative, we are working to help 
the elderly and the disabled by promoting home and community 
based care.
    We look forward to working with all of you, especially with 
this committee and Governors to improve and modernize Medicaid 
and SCHIP by giving State governments greater flexibility to 
use consumer directed services and to coordinate with free 
market providers.
    And I am pleased to announce this afternoon that we are 
awarding $21 million this year and another $32 million next 
year to State and local governments that counsel Medicare 
beneficiaries. These funds will help beneficiaries understand 
the new benefits that have been provided by the Medicare 
Modernization Act.
    This year funding represents a 69 percent increase above 
the fiscal year 2003 total and reflects the increased need for 
one on one advice and counseling for Medicare beneficiaries 
which are provided by the staff and the volunteers and State 
health insurance assistance programs, or SHIPS.
    So, ladies and gentlemen, we look forward to working with 
this committee, the medical community and all Americans as we 
buildupon our past accomplishments, implement the new Medicare 
law, and carry out the initiatives that President Bush is 
proposing to build a healthier, safer, and stronger America.
    [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 
pleased to present to you the President's FY 2005 budget for the 
Department of Health and Human Services (HHS). I am confident you will 
find our budget to be an equitable proposal to improve the health and 
well-being of our Nation's citizens.
    This year's budget proposal builds upon HHS accomplishments in 
meeting several of the health and safety goals established at the 
beginning of the current Administration. Last year, Congress passed the 
comprehensive Medicare reform legislation, adding prescription drug 
coverage for seniors and modernizing the Medicare program.

 Since 2001, with the support of Congress, the Administration has 
        funded 614 new and expanded health centers that target low-
        income individuals, effectively increasing access to health 
        care for an additional three (3) million people, a 29 percent 
        increase.
 The Department established the Access to Recovery State Vouchers 
        program, providing 50,000 individuals with needed treatment and 
        recovery services.
 To support the President's faith-based initiative, HHS has created 
        the Compassion Capital Fund for public/private partnerships to 
        support charitable groups in expanding model social services 
        programs. We awarded 81 new and continuing grants in 2003.
 HHS initiated a new Mentoring Children of Prisoners program to 
        provide one-to-one mentoring for over 30,000 children with an 
        incarcerated parent in FY 2004. The Department also created 
        education and training vouchers for foster care youth, 
        providing $5,000 vouchers to 17,400 eligible youth.
 In August 2001, the President and I invited States to participate in 
        the Health Insurance Flexibility and Accountability (HIFA) 
        demonstration initiative. States use HIFA demonstrations to 
        expand health care coverage. As of January 2004, HIFA 
        demonstrations had expanded coverage to 175,000 people, and 
        another 646,000 were approved for enrollment.
    I could go on listing our achievements to you and the Committee, 
Mr. Chairman, but instead I have chosen to highlight a few that we are 
most proud of.
    For FY 2005, the President proposes an HHS budget of $580 billion 
in outlays to enable the Department to continue working with our State 
and local government partners, as well as with the private and 
volunteer sectors, to ensure the health, well-being, and safety of our 
Nation. Through the programs and services presented in the budget plan 
of HHS, Americans will receive new health benefits and services, be 
better protected from the threat of bioterrorism, benefit from enhanced 
disease detection and prevention, have greater access to health care, 
and will see improved social services through the work of faith- and 
community-based organizations and a focus on healthy family 
development. This proposal is a $32 billion increase in outlays over 
the comparable FY 2004 budget, or an increase of about 5.9 percent. The 
discretionary programs in the HHS budget total $67 billion in budget 
authority, a 1.2 percent increase. In addition, the budget identifies 
approximately $500 million in mandatory program savings.
    Allow me to draw your attention to several key factors of the HHS 
budget so that we may continue to work together to address the needs of 
our Nation.

               MEDICARE AND MEDICAID REFORM/MODERNIZATION

    I am proud to remind the Committee of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA), which President 
Bush signed into law December 8, 2003. With the implementation of MMA, 
the Department faces many challenges in the coming fiscal year. As the 
most significant reform of Medicare since its inception in 1965, the 
law expands health plan choices for beneficiaries and adds a 
prescription drug benefit. MMA will strengthen and improve the Medicare 
program, while providing beneficiaries with new benefits and the option 
of retaining their traditional coverage. The HHS FY 2005 budget request 
includes about $482 billion in net outlays to finance Medicare, 
Medicaid, the State's Children's Health Insurance Program, the Health 
Care Fraud and Abuse Control Program, state insurance enforcement, and 
the Agency's operating costs.

Drug Discount Card
    MMA establishes a new, exciting Medicare approved prescription drug 
discount card program, providing immediate relief to those 
beneficiaries who have been burdened by their drug costs. From June 
2004 through 2005, all Medicare beneficiaries, except those with 
Medicaid drug coverage, will have the choice of enrolling in a 
Medicare-endorsed drug discount card program. With the discount card, 
beneficiaries will save an estimated 10 to 15 percent off the retail 
cost of their drugs. For some, savings may reach up to 25 percent on 
individual prescriptions. A typical senior with $1,285 in yearly drug 
expenses could save as much as $300 annually. To enroll, beneficiaries 
will pay no more than $30 annually. Most with low incomes--below 135 
percent of the Federal poverty level--will qualify for a $600 per year 
subsidy to purchase drugs unless they have health insurance that 
includes drug coverage. Medicare also will cover the enrollment fees 
for low-income seniors who are eligible for the $600 subsidy.

Voluntary Prescription Drug Benefit
    Responding to President Bush's pledge to add meaningful drug 
coverage to Medicare, MMA establishes a new voluntary prescription drug 
benefit under a new Medicare Part D. Starting in 2006, Medicare 
beneficiaries who are entitled to Part A, or enrolled in Part B, can 
choose prescription drug coverage under the new Part D. Under Part D, 
beneficiaries can choose to enroll in stand-alone, prescription drug 
plans (PDPs) or Medicare Advantage prescription drug plans (MA-PDs), 
and will be able to choose between at least two plans to receive their 
benefit. The law contains important beneficiary protections. For 
example, while the plans are permitted to use formularies, they must 
include drugs within each therapeutic category and class of covered 
Part D drugs, allowing beneficiaries to have a choice of drugs. In 
instances in which a drug is not covered, beneficiaries can appeal to 
have the drug included in the formulary. To reduce the number of 
prescribing errors that occur each year, HHS will develop an electronic 
prescription program for Part D covered drugs.

Medicare Advantage
    MMA replaces the Medicare+Choice program with a new program called 
Medicare Advantage, which will operate under Part C of Medicare. In 
response to the increasing costs of caring for Medicare beneficiaries, 
the law increases payments to managed care plans by $14.2 billion over 
10 years. These enhanced payments will allow private plans to provide 
more generous coverage, including benefits that traditional Medicare 
may not offer. Specifically in 2004, plans must use these funds to 
provide additional benefits, to lower premiums and/or cost-sharing, or 
to improve provider access in their network. This increased 
compensation will also encourage more private plans to enter the 
Medicare market, improving beneficiaries' overall access to care.
    Starting in 2006, the new law changes how private plans will be 
paid. Under Medicare Advantage, local managed care plans will continue 
to operate on a county-by-county basis. Beginning in 2006, Medicare 
Advantage also will offer regional plans, which will cover both in-
network and out-of-network services in a model very similar to what we 
in the Federal Government enjoy through the Federal Employee Health 
Benefits Program. There will be at least 10 regions, but no more than 
50. The regional plans must use a unified deductible and offer 
catastrophic protection, such as capping out-of-pocket expenses.
    The changes in the Medicare advantage program will provide seniors 
with more choices, improved benefits, and provide beneficiaries a 
choice for integrated care--combining medical and prescription drug 
coverage. We project that 32 percent of Medicare beneficiaries will 
enroll in Medicare Advantage plans by 2010.

Providers and Rural Health
    Recognizing geographic disparities in Medicare payments, MMA 
provides much needed relief to rural providers by equalizing the 
standardized amounts paid to both urban and rural hospitals. Along with 
standardizing the base payment amounts to both urban and rural 
hospitals, MMA reduces the labor share of the standardized payment 
amount. In addition, Mr. Chairman, MMA increases payments for 
Disproportionate Share Hospitals (DSH) and provides greater flexibility 
to Graduate Medical Education (GME) residencies. The new law also 
increases flexibility for hospitals seeking Sole Community Hospital 
(SCH) status and reduces the requirements for achieving Critical Access 
Hospital (CAH) status. Critical Access Hospital status will receive 
increased payments under MMA, as the payment rate will be increased to 
101 percent of allowable costs.
    Other providers will also see increased reimbursements under MMA. 
Physicians practicing in defined shortage areas will receive an 
additional 5 percent payment bonus. Home Health Agencies in rural areas 
also will receive a 5 percent bonus. In a change for rural hospice 
providers, more freedom will be given to utilize nurse practitioners. 
The law also creates an Office of Rural Health Policy Improvements and 
requires demonstration projects involving telehealth, frontier 
services, rural hospitals, and safe harbors.

Preventive Benefits
    MMA expands the number of preventive benefits covered by Medicare 
beginning in 2005. Through a particularly important provision, an 
initial preventive physical examination will be offered within six 
months of enrollment for those beneficiaries whose Medicare Part B 
coverage begins January 1, 2005 or later. The examination, as 
appropriate, will include an electrocardiogram and education, 
counseling, and referral for screenings and preventive services already 
covered by Medicare, such as pneumococcal, influenza and hepatitis B 
vaccines; prostate, colorectal, breast, and cervical cancers 
screenings, in addition to screening for glaucoma and diabetes. 
Diabetes and cardiovascular screening blood tests do not have any 
deductible or co-payments, as Medicare pays for 100 percent of these 
clinical laboratory tests.

Regulatory Reform/Contracting Reform
    MMA includes a number of administrative and operational reforms, as 
well. For example, reform provisions require the establishment of 
overpayment recovery plans in case of hardship; prohibit contractors 
from using extrapolation to determine overpayment amounts except under 
specific circumstances; describe the rights of providers when under 
audit by Medicare contractors; require the establishment of standard 
methodology to use when selecting a probe sample of claims for review; 
and prohibit a supplier or provider from paying a penalty resulting 
from adherence to guidelines. In addition, MMA allows physicians to 
reassign payment for Medicare services to entities with which the 
physicians have an independent contractor arrangement. Under the new 
law, final regulations are to be published within three years of 
enactment.
    Also under the law, as Secretary, I will be permitted to introduce 
greater competitiveness and flexibility to the Medicare contracting 
process by removing the distinction between Part A and Part B 
contractors, allowing the renewal of contracts annually for up to five 
years, limiting contractor liability, and providing incentive payments 
to improve contractor performance. These changes will enhance HHS 
efficiency and effectiveness in program operations.
    Regarding Medicare appeals, MMA changes the process for fee-for-
service Medicare by requiring the Social Security Administration and 
HHS to develop a plan by April 1, 2004 and implement this plan by 
October 1, 2005 for shifting the appeals function from SSA to HHS. MMA 
also changes the requirements for the presentation of evidence. This 
also will enhance the efficiency and effectiveness of the operation of 
the Medicare program.

Medicare and Medicaid Estimates
    Historically, HHS and the Congressional Budget Office (CBO) have 
provided differing estimates of Medicare and Medicaid spending. It is 
not uncommon for different assumptions underlying the respective 
estimates to produce differences in cost projections. This year's new 
estimates include the changes resulting from enactment of MMA.
    When Congress considered this act, Mr. Chairman, CBO estimated the 
cost of the bill at $395 billion from 2004 to 2013. The HHS actuaries 
have recently estimated the cost of the law as $534 billion from 2004 
to 2013. The CBO Director has told the House and Senate Budget 
Committees that CBO has not changed its estimate and that they continue 
to believe that the cost of the bill is $395 billion. Because the 
Medicare legislation makes far-reaching changes to a complex 
entitlement program with many new private-sector elements, there is 
even larger uncertainty in these estimates than usual.
    The two sets of estimates provide a reasonable range of possible 
future cost scenarios for Medicare spending. The tremendous uncertainty 
surrounding estimates of the newly enacted Medicare law has resulted in 
a plausible range of estimates of future cost scenarios for Medicare 
spending, from the $395 billion estimate from CBO to the $534 billion 
estimate from the Medicare actuaries. It should be noted that this 
difference of $139 billion is approximately two (2) percent of the 
projected $7 trillion in total Federal Medicare and Medicaid spending 
over the same period, as projected by HHS.

Additional MMA Changes
    MMA addresses other issues facing the Medicare program including 
the program's long-term, financial security. The law requires the 
Medicare Trustees, beginning in the 2005 annual report, to assess 
whether Medicare's ``excess general revenue Medicare funding'' exceeds 
45 percent. As defined in the law, excess general revenue Medicare 
funding is equal to Medicare's total outlays minus dedicated revenues. 
The Medicare Trustees shall issue a ``warning'' if excess general 
revenues Medicare funding is projected to exceed 45 percent of Medicare 
spending in a year within the next seven years. If the Trustees issue 
such a warning in two consecutive years, the law provides special 
legislative conditions for the consideration of proposed legislation 
submitted by the President to address the warning.
    In addition to implementing MMA, the HHS budget request includes 
provisions for the State Children's Health Insurance Program, the New 
Freedom Initiative, and Medicaid.

State Children's Health Insurance Program (SCHIP)
    As you know, Mr. Chairman, SCHIP was created 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.
    On August 15, 2003, President Bush signed Public Law 108-74. The 
law restores $1.2 billion in FY 1998 and FY 1999 SCHIP funds, and makes 
them available to States until September 30, 2004. The law also extends 
$2.2 billion in FYs 2000 and 2001 SCHIP funds, and revises the rule for 
the redistribution of the unspent funds from these allotments. For FYs 
2000 and 2001 allotments, the law allows States that do not spend their 
entire allotment within the three-year period to keep half of those 
respective year's unspent amounts. The other half would be 
redistributed to States that have spent their entire amount of the 
respective year's allotments. The law also extends the availability of 
funds from the FY 2000 allotments through September 30, 2004, and the 
availability of FY 2001 allotment through September 30, 2005. The law 
gives some relief to States that expanded their Medicaid programs to 
cover additional low-income children prior to the enactment of SCHIP.

New Freedom Initiative
    The Administration is committed to ensuring that people with 
disabilities and/or long-term care needs receive the supports necessary 
to remain in (or return to) the community as opposed to remaining in an 
institutional setting. One of the Administration's priorities is 
relying more on home- and community-based care, rather than costly and 
confining institutional care, for the elderly and people with 
disabilities. The New Freedom Initiative signifies the President's 
commitment to promoting at-home and community-based care. There are 
several components to this initiative, Mr. Chairman, which I would like 
to bring to your attention.
    Under the ``Money Follows the Individual Re-Balancing 
Demonstration'' States could participate in a $1.75 billion, five-year 
demonstration that finances services for individuals who transition 
from institutions to the community. Federal grant funds would pay for 
the home- and community-based waiver services of an individual for one 
year at an enhanced Federal match rate of 100 percent. As a condition 
of receiving the enhanced match, the participating State would agree to 
continue care at the regular Medicaid matching rate after the end of 
the one-year period and to reduce institutional long-term care 
spending.
    The New Freedom Initiative is very important to me and to the 
President, and we would like to work closely with Congress to secure 
its passage this year. The Administration recognizes the success of 
consumer directed programs that give people the opportunity to manage 
their own long-term care, as delineated by the development of its 
Independence Plus Waivers. Thus, we propose allowing individuals who 
self-direct all of their community-based, long-term care services to 
accumulate savings and still retain eligibility for Medicaid and 
Supplemental Security Income. Under current law, beneficiaries are 
discouraged from accumulating savings because it could jeopardize their 
eligibility for Medicaid and SSI. Under the Living with Independence, 
Freedom, and Equality (LIFE) Accounts Program, individuals who self-
direct all of their Medicaid, community-based, long term supports will 
be able to retain up to 50 percent of savings from their self-directed 
Medicaid community-based service budget at year end, contribute savings 
from employment, and accept limited contributions from others. 
Ultimately, LIFE Accounts would enable individuals to save money to 
reach long-term goals (for example, to purchase expensive equipment or 
attain higher education) and to obtain greater independence.
    The Administration looks forward to working with Congress to pass 
legislation authorizing me, as Secretary, to administer demonstrations 
to assist caregivers and children with serious emotional disturbances. 
Two demonstrations will provide respite services to caregivers of 
adults with disabilities and to children with severe disabilities. A 
third demonstration will offer home and community-based services for 
children currently residing in psychiatric facilities. The fourth 
demonstration will address shortages of community, direct-care workers 
by providing grants to States to identify best practices and develop 
models. Direct-care workers play an important role in providing care to 
individuals living with disabilities in the community and this 
demonstration should help address these workforce challenges.

Medicaid and SCHIP Modernization
    This Committee is well aware that Medicaid spending continues to 
rise each year. Total Federal and State Medicaid spending for 2004 is 
projected to be $301 billion, nearly a tripling in spending over 10 
years. Medicaid--not Medicare--is currently the largest government 
health program in the United States. Since Medicaid expenditures are a 
large and growing proportion of most State budgets, the Medicaid 
program is an area to which States turn to reduce costs including 
dropping optional Medicaid benefits or limiting optional groups from 
enrolling.
    These concerns have fostered a dialogue between the Federal 
government and the States regarding ways to improve and modernize 
Medicaid and SCHIP. Building on this dialogue, the Administration will 
continue to work with Congress and other stakeholders to seek new ways 
to strengthen and improve the Medicaid and SCHIP programs. In addition 
to structural reform, improving the fiscal integrity of the Medicaid 
program will continue to be a priority for the Administration and HHS. 
Among these efforts, the Administration proposes capping the 
reimbursement level to individual State and local government providers 
to no more than the cost of providing services to Medicaid recipients 
and restricting the use of certain types of intergovernmental 
transfers. The proposal would deem as ``unallowable'' certain Medicaid 
expenditures that result in Federal Medicaid payments returned by a 
government provider to the State. The proposal would not affect 
legitimate intergovernmental transfers that are used to help raise 
funds for the state share of Medicaid costs. Rather, this proposal 
would only apply to intergovernmental transfers that are used to 
recycle Medicaid payments through government providers.

Other Medicaid Legislation
Extension of the Qualified Individual (QI) Program
    The Administration is committed to helping low-income seniors 
afford not only prescription drugs, but also health coverage through 
Medicare. Under current law, as authorized by MMA, Medicaid programs 
will pay Medicare Part B Premiums for qualifying individuals (QIs) 
through September 30, 2004. QIs are defined as Medicare beneficiaries 
with incomes of 120% to 135% of the Federal Poverty Level and minimal 
assets. The HHS budget would continue this premium assistance for one 
additional year.

Extension of Transitional Medical Assistance
    As families make the transition from welfare to work, health 
coverage is an important component to ensure their success in 
contributing to, and remaining in, the work place. Transitional medical 
assistance (TMA) was created to provide health coverage for former 
welfare recipients after they entered the workforce. TMA extends up to 
one year of health coverage to families who lose eligibility for 
Medicaid due to earnings from employment. This provision will expire 
March 31, 2004. The Administration proposes a five-year extension of 
TMA with statutory modifications to simplify administration of the 
program for States. States would have the option to eliminate TMA 
reporting requirements; provide twelve months of continuous 
eligibility; and to request a waiver from providing the mandatory TMA 
program in their Medicaid program if their eligibility income level for 
families is set at 185 percent of the Federal Poverty Level or higher.

Partnership for long-Term Care
    The budget request, Mr. Chairman, includes a proposal to eliminate 
the legislative prohibition on developing more partnership programs for 
long-term care (LTC). The partnership for LTC was formulated to explore 
alternatives to current LTC financing by blending public and private 
insurance. Four states currently have these partnerships in which 
private insurance is used to cover the initial cost of LTC. Consumers 
who purchase partnership-approved insurance policies can become 
eligible for Medicaid services after their private insurance is 
utilized, without divesting all their assets as is typically required 
to meet Medicaid eligibility criteria.

Refugee Exemption Extension
    Under current law, most legal immigrants who entered the country on 
or after August 22, 1996, and some who entered prior to that date, are 
not eligible for SSI until they have obtained citizenship. Individuals 
eligible for SSI automatically are eligible for Medicaid. Refugees and 
asylees are currently exempted from this ban on SSI for the first seven 
years they reside in the United States. To ensure refugees and asylees 
have ample time to complete the citizenship process, the President's 
budget proposes extending the current seven-year exemption to eight 
years.

Special Enrollment Period in the Group Market for Medicaid/SCHIP 
        Eligibles
    This legislative proposal would make it easier for Medicaid and 
SCHIP beneficiaries to enroll in private health insurance by making 
eligibility for Medicaid and SCHIP a trigger for private health 
insurance enrollment outside of the plan's open season. This proposal 
will help States implement premium assistance programs in Medicaid and 
SCHIP.

                ADMINISTRATION FOR CHILDREN AND FAMILIES

    I would like to congratulate the House on passing the Temporary 
Assistance to Needy Families (TANF) reauthorization. Building on the 
considerable success of welfare reform in this great Nation, the 
President's FY 2005 Budget maintains the framework of the 
Administration's welfare authorization proposal. Mr. Chairman, we are 
committed to working with the Congress in the coming months to ensure 
the legislation moves quickly and is consistent with the President's 
Budget
    As the Committee may remember, President Bush announced in his 
State of the Union address an expanded initiative to educate teens and 
parents about the health risks associated with early sexual activity 
and to provide the tools needed to help teens make responsible choices. 
To do this, the President proposes to double funding for abstinence 
education activities for a total of $273 million, including a request 
of $186 million, an increase of $112 million, for grants to develop and 
implement abstinence educations programs for adolescents aged 12 
through 18 in communities across the country; the reauthorization of 
state abstinence education grants for five years at $50 million per 
year as part of the welfare reform reauthorization; another $26 million 
for abstinence activities within the Adolescent Family Life program; 
and a new public awareness campaign to help parents communicate with 
their children about the health risks associated with early sexual 
activity.

             EXPANDING ACCESS TO HEALTH CARE FOR AMERICANS

    One of the most important issues on which we can continue to work 
together, is expanding access to quality health care for all Americans. 
In 2001, the President launched an initiative to expand access to 
health care by creating 1,200 new or expanded health care sites and 
serving an additional 6 million people by 2006. Since the initiative 
inception in 2002, the Health Centers program has significantly 
impacted more than 600 communities, serving over 13 million patients, 3 
million more than in 2001, 40 percent of whom have no health insurance 
coverage, and many others for whom coverage is inadequate. States also 
use Health Insurance Flexibility and Accountability (HIFA) 
demonstrations to expand health care coverage. As of January 2004, HIFA 
demonstrations expanded coverage to 175,000 people and another 646,000 
were approved for enrollment. While we have made significant strides in 
this endeavor, there is still much work to be done.
    In FY 2005, the President's budget request will continue to expand 
resources for Health Centers to a level of $1.8 billion, an increase of 
$219 million over FY 2004. This increase will result in increased 
services for an additional 1.6 million people in approximately 330 new 
and expanded sites. At this level, almost 15 million uninsured and 
underserved individuals, nearly 7 million from rural areas, will have 
access to comprehensive preventative and primary care services at over 
3,800 health sites across the country.

                           ACCESS TO RECOVERY

    Mr. Chairman, the FY 2005 budget represents the fourth year of the 
President's strong commitment toward leading our nation's battle 
against addiction. Current use of illicit drugs among students has 
declined by 11 percent between 2001 and 2003. However, there continues 
to be an unmet need for drug treatment services. The FY 2005 budget 
will provide 100,000 individuals with drug and alcohol treatment 
benefits by doubling the funding to $200 million for the Access to 
Recovery State Voucher Program. This initiative will allow individuals 
seeking clinical treatment and recovery support services to exercise 
choice among qualified community provider organizations, including 
those that are faith-based. The program's emphasis is on objective 
results and is measured by outcomes, including decreased or no 
substance use, no involvement with the criminal justice system, 
attainment of employment or enrollment in school, family and living 
conditions, and social support.

            DISEASE DETECTION AND BIOTERRORISM PREPAREDNESS

    The FY 2005 request for HHS bioterrorism activities is $4.1 
billion, an increase of $155 million above FY 2004, and $3.8 billion 
above the FY 2001 level. Funds will be redirected to carry out a new 
interagency bio-surveillance initiative to prepare against a potential 
bio-terrorist attack. The Centers for Disease Control and Prevention 
(CDC), in coordination with the Food and Drug Administration (FDA), the 
Department of Homeland Security, and the Department of Agriculture, 
will be working to improve the response to bioterrorism through early 
detection with the Bio-Surveillance Initiative. The goal of this 
program will be to develop new tools and procedures, which will allow 
us to identify potential disease outbreaks more rapidly.
    We also continue our work in building the Strategic National 
Stockpile of drugs, vaccines and medical supplies that can be shipped 
anywhere in the country on short notice with a request for $400 million 
in FY 2005. The FY 2005 budget includes a three-year financing plan to 
expand our antibiotic stockpile to be able to provide post-exposure 
anthrax treatment from 13 million to 60 million people. In FY 2005, we 
have included a contingency provision that will allow us to transfer up 
to $70 million to the Stockpile from funds available for State and 
local preparedness should the added funds be needed.
    Our nation's ability to detect and counter bioterrorism ultimately 
depends on the state of biomedical science, and the National Institutes 
of Health (NIH) will continue to ensure full coordination of research 
activities with other Federal agencies in this battle. The FY 2005 
budget includes $1.74 billion for NIH biodefense research efforts, an 
increase of $120 million, or 7.4%. Included with this biodefense total 
is $150 million to support the construction of extramural BioSafety 
laboratories to help develop medical protection from pathogens that 
could be used in bioterrorist attacks, and to create highly 
sophisticated laboratories that can aid federal and state authorities 
in the event of a public health emergency, such as a bioterror attack, 
or the emergence or re-emergence of a dangerous and infectious disease 
like SARS. Prior to FY 2002, only a few laboratories in the United 
States were capable of conducting research on potential bio-terrorism 
agents. The $150 million investment in FY 2005 will fund an additional 
20 Biosafety Level 3 laboratories in locations throughout the country.
    The ability to mitigate the health effects of radiation exposure in 
the event of the use of a limited nuclear or radiological device in a 
terrorist attack presents a critical challenge for which little 
progress has been made in the last forty years. For FY 2005, $47 
million is requested in the budget for the Public Health and Social 
Services Emergency Fund, to be coordinated and managed by NIH. This new 
initiative will support targeted research activities needed to develop 
medical countermeasures to more rapidly and effectively treat nuclear 
or radiological injuries.
Influenza Vaccine
    Throughout my time as Secretary, many steps have been taken to 
allow for improved access to vaccines for those in need and better 
methods to combat the spread of influenza viruses. The Medicare re-
imbursement rate to physicians for the administration of the flu 
vaccine increased from $3.98 per dose in CY 2002, to $7.72 in CY 2003, 
an increase of +94 percent. In each of FY 2004 and FY2005, $40 million 
will be used for creating a stockpile of children's influenza vaccine 
to ensure this past year's shortages do not reoccur. While these 
previous measures have improved access to vaccines, we must also look 
toward future improvements. In an effort to further develop the 
capacity to respond swiftly to pandemic flu, the FY 2005 budget doubles 
our investment in pandemic flu preparedness to $100 million.
Childhood Vaccines
    A significant goal toward improving the health of the nation is 
ensuring that at least 90 percent of all two-year olds receive the full 
series of vaccines to help meet their basic health needs. In an effort 
to improve immunization rates across the nation, the FY 2005 budget 
requests $1.9 billion for childhood immunization.
    The Budget includes two legislative proposals in Vaccines for 
Children that I believe should be strongly supported by the members of 
this Committee. This legislation would enable any child who is entitled 
to receive vaccines under the Vaccines for Children (VFC) program to 
receive them at State and local public health clinics. There are 
hundreds of thousands of children who are entitled to VFC vaccines, but 
can receive them only at Community Health Centers and other Federally 
Qualified Health Centers. In the past, when these children went to a 
State or local public health clinic, they received vaccines financed 
through discretionary appropriations to the CDC. However, as modern 
technology and research has generated new and better vaccines, that 
cost has risen dramatically. For example, when the pneumococcal 
conjugate vaccine became available, it increased the cost of vaccines 
to fully-immunize a child by about 80 percent. The most recent 
information indicates that 19 States are limiting access to this 
important vaccine; this legislation would help solve this access 
problem.
    Legislation is also needed to restore tetanus and diphtheria 
vaccines to the VFC program. The VFC authorization caps prices at such 
a low level that no manufacturer will bid on a VFC contract. As a 
result, the vaccines that are provided to VFC program children through 
the public health system have to be financed with scarce discretionary 
resources.
    CDC will continue to build a six-month, vendor-managed stockpile of 
all routinely recommended childhood vaccines. Between FY 2004 and FY 
2006, CDC plans to invest an additional $583 million to meet the target 
quantities needed for a six-month stockpile. Vaccines from the 
stockpile can be distributed in the event of a disease outbreak and 
will mitigate the effect of any potential manufacturing supply 
disruption.

                   COMPLETION OF THE DOUBLING OF NIH

    Building on the momentum generated by the fulfillment of the 
President's commitment to complete the five-year doubling of the NIH 
budget, the FY 2005 request provides $28.8 billion for NIH. This is an 
increase of $764 million, or 2.7 percent, over the FY 2004 level. In FY 
2005, over $24 billion of the funds requested for NIH will flow out to 
the extramural community, which supports work by more than 212,000 
research personnel affiliated with 2,000 university, hospital, and 
other research facilities across our great nation. These funds will 
support a record total of nearly 40,000 research project grants in FY 
2005, including an estimated 10,393 new and competing awards.
    NIH remains the world's largest and most distinguished organization 
dedicated to maintaining and improving health through the use of 
medical science. Major advances in scientific knowledge, including the 
sequencing of the human genome, are opening dramatic new opportunities 
for biomedical research and providing the foundation for un-imagined 
results in preventing, treating, and curing disease and disability. 
Investment in biomedical research by NIH has driven these advances in 
health care and the quality of life for all Americans, and the FY 2005 
budget request seeks to capitalize on the resulting opportunities to 
improve the health of the nation. In an effort to target research gaps 
and opportunities that no single NIH institute could solve alone, The 
FY 2005 budget allocates $237 million for the Roadmap for Medical 
Research initiative, an increase of $109 million or 85 percent over FY 
2004. This initiative is set up in three core themes of establishing 
new pathways to discovery, inventing the research teams of the future, 
and re-engineering the clinical research enterprise.

                         PREVENTION INITIATIVES

    More than 1.7 million Americans die of chronic diseases--such as 
heart disease, cancer, and diabetes--each year, accounting for 79 
percent of all U.S. deaths. Although chronic diseases are among the 
most common and costly health problems, they are also among the most 
preventable. The budget includes $915 million for Chronic Disease 
Prevention and Health Promotion, an increase of $62 million.
    The FY 2005 budget includes $125 million, an increase of $81 
million, for the Steps To A Healthier US Initiative. This increase will 
fund the State and community grant program initiated this past 
September to reduce the prevalence of diabetes, obesity, and asthma-
related complications, targeting those at high risk. Last year these 
funds reached 23 communities including seven large cities, one Tribal 
consortium, and 15 smaller cities and rural areas, and more areas will 
benefit during the upcoming year. Also a total of $10 million will be 
used to expand the Diabetes Detection Initiative, which targets at-risk 
populations. The aim of this initiative is to reach these populations 
where they live, work, and play through a customized, tailored approach 
with the aim of identifying undiagnosed diabetes.
    The FY 2005 budget request for the National Breast and Cervical 
Cancer Early Detection Program (NBCCEDP) is $220 million, an increase 
of $10 million over FY 2004. NBCCEDP has helped to increase mammography 
use by women aged 50 and older by 18 percent since the program's 
inception in 1991. NBCCEDP targets low-income women with little or no 
health insurance and has helped to reduce disparities in screening for 
women from racial and ethnic minorities. With the requested increase, 
the NBCCEDP will provide an additional 32,000 diagnostic and screening 
services to women who are hard-to-reach and have never been screened 
for these cancers.

                        MENTAL HEALTH TREATMENT

    In meeting the President's goal of transforming the mental health 
system and increasing access to mental health services for some of our 
most vulnerable citizens, the FY 2005 budget includes $913 million for 
mental health services, a increase of $51 million over FY 2004, or +6 
percent. As an important step in reshaping this delivery system, the 
budget proposes $44 million for State Incentive Grants for 
Transformation. These new grants will support the development of 
comprehensive State mental health plans to reduce system fragmentation 
and increase the level of services available to people living with 
mental illness.
    Recent studies have found that 20 percent of individuals 
experiencing chronic homelessness also have a serious mental illness. 
This request proposes $10--million for the Samaritan Initiative, an 
Administration-wide initiative to reduce chronic homelessness, jointly 
administered with the Departments of Housing and Urban Development and 
Veterans Affairs. Through this initiative, States and localities will 
develop processes to better enable access to the full range of services 
that chronically homeless people need, including housing, outreach, and 
support services such as mental health services, substance abuse 
treatment, and primary health care.

                           FIGHTING HIV/AIDS

    HIV is one of the most serious and destructive challenges facing 
humanity in our world today. No country, whether large or small, rich 
or poor, can escape the devastation it brings. All have citizens whose 
lives have been destroyed by this horrible disease, and our commitment 
to ending this pandemic is both strong and unwavering. No nation in 
history has ever committed the time, energy, and fiscal resources that 
the United States has invested in this effort. The FY 2005 HHS total 
budget will continue this emphasis with the request for HIV/AIDS 
funding of $15 billion, a 31 percent increase over FY 2001 for both 
domestic and global HIV/AIDS prevention, care, treatment and research 
activities.
    Specifically, the FY 2005 budget includes $784 million for States 
to purchase medications for persons living with HIV/AIDS. At this 
level, monthly AIDS Drug Assistance Programs will increase from 93,800 
clients in FY 2004 to 100,000 clients in FY 2005. Also included is $53 
million for the HIV/AIDS in Minority Communities activities funded 
under my office, which reflects the first time the budget proposes an 
increase, to support innovative approaches to HIV/AIDS prevention and 
treatment in minority communities.

                      FOOD AND DRUG ADMINISTRATION

    The FY 2005 request for the Food and Drug Administration (FDA) is 
$1.8 billion. Within this total, there are program increases of $179 
million, partially offset by $30 million in management and other 
savings. The FY 2005 budget requests significant increases to ensure 
the safety and protection of our food supply; and accelerate the 
availability of new, safe and effective drugs and medical technologies, 
including biodefense medical countermeasures.
    FDA has already dramatically expanded its work to prevent 
intentionally contaminated foods from entering the U.S. The budget 
requests a $65 million major expansion for a total of $181 million 
dedicated to FDA's efforts to protect Americans from risks of 
deliberate food contamination. The FY 2005 budget takes the next step, 
making the investments needed to accelerate Federal and State ability 
to detect contamination. FDA will work with the USDA Food Safety 
Investigation Service to substantially expand the laboratory capacity 
of their State partners, and will work to find faster and better tests 
to detect contamination, including ones that could be used on-site at 
ports, processing plants, and other food facilities.
    Over the past three years, FDA has bolstered the nation's food 
defense through increase in port security, food import inspections, and 
additional food security personnel. Specifically, the Agency hired more 
that 655 additional food security personnel, and as a result, achieved 
a fivefold increase in field import examinations between FY 2001 and FY 
2003.
    The Animal Drugs and Feeds program protects the health and safety 
of all food producing, companion, or other non-food animals; and, 
assures that food from animals is safe for human consumption. This 
program is responsible for ensuring the availability of safe effective 
veterinary drugs and has a role in the prevention of Bovine Spongiform 
Encephalopathy (BSE) or ``Mad Cow Disease'' from being transmitted 
through animal feeds. The FY 2005 budget requests $30 million, an $8 
million increase, to expand efforts to prevent BSE or ``Mad Cow 
Disease.'' FDA will intensify its efforts to keep forbidden animal 
proteins out of cattle feed.
    The budget seeks a $26 million increase in budget authority for 
FDA's Medical Devices program to ensure medical technologies are safe, 
effective, and available to Americans as quickly as possible. The 
requested increase is consistent with the intent of the Medical Devices 
User Fee and Modernization Act (MDUFMA) and meets the agreement 
communicated in an October 29th letter from OMB to the Congressional 
leadership. The increase will support the necessary investments, 
including hiring 50 FTE, to accomplish review goals that become 
increasingly aggressive through FY 2007. In FY 2005, FDA expects to 
meet goals related to the review of applications for improvements to 
existing devices and certain new devices that manufacturers claim are 
as safe and effective as ones currently in the marketplace. FDA will 
review 75% of applications for each of these application types within 
180 and 90 days respectively. This percentage of applications reviewed 
will become more challenging each year through FY 2007. For 
breakthrough technologies and other new, innovative devices, ambitious 
review goals take effect in FY 2006, and in FY 2007 when decisions will 
be made on 90 percent of applications within 320 days. FDA has 
committed to meeting these performance goals--the original goals agreed 
upon in MDUFMA, as stated in the October 29th letter. Also, the 
Administration is willing to request similar funding levels in FY 2006 
and FY 2007 and ensure the user fee program continues beyond FY 2005 by 
working with Congress to modify MDUFMA to preclude the requirement that 
funding amounts below the FY 2003 and FY 2004 intended levels must be 
made up in FY 2005.
    Our budget also includes $499 million, an increase of $23 million 
for the Human Drugs program, and $173 million, an increase of $4 
million in Biologics. Of the total spending on these activities, $253 
million will be from industry specific user fees. These funds will 
ensure the safety and efficacy of new and existing human drugs and 
biologics--helping to make medicines safer, more affordable, and more 
available.

                        MANAGEMENT IMPROVEMENTS

    Finally, I would like to update the Committee on the Department's 
efforts to use our resources in the most efficient manner. To this end, 
HHS remains committed to setting measurable performance goals for all 
HHS programs and holding managers accountable for achieving results. I 
am pleased to report that HHS is making steady progress. We have made 
strides to streamline and make performance reporting more relevant to 
decision makers and citizens. As a result, the Department is better 
able to use performance results to manage and to improve programs. By 
raising our standards of success, we improve our efficiency and 
increase our capability to improve the health of every American 
citizen.

       IMPROVING THE HEALTH, SAFETY, AND WELL-BEING OF OUR NATION

    Mr. Chairman and members of the Committee, the budget I bring 
before you contains many different elements of a single proposal. The 
common thread running through these policies is the desire to improve 
the lives of the American people. Our FY 2005 HHS budget proposal 
builds upon our past successes to improve the Nation's health; to focus 
on improved health outcomes for those most in need; to promote the 
economic and social well-being of children, youth, families, and 
communities; and to protect us against biologic and other threats 
through preparedness at both the domestic and global levels. It is with 
the single, simple goal of ensuring a safe and healthy America that I 
have presented the President's FY 2005 budget today. I know this is a 
goal we all share, and with your support, we at the Department of 
Health and Human Services are committed to achieving it.

    Chairman Barton. Thank you, Mr. Secretary.
    And the Chair would recognize himself for the first 5 
minutes of questions.
    The agency that you are responsible for has got a budget of 
all the programs under its jurisdiction of $580 billion. Four 
hundred and eighty-two billion of that is the Medicare-Medicaid 
Program. I have had my staff prepare a very preliminary list, 
and we show that there are 93 specific line item programs on 
your jurisdiction that are currently not authorized.
    What, if anything, should this committee and your agency do 
about generically the programs that are not authorized, but yet 
funds are still being requested to be expended upon.
    Mr. Thompson. I think we should do it in a systematic 
fashion, Mr. Chairman. I agree with you. I think they should be 
reauthorized. We have several programs right now that are 
currently in front of the Congress, the reauthorization of Head 
Start, the reauthorization of TANF and several other particular 
programs that have not been approved by this Congress.
    But when you look at it, there are several programs in 
Health Resource and Service, HRSA, Centers for Disease Control 
and Prevention. Most of the programs at NIH have not been 
reauthorized, some of them going clear back to 1996. Substance 
abuse, SAMHSA are all programs that need to be reauthorized, 
and I would hope that we can work with you, find out which ones 
are the easiest in a systematic fashion being able to get them 
reauthorized through this committee and then hopefully through 
Congress.
    Chairman Barton. One of the programs that you just 
mentioned, the National Institutes of Health, we have doubled 
their budget over the last 5 years. We now have an 
appropriation of approximately $28 billion.
    Mr. Thompson. That is correct.
    Chairman Barton. But of the 60 specific line item programs 
in the NIH's budget, only 16 are authorized. That means that 44 
are unauthorized.
    I am also told that you as Secretary have no direct control 
over any of the NIH budget initiatives. What should we do, and 
again, I am not asking for specific prescriptions, but what 
should we do about that program where we have doubled the 
budget and yet most of the programs are not authorized, and 
there does not appear to be much accountability in the entire 
program.
    Mr. Thompson. Well, I think that Congress has got 
definitely a responsibility on oversight, as I do as Secretary, 
and I think we need to work together to find ways in which we 
can improve that oversight, and find ways, Mr. Chairman, how we 
can get these programs reauthorized.
    I think it would do a world of good for this committee and 
Congress to have myself and the Director, Elliot Zerhouni, come 
up with a program on how we could reauthorize these on a 
systematic basis.
    I think it would be good for this committee to get a chance 
to look at what NIH is doing. I think you will be quite 
impressed, as I am. And I think if you had a chance to 
reauthorize them, it would give you better information, a 
better expertise, and as well as being able to put in some 
further oversight and some other kinds of controls that may be 
necessary.
    Chairman Barton. Well, I am not opposed to obviously the 
NIH, and I am not opposed to increasing their budget. I do not 
want to leave the wrong impression, but I do believe we should 
have accountability, and I do believe that we should take our 
role as oversight seriously on this committee, and NIH is 
certainly an area where we need to do that.
    I have got about a minute left. Let me ask you a little bit 
different kind of a question. I was one of the members on this 
committee that pushed for a prescription drug benefit card. I 
had asked that it be the alternative to the insurance program 
that is in the Medicare reform bill, but while the basic 
insurance package is being put together, the prescription drug 
card is the short-term benefit for seniors that need 
prescription drugs.
    That program is supposed to kick in, I believe, in June of 
this year for low income seniors. They will get a cash subsidy 
of $600 for all income seniors. I think for a cost of $30 they 
can get this card and should make available to them quite a 
number of prescription drug discounts.
    Could you elaborate on that briefly and the timetable?
    Mr. Thompson. Absolutely, Mr. Chairman. We had receive 105 
application. Two of those have now either withdrawn or 
consolidated. We will be making a decision before March 23 of 
what applications are going to be improve. It is going to be 
able to issue the Medicare card.
    And then in April, they are going to be able to publicize 
their information, get the information necessary, their drug 
discounts, and then in May they will be able to start enrolling 
individuals.
    We will be putting up a transparent Web site as well as 
informational line 1-800-MEDICARE. You will be able to call 
with your prescriptions. We will be able to tell you exactly 
what this particular card will give you as a credit, a 
reduction in your drugs. You are a senior citizen. You put in 
the prescriptions that you have to take, and we can tell you 
where the closest pharmacy will be and also what the cost 
savings will be.
    And since it is going to be increased and improved and 
updated every single week, it is going to have a tremendous 
tendency to drive down drug costs because everybody is going to 
be able to look at it, every Member of Congress, every senior, 
every employer, and so it is going to be a very good deal.
    And we are already working on the transparency of it, and I 
just announced in my opening statement that we were going to 
put in some additional money, almost 50 percent more for the 
SHIPS. So those are the individuals in the districts that are 
going to be able to go into the homes, as well as to senior 
centers, and be able to explain it.
    Chairman Barton. Do you expect to have it available by June 
of this year?
    Mr. Thompson. We are going to have it by June 1.
    Chairman Barton. Okay.
    Mr. Thompson. In fact, we are ahead of all of our 
projections.
    Chairman Barton. Very good. I will now recognize Mr. 
Dingell for 5 minutes for questions.
    Mr. Dingell. Mr. Chairman, I thank you.
    Mr. Secretary, I begin by expressing my great affection and 
respect for you.
    Mr. Secretary, I have a question here which you can answer, 
I believe, true or false. Mr. Secretary for the past 13 years 
Part B deductible has been $100. That amount will grow to $110 
next year, and according to CBO estimates by $166 by 2013. Is 
that true or false?
    Mr. Thompson. I would say that is true.
    Mr. Dingell. Now, is this statement true or false? Every 
Medicare beneficiary who elects Part B coverage during their 
initial enrollment period pays the same premium, but under the 
new law beginning in 2006, about 1.2 million Medicare 
beneficiaries who have higher incomes will pay higher premiums 
than others for the same benefits.
    Mr. Thompson. That is income averaged, yes, and it will 
make over 8,000.
    Mr. Dingell. That is true.
    Now, is this true or false? Medicare beneficiaries will 
have to join a private drug plan, HMO or PPO in order to 
receive prescription drug coverage, and that they cannot get 
coverage under a fee-for-service plan like they get it with 
hospital or other coverage at this time. Is that true or false?
    Mr. Thompson. Well, it takes a little bit more than true 
and false. They still will have their current program.
    Mr. Dingell. They will have the current plan, but to get a 
drug----
    Mr. Thompson. The current program, but the drugs will be by 
either a PPM or a PPO or an HMO.
    Mr. Dingell. So they have got to make that change and will 
not have that coverage.
    Now, Mr. Secretary, beneficiaries living in six different 
areas designated as pilot projects will be forced to pay much 
higher premiums for their traditional fee-for-service carrier 
as a result of Medicare's experiments with a voucher program, 
sometimes called premium support or privatization.
    Is that statement true or false?
    Mr. Thompson. That starts in 2010, and that presupposes 
that Congress does not change it or that there have not been 
modification.
    Mr. Dingell. So it is true if Congress does not change 
that?
    Mr. Thompson. If Congress does not.
    Mr. Dingell. They could charge whatever they want and give 
whatever level of----
    Mr. Thompson. And it also depends upon how competitive it 
is going to be.
    Mr. Dingell. All right. Now, Mr. Secretary----
    Mr. Thompson. It does not necessarily mean there will be 
higher rates.
    Mr. Dingell. Can you assure me that it will be the same or 
lower?
    Mr. Thompson. I think it is going to be, but I am not going 
to be here in 2010. So I can say yes, but you will not any 
recourse because I am not going to be here in 2010.
    Mr. Dingell. I probably am not either.
    Mr. Thompson. I hope you are.
    Mr. Dingell. I would observe that we are looking to the 
future together, you and I.
    Mr. Thompson. Yes.
    Mr. Dingell. And I am asking your assurances, and you are 
telling me you cannot give me the assurances.
    Mr. Thompson. I cannot give you the assurances, but I 
certainly think that it is going to be much lower. The 
competition is going to drive it down.
    Mr. Dingell. Let us pray, Mr. Secretary.
    Mr. Thompson. Okay.
    Mr. Dingell. I am darkly suspicious.
    Mr. Thompson. I'm a good prayer with you, Congressman.
    Mr. Dingell. Now, Mr. Secretary, I am going to make the 
following statements. It is important that the seniors know the 
schedule of benefits and the monthly premium that they are 
going to hear from the drug coverage that they are going to 
get, but the law does not specify what either the schedule of 
benefits, the cost thereof are going to be under the new 
Medicare proposal; is that correct?
    Mr. Thompson. I do not think that is correct.
    Mr. Dingell. There is nothing in the statute that 
confirms----
    Mr. Thompson. There is nothing in the statute, but we are 
going to have rules and regulations on----
    Mr. Dingell. Under what authority will you issue those 
rules and regulations?
    Mr. Thompson. Under the Medicare Modernization Act, I have 
the authority.
    Mr. Dingell. Where? Would you please cite us the authority 
to issue regulations?
    Mr. Thompson. I cannot do it off the top of my head. It is 
1,200 pages long, but I can find it for you.
    Mr. Dingell. Okay. Would you then submit that to us for the 
record?
    Mr. Thompson. Sure.
    Mr. Dingell. And, Mr. Secretary, if you would, please, 
would you also tell us what the level that you are going to fix 
those premiums at and the schedule of benefits? What will that 
be?
    Mr. Thompson. I cannot tell you at this point in time.
    Mr. Dingell. Again, Mr. Secretary, you are putting your 
finger on why I have dark suspicions on this matter.
    Mr. Thompson. Trust me, Congressman.
    Mr. Dingell. Mr. Secretary, I trust you, but I do not trust 
anybody else in the department, and you will understand as my 
old daddy said, ``Trust everybody, Mr. Secretary, but cut the 
cards.''
    Now, having said this, Mr. Secretary, is it true or false 
that the seniors do not need to be informed that private 
insurers will be able to decide how much seniors will pay for 
the different drugs?
    Mr. Thompson. Could you say that again, please?
    Mr. Dingell. I will repeat it. Is it true or false that the 
seniors under these programs do not need to be informed that 
the private insurance will be free to decide how much seniors 
will pay for the different drugs that they will be receiving in 
these programs? True or false?
    Mr. Thompson. I think that is true.
    Mr. Dingell. True. Now, Mr. Secretary, under the drug card, 
I heard much about this. I note that the Medicare beneficiaries 
cannot change for a year after the choice.
    Mr. Thompson. yes.
    Mr. Dingell. In other words, the beneficiary can choose the 
card and he is stuck with that card for a year, but the issuer 
can change the covered drugs or the amount charged for those 
drugs weekly. Is that not so?
    Mr. Thompson. Well, once they lock it in for the 
enrollment, they are not going to be able to change, but the--
--
    Mr. Dingell. No, no.
    Mr. Thompson. We are going to update what it costs every 
particular card on every week.
    Mr. Dingell. The beneficiary, Mr. Secretary, is locked in.
    Mr. Thompson. Yes, that is true for 1 year. He is locked in 
for 1 year.
    Mr. Dingell. The issuer of the card can change those 
numbers with regard to the amount that the beneficiary pays or 
the drugs that are covered weekly, and he can change them 
either up or down.
    Mr. Thompson. That is true.
    Mr. Dingell. That is true, and that, Mr. Secretary, is 
regrettable.
    Mr. Bilirakis [presiding]. The gentleman's time has 
expired.
    Mr. Dingell. I thank you, Mr. Chairman.
    Mr. Bilirakis. You are welcome, sir.
    Mr. Dingell. And, Mr. Secretary, thank you.
    Mr. Bilirakis. The Chair will recognize himself for 8 
minutes if I can get this thing.
    Anyhow, Mr. Secretary.
    Mr. Thompson. Yes, Mr. Chairman.
    Mr. Bilirakis. Regarding the reimportation question, as you 
certainly know, a lot of the opposition, I like to think 
virtually all of the opposition to the so-called reimportation 
of prescription medication stems from the safety concerns that 
could arise if the importation of drugs from foreign countries 
was liberalized.
    An argument I often hear in response to these safety 
concerns, and quite frankly, it makes our position that much 
more difficult to expound on, is that since there have not been 
any widespread reports of people becoming ill or dying from 
taking these drugs, they must, therefore, be safe.
    I am aware that under your leadership the FDA has been 
collecting a great deal of information on the kinds of drugs 
that are being sent to American consumers from other countries. 
For example, the FDA or the U.S. Bureau of Customs and CVP, the 
Board of Protection people have conducted two blitz 
examinations, as I understand it, on mail shipments at a number 
of locations last year and found, among other things, that of 
the 1,153 shipments, 1,153 shipments examined during the first 
blitz, the overwhelming majority, 1,019 packages or 88 percent, 
contained unapproved drugs.
    And going to the second blitz, of the 3,375 products 
examined during that second blitz, 2, 256, or 69 percent, were 
in violation of current law, and an overwhelming majority of 
the illegal products contained unapproved drugs, but the FDA 
also found recalled drugs, drugs requiring special storage 
conditions and controlled substances.
    I wonder, Mr. Secretary, can you expand upon the term 
``contained unapproved drugs''? Can you expand on the recalled 
drugs, drugs requiring special storage conditions?
    Can you tell us roughly, you know, in an approximation 
sense, of course, of where these drugs might have initiated? 
Were these Canadian drugs? Were these drugs that were 
manufactured in Canada?
    Mr. Thompson. I can answer several of those questions, Mr. 
Chairman.
    These drugs that we had the targeted inspection came from 
India, came from Thailand, came from Korea, came from South 
Africa, came----
    Mr. Bilirakis. Would you say that most of them came from--
--
    Mr. Thompson. I would say that the bulk of them came from--
the bulk of them came from Canada.
    Mr. Bilirakis. The bulk of them, they were manufactured in 
Canada?
    Mr. Thompson. No, they were not manufactured.
    Mr. Bilirakis. They were not manufactured.
    Mr. Thompson. They came from Canada and were----
    Mr. Bilirakis. Okay. From Canada, but they were 
manufactured elsewhere Secretary Thompson. Right. Unapproved 
drugs, there was a foreign version of blood thinner, warfarin, 
which could cause serious bleeding problems; a foreign 
immunosuppressant, asthenoprene that could cause kidney 
failure, was one of them. Human growth hormones, which can 
elevate pressure in the brain were some other ones.
    There were controlled substances with high abuse, such as 
codeine and valium were discovered, and prescription drug abuse 
in some other categories. There were some animal drugs that 
were allegedly going to be used for human consumption were also 
found in a couple of packages. There were several packages that 
were mislabeled and several packages that were in a foreign 
language which were coming into America.
    And based upon that it's obvious that I could not certify 
that these drugs were safe.
    Mr. Bilirakis. Going to Canada now, and you know, I hate to 
make it sound like we're picking on the Canadians, and we 
aren't because they have been great friends over the years; but 
do they make any efforts to prevent drugs coming from these 
other countries, manufactured in these other countries from 
coming into the country, into Canada?
    Mr. Thompson. I can't speak for Canada. I can only, you 
know, make speculation that it's probably doubtful. I'm sure 
that Canada is using their resources effectively, but Canada is 
such a large country I'm sure it's impossible, just like it's 
impossible for America to be able to control drugs coming in 
from all over the world.
    We don't have the resources in FDA, and since we don't have 
the resource in FDA, I doubt very much if Canada does as well. 
And I don't know for sure, but that's just speculation based 
upon our experience shared in the United States, Mr. Chairman.
    Mr. Bilirakis. Well, Mr. Secretary, just sort of playing 
devil's advocate here, if we don't have any more capacity, if 
you will to be able to control these drugs from coming from 
other countries into the United States because we say if we 
don't here, apparently the Canadians probably don't either, I 
guess I'm wondering why are we more concerned about these drugs 
coming in through Canada. I mean, are we concerned about them 
coming into the United States directly?
    I know there have been reports with a growing threat caused 
by counterfeit drugs within our own domestic supplies; is that 
correct?
    Mr. Thompson. That is correct. We are concerned because of 
the safety matter, Mr. Chairman. FDA is responsible for the 
safety of drugs, and since we do not have the resources in 
order to have an inspector in these factories, and they are not 
inspected by FDA inspectors and the drugs are not manufactured 
maybe by FDA standards, we cannot certify that they are safe, 
and therefore, the law does not allow these drugs to come into 
the United States until the Secretary can certify that they're 
safe.
    Based upon our experience, I cannot make that 
certification.
    Mr. Bilirakis. All right, but again playing the devil's 
advocate, and as you probably know, I did not support the 
reimportation provisions of the legislation.
    Mr. Thompson. Right.
    Mr. Bilirakis. But if that is the case, then we do not have 
much of a level of confidence regarding our own drugs here; 
isn't that correct?
    Mr. Thompson. No. We feel very good about the drugs that 
are manufactured under FDA standards and FDA approved factories 
with FDA inspectors. We feel very comfortable about them. That 
is what FDA does and does it well.
    Canada has told us that they cannot certify and will not 
certify on the safety of drugs leaving their country, and the 
Canadian officials have told the Commissioner of FDA that.
    Mr. Bilirakis. Well, but we apparently know that there has 
been counterfeit drugs within our own domestic supply.
    Mr. Thompson. That is true.
    Mr. Bilirakis. We apparently know based on what you have 
said that a lot of these foreign drugs manufactured in foreign 
places come in through our borders, not through Canada 
necessarily. Many come through Canada, but we also know some of 
them, we say that we cannot protect our borders adequately to 
catch those.
    So I guess what I am wondering is why are we as concerned 
as we are about them coming in from Canada when, in fact, we 
know that many of them, and I do not know to what degree, come 
directly here and not necessarily through Canada.
    Mr. Thompson. We are concerned about all drugs coming in to 
make sure that they are safe. The law says that the Secretary 
is supposed to certify that drugs that are imported into the 
United States are safe. Based upon our inspections, we cannot 
certify that they are safe. Therefore, we cannot comply with 
the law.
    If I would certify that these drugs were safe and somebody 
died, the Federal Government would be held liable, and based 
upon our information, the safety questions are paramount to us, 
and we just cannot, you know, set back and do nothing.
    So we are trying to tell people if we are going to do it, 
you have got to give us the resources so that we can inspect 
the factories that manufacture the drugs and that we have to 
have FDA resources in order to do so.
    Currently, Mr. Chairman, we only have 1,300 individuals in 
all of FDA to inspect over 56,000 plants and over 200 airports 
and all of the borders. It is an impossible task for us now to 
inspect drugs coming into the United States based upon the 
resources we have.
    Mr. Bilirakis. Thank you, Mr. Chairman. My time has long 
expired. Thank you very much.
    Mr. Thompson. Thank you.
    Mr. Bilirakis. Let's see. Mr. Waxman would be next, and he 
has 8 minutes because he deferred. Our problem is, as I 
understand it, that we have as many as four votes; is that 
correct?
    Well, all right. We will recognize Mr. Waxman for 8 
minutes, but in all probably will just cut right after that to 
go to cast our votes.
    Mr. Waxman, proceed.
    Mr. Waxman. One second, Mr. Chairman. There are going to be 
five bills.
    Mr. Secretary, we know in this country we have 45 to 47 
million people running short. We have got a problem that is 
even getting worse as time goes by, and if we did not have the 
Medicaid and the child health programs at the State level, we 
would have far more uninsured than we already have. So these 
are important programs.
    And given the severe budget pressures at the State level 
because of the economic downturn more than anything else, the 
States are straining to deal with their own budgets.
    Now, what the Federal Government did on a temporary basis 
was provide extra funding to the States to help pay for their 
Medicaid programs on a temporary basis. Now, that is going to 
expire in June. They are still facing those same problems, but 
the administration did not propose to continue that effort. The 
administration proposes to let it end and instead in the budget 
we are asked to figure out a way to cut $10 to $11 billion over 
5 years in the Medicaid programs, and we have not had a lot of 
detail as to how we expect this to be done.
    We are usually told to eliminate upper payment, limit 
abuses, inappropriate use of intergovernmental transfers to get 
these savings, and I want to make a couple of points and then 
ask you a specific question.
    First, this administration and the Clinton Administration 
put policies in place to eliminate the loopholes in the DSH 
program, in the upper payment rule limits, and these rules that 
we put in place had a transition period. They were endorsed by 
the Congress. They explicitly did not propose to limit 
intergovernmental transfers which have long been recognized as 
an important way for the States to be able to fund their 
program.
    The upper payment limit rule was put in place, clearly seen 
as having adequate protections without interfering in this 
legitimate and longstanding and long recognized funding source 
for the program.
    Second point. Suddenly the administration has decided to 
change the rules on the States. You testified before the Senate 
that you thought 34 States were inappropriately using 
intergovernmental transfers. Well, that is two thirds of the 
States of this country, and we are going to tell them now they 
have got to find some new way to finance their Medicaid 
programs.
    Third point. As you know, intergovernmental transfers, the 
upper payment limit program, the DSH programs have all been a 
critical course of funding for the safety net institutions: 
children's hospitals, the public hospitals, the hospitals that 
serve a lot of uninsured patients. So if we cut back ten to $11 
billion on those recognized ways of helping the States to meet 
their budget, we are going to cut back on the money for 
critical health dollars for those institutions.
    And fourth, when you came back from Iraq, you've made what 
has now become an infamous statement that even if you don't 
have health insurance in America, you get taken care of. Well, 
that sounds a lot like we would have universal health care in 
this country, but we do not.
    And the truth of the matter is that it has been well 
documented that there are a lot of adverse health consequences 
for all of the uninsured people that we have in this Nation.
    But I think what you were thinking and a lot of other 
people, like when the President said he was going to allow more 
immigrants to come in the Nation in the guest worker program, 
that somehow these safety net institutions will pick up the 
slack and provide health care to the uninsured. Yet the 
proposals that are now recommended to us would absolutely 
devastate the ability of these health care providers to 
function.
    And finally, I can't help but make this one comment as 
well. When you were Governor of Wisconsin, you used a 
combination of upper payment limit rules and intergovernmental 
transfers. I think it was for nursing home care.
    Mr. Thompson. I did.
    Mr. Waxman. And that was to access Federal dollars to help 
finance your Medicaid program. I say this in no way to be 
critical because I think it was perfectly legitimate for you to 
do as for other States to do, but now it seems like you may be 
determined to change the rules on the States, and I want to 
know is it because if you cause continuous disruption for the 
States in financing their programs they are going to come and 
give into a Medicaid block grant or is it because you are 
oblivious to the effect these cuts would have on vulnerable 
people and the safety net institutions? Is it because this 
provides you an opportunity to renege on the deal that we had 
with the States that they were going to get a transition to 
cope with the reductions in upper payment limit levels, or is 
it because when you made your own deal when you were Governor 
of Wisconsin, you think you ripped off the Federal Government?
    I do not think you did, but maybe you think you did, and 
since it takes one to know one, maybe you think you want to 
make sure that nobody else did what you did when you were 
Governor of Wisconsin.
    Well, this has been a long question, and I have got limited 
time, but what I really want to know is will you assure the 
committee that you will provide detailed legislative 
specifications on the changes you are proposing and an analysis 
of the impact on each State before we are asked to take any 
legislative action? Will you do that for us so that the States 
will know that we have got clearly in mind what the impact is 
going to be, not the amorphous statement just cut out 
inappropriate upper payment limits and intergovernmental 
transfers because we want to know what that means?
    Mr. Thompson. Congressman, you have made a lot of 
accusations, and none of them are true, and I would like to be 
able to respond to them.
    Mr. Waxman. But first answer my question.
    Mr. Thompson. Well, I would like to be able to respond.
    Mr. Waxman. No, first answer my----
    Mr. Thompson. You made some accusations. I think I have a 
right.
    Mr. Waxman. Well, I think you should be able----
    Mr. Thompson. I think I have a right to respond.
    Mr. Waxman. I think you do, but first I only----
    Mr. Thompson. First, I think I have a right----
    Mr. Waxman. Mr. Chairman, I have----
    Mr. Thompson. [continuing] to respond.
    Mr. Waxman. [continuing] the time, and my question is very 
specific. I want a yes or no.
    Mr. Thompson. Am I allowed to respond?
    Mr. Waxman. Give me an----
    Mr. Bilirakis. Let's give the gentleman the time to 
respond.
    Mr. Thompson. There were several personal accusations, and 
I would like to be able to respond.
    Mr. Waxman. I want you to, but I want a yes or no. Will you 
give us detailed legislative proposals?
    Mr. Thompson. I always give you details. You have requested 
31 pages in the last year, 31 different requests. My department 
has given you 21 answers. We are working on the----
    Mr. Waxman. I am not talking about me personally. All of 
the members ought to be able to have it.
    Mr. Thompson. I would like to be able to respond to you 
accusations because----
    Mr. Waxman. So please proceed.
    Mr. Thompson. [continuing] they are false.
    Mr. Waxman. Please proceed.
    Mr. Thompson. They are absolutely false.
    Mr. Bilirakis. All right. Let's do what we can here, but 
the fact of the matter is we are----
    Mr. Thompson. Intergovernmental----
    Mr. Bilirakis. [continuing] going to have to break to go 
for a series of votes. Go ahead, sir.
    Mr. Thompson. Intergovernmental transfers are legal if they 
are done legal. There is a law that says that when the Federal 
Government gives a proportionate share, the State has got to 
participate.
    The State plans that are coming in have got differences. 
The State plans are not paying their share, and I do not think 
that is fair. When I used the intergovernmental transfer, I 
paid the State of Wisconsin's share to get the Federal share.
    Here are some examples. A State made upper payment limits, 
quarterly payments via electronic transfer to a nursing home 
bank account. The State then immediately withdrew the amount of 
the payment from the provider's account less a $2,500 
participation fee.
    If they would have left it to the nursing homes, that would 
have been legal, but it did not go to the nursing homes. That 
money went back to the State. Therefore, it is illegal, and I 
think that is not fair.
    Therefore, the Federal Government is paying more to that 
State than the State share.
    Second example. Made supplemental payments to all nursing 
facilities upon receipt of the payments, the nursing facilities 
are required to return 99.5 percent of the payment back to the 
State. If the payments would have stayed with the nursing 
homes, it would have been legal. They came back to the State to 
be used for other things.
    I don't think you would approve of that because you, like 
myself, want to make sure that money goes to take care of poor 
people.
    The third State. Made supplemental payments to county 
nursing facilities. As a condition of receiving these payments, 
the nursing homes must sign a participation agreement in which 
the nursing home agrees to return all but $10,000 of the 
payment. Nursing homes are allowed to keep the $10,000 as a 
participation.
    Mr. Bilirakis. mr. Secretary, would you hold up? Listen, we 
have got to catch this vote. I am not sure whether Henry cares, 
but I do. I do not want to miss the vote.
    So I am just going to recess until approximately 4 p.m., 
four o'clock, maybe five after four, something of that nature, 
and then you can continue, sir.
    Mr. Thompson. Thank you.
    Mr. Bilirakis. Thank you.
    [Brief recess.]
    Mr. Norwood [presiding]. The committee will come to order, 
please.
    Mr. Secretary I apologize for the delay. You are very kind 
to remain with us.
    And now I recognize Mr. Whitfield for questioning for 8 
minutes.
    Mr. Whitfield. Mr. Chairman, thank you very much. I 
appreciate that.
    Mr. Secretary, we appreciate your patience.
    Last year, around September or so, Dr. Teresa Mullen, who 
is the Associate Commissioner in the Office of Planning and 
Evaluation for FDA testified before our committee, and also Dr. 
Anna Barker from the NCI similarly testified, and they talked 
about a task force between the National Cancer Institute and 
the FDA oncology group of the task force, the purpose of which 
is to improve communications between the two agencies to 
expedite bringing new technology and drug therapies to patients 
and physicians for treatment.
    And they were quite optimistic about the process that this 
task force was making, and they were particularly keen on the 
fact that it would simplify that entire process.
    But I have been involved with one particular company from a 
standpoint that I have a dog that has been receiving therapy 
that is experimental, and they are getting ready now to go for 
human trials, and we are concerned, and we do hear from small 
and medium sized biotechnology companies that the lack of 
effective communication and coordination between the FDA and 
the National Cancer Institute impedes the transfer of new, 
innovative therapies out of the laboratories and into the hands 
of treating physicians.
    For example, in this instance, FDA is requesting certain 
toxicological studies that have already been conducted in 
another type of experiment, and the whole process is slowing 
down what appears to be even by surgeons at NCI, at the 
National Cancer Institute, a really promising therapy to 
address cancerous tumors.
    And I was wondering if you would have any comments at all 
about what your view is on how effective this task force has 
been in trying to break down some of the obstacles in bringing 
these treatments to the marketplace.
    Mr. Thompson. Well, Congressman, we can always improve and 
we need to improve. The problem has always been that the 
efficacy of the drugs plus the safety, and to try and get the 
efficacy requires a great deal of time, and then you want to 
make sure that the drugs are safe.
    The coordinating committee is working, and the nice things 
that we have been able to do with FDA and NIH is to look at 
ways in which we can get these drugs to the market faster, and 
we are trying to work on that.
    We are already improving, but I am still not satisfied, and 
Dr. McCullen is not satisfied, and neither Elliot Zerhouni. So 
we continue to meet. We continue to collaborate, and I am 
confident that we are going to see some improvements, some vast 
improvements in the future, and I appreciate the question.
    Mr. Whitfield. And on March 5, I wrote you a letter 
spelling out a specific incident in more detail, and I do look 
forward to getting a reply. I know you receive many, many 
letters, but that will even address it more. So I would 
appreciate your consideration of that.
    Mr. Thompson. Congressman, we try to answer all of the 
letters.
    Mr. Whitfield. thank you.
    Mr. Thompson. Nobody has been quite as prolific as 
Congressman Waxman, but we try to comply very much with every 
request, and we will get your answer as soon as possible.
    Mr. Whitfield. Thank you.
    Mr. Secretary, this committee had a hearing or one of our 
subcommittees had a hearing recently on prescription drug 
monitoring programs, and the first prescription drug monitoring 
program in the country was established in 1940 in California.
    And since that time we only have about 17, 16, 17 programs 
operating in the country right now, and all of the witnesses 
testified to the significant problems that this is causing our 
country, the improper use of prescription drugs.
    And the request I would ask you is because in the 64 years 
that we have tried to get this program, it is still not in 
every State, not close to being in every State. Would you, from 
your perspective, consider a Federal approach to establishing a 
prescription drug monitoring program?
    Mr. Thompson. Yes, buy let me quantify that. Right now we 
are so completely overburdened with getting the Medicare 
Modernization Act implemented that it would be pretty difficult 
to take on another program like that at this time, but if 
Congress saw fit to pass it, we certainly would be more than 
willing to do it.
    But right now, with FDA, with looking at the investigatory 
committee on importation of drugs, we are setting up a new 
commission to take a look at that.
    Second, the implementation of the Medicare, getting the 
drug card out, all of these things are just straining us to the 
nth degree.
    So I would say yes. I think it is the right direction, but 
at this particular point in time I don't think we could do it.
    Mr. Whitfield. Mr. Secretary, thank you.
    And I yield back the balance of my time.
    Mr. Norwood. Thank you very much.
    Mr. Waxman. Mr. Chairman, I do not think it would be fair 
to Secretary Thompson not to be able to fully respond to me. So 
if he wants to respond further for the record----
    Mr. Thompson. I would love to.
    Mr. Waxman. [continuing] I would welcome it.
    Mr. Norwood. Unanimous consent.
    Mr. Waxman. And second, I would hope he would also be very 
specific and answer my question, which is whether we are going 
to get a detailed analysis of any legislative proposals.
    So if we could keep the record open for a response to my 
question and get further comments on areas where he thinks he--
--
    Mr. Norwood. Mr. Waxman, would 2 minutes be sufficient do 
you think?
    Mr. Waxman. Well, we can do it for the record.
    Mr. Thompson. Congressman, I would like to be as quick as 
possible. You made several what I consider accusations that 
were not correct. I think you and I agree that the money that 
goes from the Federal Government should go to the providers so 
that they can provide to the people that need the service, not 
back to the State.
    I believe that there is a correct way to do IGTs, and that 
is to continue to provide for those local units of government, 
local hospitals, local institutions to pay the State's share, 
provided the money then goes to those individuals for the care 
of the poor people. That is not happening, and that is the big 
problem, and that is what we are trying to stop. And those are 
the questions.
    It is exacerbating, and that is why I am bringing it to the 
attention to you and to the members of the committee, and I 
gave you several examples of that, and I am not going to 
mention States because I do not want to go into individual 
States because I do not think it is fair.
    We are trying to negotiate with the States, and hopefully 
we can reach an agreement. All of the States that I have talked 
to have said, yes, it is not the way to do it, but we have done 
it this way before. Other States are doing it. Now we want to 
be able to get into this particular program, even though we 
know it is not correct.
    And so a lot of the money is being sent to the State. The 
State sent it down to the counties, and then the counties have 
to remit the money back to the State, and the State puts it in 
the Treasury.
    Mr. Waxman. Mr. Secretary, with the last 30 seconds, the 
examples you gave I thought were good examples of what we do 
not want to permit.
    Mr. Thompson. That is true.
    Mr. Waxman. They also are examples of upper payment limit 
abuses that I thought we had taken care of in the regs. We want 
to work with you, of course, to stop any improper actions.
    Mr. Thompson. Thank you.
    Mr. Waxman. But we are being asked to cut $10 to $11 
million out of the Medicaid Program, and before we do that, I 
would like you to assure not me but the committee that you will 
provide detailed legislative specifications on the changes that 
you are proposing and an analysis of its effect on each State. 
I think that is fair to ask, and I hope that you will comply 
with that.
    Mr. Thompson. We will do it to the best of our ability, 
Congressman, as we always try to do. I just think that a more 
fair way would be if this committee and Congress wants to give 
the States more money, put it into the FMAP so that every State 
is treated equitably instead of trying to use a dodge in order 
to get more money from the Federal Government and the money 
goes to the State, and it does not go to the people that we----
    Mr. Waxman. Would you support an increase.
    Mr. Norwood. Thank you, Mr. Waxman.
    Mr. Waxman, if you will submit that for the record, the 
Secretary has to leave at five o'clock.
    Mr. Waxman. I understand.
    Mr. Norwood. And a lot of members want to ask question, and 
with that in mind, I am going to keep us right at 5 minutes.
    Chairman Barton. Mr. Chairman, can I briefly comment on 
that, too, before we go on?
    Mr. Secretary, we are going to work with you on that. Mr. 
Waxman raises a valid point, but there are some of us in the 
majority that feel like the point that you're raising are 
issues that need to be addressed, and we want the money spent 
the most wisely, and we do not think it is fair that some of 
these games have been played.
    Mr. Thompson. thank you.
    Chairman Barton. And so we will work with you.
    Mr. Thompson. thank you very much.
    Mr. Norwood. Just a reminder. We will keep you right at 5 
or 8 minutes according to what you have coming, and with that, 
Mr. Brown, you are recognized for 3 minutes for questioning, 
plus 2 minutes for going over, for a total of 5 minutes.
    Mr. Brown. Three plus 2. Okay. Got it.
    Thank you.
    And I was intrigued, Mr. Secretary, by your and Mr. 
Bilirakis' back-and-forth on the safety of reimportation. I 
also appreciated Mr. Dingell's method today of true/false. I 
have one true/false question, and then I would like to get into 
more substantive.
    True or false, no drug imported into this country is FDA 
approved unless it is imported by the manufacturer, correct? No 
drug imported into the United States is FDA approved unless it 
is actually imported by the manufacturer, correct?
    Mr. Thompson. True.
    Mr. Brown. Okay. That is my understanding, too.
    Earlier when you said the administration's view of imported 
drugs found that most of the drugs you audited were not FDA 
approved and were, therefore, unsafe, it is a bit of a Catch-
22. So if a drug is not FDA approved, it cannot be used as a 
proxy for safety. So my question goes more to this, that Mr. 
Bilirakis and you talked about how important or, I mean, 
whether your contention seems to be many, many of these FDAs 
and many of these drugs have been unsafe.
    Our contention, by many people on my side of the aisle, but 
many Republicans, too, is that these----
    Mr. Thompson. That is true.
    Mr. Brown. [continuing] drugs that are coming from other 
countries are, in fact, safe. As Mr. Bilirakis said, we are not 
seeing people dropping dead in Canada, France, Israel, Germany 
and Japan that are using a good safety process.
    Now, if the drugs are as dangerous as you say they are, 
that information is so very, very important for Americans to 
know. If drugs are as safe as we think they are, based on the 
high cost of drugs, the fact I have bus loads of people that I 
have taken to Canada, that many others in my community are 
doing the same thing; if they are as safe as we think they are 
and the demand is so high for people to save money, if that is 
the case, both of those statements, then the American people 
deserve to know sooner rather than later what, in fact, your 
conclusion is.
    It is pretty clear that, you know, reimportation has 
already passed the House. The other body may be considering 
legislation. We need information here. It is obvious from your 
testimony that the Bush Administration has done considerable 
work on this issue. Otherwise I am sure the administration 
would not have felt comfortable vocally opposing the 
reimportation bill as he did last year.
    So my point is, Mr. Secretary, we need you to finish this 
work sooner rather than later. The requirement in the bill is 
December for you to complete your work. Can you commit to us an 
earlier date so that Congress can move on this issue by the 
summer?
    Mr. Thompson. I think you are absolutely correct, 
Congressman, and I am going to try and get it done a lot 
sooner. I would like to get it done as soon as possible. We are 
going to have our first meeting next Friday, and we are 
having--I have got the list of the people that were invited.
    We have invited most of the people that are pro 
reimportation. Individuals that are for it are going to be 
testifying, and the first public hearing is going to be next 
Friday, and we have already sent out notices, and we will be.
    And I also wanted to point out that I am not going to 
designate Mark McClellan as chairman. The last hearing I was at 
several people on your side of the aisle decided or indicated 
that that was not fair, would not be considered, a very 
unbiased conference. So we are putting somebody else in as 
chairman. I will be making that known some time tomorrow or the 
next day.
    Mr. Brown. Can you commit to an earlier date or at least 
suggest can we have it by July 1? Can we have it by June 15? 
Can we move this more quickly so that on the one side we----
    Mr. Thompson. I hate to give you a date, but I can commit 
that we are going to push to get it done before December 1, 
Congressman.
    Mr. Brown. Will it be several months? I mean, I do not want 
to push too much, but will it be several months before December 
1?
    Mr. Thompson. I would like to see it done some time this 
summer.
    Mr. Brown. Okay. Another real quick question. The 
administration and Congressional Budget Office have varying 
estimates of the cost of Medicare law, as we know. Could you 
tell me how much your actuaries estimate that reimportation 
saves? Do you have a figure for us?
    Mr. Thompson. I do not have a figure on that. I do not 
think my actuaries have made any assumptions on that, but if 
they have, I can get that information.
    Mr. Brown. I would request that they do. That is pretty 
important information in judging the whole point of 
reimportation, if you will.
    Last point, Mr. Chairman. I have about 20 seconds. The 
President's total request for the HIV/AIDS, TB and malaria 
bilateral spending for 2005 went from $1.8 billion in 2004 to 
$2.6 billion in 2005. The President's request, as you know, 
would cut the U.S. contribution to the Global Fund from $550 to 
$200 million next year.
    As chairman of the Global Fund, what are you telling the 
President?
    Mr. Thompson. Right now that is all we can give, 
Congressman because the law passed by you puts a limit as to 
how much the United States government can give. It is limited 
to 33 percent.
    The cash on hand right now is about 39 percent that the 
United States has given. So we cannot even given the $200 
million right now unless more countries come in and contribute 
to the Global Fund.
    But I can tell you that the Global Fund is doing well. We 
are in 121 countries, have got 225 projects going, and I am 
going to Geneva next week to chair the----
    Mr. Brown. So that means if we can get private money, 
philanthropist money, and other governments' money our number 
will go up? Is that as assertion you are making?
    Mr. Thompson. Well, right now we cannot contribute anything 
because we are above the statutory limits.
    Mr. Brown. Right. I am saying if they can do more we can do 
more? We will do more?
    Mr. Thompson. I think that there is a strong possibility, 
Congressman.
    Mr. Norwood. Thank you very much. The gentleman's time has 
expired.
    Mr. Upton, you are recognized now for 8 minutes requested.
    Mr. Upton. Thank you. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I do not know if you have had a 
chance to see the ``Families USA'' movie. Some of us have been 
able to see it, Walter Cronkite, some other folks. In my 
estimation they do a very good job of trashing the prescription 
drug bill.
    Have you had a chance to see this? It is about a 17 minute 
clip, and I understand that they are sending it all across the 
country.
    Mr. Thompson. I have not seen it. I have heard about it, 
Congressman, but I personally have not seen it.
    Mr. Upton. When I saw it, there was a part there where they 
talk about the discount card that will be available a little 
bit later this spring, and in essence they make the point that 
it is a bait and switch program; that a senior signing up for 
this will get the card, and every 7 days the provider of that 
card can change it. They can change the prescriptions. They can 
change the discount.
    So if you have whatever particular ailment one might have, 
and maybe pick a specific plan because of the benefits from 
there, it can change literally every single week. Is that going 
to be something that the department is going to allow to 
happen?
    Mr. Thompson. No, it is not, and I am glad you asked me. I 
could not explain that to Congressman Dingell because he only 
allowed me to have a true or false. And it is partially true, 
but----
    Mr. Upton. Well, I have got my 8 minutes.
    Mr. Thompson. [continuing] it is more false because we have 
already passed a rule and have indicated that we will revoke 
cards that are issued if they are bait and switch. It is 
already in our rule. It is also going out into our contractual 
arrangements with the card companies.
    Mr. Upton. Well, that is very good to hear because I can 
tell you----
    Mr. Thompson. That is already. We have already proposed 
that.
    Mr. Upton. [continuing] as I sat down and watched this, I 
was just shaking my head, and I was hoping that you would have 
an answer like that.
    This weekend when I was back in Michigan, I went to a 
pancake breakfast, and I met a wonderful lady who sadly has 
lupus, and she now has to spend she told me $700 a month in 
added costs that she is going to have to pay, and she asked me 
specifically about whether the prescription drug bill the 
President signed, is that going to help her.
    Mr. Thompson. It is going to help her a lot.
    Mr. Upton. And that is what I told her. And, again, looking 
at this ``Families USA'' film clip was a very biased report. It 
talked about all of the cost. It did not say a single thing 
about a benefit. It is almost like it is a new tax, and the 
thousands of dollars that they are going to benefit from that 
they are going to be able to be charged and not receive a 
single benefit as I saw with this particular woman this 
weekend.
    One of the things that I liked in the prescription drug 
benefit bill was the benefit that is going to be provided to 
companies that provide prescription drugs to Medicare eligible 
seniors, the subsidy that those companies are going to receive. 
The statistic that I saw was that the percentage of large firms 
having more than 200 workers that offer retiree health benefits 
has declined from 66 percent in 1988 to 34 percent in 2002.
    My sense is that with the adoption of the prescription drug 
benefit bill, that we will stop that decline that we have seen 
over the last 12 years.
    Mr. Thompson. We certainly believe that it is going to be a 
tremendous help in either stopping or slowing down completely 
those companies that drop drug coverage for their retired 
employees. We think it is a very good provision, 28 percent 
subsidy for those companies that give drug coverage to their 
retirees.
    Mr. Upton. Have you heard about any report since the 
enactment of the bill where companies have indicated that they 
are going to drop their prescription drug benefit for their 
retirees and maybe pay the doughnut hole or just shift 
everybody into the new plan and perhaps pay the out-of-pocket 
costs that the beneficiaries would receive as a saving perhaps 
to them? Have you heard about any companies that would do that?
    Mr. Thompson. Companies right now, I think, are still 
making up their minds.
    Mr. Upton. I know it does not kick in until 2006.
    Mr. Thompson. I think they are still making up their minds 
as to what they are going to do, but I have heard good 
responses back from companies who have indicated that this 
subsidy that you passed and the President signed into law is 
going to help them to be able to continue drug coverage for 
their retirees.
    Mr. Upton. You know, one of the arguments coming from a 
Midwest State like you do, we have seen a lot of jobs 
outsourced for lots of reasons, one of them being the high 
benefits perhaps that U.S. firms have to pay versus what is 
paid in other countries, and as I talk to the auto sector, one 
in seven jobs being auto related, I believe that one of the Big 
Three indicated that they spend $1.1 billion in prescription 
drug benefits to their Medicare eligible retirees each year.
    Now, my sense is that when this bill kicks in for seniors, 
that in fact that company will be able to get a check tax free 
for what was it, 25 percent?
    Mr. Thompson. Twenty-eight percent.
    Mr. Upton. Twenty-eight percent of what they pay? So, in 
essence, nearly, you know, hundreds of millions of dollars that 
they will be able to use for the benefit costs here and thus, 
have a better chance of retaining those jobs in America versus 
sending those jobs overseas.
    Would you agree with that?
    Mr. Thompson. I would agree with that, and I also would 
agree further and even more plausible is that that company will 
more than likely keep that drug coverage for the retirees, and 
without these subsidies would not.
    Mr. Upton. That is exactly right, and you know, as I read 
and sign all of my mail, I heard from a whole number of folks 
who were scared that this plan passed and enacted now by the 
Congress, that they would be forced to go into an HMO. I 
remember we had that debate early.
    You made the point in our first hearing, I think, 2 years 
ago, saying that that was not going to be part of the package. 
That was not agreed to, and that it would be a positive benefit 
for those workers.
    Mr. Thompson. That is correct. It is positive. It is a very 
good bill. It is not perfect, but it is a very good bill.
    Mr. Upton. When is the date that you are anticipating 
getting the discount card available for seniors and how exactly 
is that going to proceed?
    Mr. Thompson. People are going to start being able to 
enroll in a discount card on May 1 through the whole month of 
May, and we are going to start the program starting June 1. The 
companies are going to be able to get out information, and with 
their discounts.
    We are going to put it up on our Web page, and it is going 
to be a transparent page so that everybody can find out exactly 
what this company is going to be charging for their drugs. 
Every senior citizen can call in.
    A senior citizen like this woman with lupus could call into 
1-800-MEDICARE and be able to say, ``These are the drugs I am 
talking. Please tell me which drug companies are going to give 
me the best deal,'' and we will be able to give her that 
information. We will have all of that information on line, and 
we will be able to tell her exactly where she should go.
    Mr. Upton. And will she be able to go to a Walgreen's or I 
mean a whole variety of different pharmacies to have her 
prescription filled?
    Mr. Thompson. Well, it depends upon the----
    Mr. Upton. Medco? I mean how exactly will that work in 
terms of where she would go.
    Mr. Thompson. Well, the companies that have got to issue 
the cards have got to sign up the pharmacist, but we are going 
to have that information. So we can tell her, this individual 
that has lupus; we will be able to tell her which of these drug 
card companies are going to give her the best deal for her drug 
charges, plus where the closest drug stores are to her.
    And they have to be, if she is in an urban area, have to be 
within two miles of her residence, or if she is a suburb, it 
has to be within five miles of her residence. So we are going 
to have all of this information, and we are going to also have 
a lot of information into the community by the SHIPS program to 
be able to help advise, plus this individual can call us and 
give this information right away.
    Mr. Upton. Thank you.
    Mr. Norwood. Thank you, Mr. Upton.
    Mr. Pallone, you are now recognized for 5 minutes for 
questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Secretary, my questions are about the Indian Health 
Service, and let me just say by way of background that I think 
that the amount of money that is being allocated to the Indian 
Health Service is woefully inadequate. I mean, the number of 
American Indians that need health care and do not have access 
to it, you know, continues to go up.
    Frankly, when you look at some of the recommendations that 
were made by the tribes in terms of the amount of money that 
they think is necessary, it would be four or five times what is 
actually allocated.
    But I had specific questions. I am going to try not to have 
them be true/false, but I have four questions I am going to try 
to get through if I can.
    First of all, in the budget the budget request is $2.97 
billion for the Indian Health Service, an increase of only 1.65 
percent, or $45 million, over the last fiscal year. I mean, my 
understanding is that inflation is running like 3 percent or 
more right now. So when you are talking about, you know, less 
than half or half of the cost of inflation, obviously you are 
going to have to do less, not more, even though the need is 
great.
    So I basically wanted to know if you would support 
additional funding if, you know, somehow the appropriators 
could find it and, you know, how the administration justifies 
this effective decrease in funding for the Indian Health 
Service.
    Mr. Thompson. Congressman, as a department, we were given 
the amount of dollars that we had. You will notice that Indian 
Health Service got a higher percentage than most of the other 
operating divisions in my department, which indicates my desire 
to put more money there, but still, if you could find more 
money, we certainly could use it, especially in a program that 
I think is very important. It would improve the quality of 
health, and that is in the water and sewer systems in Indian 
Health.
    I go to Alaska every year, and I know that there is a 
tremendous need.
    Mr. Pallone. Okay. I appreciate that. I am just trying to 
get through these four questions.
    Mr. Thompson. Okay. I am sorry.
    Mr. Pallone. That is all right. I appreciate it.
    The second this is the contract support. As you know, many 
of the tribes have taken over their own health services.
    Mr. Thompson. That is true.
    Mr. Pallone. And I know that this administration has 
encouraged that, you know, I guess in part for ideological 
reasons, because it means that the government is somewhat out 
of the business.
    But if you look at the budget, it is basically flat. In 
other words, there is $267 million, the same as last year, to 
support, you know, these contract support, which probably means 
that no additional tribes would be able to do it.
    So, again, you know, the question is if we were able to 
find funding, would you support an increase for that and why 
the administration just flat funded that.
    Mr. Thompson. Well, I do not know where you are getting 
that. It is my understanding the contract health service went 
up $18 million, about 4 percent increase.
    Mr. Pallone. Okay. Well, I see it is 267, the same as last 
year. So, you know, I am not going to disagree with you. I have 
to go back and look at the facts again.
    Mr. Thompson. Okay.
    Mr. Pallone. But obviously, is that something----
    Mr. Thompson. So will I.
    Mr. Pallone. Is that something that you would be willing to 
see if we could find some additional funds that we would 
increase that as well?
    Mr. Thompson. Yes, we could use the money.
    Mr. Pallone. Okay. Then the third thing is, you know, the 
tribes are concerned about homeland security and the fact that 
they do not seem to be designated for specific homeland 
security funds, and there is, I guess, $476 million, you know, 
for your department related to homeland security I guess for 
bioterrorism attacks through the Health Resources and Service 
Administration, but there is nothing specifically earmarked for 
the tribes, and that has been the case with homeland security 
funds in general.
    So I do not know if you can tell me, but if not, maybe you 
could get back to me about whether any of these funds would be 
allocated to tribal governments.
    Mr. Thompson. I know that they are eligible for them, and I 
know they are eligible for bioterrorism funds, the tribes, and 
I will take a look at it and give you a direct response as to 
what portion are going to Indian----
    Mr. Pallone. But, I mean, obviously you would support some 
portion of it going to them.
    Mr. Thompson. Yes.
    Mr. Pallone. Okay. And the last thing, it is my 
understanding that the Resources Committee, Representative 
Pombo, has requested the administration's policy position on 
the Indian Health Care Improvement Act, the reauthorization, 
and you know, this is very important. It is before this 
committee as well as Resources. It is within the jurisdiction 
of this committee as well.
    And I just was wondering if you could tell me when we can 
expect to hear back from the administration or if you wanted to 
comment on your position on that reauthorization because we are 
trying to get it passed this year.
    Mr. Thompson. I cannot respond right now because it is 
something I am----
    Mr. Pallone. Well, if you could get back to me.
    Mr. Thompson. I will get back to you.
    Mr. Pallone. With the permission of the chairman, if you 
could respond to me in writing or if you have something there 
about when we could hear back.
    Mr. Thompson. I just received a note from my legislative 
assistant who has told me that she is working very closely with 
the Hill, and she expects that very soon.
    Mr. Pallone. Okay. Within a month, a few weeks?
    Mr. Thompson. She says a month.
    Mr. Pallone. Okay. I appreciate it. Thank you.
    Mr. Thompson. Thank you.
    Mr. Pallone. Thank you, Mr. Secretary.
    Mr. Thompson. I will get you that information, Congressman. 
I appreciate it.
    Mr. Pallone. Okay.
    Mr. Norwood. Thank you, Mr. Pallone. Your time has expired.
    I recognize myself now for 8 minutes.
    Mr. Secretary, when we first went around, I did not have 
time to say to you how much I appreciate you spending the 
amount of time that you are here in this great committee and 
also how much I appreciate the job you have done at HHS over 
the last 3\1/2\ years.
    Mr. Thompson. Thank you.
    Mr. Norwood. You have, I think, probably the most customer 
friendly agency out there, and that has everything in the world 
to do with who the boss is, and I am grateful for the work you 
have done and not happy you are leaving at the end of the year.
    I was not going to ask about prescription drug monitoring, 
but it came up, and I think we need to talk about it just for a 
second.
    Mr. Thompson. Sure.
    Mr. Norwood. The problem in this country is more acute 
today, obviously, than it was 50 years ago, though there was a 
problem 40, 50 years ago, and there is movement up on this Hill 
to let's try to get hold of this problem and see if we cannot 
do something about it.
    The States obviously have not done anything about it over 
the years, which is not an indication that they do not want to 
or cannot. It is probably an indication of the cost, and I have 
observed, as some appropriators have found a few funds here and 
there, some States are getting better at it.
    My personal believe is that that program would be best run 
by State governments, grants from the Federal Government with a 
floor, basic standards of what a drug monitoring program should 
be, and let States not have the one size fit all situation. I 
know as a Governor I would guess you would sort of be inclined 
to think that way.
    The Director of the Office of Drug Control Policy, they 
recently had a press conference about this, and he said that 
their goal is to expand the number of States who have drug 
monitoring programs up to 30. My goal would be to get it up to 
50 and where they could cross lines.
    As a former Governor, would you care to comment on whether 
you think practically you might do this best at the State level 
rather than the Federal Government, one size fits all?
    Mr. Thompson. Well, Mr. Chairman, you are always on the 
cutting edge with your philosophy and your ideas, and I 
certainly think it is the best way. I always think that if you 
can get the decisionmaking back to the States you are going to 
be better off and you are going to be able to have a better and 
a more efficient program. It just makes sense.
    In this case, I think you are absolutely correct.
    Mr. Norwood. Well, thank you.
    We need to get this done, and we do not need to fight too 
long over whether it is State or Federal, but I believe we 
would have a country-wide better program being State.
    I think maybe the first time you and I had discussions, it 
was right after you came into office, and we were looking at 
HIPAA and the medical privacy regulations left us by the former 
administration, and I do not know a lot, but I had enough sense 
to know that thing was going to waste a lot of money in health 
care if it had not been altered, which you did some, and it was 
better.
    But still there were problems in medical privacy, and you 
have been working on those, I understand over the last months, 
and I would like for you just very quickly to bring us up to 
speed a little bit about some of the changes that have been 
made and, second, how are we educating the people that are 
involved with those changes.
    Mr. Thompson. Well, let me answer the second part first. We 
are putting out as much information as we possibly can, and 
when we see a complaint, we call those individuals, that 
hospital, those lawyers, or we set out a delegation to go out 
into that community or that State and set up informational 
hearings. We are doing that all over the country.
    Most of the problems with HIPAA right now are mis-
communications and not understanding what we have done to make 
the changes. As soon as we hear a complaint, we immediately go 
out there and talk to them and find out what we can do to 
alleviate that problem, and usually just by educating and 
talking to them, we have been able to quell the kind of 
concerns that they have.
    I would have to say to you I have spoken to the Hospital 
Association, Medical Association. Hardly any questions at all 
any more about HIPAA, which indicates to me that it is working 
the way we thought it would, but if you have some other 
complaints, I wish you would give it to me.
    Mr. Norwood. No.
    Mr. Thompson. And I would be more than happy to continue to 
work on it.
    Mr. Norwood. I only mean our difficulties in coming down on 
that, too, but I want to make sure that the people that are 
involved in this, the people that are treating patients have 
enough information to know the good changes you made.
    Mr. Thompson. Thank you.
    Mr. Norwood. Now, one last, quick question. I know this 
will probably be a real surprise to you that I did not vote for 
the Medicare prescription drug bill, but I did not, and I did 
not vote for the bill for the opposite reasons some of my other 
friends did not vote for the bill. Some people did not vote for 
it because they think it did not spend a trillion dollars. I 
did not vote for it because I know it is going to spend a 
trillion dollars.
    And so where I am in the thing is it is probably the best 
prescription drug bill I have seen sine we have been up here. 
We have not had a lot to choose from. It is the law of the 
land, and I am going to do everything I can do on a personal 
basis at home to make sure that my constituents understand.
    This bill may not be great for taxpayers, but it is pretty 
bloody good for the patient.
    Mr. Thompson. It is very good for low income Americans.
    Mr. Norwood. Well, it is also good for sick Americans.
    Mr. Thompson. Right.
    Mr. Norwood. Very sick Americans.
    Just in my last 2 minutes, the prescription drug card that 
is coming out, that is the first card we are going to use, $30 
for the thing, $600 credit on it for low income. You said you 
had 151 hit son that?
    Mr. Thompson. No, we had 150 different entities want to 
issue the card.
    Mr. Norwood. That is what I mean. That is what I meant by 
that.
    Mr. Thompson. Yeah, 105.
    Mr. Norwood. So that is 151 companies out there who have 
called you up and said, ``Mr. Secretary, I can furnish that 
card''?
    Mr. Thompson. That is correct. One hundred and five.
    Mr. Norwood. One hundred and five. How many will you boil 
it down to?
    Mr. Thompson. We are working on that right now. In fact, I 
told my staff I want to get it down by Friday. We are looking 
somewhere in the neighborhood of 40 to 50. You have got to 
break it down because some are national, some are regional, and 
some are for Medicare Advantage Plans. Some people just want to 
enroll their own members, and for those that want to just 
enroll their members that are HMOs or Medicare Advantage or 
Medicare Plus, we are going to allow them to do it provided 
they have the solvency in order to do so.
    Mr. Norwood. So you at HHS are actually going to help 
people to determine under your circumstances this is the best 
card perhaps.
    Mr. Thompson. Absolutely. It is going to be completely 
transparent, and we are going to allow individuals to call in 
with their prescriptions and tell them which one of these cards 
is going to give them the best deal and where the closest 
drugstore that this particular card company has enrolled for 
that individual.
    Mr. Norwood. So every card, let's say there ended up there 
are 40. Every card will not have the same savings factor in it.
    Mr. Thompson. Not all of them will be because some will 
make better deals with the companies, and we are going to have 
those listed, and we are going to be able to advise every 
applicant that wants to enroll which is the best card for that 
particular person compared to the prescriptions they are 
taking.
    Mr. Norwood. Well, people should not say this prescription 
drug bill absolutely does not help anybody. That is really a 
false statement.
    Mr. Thompson. It is.
    Mr. Norwood. And there are some very, very good things in 
it that I am glad are in it, though I am still concerned about 
it, therefore voted no. But all of us ought to be out there at 
home trying to help our seniors understand what the law of the 
land is and then trying to improve that anywhere we can over 
the next few years.
    Again, Mr. Secretary, my time is up, but I cannot thank you 
enough for your services.
    Mr. Thompson. if I could just quickly say that one of my 
staff people briefed you last fall about the simplified fact 
sheets, and you requested that they be simplified further.
    Mr. Norwood. Yes.
    Mr. Thompson. They are on the Web page right now pursuant 
to your instructions.
    Mr. Norwood. Thank you, sir.
    And I want to make sure everybody in American who uses that 
knows it.
    Mr. Thompson. It came from you.
    Mr. Norwood. Well, you fixed it though. I may have asked 
you to, but you fixed it.
    Mr. Thompson. We fixed it.
    Mr. Norwood. Ms. Capps, you are now recognized for 8 
minutes.
    Ms. Capps. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary.
    It is not every day that morning news leads with a health 
topic. Tragically this morning, I think ominously, the CNN led 
morning news with the statement and the fact that within a very 
short time obesity will be the No. 1 underlying cause of death 
in this country, and I want to compliment you for getting out 
early on that topic.
    This is not what I am going to use my 8 minutes on, but I 
just want to make a statement.
    Mr. Thompson. Thank you.
    Ms. Capps. You saw this coming, and it is a huge challenge.
    Mr. Thompson. Huge.
    Ms. Capps. And I think your ads, I have seen two of the 
ads, and they are great.
    Mr. Thompson. Thank you.
    Ms. Capps. I know that is not going to solve the problem by 
itself, but it is a good statement to get out there.
    Mr. Thompson. Thank you.
    Ms. Capps. It is getting people talking about it.
    Mr. Thompson. I am glad you saw the ads.
    Ms. Capps. I would like to get back to revisit, since you 
offered to be here, the newly enacted Medicare program, and 
according to MEDPAC, Medicare is in this new plan paying 
private plans 9 percent more than the amount it would cost to 
cover the same mix of enrollees under Medicare's traditional 
fee-for-service system.
    Now, CMS through regulation has implemented a risk adjuster 
and budget neutrality provision that increases payments by 16 
percent. It is expected that CMS will be changing this risk 
adjustment factor to 8 percent, and that means that plans will 
be paid a total of 117 percent of what it would cost to cover 
the same mix of enrollees under Medicare's traditional fee-for-
service system.
    I noticed that you acknowledged this fact that Medicare 
pays HMOs more than it would cost to serve those beneficiaries 
in fee for service when you testify to Ways and Means on 
February 10. So that I could get it really clear, I am going to 
quote now from the transcript.
    Mr. Kleczka asked, ``Do you agree that currently we are 
reimbursing HMOs and PPOs who administer to Medicare patients 
higher than under the Medicare fee-for-service program?'' And 
you did acknowledge yes. My question is: if plans are so 
efficient and we are choosing the private sector because of 
their efficiency--I have heard that--why do we need to pay them 
17 percent more to provide the same services under a private 
plan? Why should we pay private plans more to provide services 
that would be cheaper, demonstrably cheaper, in traditional 
Medicare?
    Mr. Thompson. I do not believe we are paying them 17 
percent, but we had put together a plan, Congresswoman, that 
asked Congress to pass so that the lowest three individual 
bidders would be the ones who would be accepted, and our 
actuaries believed that would have driven down the price below 
the fee for service, and that was what we did.
    Congress made a decision that said, no, we should not limit 
it to the three lowest bidders. It should be wide open, and as 
a result of that, there is not the pressure to drive down the 
prices. As a result of that, there is the possibility based 
upon our actuary that we will be paying more for HMOs.
    Ms. Capps. In addition, the administration estimates that 
$46 billion, CBO estimates $14 billion, will be pumped into 
HMOs under the new Medicare law over the next 10 years. In your 
testimony you state that this money is going to be used by 
Medicare Advantage to provide more generous coverage, including 
benefits that traditional Medicare may not offer.
    Accordingly, we have seen that HMOs have been courting 
seniors in different areas. For example, the New York Times 
article showed Humana according the same seniors that they had 
left hanging in Florida in 2000 when the very same plan pulled 
out.
    Now, I agree with you that seniors should receive more and 
better services, and I would be more than happy that these 
services would also be provided under traditional Medicare, but 
I think it is only fair that it be on a level playing field.
    Again, we are going to be paying private plans more--we can 
quibble about how much more, but estimates state 17 percent--to 
provide the same mix of services that it costs under 
traditional fee for service. The ad keeps haunting me of the 
same Medicare, only better, but it even states in the ad people 
who choose fee for service can continue to have the same 
benefits, but they are going to be discriminated against 
because seniors in the traditional fee for service are not 
going to be getting these expanded services.
    Mr. Thompson. Well, right now the law says, Congresswoman, 
that the additional money going to Medicare Plus Choice or 
Medicare Advantage, whichever you call it right now, the extra 
money has got to go either for decreasing the beneficiary's 
premiums or have reduction in the beneficiary cost sharing or 
enhance benefits.
    And we have seen the enrollments so far, and they have been 
complying with that. They have to file their rates, as well sa 
their expanded benefits and their premiums, and they have been 
doing that. The premiums have been going down and benefits have 
been increasing. So it has been good.
    Ms. Capps. Let me just raise a question. I want to give a 
minute to my colleague who will not get a chance to, Mr. Allen. 
So I am going to watch the clock.
    I will say basically the same thing again. The private 
insurance market has been touted by the administration and the 
House Republicans as the answer to Medicare's future financial 
challenges. We have seen in my district Medicare Plus Choice. 
The HMOs leave by the droves after raising their premiums.
    So you are going against the history that my seniors know. 
This notion that plans are going to complete to serve an older, 
sicker, poorer population is hard for me unless they are vastly 
overpaid to do so.
    Now my question. What is the basis for which you are 
stating, and I want to give you a minute to answer and let my 
colleague take the last minute? Are you suggesting that private 
markets are really more reliable even though they are in 
competition with each other and that their CEOs have to be paid 
handsomely? And then traditional Medicare, which has provided 
low cost, reliable coverage for seniors----
    Mr. Thompson. We think that it is going to allow for 
choice, and we think the choice is going to make more 
efficiencies in the market, and we think the costs will go 
down.
    And we have been seeing that the Medicare Plus Choice, 
Medicare Advantage are coming back into the market. There is a 
lot of indication they are coming back into the market, and we 
see that there is going to be----
    Ms. Capps. They are coming back in the market because they 
are being paid handsomely to do that.
    Mr. Thompson. Well, they are coming back into the market, 
and they are coming back with better benefits, too.
    Ms. Capps. And there is no reason that they have to stay. 
There is no fixed coverage that they have to stay.
    Mr. Thompson. No, that is true.
    Ms. Capps. And so they can go up with inflation, as 
everything else in health care has been going up. Again, the 
seniors in my district that I have talked to, choice is not 
what they are asking for. Reliability, the Medicare they have 
always known and trusted. That is why you are having to run the 
ads, because there is a huge amount of lack of trust of this 
program in the community.
    Mr. Thompson. Well, I think we have to run the ads because 
the Congress and the law tells us we have to.
    Ms. Capps. No.
    Mr. Thompson. We have to inform it, and we have to do it, 
and I am confident that your people want choice as much as the 
people that I----
    Ms. Capps. Not what they tell me.
    I will turn now to my colleague, Mr. Allen.
    Mr. Thompson. Thank you.
    Mr. Norwood. Mr. Allen, watch the clock.
    Mr. Allen. I thank the gentlelady for yielding.
    In Maine my seniors are very unhappy with this law for the 
reasons that Ms. Capps expressed. I just wanted to ask you 
quickly. I have co-sponsored a bipartisan bill to fund studies 
of the comparative effectiveness and cost effectiveness of 
prescription drugs, a bipartisan bill. The Medicare law 
contains a similar authority for AHRQ, but the President's 
budget contains no funding.
    There are in the law a set of requirements, a set of time 
lines, and I am wondering today if you can commit to meeting 
those time lines that are set forth for this particular 
initiative.
    Mr. Thompson. In fiscal year 2004, AHRQ invested $12 
million for the related activities on the conduct of research, 
and I can assure you that we are going to meet the time lines.
    Mr. Allen. I thank you.
    Mr. Norwood. I thank you, Mr. Allen.
    Mr. Secretary, there are a number of people who wish to put 
some questions in writing, and we would appreciate it if you 
would answer them. Mr. Pickering, I believe.
    Mr. Pickering. Yes, Mr. Chairman.
    Mr. Secretary, I have some questions on the self-injectable 
issue----
    Mr. Thompson. Right.
    Mr. Pickering. [continuing] that I would like to be 
addressed. I will submit those for the record. I know your time 
is short, and my colleague from California----
    Mr. Norwood. We are all very grateful for you spending 3 
hours with us.
    The Secretary has agreed to take one more set of questions, 
and that will be the end of the hearing, and with that, I 
recognize Ms. Bono for 8 minutes.
    Ms. Bono. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here.
    My questioning is of a completely separate matter than that 
of my colleagues.
    Mr. Thompson. Congressman Pickering, just get them. We will 
get you a response to your questions.
    Sorry.
    Ms. Bono. I would like to speak about the Ryan White Care 
Act. In my district, I have a community clinic that is really 
exemplary, the Deserts AIDS Project. The fiscal year 2005 
budget flat funds and actually decreases Titles I and III in 
the Ryan White Care Act. The combination of that, along with 
the crisis California is facing with our budget, I am concerned 
my clinic is going to suffer, and I was wondering if you could 
tell me what you think this might mean to the grantees of the 
Ryan White Care Act.
    Mr. Thompson. We decided, Congresswoman, that the money, 
since we were limited in the amount of resources we had in 
putting together the budget, that it would be better to put the 
Ryan White money into ADAP, into drugs, and that is where the 
increased money went.
    Ms. Bono. However, California is cutting its ADAP funding 
so this will continue to be a major issue, and I am concerned 
because we have made tremendous progress with AIDS and HIV. We 
were able to keep people who are HIV positive from developing 
full blown AIDS, and I am concerned that we are going to suffer 
a setback if this is the trend that we are going to be 
following here.
    Mr. Thompson. I would love to sit down and talk to you 
about how we might be able to help California in this, but most 
of the people that have some in to see me--I am very active in 
the AIDS fight. As you probably know, I am chairman of the 
Global Fund, and I have put a lot of effort into meeting with 
AIDS groups all over the country, and they advise me that they 
would much rather see the money we have put into ADAP for the 
use of medicine to get to individuals that are HIV positive, 
and so that is where we put the money.
    Ms. Bono. Well, I would really like to sit down and work 
with you further on this, and I will take this opportunity to 
invite you to my district to visit this clinic.
    As well, you and I have spoken before along with Senator 
Frist about the IMPACT bill in trying to address the issue of 
childhood obesity, and I am glad to see that this issue has 
been elevated.
    You also have the STEPS to a Healthier U.S. initiative, and 
I believe you doubled the funding.
    Mr. Thompson. Yes.
    Ms. Bono. Can you explain to me? I have some concerns with 
my own legislation. Even though my name is on it, I do not know 
how you legislate health or how you legislate fitness. I would 
love to hear about the success that you have already made and 
what we can look forward to in the near future with this new 
initiative you have.
    Mr. Thompson. I happen to be extremely passionate about 
this subject. We rolled out yesterday at a press conference 
with the Ad Council five new ads that are very funny, and they 
really point out.
    We are also teaming up with Sesame Street in order to get 
to children. We are putting out the VERB Program through CDC. 
We have spent $289 million over the last 5 years in developing 
this program. This is called VERB.
    We are getting information out all over the country. The 
Surgeon General, I have requested him to go to schools in every 
one of the 50 States, and which he intends to do. I speak on 
the subject all over, and we have got this Healthier Steps for 
U.S., and what we are trying to do there is we are trying to 
get cities to compete against each other across America to 
improve their quality of health in several areas: reduction in 
diabetes, reduction in asthma, and reduction in obesity, 
especially with children; and putting some dollars in to 
developing good walking paths and being able to set up 
programs.
    So far we had 150 applications for $13 million, which would 
indicate that there is a real desire out there. We have $44 
million this year. We are going to put that into some other 
programs to help cities. We are hoping to be able to get a lot 
of competition. We think that is the best way to do it, just 
the way we fought cigarette about 25 to 30 years ago. We want 
to now bring the whole force of the Nation in trying to develop 
programs to get people to start looking at themselves and say, 
you know, chunky is good, but slim is better.
    Ms. Bono. Well, I appreciate your leadership on this.
    Mr. Thompson. Thank you.
    Ms. Bono. Senator Frist and I have worked on it for quite 
some time. I definitely appreciate all you have done.
    But one last topic that I do not hear much coming from you 
on is the Women's Health Initiative. I would like this issue to 
be elevated.
    Mr. Thompson. I was just given the Women's Health Advocate 
of the Year Award. So I don't know.
    Ms. Bono. I am sorry. I did not know that. I will follow 
your awards more closely from now on, Mr. Secretary.
    Seriously though, the Women's Health Initiative on hormone 
replacement therapy is something that women are as concerned as 
confused about. I hope you will continue to focus efforts on 
this as well.
    And I am going to yield my time, if I can, to Mr. Towns if 
the Secretary could just briefly comment on Women's Health 
Initiative.
    Mr. Thompson. Our budget includes $8 billion for 
discretionary activities which are targeted directly toward 
women's health. This is an increase of $380 million, or 5 
percent, and when you take a look at the overall discretionary 
budget of 1.2 percent for the total budget, you can see we 
really put the emphasis on women's health, and we are doing a 
lot of things.
    I wish I had time to go through all of the things we are 
doing, but it is quite remarkable. It is never enough, but we 
are going in the right direction.
    Ms. Bono. You are definitely doing that. Just pinpointing 
one specific area on hormone replacement therapy for women, I 
think it is a topic that is very confusing right now to the 
public.
    Mr. Thompson. NIH, you know, is doing a study on that right 
now as we speak.
    Ms. Bono. Yes, and that is what I am referring to. So I 
just want to thank you for that, and make sure that you keep 
emphasis on it as well.
    And I am happy to yield to my colleague with that.
    Thank you.
    Mr. Thompson. I have got a wife and two daughters that are 
in the women's health movement, and they talk to me about this 
every single day.
    Ms. Bono. They are good people.
    Thank you, Mr. Secretary.
    Mr. Towns. Thank you very much for yielding.
    Mr. Secretary, first of all, let me join my colleagues in 
saying that I really appreciate your involvement in terms of 
obesity.
    Mr. Thompson. Thank you.
    Mr. Towns. You know, I read the article in the Washington 
Post, and I watched CNN last night, and I think that is a giant 
step in the right direction.
    You know, what I would like to ask of you, I have a bill 
2024 which would address the issue, and actually this ban will 
assist those which really do not fall into the regular category 
and that they will need additional help.
    In that vein, I would ask you to seriously consider 
supporting efforts that I will be making later in the year to 
remove the current restrictions in Medicaid law which bans 
reimbursement for the use of any weight loss drug.
    I do not want you to answer me today. I really want you to 
think about this and maybe have your staff to sit down with 
my----
    Mr. Thompson. What is the number of your bill?
    Mr. Towns. Twenty, twenty-four.
    Mr. Thompson. Twenty, twenty-four. I will look at it.
    Mr. Towns. Right, and I think that this would make it 
possible, you know, for many others to benefit from it, you 
know, those that might not be able to just benefit from 
exercising and all of the other kind of things, but the point 
is that I think that we need to do as much as we can because, 
as you indicated, 40,000 preventable deaths, you know, 
attributed to the disease of obesity. So I think that when you 
look at that that anything that we can do, I think we need to 
try and do it.
    So if you could just ask your staff to----
    Mr. Thompson. And it is extremely serious in the minority 
communities, and I would appreciate any suggestions you might 
have on how we can do a better job to get information out to 
the African American community. I really would like that.
    Mr. Towns. Well, thank you very much. I am anxious and 
eager to work with you on that----
    Mr. Thompson. Thank you very much.
    Mr. Towns. [continuing] as I have done on many issues in 
the past.
    Mr. Thompson. Thank you.
    Mr. Norwood. I will ask unanimous consent to keep the 
record open for 14 days, Mr. Secretary, so that members can 
submit questions and have additional materials for the record.
    With that, again, a large thank you very much for being 
here. You have been absolutely great, and the hearing is 
adjourned.
    Mr. Thompson. You are a wonderful Chairman.
    Mr. Norwood. Thank you.
    [Whereupon, at 5:09 p.m., the hearing was adjourned.]
    [Additional material submitted for the record follows:]
         Prepared Statement of the American College of Surgeons
    The American College of Surgeons is pleased to comment on the 
Administration's FY2005 Health Care Priorities. We thank Chairman 
Barton and the other distinguished Members of the Committee on Energy 
and Commerce who worked diligently to pass the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA). This legislation 
guaranteed a 1.5 percent increase in physician payments in 2004 and 
2005, averting a 4.5 percent cut. Surgeons historically have had 
particularly high Medicare participation rates. That legislation took 
an important first step in guaranteeing the profession's continued 
participation in the program.
    CMS has performed exemplary work in implementing the MMA. We 
applaud Secretary Thompson and the agency for completing the sizeable 
amount of work it had to accomplish in the limited time it had to do 
so. Due to the recognition of CMS' constraints in developing policies 
in many of these areas, we have we have limited our comments to those 
areas over which CMS has some degree of latitude. It is within that 
context that we offer the following comments.

                      THE SUSTAINABLE GROWTH RATE

    The SGR includes not only physicians' services, but also services 
and supplies furnished incident to physicians' services, such as drugs. 
According the final rule for the Medicare Fee Schedule published in the 
November 11, 2003 Federal Register, drugs make up 12.3 percent of 
allowed charges included in calculating the SGR for 2002, which is a 41 
percent increase over two years. It is worth noting that in 2002, the 
last year for which data is available, 20 drugs are in the 100 fastest 
growing services. This growth was greater than the other two categories 
of SGR spending--laboratory services and physician services. 
Furthermore, spending for major procedures has remained constant.
    The growth in drug utilization has been largely a result of the 
introduction of new and generally very expensive drugs. New drugs are 
going to continue to be introduced and with life expectancy continuing 
to grow, people will use drugs for chronic conditions for a longer 
period of time. With all of these factors combined, we believe spending 
on drugs will continue to escalate for many years.
    Finally, the use of drugs varies significantly by specialty. 
According to CMS, small specialties received more than 40 percent of 
their Medicare income from drugs. Sixteen specialties, including the 
large specialties of internal medicine, family practice, general 
practice, obstetrics-gynecology, and general surgery, had five percent 
or less of their Medicare income from drugs. Thus, the administration 
of drugs by a few specialties of small size has the unintended 
consequence of reducing payments for all specialties.
    CMS clearly has the authority to remove drugs from the SGR 
calculation. At one time, two different definitions of ``physicians' 
services'' appeared in statute--one that applied generally to the fee 
schedule and one that only applied to computing the SGR. The one that 
applied generally to the fee schedule permitted the Secretary some 
discretion to define in regulation what to include. In the final fee 
schedule regulation for 1992, drugs were excluded from the definition 
of ``physicians' services''. The other definition, the one that applied 
to computing the SGR, did include drugs. However, the Deficit Reduction 
Act of 1997 deleted the section containing that reference. 
Consequently, we would argue that CMS must remove drugs from the SGR 
calculation.
    Our second concern with the SGR involves the MMA which contained a 
provision giving physicians a positive update of 1.5 percent in 2004 
and 2005. Ironically, the law went on to say this modification is not 
to be reflected in the SGR calculation as a change in law. No rationale 
is offered in the report language. This sabotages the point of the SGR 
by keeping it from rising to reflect legitimate increases in spending 
originating in the law.
    By not adjusting the SGR to account for this increase in spending, 
expenditures will far exceed the SGR and the result will be years of 
negative updates. On the other hand, if fundamental changes in the 
update can be agreed to, the cost of making the changes will be 
artificially inflated by not including the updates in 2004 and 2005 in 
SGR. It is entirely possible that this ``cliff'' will be so great that 
it will cause the defeat of a proposal which is otherwise acceptable. 
We urge CMS to support legislation that would include in the SGR the 
increases in spending resulting from use of the new MMA benefits, as 
well as any additional services that are triggered by these benefits.

                 SUPPLEMENTAL PRACTICE EXPENSE SURVEYS

    CMS established a process in its May 3, 2000 rule on Criteria for 
Submitting Supplemental Practice Expense Survey Data under which it 
will accept and use data collected or developed by entities and 
organizations to supplement the data it normally collects in 
determining the practice expense component of the physician fee 
schedule. This rule was developed for data submitted for use in 
computing the practice expense RVUs for the 2001 and 2002 physician fee 
schedules and has been used by CMS to evaluate subsequent supplemental 
data submitted to them by medical specialty societies. The College 
believes there has been and likely will be in the future a legitimate 
need for specialties to submit supplemental data for various reasons, 
the most common being a sample size from the SMS survey that is too 
small. A prime example of this is in the case of thoracic surgery and 
vascular surgery where sample size from SMS data were considered to be 
too small to provide valid data.
    The May 2000 rule states that CMS would use a weighted average 
(based on the number of survey responses) of the supplemental data 
submitted to them by specialty societies and existing data from the 
American Medical Association's Socioeconomic Monitoring Survey (SMS) 
for those specialties that are already represented in the SMS data. CMS 
has in the past blended specialties' supplemental survey data with 
prior survey data from the SMS. The College believes that CMS should 
develop and hold to a consistent policy in regards to whether or not to 
use a weighted average of supplemental data and the existing SMS data 
already being used. While we believe there could be isolated cases in 
which exceptions need to be made, a strong and compelling rationale 
should be provided to CMS by specialty societies. In addition, for any 
future supplemental survey data CMS is considering using without 
blending with existing SMS data, the agency should include its 
rationale for doing so in a proposed notice that would be subject to 
public comment.

   PROFESSIONAL LIABILITY INSURANCE GEOGRAPHIC PRACTICE COST INDEXES

    As a result of the most recent escalation in the costs of 
Professional Liability Insurance (PLI) premiums nationwide, CMS updated 
the Geographic Practice Cost Indexes (GPCIs) based upon actual 2001 and 
2002 premium data and forecasted 2003 premiums using a mean rate of 
change. We thank CMS for its methodological change in using forecasted 
data for 2003. However, as we outlined in our comments on the proposed 
2004 physician fee schedule rule, we believe that CMS should predict 
2004 premiums based on the rate of growth in the PLI premiums from 2001 
to 2003, but not blend the predicted 2004 data with data from as far 
back as 2001. Using 2004 projected data would more accurately capture 
the PLI premium increases that have recently occurred, rather than 
diluting these increases with data from previous years
    The College appreciates CMS sharing with the AMA/Specialty Society 
Relative Value Update Committee (RUC) for review at its February 2004 
meeting the professional liability insurance premium data utilized in 
establishing the PLI GPCIs. We also appreciate CMS providing the list 
of CPT codes with their assigned category of risk (i.e., surgical or 
non-surgical). During this meeting, the RUC held a lengthy discussion 
concerning the disparity between the data provided and the actual PLI 
costs currently incurred by physicians. The RUC concluded that the 
process of averaging the data which is highly variable state by state 
and even among regions within a state do not provide an appropriate 
reflection of costs incurred by practitioners in high-risk states.
    We are encouraged that CMS has indicated an interest in working 
closely with the RUC on additional data collections that would provide 
more reliable and recent data, both for the use of the GPCIs and the 
establishment of the Medicare Economic Index (MEI) weights for the 
malpractice component of the fee schedule. The College looks forward to 
participating in this effort.

        ADJUSTING RELATIVE VALUE UNITS TO MATCH NEW MEI WEIGHTS

    As CMS' impact analysis shows, adjusting the Relative Value Units 
(RVUs) to match the new MEI weights increased the malpractice RVUs by 
more than 20 percent which, in turn, increases the payment for those 
specialties that perform services with high malpractice RVUs including 
anesthesiology, cardiac surgery, emergency medicine, neurosurgery, 
orthopedic surgery, thoracic surgery and vascular surgery, all which 
increase by approximately one percent.
    We understand that CMS believes that by matching the aggregate 
pools of RVUs to the rebased MEI weights, Medicare's payments for 
physician work, practice expense and malpractice will more closely 
match the proportion of expenses incurred by physicians in these 
categories. We support the reweighting of the PLI component to increase 
the proportion of Medicare payments that go towards professional 
liability premiums. However, as we stated in our comments to the final 
rule published in the November 7 2003 Federal Register, altering work 
and practice expense to maintain budget neutrality compromises the 
integrity of the work and practice expense relative values currently 
assigned to codes.
    Due to the mandates of the MMA, which exempt some of the changes to 
work and practice expense RVUs from budget neutrality, the number of 
work and practice expense RVUs have been increased. As a result, the 
adjustments to the work and practice expense RVUs are less than those 
published in the November final rule. The revised adjustments are 0.15 
percent (0.9985) for physician work, -1.320 percent (0.9868) for 
practice expense, and 20.61 percent (1.2061) for malpractice. Although 
we continue to disagree with any adjustments to work and practice 
expense as a means of achieving budget neutrality, we are pleased that 
the alterations made to these values are considerably less than 
originally announced.

                        FIVE-YEAR REVIEW OF PLI

    While we appreciate the adjustments CMS has made to the PLI 
component of the 2004 fee schedule, these modifications are minor and 
because they are budget neutral, the impact on most surgeons will be 
minimal. As the cost of insurance continues to mount, the number of 
physicians experiencing a crisis in obtaining and affording 
professional liability insurance in this country is growing rapidly. 
With 19 states in crisis and insurers in state after state raising 
their rates or ceasing to offer certain kinds of insurance, the need 
for CMS and Congress to act has never been greater.
    We were encouraged to hear CMS officials announce at the February 
25, 2004 Practicing Physicians Advisory Commission meeting that CMS 
will include in the Spring proposed notice for the 2005 Medicare 
Physician Fee Schedule a discussion of the Five-Year Review of 
malpractice RVUs. The College believes it is critical that CMS and the 
specialty societies invest a great deal of effort into the 5-Year 
Review of malpractice RVUs. We urge CMS to consider whether the current 
method of allocating RVUs is appropriate or whether some alternative 
would better meet physicians' needs.
    Additionally, the College has previously asked CMS to ``model'' an 
approach that would calculate PLI RVUs using the PLI premium of the 
specialty that performs the procedure most frequently. We believe this 
proposed methodology would more accurately reflect the expense and risk 
of various services in calculating the malpractice RVUs by accounting 
for the specialty most commonly performing each procedure. In its 
comment letter to the 2004 proposed rule, the RUC also recommended that 
CMS consider the use of the dominant specialty rather than a weighted 
average of all specialties that perform the service. We urge CMS in the 
strongest terms possible to review these proposals and include them as 
an option for public comment in the 2005 proposed fee schedule, along 
with other alternatives that are being considered for development of 
malpractice RVUs.
    While an improved methodology is needed to redistribute PLI 
reimbursement to those specialties that are most impacted by the rising 
costs, unless Medicare payments are increased to offset the increased 
expenses of PLI, patients' access to care will continue to be 
endangered and the problem will only intensify over time. We reiterate 
our support of the Help Efficient, Accessible, Low-Cost, Timely 
Healthcare (HEALTH) Act of 2003, H.R.5. In addition, Congress needs to 
provide new money for addressing this crisis before more physicians are 
forced to leave their patients and move to states where liability is 
more affordable, limit their services, or abandon their practices 
altogether.

                               CONCLUSION

    One of the greatest achievements of the Medicare program is the 
access to high-quality care it has brought to our nation's senior and 
disabled patients. This level of access cannot be expected to continue 
uninterrupted in the face of continued cuts and growing liability 
premiums. We cannot emphasize enough how important it is for Congress 
and the Administration to take steps ensuring that physician payments 
adequately reflect the cost of doing business.
    Thank you for your consideration of Medicare payment policies as 
you review the Administration's FY2005 Health Care Priorities. The 
College appreciates this opportunity to present its views and looks 
forward to working with you to ensure continued access to Medicare.

    [At the time of printing the Department of Health and Human 
Services had failed to respond to additional questions.]