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



 
              PRESIDENT'S FISCAL YEAR 2005 BUDGET FOR THE


                  U.S. DEPARTMENT OF HEALTH AND HUMAN


                                SERVICES

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 10, 2004

                               __________

                           Serial No. 108-32

                               __________

         Printed for the use of the Committee on Ways and Means






                        U.S. GOVERNMENT PRINTING OFFICE

93-238                       WASHINGTON : 2004
_____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800
Fax: (202) 512-2250  Mail: Stop SSOP, Washington, DC  20402-0001







                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

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

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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





                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 2, 2004, announcing the hearing.............     2

                                WITNESS

U.S. Department of Health and Human Services, Hon. Tommy G. 
  Thompson, Secretary............................................    11

                       SUBMISSIONS FOR THE RECORD

National Association of Chain Drug Stores, Alexandria, VA, 
  statement......................................................    68
Sandata Technologies, Inc., Port Washington, NY, Stephen A. 
  Silverstein, and Mark C. Baff, statement.......................    72


 PRESIDENT'S FISCAL YEAR 2005 BUDGET FOR THE U.S. DEPARTMENT OF HEALTH 
                           AND HUMAN SERVICES

                              ----------                              


                       TUESDAY, FEBRUARY 10, 2004

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 2:10 p.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 02, 2004
FC-13

                      Thomas Announces Hearing on

              President's Fiscal Year 2005 Budget for the

              U.S. Department of Health and Human Services

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the President's Fiscal Year 2005 Budget for the U.S. Department of 
Health and Human Services (HHS). The hearing will take place on 
Tuesday, February 10, 2004, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the Honorable Tommy G. Thompson, 
Secretary, U.S. Department of Health and Human Services. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

    On January 20, 2004, President George W. Bush delivered his State 
of the Union address, in which he discussed several legislative 
initiatives. The President provided the details of these proposals on 
February 2, 2004, in his fiscal year 2005 budget as submitted to the 
Congress. The budget for HHS included initiatives aimed at: 
strengthening and improving Medicare; assisting individuals who lack 
health insurance; and reauthorizing and improving Temporary Assistance 
for Needy Families, and related programs.
      
    In announcing the hearing, Chairman Thomas stated, ``This hearing 
will help lay the groundwork for the year's legislative business. The 
Committee will examine the Administration's plans to implement the 
landmark Medicare law that provides prescription drug coverage to 
seniors. We will also examine the President's proposal aimed at 
reducing the number of uninsured Americans,'' Thomas said.
      
    ``In addition, we will continue to work to ensure that the welfare 
reform bill passed by the House last year becomes law. Despite the dire 
predictions of reform opponents, the 1996 welfare reform changes have 
led to higher earnings for low-income parents, historic declines in 
child poverty, and a sharp reduction in the welfare caseload. We must 
support and encourage even more welfare recipients to work and must 
resist efforts to turn back the clock to pre-reform policies 
discouraging work and promoting dependence.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing is to review the President's fiscal year 
2005 budget proposals for the U.S. Department of Health and Human 
Services.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person or organization wishing to submit written 
comments for the record must send it electronically to 
hearingclerks.waysandmeans@ mail.house.gov, along with a fax copy to 
(202) 225-2610, by close of business Tuesday, February 24, 2004. In the 
immediate future, the Committee website will allow for electronic 
submissions to be included in the printed record. Before submitting 
your comments, check to see if this function is available. Finally, due 
to the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-packaged deliveries to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

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

                                 

    Chairman THOMAS. If we can ask our guests to find seats, 
please.
    Good afternoon. As we continue to explore the President's 
fiscal year 2005 budget, I would like to welcome once again the 
Secretary for the U.S. Department of Health and Human Services 
(HHS), Tommy Thompson. We obviously look forward to his remarks 
on the Administration's health care and welfare priorities.
    Last year we successfully accomplished a longstanding 
health care goal, providing prescription drugs to seniors under 
Medicare. Starting in June of this year, a prescription drug 
discount card will be available to seniors to help reduce their 
out-of-pocket costs.
    In just 3 months, over 100 companies have signaled to HHS 
their intent to offer discount cards to seniors, and I am sure 
we will be anxious to hear the process that the Secretary 
envisions for selecting those that would be able to provide 
this valuable service.
    Further, we already are seeing the positive effects of 
other Medicare improvements in the new law: the revised 
reimbursement rates for integrated Medicare Advantage plans 
that resulted in lower premiums, improved prescription drug 
coverage, and better health care choices for seniors. We 
believe 93 percent of seniors in these plans will see reduced 
premiums; about 80 percent, reduced co-payments and 
deductibles; and perhaps 60 percent will receive additional 
benefits, including prescription drugs.
    These are projections, obviously, as anyone's estimate of 
what is going to occur under this bill must necessarily be. 
However, it is pretty obvious that even with the passage of 
this landmark Medicare Prescription Drug and Modernization Act 
of 2003 (P.L. 108-173), there is more to be done on the health 
care front. Far too many Americans, we all know unfortunately, 
face health insurance as an unaffordable luxury. I am hopeful 
that Members of this Committee will continue to work together 
in a bipartisan way to assist us in the ability to provide all 
Americans health insurance.
    Mr. Secretary, we are keenly aware of your long and strong 
leadership in the area of welfare reform, not just as Secretary 
of HHS, but as Governor of Wisconsin for more than a decade, 
and no one disputes the success of the welfare reform. We 
clearly want to listen to you and the Administration's thrust 
because the House approved a bill designed to move even more 
families off welfare into work and self-sufficiency. The 
difficulty, in part, is coordinating with the Senate and 
getting legislation that would reach the President's desk.
    Prior to hearing from you, Secretary, I would ordinarily 
call on the gentleman from New York, but as Chairman, I would 
like to exercise the right--and obviously my colleague, Mr. 
Rangel will, and someone here on the dais wearing a similar red 
outfit will as well. Normally it would be of some concern with 
this many ladies in the audience all wearing the same red, but 
I think that is a badge not only of courage but honor today.
    We have with us Delta Sigma Theta. The gentleman from New 
York would also like to recognize you, and perhaps in his 
presentation he can allow the gentlewoman from Ohio to have a 
word rather than wait her normal turn. The gentleman from New 
York.
    [The opening statement of Chairman Thomas follows:]
    Opening Statement of the Honorable Bill Thomas, Chairman, and a 
        Representative in Congress from the State of California
    Good afternoon. As we continue to explore the President's Fiscal 
Year 2005 budget, I'd like to welcome Health and Human Services 
Secretary Tommy Thompson. I look forward to your remarks on the 
Administration's health care and welfare reform priorities.
    Last year we successfully accomplished a long standing health care 
goal: Providing prescription drugs to seniors under Medicare. Starting 
in June of this year, a prescription drug discount card will be 
available to seniors to help reduce their out-of-pocket costs. In just 
three months, over 100 companies have signaled to HHS their intent to 
offer discount cards to seniors. Further, we're already seeing the 
positive effects of other Medicare improvements in the new law. The 
revised reimbursement rates for integrated Medicare Advantage plans 
have resulted in lower premiums, improved prescription drug coverage 
and better health care choices for seniors. Ninety-three percent of 
seniors in these plans will see reduced premiums, 81 percent will have 
reduced copayments and deductibles and 60 percent will receive 
additional benefits, including prescription drugs. In addition, plans 
are moving into new areas, providing additional choices for seniors.
    Even with the passage of the landmark Medicare law, there is still 
more to be done on the health care front. For too many Americans, 
health insurance is an unaffordable luxury, leaving them and their 
families vulnerable to exorbitant medical expenses. In his State of the 
Union address, the President outlined key initiatives aimed at making 
health insurance more accessible and affordable. We look forward to 
exploring these proposals with you in further detail.
    Mr. Secretary, we also are aware of your strong leadership in 
welfare reform, both as governor of Wisconsin and as Secretary of HHS. 
No one disputes the success of welfare reform. Today, nine million 
fewer parents and children are dependent on welfare than before we 
passed the 1996 reforms. Over two million children have been removed 
from poverty. And three times as many welfare recipients are working 
now.
    Last February, the House approved a bill designed to move even more 
families off welfare and into work and self-sufficiency. That's the 
only solution to poverty, and our bill would provide more funding for 
child care to support that goal. But instead of improvements, we've 
been forced to mark time with a steady series of short-term extensions. 
The most recent extension expires at the end of March. It is my hope 
that the Senate will pass welfare reform legislation soon, so we can 
continue to improve the nation's welfare program.
    And now, prior to hearing from you, Mr. Secretary, I would ask the 
gentleman from New York, Mr. Rangel, if he has any comments.

                                 

    Mr. RANGEL. Thank you, Mr. Chairman. I think the Deltas 
represent what is good in America. They could just organize for 
social events, but rather than do that, they do good work not 
only in the community but working with the city, State, and 
Federal Government, and they have spent today visiting Members 
of Congress with long agendas, legislative agendas of things 
that they are concerned about.
    During this time of economic and national crisis, it would 
appear to me that people should not be just despondent with 
their government but should participate and should make certain 
that everyone is registered, everyone is voting, everyone is 
doing something. The Deltas just make me so proud, because it 
is hard to go into any community in these great United States 
that we don't see evidence of their good work. I would just 
like to thank them for all that they do, and yield to the 
gentlelady from Ohio who exemplifies the best of Delta.
    Ms. TUBBS JONES. Thank you, Mr. Ranking Member, Charles 
Rangel. Mr. Chairman, Mr. Thomas, thank you for this 
opportunity.
    Today is Delta's Day at the Nation's Capitol. We have more 
than 700 women in red here, talking to their legislators both 
on the House and Senate side. To all of my colleagues from 
across this country, if you have not had a chance to get to 
meet members of our sorority in your congressional district, I 
encourage you to do so. We are both Democrat and Republican. We 
are here about issues that are of particular concern to our 
communities, and health care is one of those big concerns.
    Secretary Thompson, a lot of them came because they heard 
that you were going to be here this afternoon, to have an 
opportunity. I just thank my colleagues for yielding the time 
and allowing me to speak out of order. This is my great 
sorority, Delta Sigma Theta. It is a national public service 
sorority, and, in fact, we were just named as a nongovernmental 
organization to the United Nations, one of the first sororities 
to have that opportunity.
    So, thank you, Mr. Ranking Member. Thank you, Mr. Chairman.
    Mr. RANGEL. Mr. Secretary, welcome. These are difficult 
times. We have deficits that our imagination has never been 
able to keep up with. We hope during your presentation you 
might share with us how the budget was off by some $132 
billion, $134 billion, where the President of the United States 
claimed that he did not even know what the full and precise 
cost estimates would be. We also are concerned, as I spoke with 
you earlier, about this media budget for a bill that actually 
takes place in 2006.
    We understand that over $22 million is being spent to mail 
full-color brochures and buy television (TV) network time. We 
also are concerned with the fact that the media company that is 
hired for this appears to be involved in other political 
activities. With the cost of health care going up and the 
budgets going down in certain areas, we are concerned with 
this, these type of expenditures.
    As relates to issues that are more specific, I am going to 
ask, with the Chairman's permission, for the Ranking Member of 
the Subcommittee on Health to share this time with me.
    Mr. STARK. Thank you. Thank you, Mr. Chairman and Ranking 
Member. Welcome, Governor. Now, I won't go on about fish tales, 
because sometimes when the Governor is good enough to provide 
one of Wisconsin's delights to me as just a gift of friendship, 
then we find out--and he was quite up front about admitting 
that these walleye pike came from Canada--and perhaps he will 
tell us more about how the budget figures grew.
    In regard to the campaign, advertising campaign, Secretary, 
the fact is that Medicare beneficiaries cannot under the new 
law keep their same Medicare. The law increases the Part B 
deductible to $110. It is seniors with incomes of over $80,000, 
will have to pay higher Part B premiums.
    If the senior has a Medigap policy that covers prescription 
drugs, they are going to have to switch policies to assure that 
they can participate in the drug benefit. In many States, they 
will pay more for their drugs than they do under current law, 
and they may see their coverage reduced. We think that perhaps 
as many as 3 million retirees will see their employers drop 
their better retiree drug benefits, and millions of 
beneficiaries will be subject to a privatization program down 
the road.
    When I last checked, they weren't allowed to opt out of the 
experiments that are in the bill. So, it is not right to tell 
seniors that their Medicare will remain unchanged. In fact, it 
is changing quite a bit, and in many instances will cost more 
than they are paying today. It is one of the reasons that I 
have asked the U.S. General Accounting Office (GAO) to review 
the ads and determine if they are really an appropriate use of 
taxpayers' funds.
    The Advantage program, which lauds the billions of 
additional funds to managed care plans--in fact, will cost us 
$46 billion over the next 10 years--is really just extra money 
to the managed care industry, those very plans that caused us 
the problems under Medicare+Choice.
    I guess one of the most disturbing things in your 
testimony, and perhaps it has been revised, is that nowhere in 
your testimony is there any discussion about what the 
Administration plans to do to help the uninsured. The President 
didn't mention it in his State of the Union Address, and we 
have got 42 million uninsured Americans.
    There has been no effort on the part of the Administration 
to control health costs for those of us like Members of 
Congress who are lucky enough to have insurance. So, I guess if 
you don't mention the uninsured, it is because the President 
doesn't think that we need anything more than tax credits. I 
hope you can discuss some of those issues with us.
    I would rather hope that you are aware that the typical 
family in this country, in a reasonably priced group 
marketplace, would have to pay about $9,100 a year for a group 
policy, if they could get it. Yet the President is proposing a 
tax credit capped at $3,000 for a family earning $25,000 a 
year. Where are they going to come up with at least $6,100 more 
than that escapes me.
    My final comment is this. For us, as politicians--and I 
would say this in a bipartisan sense--the record of Presidents 
and Members of Congress as being representatives of strong 
marriages is pretty shabby. Why we should be spending a billion 
dollars or more to promote marriage when we can't define it--we 
are going to have a fight over who should be married and who 
shouldn't be married just in the politics that are going on. It 
seems to me that a billion dollars could be better spent on 
allowing mental health to have equal stature in health 
insurance, and that getting professional treatment might be a 
better way to help families stay together and grow together 
than going out into finding some new experts in teaching people 
how to be married.
    I would say the same thing goes for $130 million for 
abstinence programs, which I find difficult to discuss in all 
seriousness, but I think these are foolish and folly. This is 
money, hundreds--over--billions of dollars that we could better 
spend on children and people who need the help.
    So, I hope that these initiatives might be sidetracked, and 
we might spend whatever money is there in a way that would 
better promote the health of Americans. I look forward to your 
testimony and the questions. Thank you, Mr. Chairman.
    Chairman THOMAS. Thank you. Prior to recognizing the 
Secretary, the Chair would like to place in the record a letter 
from the Congressional Budget Office (CBO) that was sent to 
myself, and a carbon to Mr. Rangel; also to the Chairman of the 
Committee on Energy and Commerce; and Senators Nickles, 
Grassley, and the Chairman of the Budget Committee, Mr. Nussle, 
which I am sure, with carbons to their Ranking Members.
    It is from Douglas Holtz-Eakin, outlining CBO's position on 
the numbers. The pertinent sentence: ``therefore, CBO believes 
its estimate is sound and has no reason, at present, to revise 
it.''
    I am sure the Secretary will discuss it with some 
supporting documentation. Without objection.
    [The information follows:]

                                        Congressional Budget Office
                                               Washington, DC 20515
                                                   February 2, 2004

Honorable William ``Bill'' M. Thomas
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman,

    CBO's baseline budgetary projections released in the Budget and 
Economic Outlook include $395 billion in outlays over 2004 to 2013 for 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (Public Law 108-173). That amount is identical to CBO's scoring of 
the bill when passed. In contrast, the Administration estimates that 
additional outlays resulting from that act will total $534 billion over 
the 2004-2013 period.
    Of course, a complete comparison of the overall, budgetary impact 
of the legislation must also consider the effect on revenues. CBO 
estimates that the revenue effects of the legislation are largely 
offsetting. The legislation reduces revenues by providing qualified 
taxpayers with health savings accounts. At the same time, it increases 
revenues, CBO estimates, as businesses reduce expenditures on 
nontaxable health benefits and increase them on taxable wages. The 
Administration has not released its estimated effects of the 
legislation on revenues. Those estimates could certainly differ from 
CBO's.
    Because the new prescription drug program represents a major 
departure from what currently exists, there is a great deal of 
uncertainty about its budgetary impact and a wide range of possible 
outcomes. CBO's estimate was the result of extensive analyses of the 
pharmaceutical drug market, the Medicare program, and the likely 
responses of potential enrollees. To date, we have not received any 
additional data or studies that would lead us to reconsider our 
conclusions. Therefore, CBO believes its estimate is sound, and has no 
reason, at present, to revise it.
    CBO has consulted with the Administration to identify the major 
factors that account for the differences between the two estimates. 
Although such a comparison is complicated and we do not have complete 
detail on the key attributes, it appears that the difference derives 
from of differing assumptions or estimates in a number of areas. 
Attached is a summary of those major differences. We will continue to 
work with the Administration to understand the differences in more 
detail.
    I hope this information is helpful to you. The CBO staff, contact 
for this analysis is Tom Bradley, who can be reached at 226-9010.

            Sincerely,
                                                Douglas Holtz-Eakin
                                                           Director

Enclosure

cc: Honorable Charles B. Rangel, Ranking Member

    Identical letters sent to Honorable W.J. ``Billy'' Tauzin, 
Honorable Don Nickles, Honorable Charles E. Grassley, and Honorable Jim 
Nussle

                                 

    In addition to that, so that we know what we are talking 
about, I want to include this 2-page multicolor flyer which is 
the Centers for Medicare & Medicaid Services (CMS) explanation 
of the new program. Without objection, we would put that in the 
record.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 93228A.001
    
    [GRAPHIC] [TIFF OMITTED] 93228A.002
    
    To allow for some understanding and comparison, I would 
also like to put in the record a 1996 HHS handbook from the 
previous Administration. Heavy cover. Completely blank picture 
on this side. A picture of the Secretary, a picture of the 
administrator, with a brief greeting, 30 pages of gray material 
printed out, and with a bulk-rate stamp on the back, mailed to 
every senior. Of course, I appreciate our colleagues on the 
other side of the aisle's concern at the time this was mailed 
to seniors, when in fact, not one page in here discusses a 
prescription drug program for seniors, as this 2-page document 
discusses as early as this June in terms of a discount card. 
Without objection, the Chair would place that in the record.
    [The information is being retained in the Committee files.]
    Secretary, nice to have you with us again. Your written 
testimony will be made a part of the record, and you may 
address us in any way you see fit.

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

    Mr. THOMPSON. Thank you very much, Mr. Chairman. First let 
me thank you for giving me this opportunity to testify, and the 
same for you, Congressman Rangel. I also would like to join 
with Congresswoman Tubbs Jones in welcoming the wonderful 
sorority Delta to the Capitol today, and hope that they will 
listen to some of the questions and get some of the answers 
that they are hoping for as far as health care is concerned.
    I also want to thank all Members of this Committee for 
allowing me this opportunity to discuss the President's fiscal 
year 2005 budget for HHS.
    In my first 3 years at the Department, we have made, I 
believe, 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, in improving the well-being of children 
and strengthening families, and in protecting the homeland.
    We are building a new public health infrastructure in order 
to give doctors and hospitals the tools they need to respond to 
any public health emergency. We have reenergized the fight 
against Acquired Immune Deficiency Syndrome (AIDS) at home and 
abroad. We increased access to quality health care, especially 
for minorities, the uninsured, and the underinsured. With your 
help, 2 months ago President Bush 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 increase over fiscal 
year 2004 and an increase of 26 percent since 2001.
    President Bush seeks to build on the success of the 1996 
Welfare Reform (P.L. 104-193) law by reauthorizing the 
successful Temporary Assistance for Needy Families (TANF) 
program to help more welfare recipients achieve independence 
through work and protect children and strengthen families. I 
appreciate this body's approval of TANF reauthorization last 
year, and I look forward to working with all of you to shepherd 
this bill through the Senate this year. We can and we should 
accomplish this critical goal this year.
    We are also working to protect our most vulnerable 
children. The Federal Government will spend nearly $5 billion 
this year for foster care. We would fund existing adoption 
bonuses as well as the new bonuses that Congress approved last 
year with $35 million for 2004 and $32 million for 2005.
    To support our commitment to helping families in crisis and 
to protecting children from abuse and neglect, President Bush 
has requested full funding, $505 million for the promotion of 
the Safe and Stable Families program. Of course, the new 
Medicare Modernization Act is a significant accomplishment for 
our Department.
    Adding these benefits and choices and educating seniors 
about them will become a significant challenge. You and your 
fellow lawmakers were right to follow the CBO's score in making 
decisions. When CBO scores the budget we submitted last week, 
it would be expected, as was introduced by the Chairman, that 
the estimate would reflect the $395 billion of that particular 
amount.
    I would like to direct your attention to the chart. There 
is a lot of discussion about the differences between CBO and 
the Office of the Actuary estimates of the Medicare 
Modernization Act.
    [The chart follows:]
    [GRAPHIC] [TIFF OMITTED] 93228A.003
    
    The bottom blue strip consists of $47 billion. Now, this is 
the difference between participation. The CBO does not believe 
as many of the low-income seniors are going to participate as 
much as the CMS Actuary does. That difference is $47 billion.
    Now, I have asked our actuaries to sit down with CBO and be 
able to try and explain those differences when they come in 
front of this Committee, I believe at a later date, to discuss 
that.
    The second one is $32 billion. This--all the four blue are 
for Title 1. That is your drug portion of Medicare. The $32 
billion is the difference between CBO and our actuaries, and is 
based upon who is going to participate. You have a universe of 
100 percent. Our actuaries subtract 5 percent from that figure 
for those individuals that will remain with their employer's 
coverage. That gets it down to 95 percent. They believe that 
only 94 percent of the 95 percent will participate in Title 1, 
the drug card.
    The CBO, on the other side, does not believe that. Under 
Part B, only 91 percent of the people participate in Part B. 
The CBO says that if you don't participate in Part B, it is 
very doubtful that you will participate in Part D as well. 
Therefore, they subtracted out the 9 percent, and they reduced 
the balance down to 91 percent, and then they said only 87 
percent of those will continue to participate. That difference 
between 87 percent and 94 percent of who will participate is a 
difference of $32 billion.
    Then the difference in Medicaid savings. The CBO does not 
believe that there were any States that had prescription drug 
coverage that was budget neutral. They believe that when Part D 
comes into play, that they will take that over and they will 
drop their State programs, making a savings. Our actuaries 
believe that there were savings built in when we granted the 
waivers for those States to set up the program. Therefore, 
there will not be any savings.
    Also there is a difference as to ``woodwork effect.'' When 
people find out about Part D, there are going to be more people 
applying for it. Therefore, they are going to find out that 
they may also be eligible for Medicaid. That is the difference 
of the $18 billion.
    Then the final one under blue is $3 billion. We believe 
that CBO is estimating an additional $3 billion more that the 
States will be paying in when they participate in the Medicaid 
program.
    The second one is Title 2. This is where the plans come 
into play, and there is a difference of $30 billion there. We 
believe that--CBO believes that only 14 percent of the people 
will participate in the plans. Right now it is 11.8 percent. 
They believe it is only going to go up to 14 percent. Our 
actuaries believe it will be one-third. That is the difference 
between $30 billion.
    Then there is a stabilization fund of $2 billion that CBO 
does not believe we will ever use, and our actuaries believe 
that it will. That is the difference.
    Then the remaining 10 Titles of the new Medicare bill have 
a difference of $7 billion. That is the difference of $139 
billion between CBO and our actuaries.
    Now, finally, I don't have enough time to get into the new 
benefit proposals, but it appears that more than half of the 
current enrollees will see better benefits and that almost half 
of the current enrollees will see reduced premiums or cost 
sharing.
    The bottom line is that extra payments are providing more 
to beneficiaries, just as was intended by the Medicare 
Modernization Act. We look forward to working with Congress, 
the medical community, and all Americans as we implement the 
new Medicare law and carry out the initiatives that President 
Bush is proposing to build a healthier, safer, and stronger 
America.
    I don't have time to go into the uninsured or the 
advertising program, but I am sure there will be questions 
about that, and I would be more than happy to answer them when 
they come up. Thank you for giving me this opportunity to give 
you the explanation on the difference of the figures.
    [The prepared statement of Mr. Thompson follows:]
     Statement of the Honorable Tommy G. Thompson, Secretary, U.S. 
                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. This year, Congress passed the 
comprehensive Medicare reform legislation, adding prescription drug 
coverage for seniors and modernizing the Medicare program.

      Since 2001, with the support 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 in outlays increase over 
the comparable FY 2004 budget, or an increase of about 5.9 percent. The 
discretionary request for the HHS budget totals $67 billion in budget 
authority, a 1.2 percent increase.
    Your committee, Mr. Chairman, has jurisdiction over much of this 
budget. I am grateful for the hard work and achievements we have made 
together. 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 on their drug 
costs. 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. Those with low incomes will qualify for a 
$600 per year subsidy to purchase drugs. Medicare also will cover the 
enrollment fees for low-income seniors.
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. 
Starting in 2004, the new law changes how private plans operating under 
Part C will be paid. 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.
    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 eases the requirements for achieving Critical Access 
Hospital (CAH) status. Critical Access Hospitals will receive increased 
payments under MMA, as the payment rate will be increased to 101 
percent of allowable costs.
    Providers will 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; 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, regulatory 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, and all measures of a regulation are to be 
published as a proposed rule before final publication.
    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 and implement a plan for shifting the appeals function 
from SSA to HHS by October 1, 2005. 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. Last week, the CBO Director 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
    We are currently reviewing the new benefit proposals submitted by 
health plans and will have detailed information very soon on how this 
extra funding is helping Medicare beneficiaries. In general it looks 
like over half of current enrollees will see better benefits, and 
nearly one-half will see reduced premiums or cost sharing. When looking 
at the average premium paid by enrollees across all plans, this premium 
may be decreasing by as much as one-third. The bottom line is that the 
extra payments are working as required by the MMA--to provide more to 
beneficiaries.
    MMA addresses other issues facing the Medicare program including 
the program's long-term, financial security. To contain costs in the 
Medicare program, the law requires the Medicare Trustees, beginning in 
the 2005 annual report, to assess whether Medicare's ``excess general 
revenue funding'' exceeds 45 percent. As defined in the law, excess 
general revenue funding is equal to Medicare's total outlays minus 
dedicated revenues. The Medicare Trustees shall issue a ``warning'' if 
general revenues are 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 excess general revenue 
funding.
Marriage and Healthy Family Development
    This year, Mr. Chairman, the President is proposing a new marriage 
and healthy family development initiative. This Initiative is supported 
by funding increases in this Department's FY 2005 budget, encompasses a 
variety of new and existing programs, and impacts both mandatory and 
discretionary programs.
    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. The President's proposal includes five years of 
funding for the TANF Block Grant to States and Tribes; Matching Grants 
to Territories; and Tribal Work Program. A new feature, intended to 
support the President's Marriage and Healthy Family Development 
Initiative, is a proposal for increased funding for two key provisions 
in our welfare reform package.
    A cornerstone of the President's commitment to strengthen and 
empower America's families through welfare reform provides targeted 
resources to family formation and healthy marriage strategies. 
Statistics tell us that children from married two parent families are 
less likely to end up in poverty, drop out of school, become addicted 
to drugs, have a child out of wedlock, suffer abuse or become a violent 
criminal and end up in prison. While government cannot create good 
marriages, it can play a role by providing resources and expertise so 
that individuals and couples are better prepared to form and maintain 
happy and healthy families.
    Beginning in FY 2005, the FY 2005 budget would provide an 
additional $20 million, a total of $120 million, under TANF to support 
research, demonstrations, and technical assistance primarily focused on 
family formation strategies and healthy marriages and an additional $20 
million for matching grants to States, Territories, Tribes, and Tribal 
Organizations for innovative approaches to promoting healthy marriage 
and reducing out-of-wedlock births. A dollar-for-dollar match to 
participate in the grant program will be required, generating another 
$20 million in matching State and local funds. States can use Federal 
TANF funds to meet this matching requirement. In total, $360 million in 
Federal and State funding would be available in the FY 2005 Budget to 
broaden the Administration's efforts to support healthy marriages and 
promote effective family formation.
    To reverse the rise in father absence and improve the well-being of 
our Nation's children, the budget includes a total of $50 million for 
grants for public entities; nonprofits, including faith-based; and 
community organizations to design demonstration service projects. These 
projects will test promising approaches to improve outcomes for 
children by encouraging the formation and stability of healthy 
marriages and responsible fatherhood, and to assist fathers in being 
more actively involved in the lives of their children.
    President Bush also announced in his State of the Union address a 
new initiative to educate teens and parents about the health risks 
associated with premarital 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 premarital sexual 
activity.
    In addition, the budget provides for significant increases to two 
state child abuse programs reauthorized this past year as part of the 
Keeping Children and Families Safe Act of 2003. The increase for the 
Child Abuse Prevention and Treatment State Grants will enable state 
child protective service systems to shorten the time to the delivery of 
post-investigative services from 48 to 30 days. The Community-Based 
Child Abuse Prevention program will increase the availability of 
prevention services to an additional 55,000 children and their 
families.
Child Welfare
    One of my highest priorities this year is to address the needs of 
some of this Nation's most vulnerable children. The Federal government 
will spend nearly $5 billion for Foster Care this year. However, the 
program's current structure does not allow States to do all they can to 
prevent a child's removal from the home, reunify families when 
possible, and, when necessary, find an alternative safe and nurturing 
family environment. The current financing structure sends the wrong 
message by providing the bulk of funding only when children are removed 
from their homes.
    Our budget includes an option for States to receive their funds in 
an allotment, providing States more flexibility in the operation of 
their child welfare programs. The option gives States the opportunity 
to craft their program to meet the specific needs of their unique 
populations. The funds can still be used for foster care when needed, 
but also for prevention and other critical services. Furthermore, the 
HHS budget reflects savings associated with a legislative proposal to 
clarify the definition of ``home of removal'' in the foster care 
program in response to a court decision. The President's FY 2005 budget 
also proposes $140 million for the Independent Living Program and $60 
million for the Independent Living Education and Training Vouchers 
program. Additionally, to support the Administration's commitment to 
helping families in crisis and to protecting children from abuse and 
neglect, the President's FY 2005 budget requests $505 million, full 
funding, of the Promoting Safe and Stable Families program. I know we 
all agree that the safety of our Nation's children is paramount and I 
look forward to working with Congress to rework the foster care 
program.
Child Support Enforcement
    In my first two years at the Department, the Child Support 
Enforcement program collected and distributed $39 billion in child 
support. With the preliminary FY 2003 collections figure, the three 
year total is an impressive $60 billion. This highly effective program 
provided $4.13 in child support collections for every Federal dollar 
invested in FY 2002.
    The President's FY 2005 budget builds on the program's success by 
arming the States with additional powerful tools to get the essential 
support that children need. Our newest proposals focus on critical 
improvements to collect medical child support. The first proposal 
notifies child support agencies if a child with a medical support order 
loses health care coverage (COBRA notices) so child support 
professionals can assist that family in providing continuous health 
care coverage. Another improvement will give States the authority to 
consider both parents' access to health care coverage when establishing 
medical child support orders, with the option of enforcing these orders 
against both custodial and non-custodial parents. These improvements 
will help prevent lapses in children's health care coverage, provide 
more children with private health care coverage, and lead to healthier 
children and families.
    Also included as part of the FY 2005 budget are proposals from the 
FY 2004 budget that provide new and improved tools to significantly 
increase collections to families, enhance and expand the existing 
automated enforcement infrastructure for Federal, State, and Tribal 
child support programs, and strengthen relationships between children 
and their absent parents. For example, one proposal increases resources 
for the Access and Visitation Program in support of the 
Administration's commitment to building strong families. These funds 
have been effective in facilitating visitation between non-custodial 
parents and their children, among other important relationship building 
activities. This budget also includes proposals from the FY 2003 budget 
aimed at increasing collections and helping families achieve 
independence. Two key provisions, included as part of TANF 
reauthorization, provide States with the option to disregard and pass 
through additional child support collections to families on TANF and 
simplify distribution rules so that families formerly on TANF can 
receive the funds collected on their behalf. In total, these proposals 
should result in an additional $3 billion to families over five years.
Compassion and Faith Based Agenda
Compassion Capital Fund
    The FY 2005 budget requests $100 million for the Compassion Capital 
Fund, which creates public/private partnerships that support charitable 
organizations in expanding or emulating model social service programs. 
In 2003, HHS received over 1,300 applications for both the intermediary 
and mini-grant programs. Sixty-two new awards were made. The President 
has requested a $52 million increase over FY 2004 levels to reach a 
greater number of qualified organizations.
Samaritan Initiative
    The President's budget also continues and strengthens the 
Administration's commitment to end chronic homelessness by proposing 
$70 million for the Samaritan Initiative, a new competitive grant 
program jointly administered by the Departments of Housing and Urban 
Development, Health and Human Services, and Veterans Affairs that 
supports the Administration's efforts to end chronic homelessness by 
2012. These grants will support the most promising local strategies to 
move chronically homeless persons from the streets to safe permanent 
housing with supportive services. Of the $70 million for the program, 
we are requesting $10 million at HHS for supportive services.
Domestic and Global Health Improvements
    I would like to take a moment to share with the Committee a few 
other priorities that strengthen our efforts for a healthier U.S. 
Building on the accomplishment of the five-year doubling of the 
National Institutes of Health (NIH) budget, this year's budget proposal 
includes $28.6 billion for NIH. These funds will continue to support 
the long-term stability of the biomedical research enterprise and 
ensure continued productivity in all areas of research at NIH. To bring 
medical research and advances to those who need it, $1.8 billion of the 
HHS budget proposal provides health care services to 15 million 
individuals through the Health Center program and an increase for the 
National Health Service Corps to initiate recruitment of nurses and 
physicians.
    The President's budget proposal for FY 2005 also strives to meet 
the needs of our vulnerable populations. To protect our children from 
preventable illness, the budget proposes improvements to the Vaccines 
for Children (VFC) program to increase access to needed vaccines for 
underinsured children. In an effort to ensure we have enough vaccines 
when they are needed, the HHS budget request calls for a six-month 
stockpile of all regularly recommended vaccines for children, as well 
as for a stockpile of influenza vaccine for next winter. In addition to 
our Nation's children, we must not forget those struggling yet who are 
ready to help themselves out of the cycle of addiction and dependency. 
For FY 2005, the President proposes to double the Access to Recovery 
State Voucher program, for a total of $200 million, to provide vouchers 
to approximately 100,000 individuals seeking substance abuse treatment 
services.
    Our Nation's health, Mr. Chairman, is not dependent solely on 
access to care and treatment, but also on the security of our health in 
a global context. Our Nation faces threats from bioterrorism, disease 
outbreaks in other countries, and food-borne diseases and illnesses. 
The HHS budget targets $373 million of investments to accelerate the 
detection of and response to potential disease outbreaks of any kind, 
regardless of whether the pathogen is naturally occurring or 
intentionally released. The Food and Drug Administration (FDA) has 
already expanded its work dramatically to prevent intentionally 
contaminated foods from entering the U.S. The President's FY 2005 
budget takes the next step by making the needed investments in FDA to 
expand substantially the laboratory capacity of its State partners, and 
to find faster and better ways to detect contamination, particularly at 
ports, processing plants, and other food facilities.
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 THOMAS. Thank you very much, Mr. Secretary. As you 
well know and perhaps other people don't, Congress is required 
to use the CBO estimates as provided to us for our 
determination of the costs. The letter that I just put in the 
record said that CBO has no reason to change their estimates of 
the $395 billion.
    Looking at your color chart, and of course the audience 
can't see this--and we might turn it around at some point so 
that they can see the magnitudes--the big-bucks differences are 
in three areas, actually four areas, and they all involve an 
attempt to assume people's behaviors several years from now, or 
close to a decade from now, as to what their decision is in 
either going with the program or not. The single biggest area I 
see is whether or not the low-income eligible are going to 
participate in the program.
    I think all of us here hope that whoever estimated the 
higher percentage of participation wins the guessing contest 
because, frankly, there are a number of people out there who 
could be receiving benefits today but aren't. That would be the 
$47 billion.
    The difference--and this is where the size of the 
population and the dollars become somewhat staggering. If your 
estimators assume a 94-percent pick-up and CBO only estimates 
an 87-percent pick-up, the difference between 94 and 87 percent 
over that 10-year period produces a $32 billion difference. 
That small of an estimate. So, if it is somewhere between 87 
and 94 percent, if it is 88 or 89 or 90 percent, the 
discrepancy shrinks.
    If that is the high and the low between 87 and 94 percent, 
it seems to me if you back away, if you are grading in school, 
the differences between a B-plus and an A-minus or an A-minus 
and an A--and for estimators over the 10 years that is maybe a 
2-percent difference of the total amount, which isn't all that 
bad.
    However, we are required by law to follow CBO. The Office 
of Management and Budget (OMB) has its own beliefs on what the 
take-up rates are. The higher participation in plans, the 
difference between 14 and 34 percent, would hope that CBO at 14 
percent was a floor that is too low, your estimate of one-third 
or 34 percent take-up on the new plans is certainly optimistic. 
Again my assumption is it is going to be somewhere in between, 
which would then shrink the dollar amount if it were somewhere 
in between.
    Then the difference in Medicaid, and as you called it the 
``woodwork effect,'' who is going to come out of the woodwork--
I strongly believe that these support programs, especially 
those above the 100 percent of poverty, the so-called Quimbys 
and Slimbys, since the States were the screening structure and 
they had to put in 50 cents of every dollar, I have not seen a 
uniformly aggressive recruitment program. Some States, frankly, 
did better than others.
    My strong belief, and I believe you shared it in your 
testimony, that when this is a national program--as it will 
be--we can, through uniform advertising and, frankly, the 
Federal Government's role, increase the sign-up and therefore 
the participation of low-income seniors at a much higher rate. 
If we are able to pick up more seniors who are eligible, and it 
costs us $18 billion in the difference in the analysis, I would 
prefer your more optimistic scenario about effectively going 
after people who already deserve these programs and aren't 
taking them.
    When you add those four areas up, $127 billion of the $139 
billion difference is attempting to guess behavior 6 to 8 years 
in the future. I certainly believe people have a difference of 
opinion as to how the take-up rates would attain.
    You come up with a figure $139 billion greater over 10 
years than the CBO. We are always interested in why people are 
apart in terms of the assumptions that they make. When the 
trustee's Social Security report is presented--and I believe 
that is usually in early March--the Chair is going to request 
the actuaries from the Administration and Dr. Holtz-Eakin, the 
head of the CBO, to appear before us on the same panel so that 
we can listen to the explanations of each, and perhaps have 
each quiz each other as we have done in the past, so that we 
can better understand this rather arcane area of estimating.
    It isn't a surprise to me that two groups of actuaries 
beginning with different assumptions about behavior wind up at 
different dollar amounts. The tragedy, if there is any in this, 
is that they both have to come up with a specific dollar amount 
which we know is going to be wrong. You can't guess a single 
number and be right. So, if you assume the bottom end was $395 
billion and the top end was your $537 billion, $534 billion, 
somewhere in the mid-$400 or low $400 of billions would be more 
likely. Out of this, I hope all of us appreciate the difficulty 
in trying to pick a number based upon people's behavior 
sometime in the future. I know some people were surprised that 
your number was higher. I personally was not, because of the 
conversations that were public between the Administration and 
Members of Congress about what they thought the opportunities 
for the programs in terms of getting seniors to adopt the 
programs were going to be.
    I think the safest statement to say is that I believe the 
CBO was a little pessimistic, and I believe that HHS is a 
little optimistic, and that the actual numbers will be 
somewhere in between. The point that we shouldn't lose sight of 
is the point somewhere in between is a better Medicare, 
including prescription drugs, with far better preventative and 
wellness programs available to seniors than ever before. 
Especially at the period of that 30-page very slick, very 
expensive 1996 Medicare brochure with the pictures of the 
Secretary and the Administrator, the first thing that seniors 
saw, rather than the announcement that prescription drugs are 
available for seniors under Medicare for the first time.
    I look forward to more specific information from the 
Administration, especially in the area of health insurance. We 
are wrestling with a number of options; as my colleague from 
New York indicated, tax credits might be one approach, I 
believe there are other approaches, so that we can make sure 
that no American goes without health insurance. There is no 
reason why this society cannot provide it.
    The dollar amounts spent for medical insurance in this 
country certainly is a sufficient amount. The problem is it is 
maldistributed. Some people have insurance that allows them the 
luxury of overutilization in the system. Many don't have it, 
and there is underutilization.
    A redistribution of the benefits, along with some 
adjustments in what people might be able to do in terms of 
creative policies, I believe will go a long way toward 
alleviating the fact that some Americans, through no fault of 
their own, have no health insurance. That is one of the 
commitments I hope everyone on this Committee will join me in 
saying; that as soon as possible, notwithstanding the political 
season, and if we aren't able to make law in this area, 
certainly major strides in structuring a program that will 
answer the question of why Americans don't have insurance. 
There is no reason why they shouldn't, based upon the amount of 
money spent in the system.
    With that I would recognize the gentleman from New York for 
questions, if he wishes to inquire.
    Mr. RANGEL. Thank you, Mr. Chairman. The matter of $134 
billion and the difference in estimates between CBO and OMB 
seems rather cavalier in view of the fact that throughout the 
debate on the floor and the Senate, the cost of the bill was of 
great concern to Members of the House.
    It seems like we are dealing with two different governments 
and we are--the professionals that are making the estimates 
don't talk with each other, don't share the same basis for 
making their estimates. Now, we thought over here that OMB and 
your office knew there would be a much, much higher cost in 
this program than the figures given to us by CBO.
    When did you first know, Mr. Secretary, that the 
differences would be in the range that we find today?
    Mr. THOMPSON. We knew all along, Congressman Rangel, that 
our assumptions were higher. We assumed that there were going 
to be more participation in the plans than with CBO. We made 
that view known, but the changes were made right up until the 
end. The day before it was reported out, there was an estimate 
by CBO that the cost was going to be $360 billion.
    The conferees decided that they were going to reduce the 
deductible, increase the benefits and lower--reduce the 
doughnut hole. That changed our assumptions. Our actuaries 
didn't know that and didn't have that information. This was the 
day before it was reported out of the conference committee.
    The second thing is our actuaries--and I testified to this 
a couple of times--based their estimates on only the three 
bottom plans to be utilized. The committee voted that it would 
not be limited to three plans. As a result of that, our 
actuaries indicated that the cost would be more. That 
information was known.
    The final assumptions were not made until after the 
conferees had reported out, and it was sent to the floor of the 
Senate and the House to be voted on. We did not get a final 
number from our actuaries until December 24th. I made that 
known to OMB at that particular time before Christmas, before I 
left. That was when we got it. Those assumptions were changing 
right up to the day that the bill was reported out of 
conference committee.
    Mr. RANGEL. Well, the President always talks about this 
subject being so important that he wanted a bipartisan bill 
before the House. When did you first know that House Democrats 
were not involved in the conference since these estimates were 
discussed? When did you first know that we were barred from the 
conference?
    Mr. THOMPSON. Well, Congressman Rangel, I was in that 
conference committee. I knew that you came in one day and were 
upset that you were not allowed to stay.
    Mr. RANGEL. Well, you are being very kind, Mr. Secretary, 
but you tell the President, if you will, that he ought to have 
more meetings at the White House so that Democrats would have 
some idea of how these things happen.
    Mr. THOMPSON. Thank you.
    Mr. RANGEL. Thank you.
    Chairman THOMAS. The gentleman from Illinois, Mr. Crane 
wish to inquire?
    Mr. CRANE. Thank you, Mr. Chairman. I want to express my 
appreciation that you are here with us today, Mr. Secretary. As 
you know, health savings accounts were made available to all 
Americans when the Medicare Prescription Drug Modernization Act 
was signed into law. I see that the President has included a 
proposal to allow people to buy high-deductible health 
insurance in conjunction with a health savings account and the 
ability to deduct 100 percent of their premiums from their 
taxes.
    Mr. Secretary, do you believe that allowing individuals to 
deduct the premiums of a high-deductible plan will encourage 
the use of those plans and health savings accounts, and, in 
your opinion, would this tax deduction have a significant 
effect in reducing the number of uninsured in this country?
    Mr. THOMPSON. I believe that health savings accounts are 
going to be one of the better parts of reforming health 
insurance in America. I believe very strongly that health 
savings accounts are going to be very advantageous. I believe 
there is going to be a lot of participation in those particular 
accounts. I think it is going to help us reduce the uninsured. 
I am going to push very hard to make that an accomplishment.
    Mr. CRANE. Very good. One of the key goals of H.R. 1 was to 
improve health care choices for Medicare beneficiaries. In that 
spirit, we included a provision in the new law that requires 
drug plans to allow seniors to choose a 90-day supply of drugs 
at their local pharmacies when a 90-day supply of drugs is 
available through their drug plan's mail order operation.
    It was clearly the intent of Congress to improve seniors' 
choices by creating a level playing field between local 
pharmacies and mail order. I hope that when HHS implements the 
drug coverage portion of this law that you will work to make 
sure that drug plans do nothing to intentionally discourage 
seniors from choosing a 90-day supply of drugs from their local 
pharmacies. I am especially concerned that drug plans may 
attempt to steer seniors to their mail order businesses by 
requiring higher co-pays or other cost sharing just for 
choosing to obtain a 90-day supplement from their neighborhood 
pharmacy. That was not the intent of this Committee, and I urge 
you to be vigilant in preventing plans from doing this. Do you 
have any specific plans for preventing this from occurring?
    Mr. THOMPSON. Well, we are going to be very vigilant, as 
you have admonished us to be, Congressman Crane. We are going 
to use the procedures to make sure that that does not happen. 
We are very aggressive in making sure that seniors are treated 
properly and correctly, and we want to make sure that we carry 
out the will of the Congress and the will and intent of this 
Medicare Modernization Act. We will do everything we possibly 
can to prevent any kind of scamming that may possibly be 
considered.
    Mr. CRANE. Well, thank you very much, Mr. Chairman--or, 
excuse me, Secretary. Let me commend you for all of the 
outstanding work that I think you have been doing. Keep the 
faith, fight the fight.
    Mr. THOMPSON. Thank you very much, Congressman Crane.
    Chairman THOMAS. The gentleman from California, Mr. Stark, 
wish to inquire?
    Mr. STARK. Thank you, Mr. Chairman. I--I thought as long as 
you are putting things in the record, I would ask unanimous 
consent that we put in the record a letter from the National 
Taxpayers Union, a group with whom I rarely agree. They wrote a 
letter to Secretary Thompson suggesting that we ought not to 
have the $12 million advertising campaign. That is, for a 
variety of reasons, a waste of money. I would ask that that go 
in.
    Chairman THOMAS. Without objection.
    [The information follows:]

                                           National Taxpayers Union
                                         Alexandria, Virginia 22314
                                                   February 5, 2004

The Honorable Tommy Thompson
Secretary
Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201

Dear Secretary Thompson:

    On behalf of the 350,000-member National Taxpayers Union (NTU), I 
write to request that the Bush Administration immediately terminate the 
planned $12.6 million ad campaign on behalf of the forthcoming Medicare 
prescription drug benefit. We also ask you to cease all other publicly 
funded expenditures on items such as mailings and meetings which seem 
to be little more than public relations efforts to build support for 
this expensive new program.
    Given that the heart of the new program doesn't begin until 2006, 
it is very hard to draw any conclusion about advertising this year 
other than that it is focused much more on the coming elections. While 
your ``Same Medicare, More Benefits'' campaign may be welcomed by 
politicians running for election in 2004, we can see little public 
benefit from a campaign beginning 2 years prior to the commencement of 
prescription drug insurance.
    Even when there is no election agenda, NTU and fiscal conservatives 
across the country deplore taxpayer-funded advertising promoting big 
government. The outrage is compounded by your Department's recent 
embarrassing admissions that the prescription drug program will cost 
far more than what was promised to the American public last fall. These 
revelations are no surprise to NTU or the 45 citizen, taxpayer, and 
conservative groups from around the county who joined us in opposing 
this measure. Our broad coalition repeatedly warned wavering Members of 
Congress that this would be the case (supporters, of course, assured 
otherwise). We believe these belated admissions of the true cost 
provide one more reason to shut down all HHS advertising efforts.
    The Medicare prescription drug legislation has added trillions to 
the unfunded liabilities facing the nation. This $12.6 million ad 
campaign, timed in accord with the 2004 elections rather than the start 
of the program, adds insult to injury, and we believe the American 
public would be best served by its immediate termination.

            Sincerely,
                                                      John Berthoud
                                                          President

                                 

    Mr. STARK. Also, I would like to go back to this 2-page 
brochure that you put in the record, and just point out--and 
see if the Secretary is aware of that--it says that all people 
will be able to enroll, all people with Medicare will be able 
to enroll in the plans. Isn't it a fact that it is limited to a 
6-month window, and there could be significant penalties if 
they come in after that?
    Mr. THOMPSON. There is a 6-month window. Yes, there is, Mr. 
Congressman.
    Mr. STARK. Then you talk about a premium of $35 a month, 
and I am curious as to where you got that amount.
    Mr. THOMPSON. That is the assumption by the conferees, the 
assumption by CBO. That was also the assumption made by our 
actuaries at CMS.
    Mr. STARK. But it is not in the law anyplace?
    Mr. THOMPSON. It is not in the law.
    Mr. STARK. That is kind of a guess as to what it might be. 
It could be $150 a month, could it not?
    Mr. THOMPSON. We are looking at our figures and statistics. 
It is our best judgment and expertise from our actuaries that 
it will be $35, Congressman Stark.
    Mr. STARK. That is of the actuaries, not from CBO?
    Mr. THOMPSON. That is correct. It is also the actuaries at 
CMS, but also at CBO as well. Both of them. That is one area 
that they are pretty much in agreement on.
    Mr. STARK. Well, I can go on, but there are in here--I 
would like to add to the record an annotated issue here. For 
example, you mentioned a wellness physical exam. Although you 
do suggest that it is within the--when you first enroll, but 
other seniors currently enrolled aren't eligible for that 
benefit, are they?
    Mr. THOMPSON. These are for new enrollees.
    Mr. STARK. You do state that, I must add. Also on the drug 
savings card, the discount card, I understand you have had 
quite a few applications for different drug plans. Again the--
the news release on August 30th from your Department suggested 
that the discount card will yield an average of 10 to 13 
percent, possibly 15 percent. Wasn't that your August 30th 
release?
    Mr. THOMPSON. If you have the release, it speaks for 
itself. I can't remember what I did on August 30th, 
Congressman.
    Mr. STARK. I guess that the 25 percent, because it is on 
average, which is terribly misleading, Mr. Secretary, and I am 
sure you know that, because some drugs aren't covered at all by 
these plans and some drugs that are very rarely used are 
covered to a greater discount. I just--I find in here a little 
bit of lack of truth in advertising.
    Then on the--and I will tell you that many of us feel that 
you had suggested that congressional staff heard about the 
actuaries' estimates. We didn't on our side, and I think you 
know that. Scully said he wouldn't tell us, and he didn't. Our 
staff was told they would have the information, and never 
received it. Perhaps the majority did receive it. It is not 
exactly fair, and I would defy anybody in your Department to 
show where any of us, except perhaps for the two Democrats who 
are allowed in to the conference, ever received any of those 
estimates that the actuaries had done last summer.
    Scully, we can beat up on him because he is gone to 
millionaire's land now down on K Street, but he said in the 
press that he wasn't going to allow us to have access to the 
actuaries anymore, and I suspect that is perhaps still in law.
    So, I would hope that as we go along, the Chairman and the 
Administration can pass any bills they want next year. So, if 
we have reliable information, maybe we can share it and come to 
a better agreement. I would certainly hope that the openness 
with which actuaries have shared information on both sides of 
the aisle in previous Administrations, and when the Democrats 
controlled the House, would continue. It ended last summer. I 
don't think there is any question about that. Maybe it ended on 
both sides of the aisle.
    To shield that kind of information, I think, prevents us 
from getting the kind of information we need to make reasonable 
decisions or to have reasonable debate. I think that might--
that same criticism might come from some of my more 
conservative colleagues on the other side of the aisle. I just 
hope that we could, as we go forward, have open access to 
actuarial estimates and we could--they could be shared, and 
that we could then debate policy and debate the outcome of 
these bills, using facts that all of us could agree on. Thank 
you, Mr. Secretary.
    Mr. THOMPSON. Thank you. Can I just quickly respond, 
Congressman Stark, on a couple of things? First off, the 
conference report language on low-income outreach, it states, 
and I will quote very quickly:
    ``The conferees expect that in carrying out the annual 
dissemination of information requires that the Secretary will 
conduct a significant public information campaign to educate 
beneficiaries about the new Medicare drug benefit to ensure the 
broad dissemination of accurate and timely information.''
    That is in the report language, plus it is also in the body 
of the law.
    Second thing. I cannot speak for Tom Scully; nobody speaks 
for Tom Scully, as everybody knows. He indicated to me that he 
was disseminating information.
    Third. I did, when I came up to the conferees, I did talk 
about some of the assumptions that our actuaries were making 
which were different than CBO. The CBO is the scorer for 
legislation by Congress, as you well know.
    The fourth thing is I think we should try and be more 
cooperative. I will tell you that my Department tries to reach 
out to Democrats and Republicans on both sides of the aisle as 
often and as best that we possibly can. We will continue to do 
that as long as I am Secretary, Mr. Stark.
    Mr. STARK. Thank you very much.
    Chairman THOMAS. Thank the gentleman. Prior to calling on 
the gentleman from California, Mr. Herger, I would relate to 
the Secretary my long and arduous explanation to the previous 
Administration as to why the 1-800-Medicare number could be one 
digit longer than is necessary so it wouldn't be 1-800-Medicar.
    The correct phone number aspect is 1-800-Medicar, but why 
in the world would you confuse someone by simply not adding 
another digit that would make it 1-800-Medicare. If any of you 
want to test this on a phone, you can actually punch one or 
more additional numbers following the minimum number necessary 
to trigger it, and it has no effect.
    It took us over a year to convince those bureaucrats that 
1-800-Medicare was a better number than 1-800-Medicar. 
Sometimes progress is measured very minimally. The gentleman 
from California, Mr. Herger, wish to inquire?
    Mr. HERGER. I do. Thank you very much, Mr. Chairman. I am 
going to join in welcoming you, Mr. Secretary. I also want to 
thank you for your leadership not only with the Bush 
Administration, but as Governor of Wisconsin in the area of 
welfare reform.
    Mr. THOMPSON. Thank you.
    Mr. HERGER. As you are aware, welfare is up for 
reauthorization this year. Even though the House has passed it 
out twice, we are still having problems in the Senate getting 
it out. I like your comment on something. It has to do with the 
fact that even though the 1996 Republican welfare reform has 
been arguably one of the most successful social programs in our 
Nation's history, as is witnessed by the fact that dependence 
has fallen by unprecedented numbers, caseloads have fallen by 9 
million; from 14 million to 5 million today. Child poverty 
rates are down sharply.
    Since 1996 more than 2 million children have been lifted 
from poverty, including the black child poverty rate falling to 
historically low levels.
    Even with all of that, as you know, and working with you, 
we still have much that can be done. There is still some 57 
percent of recipients who are not working or being trained. 
There are still far too many families that are breaking up or 
not even--or yet not forming to begin with.
    Mr. Secretary, if you could tell us, what are the American 
people, and especially the 2 million families still on welfare 
today, losing by our failure? Again this seems to be our 
problem in the Senate, not so much in the House, but failure to 
pass our legislation improving the 1996 welfare reforms.
    Mr. THOMPSON. Well, first let me thank you for your 
leadership in this area, Congressman Herger. You were truly the 
instrumental leader this year, and I thank you and applaud you 
for what you have been able to accomplish.
    You read the statistics, and I think those statistics bear 
out that it is very important for us to pass the 
reauthorization of the TANF law. What we need to do is, we need 
to give people the opportunity to work; the opportunity to get 
out of poverty. You can't get out of poverty in America without 
working. It is so important for us to realize that.
    When you look at childhood poverty, you see the reductions 
since the act of 1996 across the board. When you look at the 
fact that even though there was a downturn in the economy last 
year, welfare caseloads still had a decline. Also in those 
States that--when before, pre-1996, those States that in the 
past welfare reform, even in those States that had better 
economic conditions and better unemployment, still saw 
increases in their caseload; whereas States that may not have 
had the best of time economically, that had reformed their 
welfare system, still saw a reduction in the caseload, which 
would indicate that the TANF law does work, will work, and 
especially for those still remaining.
    It is important for us to recognize that, and it is 
important for us to move forward and get this law passed as 
soon as possible.
    Mr. HERGER. If you could respond basically, what is it that 
is so needed to help those who still aren't working, in the new 
legislation? What is it, in other words, does the new 
legislation do that updates the old legislation to make it even 
better?
    Mr. THOMPSON. The new legislation continues on the 
successes of the past, but also increases the number of work 
hours. It also increases the number of child support, and it 
also increases the amount of money for child care. All of these 
things are going to be beneficial for those people still 
remaining on welfare.
    Mr. HERGER. Thank you.
    Chairman THOMAS. Thank the gentleman. The gentleman from 
Michigan wish to inquire?
    Mr. LEVIN. Welcome, Mr. Secretary. Let me just say a few 
things to try to clarify the record.
    Mr. THOMPSON. Okay.
    Mr. LEVIN. I deeply respect you, but some things that have 
been said here and said earlier, I think, just don't hold 
water. You knew--your actuaries were estimating the cost far 
higher than CBO quite early on, well before we acted on the 
Medicare bill, right? You knew that?
    Mr. THOMPSON. We knew that the assumptions were higher.
    Mr. LEVIN. You knew--you were told the amount was higher?
    Mr. THOMPSON. No. We did not know the final amount because 
the final 2 days changed the direction of the bill.
    Mr. LEVIN. Wait, wait, wait. Before that, your actuaries 
were saying, before the last couple of days, that the amount 
was higher?
    Mr. THOMPSON. Our preliminary estimates were higher, yes.
    Mr. LEVIN. You passed that on to the White House? Somebody 
did?
    Mr. THOMPSON. Passed it on to----
    Mr. LEVIN. Someone at the White House knew what your 
actuaries were saying?
    Mr. THOMPSON. There were individuals in the White House 
that knew that our preliminary estimates were higher.
    Mr. LEVIN. Whatever the reasons.
    Mr. THOMPSON. Yes.
    Mr. LEVIN. The public can't get into each and every detail 
right now. We acted on the assumption that was given to us and 
reiterated by the White House; we were talking about a $400 
billion bill.
    When the actuaries within your ranks knew that that wasn't 
correct, or was not likely correct, or their assumptions meant 
a higher figure, however you want to put that, that is point 
one.
    Mr. THOMPSON. Can I respond to that, Congressman?
    Mr. LEVIN. Yes, briefly.
    Mr. THOMPSON. Okay. Just like the Balanced Budget Act (P.L. 
105-33) in 1997, there was a $50 billion difference between our 
actuaries and the actuaries in CBO. Congress has to base their 
figures on legislation based upon CBO, and CBO still said $395 
billion.
    Mr. LEVIN. I know, Mr. Secretary, but the world should know 
there was a difference of opinion. The Administration wasn't 
bound by the CBO figures. There is a credibility gap in this 
Administration, and the failure to let the world know while we 
were debating this, what the figures were within the possession 
of the Administration was wrong, was wrong in my judgment.
    Second, I just want to tell you I have read the ad that is 
on TV, and one place it says, can I keep my Medicare just how 
it is? Now, look there is a deep difference of opinion about 
that, a deep difference. Mr. Stark has led out some of the 
differences. The taxpayers I represent, they resent your using 
taxpayer dollars to say what you think when others disagree, 
whatever was in the 1996 brochure, and we can go back and see. 
To use millions and millions of dollars on a TV ad is wrong, is 
wrong; and I think maybe you know it is wrong.
    Let me just say a word about welfare reform, Mr. Secretary. 
There has been a reference here to the Republican welfare bill, 
trying to politicize what happened. It was eventually signed by 
President Clinton, not by President Bush after he vetoed it 
twice because of inadequacies in day-care and child care. The 
problem now is that there has not been a true bipartisan 
effort. There wasn't one here in the House, and there is that 
problem in the Senate. That is why it stalled.
    Let me ask you this. Under your plans, 5 years from now, 
how many uninsured do you expect there to be in the United 
States of America? There are now 42, 43 million. Under your 
plans, what can we foresee in the year 5 years from now?
    Mr. THOMPSON. I don't know. I don't know if you are going 
to talk about my plan or----
    Mr. LEVIN. The Administration's plan.
    Mr. THOMPSON. Administration's plan. I think you are going 
to be able to in--5 years from now you should be able to cut 
the uninsured in half.
    Mr. LEVIN. Okay. My time is up.
    Mr. THOMPSON. I would like to be able to respond to a 
couple things. First off, the law requires me to do what I am 
doing as far as outreach. I read the appropriate legislation. 
The law----
    Mr. LEVIN. Are TV ads required?
    Mr. THOMPSON. It says that. It also says that R&D proudly 
disseminates information to discount drug-eligible individuals; 
requires the Secretary to broadly disseminate information to 
beneficiaries about the coverage options. That is in the law.
    Mr. LEVIN. It requires a TV ad that says one position, when 
it is refuted or disagreed with, huge numbers in this House and 
in the Senate?
    Mr. THOMPSON. I am just telling you that we are doing the 
best job we possibly can, and we put it out in open bids in 
1993--or in 2003. In regards to the ad, I think the ad is 
straight on. I think it tells the truth. I think it says what 
it does. You disagree with me.
    The second thing I want to point out is that our actuaries 
did not know until the December 24th the final number of $534 
billion. It was changed right up until the end. The two biggest 
changes that our actuaries had no information about whatsoever, 
Congressman Levin, were basically the following two. Number 
one, the conferees decided to reduce the size of the doughnut, 
reduce the discount from $275 to $250, and we didn't know that. 
It was a difference of about $30 billion that was put in by the 
actuaries in the last 2 days. The second thing is, our actuary 
said that if you would take the lower three bids that the 
amount of difference would be at least a $30 to $40 billion 
difference.
    Mr. LEVIN. That is a substantial amount.
    Mr. THOMPSON. Those are a substantial amount.
    Mr. LEVIN. What I am saying is, you actually you knew all 
along----
    Mr. MCCRERY. [Presiding.] Excuse me. If the gentleman would 
yield, the gentleman's time has expired. Mr. Secretary, it is 
always a pleasure to have you before our Committee. You do a 
great job, both here and in directing one of the most important 
departments of the Federal Government, so I commend you for 
that.
    About the advertising, I was glad you pointed out that, in 
fact, the legislation directs the Department to spend, I 
believe, up to a billion dollars in advertising and promoting 
the new Medicare program. The reason we inserted that into the 
legislation, to make sure that the executive branch advertised 
and got the word out, is very simple.
    This bill that we passed is the most significant change in 
the Medicare program since its inception in 1965. Certainly, I 
would hope all of us would want senior citizens in this country 
to understand the changes that have been made, what their 
options are going to be and to allow them to take advantage of 
some of the changes in the program that we think will benefit 
seniors. Otherwise, it will do no good.
    So, while some may object to certain language or to the 
public relations that is being used by the Department, I would 
hope that no one would object to the goal of educating and 
informing seniors as to their options under this changed 
Medicare program that we will have in this country. I am glad 
that you are doing it. I have seen the ads on TV; I think they 
are excellent. I hope you will continue to develop ads, TV ads, 
which is probably the most effective way to get the word out in 
the community, get seniors talking about it. So, I hope you 
will continue to do that.
    I want you to address something that has not been talked 
about today, but is talked about back in my district some. 
Certainly some of the opponents of the Medicare legislation 
have talked about this provision in a way that implies that if 
the provision weren't in the bill, drug prices for seniors 
would be lower. This is the provision which prevents the 
Federal Government from interfering in drug price negotiations 
between the Medicare drug plans and drug manufacturers.
    To hear some characterize this provision, it would lead one 
to believe that this was put in there to keep drug prices high. 
What is your comment, Mr. Secretary, about why that provision 
was in there and what its effect is? By the way, before you 
begin, I should point out that this same language was included 
in a number of Medicare drug bills introduced by both 
Republicans and Democrats over the last few years.
    Mr. THOMPSON. The reason is that we do not administer the 
drug programs. There are independent companies that administer 
the programs, who will have the power to negotiate.
    Our Department does not purchase the drugs. We administer 
the program. The pharmacy benefit managers (PBMs), the 
preferred provider organizations (PPOs), the health maintenance 
organizations (HMOs), those are the individuals that are going 
to have to negotiate with the pharmaceutical companies, and the 
biological companies, in order to reduce the prices. We do not 
purchase the drugs, which is the big difference between us and 
the U.S. Department of Veterans Affairs.
    The Veterans Department administers the program, but they 
also purchase the drugs and give them to individuals. We don't 
do that.
    The pharmacist gives the drugs, and the individual HMO or 
the PPO or the PBMs are the ones that give the drugs to the 
individuals. They are the ones that have to have the power to 
negotiate with the pharmaceutical companies in order to get the 
lowest price.
    Mr. MCCRERY. Well, I am glad you mentioned the VA system 
because that is a good example of a government not only 
negotiating for prices, but also establishing formularies for 
the availability of drugs to veterans. In fact, as a result of 
the development of those formularies, there are a number of 
drugs that are simply not available to veterans, and this 
language in the bill also bars the government from restricting 
drugs on a plan's formulary. The CBO, in fact, Mr. Secretary, 
addressed this question specifically during the debate on this 
bill; and CBO said that by not having this provision on the 
bill, it would not reduce drug prices to seniors, in the 
opinion of CBO. The CBO went on to say, comparing this language 
to the Medicaid program, which has its ``best price'' 
requirement, if we were to impose upon the new Medicare 
language the ``best price'' requirement that we have under 
Medicaid, it would increase the bill's cost over 10 years by 
$18 billion.
    So, Mr. Secretary, in fact, the language in the bill is 
there to try to provide the lowest prices for drugs to seniors 
and to allow the private sector to do what it does best--
compete and negotiate and provide services at the lowest cost, 
the best value. So, thank you, Mr. Secretary, for explaining 
some of that to us. Please keep up your good work in the 
Department.
    Mr. THOMPSON. Thank you, sir.
    Mr. MCCRERY. With that help, I think we will deliver a good 
Medicare program to seniors. Mr. Cardin.
    Mr. CARDIN. Thank you very much, Mr. Chairman. Let me just 
take issue with our Chairman. One knows that market share has 
an awful lot to do with pricing. If we were to negotiate market 
share on behalf of all seniors, it would bring about lower drug 
costs than if we allow it to be parceled out in the different 
regions of the country, relying upon the private PBMs. That is 
why I think just about every consumer advocate group believes 
that the provision prohibiting you from negotiating with the 
pharmaceutical industry will work to the detriment of the 
American consumers and seniors in the prices of their drugs.
    Let me just point out, if I might, I understand the need to 
educate and inform our seniors about this new law. It is 
complicated. They have to make decisions based upon their 
current coverage and what the anticipated benefits will be. It 
is important that you get information out now about the 
discount card, and then, as the plans become available, the 
options that our seniors have to enroll in those plans.
    I understand Congress putting the education requirement in 
the law. I saw the ad for the first time this morning as I was 
exercising and watching TV, I saw it on network TV in 
Baltimore, and I would urge you to show these ads to 
independent groups who are not politically affiliated.
    I saw the ad, and I thought for sure I was looking at a 
partisan political ad that was trying to convince people that 
what we did in Congress was good, not trying to educate or 
inform them, which is your responsibility. You don't want your 
agency to get involved in a political battle or in election-
year politics; and I would urge you to get some independent 
reviews, because I think you have crossed the line on that ad--
at least the one that I saw--because I thought it was too 
partisan and too political.
    I want to touch on a couple of issues that are not partisan 
at this point. There is a provision in H.R. 1 that deals with 
TRICARE for 90,000 military retirees and spouses, 90,000 of 
which are caught in a situation that when Congress added 
TRICARE-For-Life for military retirees in 2000, they had the 
right to enroll in the plan if they were in Medicare Part B, 
but they are faced with late-enrollment penalties in Part B 
through no fault of their own.
    We have included a provision in the Medicare bill that will 
allow them to enroll in Medicare Part B without penalty, but 
they need to do it by the end of this year.
    You are required to issue regulations so that they can take 
advantage of the provision that was passed by Congress. This 
was not in the first set of regulations that your agency 
issued, and I know, I really do know that an incredible amount 
of work has been placed on your agency, particularly with 
regulations that you have to issue. Because of the time 
sensitivity here, I would urge that you give this a priority. 
It is important to our military families and I would urge you 
to get the regulations out as quickly as possible.
    Mr. THOMPSON. Thank you very much, Congressman Cardin.
    Mr. CARDIN. There is a second point I want to bring up. Let 
me just respond very briefly to Mr. Herger. I think you have 
been working with us on the welfare bill. There was a provision 
that for some reason was not included in the bill that would 
have made elimination of poverty a goal within the welfare 
system. We talked about that. I don't know why we didn't 
include it.
    So, perhaps, as you work with the conferees, we can figure 
out a way, assuming the bill moves through the Senate, to 
correct that, because I agree with you that the next plateau 
for welfare reform should be to try to help families get out of 
poverty.
    I might point out that there was just a GAO report that 
showed 20 some States have reduced their child care budgets 
because of the local financial pressures on budgets, and 
another 10 or 11 are looking at cuts in child care. Your budget 
provides only a billion dollars more in the child care budget, 
not enough to stop the freezing of enrollments in my State. 
Unless you go on welfare, you can't get any child care help.
    I would hope that we could find additional resources to 
deal with child care needs. If we are going to ask families to 
get out and work, which they should, and we want them to get 
jobs, and we want them to get job training, it is going to 
require safe and affordable child care. We don't have enough 
today, and a billion dollars more in mandatory appropriations 
will not be enough.
    Mr. THOMPSON. Thank you very much, Congressman. Let me just 
respond quickly to a couple of the things.
    In regards to the waiver of the Part B late enrollment 
penalty for certain military retirees, we will do everything we 
possibly can to get it done. I can assure you that we will, and 
I thank you for bringing it up to me.
    In regards to comparing these ads, I was under the 
impression that other people did see them. I will go back, but 
it is my understanding they did. The lead contractor has been 
there since 2003. It is Ketchum Public Relations, and I believe 
everybody pretty much knows who they are. It was an open 
contest. They won it.
    As I understand it, Ketchum's executive is Chuck Doland, 
who happens to be on John Kerry's finance committee, so I don't 
think he would be putting something out that is partisan. He is 
the one that is responsible for putting together the team.
    Mr. CARDIN. I don't want either political party involved in 
these ads.
    Mr. THOMPSON. It was an open bid, and it was peer reviewed, 
and Ketchum won it in 2003. It just happens that the lead 
person happens to be a Democrat, Congressman Cardin.
    Mr. CARDIN. Well, I appreciate your willingness to check, 
to look at it. The one ad I saw, as I said, dealt solely with 
trying to----
    Mr. THOMPSON. I think you are right. I think they should--I 
want them to be informational. I want to be able to get the 
information out to the seniors. I don't want them to be 
partisan. I want them to be able to do the job which the 
Congress wants us to do and to implement this law as fairly as 
we possibly can.
    Mr. CARDIN. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    Mr. MCCRERY. Before I call on Mr. Camp for questioning, I 
want to point out in response to Mr. Cardin's comments about 
all these consumer groups that are now saying that the non-
interference language is so bad. It is curious to me that--and 
I mentioned this generally, but I will be more specific now--
that a number of Democrat-sponsored bills contain the same 
language, and those were the Eshoo-Frost bill of 2000, H.R. 
4607; the Stark 2000, when the Democrats promoted it as an 
alternative on the floor and 204 Democrats voted for it; the 
Wyden 2001, S. 1185; and the tripartisan Jeffords-Breaux-
Landrieu 2002 in the Senate. So, it is just curious to me that 
somehow now the same language that was used on both sides of 
the aisle in the best interest of seniors is being denigrated. 
Mr. Camp.
    Mr. CAMP. Thank you, Mr. Chairman. I want to thank the 
Secretary for being here and to thank you for the excellent job 
you do. I just have a quick comment on Mr. Cardin's comments 
earlier, that in H.R. 4 we did mention and we did add reducing 
poverty as one of the goals of the bill, in Section 401--I have 
the language here; I can share it with you--to try to make it a 
more bipartisan effort. So, I am hopeful that will answer that 
question.
    I do want to mention about the non-interference language 
that Mr. McCrery brought up, that language is language that has 
appeared in a number of bills from both parties, really since 
the Daschle Medicare bill of 2000; the Eshoo-Frost bill in 
2000; the Stark bill in 2000; the Wyden bill in 2001; the 
tripartisan bill that passed or that was introduced in 2002; 
and also in the Senate Medicare bill that passed in June 2003, 
which 35 Democrat Senators supported, including one of my own 
Senators from Michigan.
    Really, I think the point is that the government doesn't 
negotiate prices, the government sets prices; and I think it is 
very important to have this language in there to preserve the 
competitive private-sector delivery system that we have in this 
country. That is why, I think, you have seen language in bills 
of both parties consistently over the years as we have tried to 
address this idea of a prescription drug benefit in Medicare 
that have included this language. So, I just wanted to make 
that point.
    Also, Mr. Secretary, one of the provisions in the budget 
that hasn't received the most attention today, but I think is 
one that really will help many families make adoption easier is 
the income phase-out on the adoption credit. I just want to 
commend you for that and say that I think that will have a very 
positive result.
    I just wondered if you had any idea how many families would 
benefit from this proposal, that actually simplifies the 
adoption tax credit and makes it possible for more families 
adopting children to take advantage of it.
    Mr. THOMPSON. I can't give you a figure at this point in 
time. I am sure that I can go back to the Department and get 
some of our actuaries to give you a number.
    I would like to tell you--first, to thank you for your 
leadership on the adoption bill last fall. It was an excellent 
one, and it is going to turn out to be an excellent bill to 
improve adoptions, especially for special needs children and 
especially those older children, over the age of 8. You led the 
leadership on it, and I thank you so much.
    Mr. CAMP. Well, thank you very much. Thank you, Mr. 
Chairman.
    Mr. MCCRERY. Thank you, Mr. Camp, and I add my commendation 
for all your work on the adoption provisions. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Secretary, I 
know that sometimes things in our personal life are pretty 
tough to deal with, and my heart is with you today. 
Nevertheless, I want to ask a couple of questions.
    Mr. THOMPSON. I know you will.
    Mr. MCDERMOTT. I have to. You once said communities of 
color suffer disproportionately from diabetes, heart disease, 
Human Immunodeficiency Virus (HIV), AIDS, cancer, stroke, and 
infant mortality. Eliminating these and other health 
disparities is a priority of HHS. I have always considered you 
as being someone who was among the more credible among the 
Secretaries in this Administration.
    The recent record of the Administration is so bizarre that 
it is hard to find anybody that believes anymore. What is 
struggled with is that on the day before Christmas Eve, the 
National Institutes of Health (NIH) released its national 
health care disparities report, or it was released from HHS.
    This was in response to a public law which demanded that 
you do this. It was given to the NIH, and they looked at the 
issue, and the investigation found that HHS substantially 
altered the conclusions of its scientists. In the June draft, 
the Department scientists found significant inequality in 
health care in the United States, called health care 
disparities ``national problems,'' and emphasized that these 
disparities are pervasive in our health care system.
    Now, for some reason, you took it upon yourself to rewrite 
this, and you came out with a version that refused to define 
disparity as had been done in the other one. The other one had 
had 30 references to ``disparity.'' There were no references to 
``disparity,'' and it was left undefined.
    Now, you even went to things like the Native American 
population in this country where you point out that they have a 
lower death rate from cancer. Well, that sounds like a pretty 
good deal, but what there was no mention of was that their 
overall life expectancies are significantly shorter than all 
other Americans, or their infant mortalities are substantially 
higher.
    They went on with things like--the draft concluded that the 
racial and ethnic minorities are more likely to be diagnosed 
with late-stage cancers, die of HIV, receive suboptimal cardiac 
care. The final version dropped all these examples.
    Now, I would like you to tell us who told you to rewrite 
this, because I can't believe that the man who made that first 
quote, that first statement about the disparities, could 
rewrite a report from the NIH.
    Mr. THOMPSON. I didn't rewrite it, and thank you for 
bringing the question up. I would like to clarify that.
    Mr. MCDERMOTT. Yes, please do.
    Mr. THOMPSON. When it came to my desk a couple of weeks 
ago, I changed that order and put out the original report just 
the way it was, without any changes whatsoever.
    Mr. MCDERMOTT. Well, could you explain to me how this 
happened in the first place? How do you go out and----
    Mr. THOMPSON. I can explain it to you, but it is not 
something that I am very happy about. Some individuals, that 
thought they were doing the right thing, took it upon 
themselves to be more positive; and when it came to me I said, 
no, we will put it out the way it was. That is the way it is 
going to be.
    Mr. MCDERMOTT. Well, that is what brought my attention was 
the quote from your spokesperson----
    Mr. THOMPSON. That is how I feel, and that is how I 
believe. That is why it is going to go out in its original 
form, Congressman.
    Mr. MCDERMOTT. I am stunned, and I appreciate your honesty.
    Mr. THOMPSON. Well, I am honest.
    Mr. MCDERMOTT. I think----
    Mr. THOMPSON. There was a mistake made, and it is going to 
be rectified.
    Mr. MCDERMOTT. The disparities in health care in this 
country are atrocious, and I think it shouldn't be a partisan 
issue, and I think it ought to be----
    Mr. THOMPSON. It is not a partisan issue.
    Mr. MCDERMOTT. If we don't admit it, we can't deal with it.
    Mr. THOMPSON. You are absolutely correct.
    Mr. MCDERMOTT. I think that the other thing that I have 
been concerned about, and that is the whole question of the 
ads. I looked at those ads. Well, I was watching the President 
on Sunday morning. I admit I got up, went down in my bathrobe 
to watch him.
    Mr. THOMPSON. I bet you were cheering him on.
    Mr. MCDERMOTT. Yes, I was. I thought it was great. Right in 
the middle I get one of these ads, and I couldn't believe that 
you would authorize that. All right, we know that you want to 
sell the product and advertising on TV is the way 90 percent of 
Americans find out what is going on; but that campaign really 
was over the top.
    I find--like Pete, I find myself with the National 
Taxpayers Union, and I agree, there must be something wrong. I 
really think you ought to look at that. If you are going to 
keep putting that out there, you are going to pay for it, I 
think, in the end--not you, but politically your party will pay 
for that. You cannot misrepresent the situation in that way and 
expect to get away with that.
    Mr. THOMPSON. Congressman McDermott, I respectfully 
disagree with you. I do not think we are misrepresenting it. I 
think we are very straight on.
    I will go back and look at it again, but I am not the one 
that puts these ads together. I don't have that ability, 
Congressman. We hire people to do it. It is the same firm that 
has been doing it for the last 3 years, and it hasn't been 
changed. As I indicated, the lead individual that put the thing 
together happens to be a Democrat, and I don't think he would 
put out partisan stuff.
    Mr. MCDERMOTT. Mr. Secretary, just one thing. It sounds 
like on the report from the NIH you were not the one who made 
the decision, and I have the feeling you didn't make the 
decision about these ads. I think that they were made somewhere 
else. They were never submitted to you.
    Mr. MCCRERY. The gentleman's time has expired.
    Mr. THOMPSON. They have my final approval. I am 
responsible.
    Mr. MCCRERY. I thank the gentleman for his comments. I 
would point out to the gentleman from Washington that I agree 
with Secretary Thompson's decision to issue the report in its 
original form. As you and I have discussed, there are 
disparities among ethnic and racial groups in this country with 
the quality of health care they receive; and if you and I had 
perhaps ventured a little farther in our efforts to create a 
system in which everybody would have private health insurance, 
maybe we could solve those problems. Mr. Ramstad.
    Mr. MCDERMOTT. I stand ready to work with you.
    Mr. RAMSTAD. Thank you, Mr. Chair. Mr. Secretary it is 
always good to see my friend from Wisconsin, and I want to 
thank you for doing a tough job very well. I want to shift 
gears, and I mean really shift gears to the recent National 
Survey on Drug Use and Health. I am sure you are familiar with 
the survey, which showed 6 million Americans are drug addicts, 
17 million Americans are alcoholics. In the same year, 
according to the Office of Drug Control Policy, same year's 
survey, 3.5 million people were denied treatment for chemical 
dependency in America who were ready to take that first step 
and who needed help. That is why I am pleased the President's 
budget calls for $200 million funding for the access-to-
recovery State vouchers to give people with chemical dependency 
access to the program that works best for them, a program of 
treatment which will hopefully start them on their recovery.
    Last year, as you know, we funded half of the President's 
request. He also requested $200 million in last year's budget. 
We funded the program at $100 million for this fiscal year, and 
I am hopeful we can work together in a bipartisan way and fully 
fund this program. This is something that is desperately needed 
to deal with the epidemic of chemical addiction in America.
    Last year, I know also, the Administration made a 
commitment to work with Congress to pass mental health 
treatment parity. In fact, the President stated publicly that 
he supports mental health treatment parity. This would include 
a study of the efficacy of chemical dependency treatment 
parity.
    I would like to know, Mr. Secretary, what, if anything, is 
currently being done by the Administration to promote mental 
health parity, the bill sponsored by Senator Domenici in the 
Senate, and I have sponsored the companion bill in the House.
    Mr. THOMPSON. Let me just start off by thanking you for 
your leadership in this area, because mental health parity is 
something that this country needs to get to. There is no 
question about it. How we get there, of course, is always the 
problem because of the financial implications. The President 
has come out strongly for it and as a result of that--he 
doesn't need to convince me--but my whole Department is pushing 
for it; and hopefully we can get legislation through Congress 
this year that will accomplish that.
    Mr. RAMSTAD. As it now reads, is the Administration 
supportive of the Domenici-Ramstad bill?
    Mr. THOMPSON. As of right now, I am certainly supportive of 
the concept. I don't know if the White House has taken a 
position on that particular bill, the concept the President has 
come out and endorsed.
    Mr. RAMSTAD. I see one of your assistants shaking her head 
affirmatively, and that is a good sign. I certainly hope so.
    You alluded to the cost implications of parity. Mr. 
Secretary, as I am sure you know, we have all the empirical 
data in the world. This issue has been studied to death for 20 
years, both mental health treatment parity and chemical 
dependency treatment parity. We can prove--we have proven, 
rather; it is the RAND Corporation study or the Rutgers study 
or the Columbia University study or the Minnesota study or the 
California study.
    We can go on and on. We can show that for every dollar we 
spend in treating people with depression and other mental 
health problems, for every dollar we spend treating people with 
chemical addiction, we save $7. We save $7. Everybody out there 
who is untreated for their alcoholism incurs health care costs 
100 percent higher than I do, who has been treated for my 
alcoholism.
    So, we don't even have to argue that this is cost 
effective. It is not only the right thing to do, but it is the 
cost-effective thing to do, and I am glad the President 
supports it. I am glad you support it, and I hope this year we 
can get it done.
    Mr. THOMPSON. Congressman, all I can tell you is that 
everything you said, you speak from the heart and it is so 
true. The truth of the matter is, this whole country, if we are 
really serious--and I hope on a bipartisan basis we are--if we 
are really serious about getting health care costs under 
control, you have to start looking at prevention.
    Number one, $155 billion for tobacco, 442,000 Americans 
die; $135 billion on diabetes, 200,000 Americans die; $117 
billion on obesity, and over 300,000 Americans die; on 
alcoholism and so on down the line. If you really want to 
address health care costs in America, we have to do something 
about prevention, and that has got to be front and center.
    I happen to be passionate about it. I talk about it all 
over the country.
    I am so happy that you are out pushing in regards to 
alcoholism because you know absolutely how important it is and 
how important it is to get this information and word out. 
Whatever you can do to help me, and whatever I can do to help 
you, I am there.
    Mr. RAMSTAD. Thank you very much, Mr. Secretary.
    Mr. MCCRERY. Mr. Kleczka.
    Mr. KLECZKA. Mr. Secretary, I have a couple of questions, 
going back to the Medicare program. 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?
    Mr. THOMPSON. Yes.
    Mr. KLECZKA. Do you know what that percentage might be or--
--
    Mr. THOMPSON. I think it is 105 percent.
    Mr. KLECZKA. Okay. About 5 percent. I am told that under 
this bill, and especially since the re-estimate of the costs 
going to insurance companies, that the difference in 
reimbursement will be about 120 percent. Do you agree with 
that?
    Mr. THOMPSON. I disagree with that, Congressman Kleczka.
    Mr. KLECZKA. Under the bill, how high do you think we are 
going to get?
    Mr. THOMPSON. I think it was 106 percent.
    Mr. KLECZKA. No, it is much higher than that. Well, the 
reason I bring this up is--I'm sorry.
    Mr. THOMPSON. Our actuaries say it is going to be 105 to 
106 percent, and they figured it would be about 98 to 99 
percent if they would take the three bottom bids in the 
regions; and that is why we were advocating it.
    Mr. KLECZKA. The reason I bring that up is because 
currently we are reimbursing insurance companies higher than 
the Medicare fee-for-service, and it seems that one of the 
reasons we had to pass this bill, which I did not support, was 
because we had to save Medicare. Well, how do you save 
Medicare--save it from going bankrupt? How do you save Medicare 
by going to a system where you are paying more for your 
reimbursement to companies, versus the current system? That 
just doesn't add up in my mind.
    The other question and concern I had, Mr. Secretary, is in 
questioning from Mr. Crane from Illinois, you indicated your 
support of the health savings accounts and also your support of 
the President's proposal to have the premiums for these high-
deductible policies totally tax deductible; am I correct? Did I 
hear right?
    Mr. THOMPSON. I didn't answer on the premiums.
    Mr. KLECZKA. Okay. Well, it seems that the President is 
recommending that these types of health care premiums be 
totally deductible from the income of the individuals. Do you 
not support the current premiums we are paying to also be 
deductible? I guess that was the link I tried to establish 
here.
    Mr. THOMPSON. I support the budget as advanced by the 
President, Congressman.
    Mr. KLECZKA. Okay, but it seems ironic that this one type 
of special health care premium is going to be treated more 
favorably than the health care premiums that the balance of 
Americans pay, and I think there is something wacko with that 
policy, and hopefully this Committee will make it--if, in fact, 
it is pursued, will make it much more fair for all Americans 
who are paying health care premiums. Thank you.
    Mr. THOMPSON. I tend to agree with you, Congressman.
    Mr. MCCRERY. Does the gentleman yield? It seems so. Ms. 
Dunn.
    Ms. DUNN. Thank you very much, Mr. Chairman, and thank you, 
Secretary, for being with us today. We all appreciate your 
resiliency in working with us to interpret what is a very 
complicated piece of legislation; and I know we will all work 
together over the next few months and years as we make sure 
that some of the elements that are important to us do not slip 
through the cracks. We appreciate your working with us.
    A lot of us on this Committee are very interested and 
concerned about the 44 million people who remain uninsured, and 
we are looking for a way to provide them access to health care 
coverage. Because of the characteristics of the uninsured--many 
of them work for companies, but they are different size 
companies--it is tough to come up with a single approach to 
provide their insurance coverage. There is interest in 
refundable tax credits, not just for individuals but also for 
small companies, and I am wondering--you have taken a shot at 
this from different angles.
    Could you just summarize some of the thoughts you have to 
help us provide for affordable health care coverage?
    Mr. THOMPSON. Thank you for the question. There are several 
things I think we should do.
    The first thing, I think we should try and move a lot 
faster toward a more uniform system as far as a computerized 
system for practicing medicine. We could reduce the number of 
untimely deaths and accidents considerably. We are in the 
process of doing that in the Department, setting up a uniform 
system called SNOMED, which we are going to license and give 
out to clinics and doctors.
    I think we should take the President's plan on tax credits. 
I think we should then expand that and allow States to set up 
for all those that are uninsured into a purchasing pool--it 
would be a very good pool--and have the State set up an 
insurance commission or commissioner that would negotiate for 
that particular tax credit for the State of Washington.
    The State of Washington may have 2 percent of the total tax 
credit. If they got that into an uninsurable pool and had one 
individual to do it, you would have a lot of companies that 
would bid for the individuals that are uninsured, and then you 
would have a very acceptable rate for the uninsured to purchase 
it.
    The third thing is, you could have a stopgap loss at over 
$7,500 in insurance policy from 75 to 25 percent and would be 
affordable, and it would be able to reduce the number of 
uninsured considerably.
    The next thing you should do is you should try and do 
something about the Community Health Centers to be able to make 
sure that we are able to get more Community Health Centers 
across America. If you do those three things, you can reduce 
the uninsured and allow a lot of access to individuals that 
need health insurance in America.
    Ms. DUNN. Thank you very much. The second question----
    Mr. THOMPSON. The final thing is, if we are ever going to 
get control of this, we have to be serious about prevention.
    Ms. DUNN. Yes, and we have discussed that on this panel. 
Let me ask you a question about reimportation. As part of the 
Medicare Prescription Drug Act, Congress directed several 
departments to work together and to conduct reports on 
reimportation, and I am wondering--there were some guidelines 
that were proposed in the legislation. I am wondering how that 
reporting is coming. What efforts has your Department taken to 
deal with counterfeit drugs that are entering the United 
States?
    Mr. THOMPSON. Well, the U.S. Food and Drug Administration 
(FDA) has taken a leadership role, Congresswoman Dunn, and they 
have had a couple of incidents in which they have stopped drugs 
coming into America in order to find out what kind of drugs are 
coming into America and how many are counterfeit drugs and how 
many are mislabeled and so on. The percentage is very high.
    I can get those facts and figures for you. I don't have 
them off the top of my head, but it is basically in the area of 
75 to 80 percent of the drugs that were stopped by FDA agents 
coming into America were either mislabeled or counterfeit drugs 
or were the wrong type of drugs, or the directions on the 
packaging.
    [The information follows:]

    The task force has been convened and held its first meeting with 
consumer groups on March 19th. The task force is chaired by Dr. 
Carmona, the Surgeon General. See the attached press release for 
additional information on the task force, its members and its agenda.

                               __________

                                              Contact: HHS Press Office
FOR IMMEDIATE RELEASE
                                                         (202) 690-6343
Tuesday, March 16, 2004
          HHS Names Members to Task Force on Drug Importation
    HHS Secretary Tommy G. Thompson today named 13 people to serve on 
the new Task Force on Drug Importation that is exploring how drug 
importation might be conducted safely and its potential impact on the 
health of American patients, medical costs and the development of new 
medicines.
    Surgeon General Richard H. Carmona will serve as the task force's 
chairman. The panel includes representatives from across HHS, as well 
as from other parts of the federal government with knowledge or 
involvement in drug importation issues. The task force may consult 
other federal officials as well.
    ``Under Dr. Carmona's leadership, this task force will fully 
examine the issues surrounding drug importation to determine how to 
assure consumers that such imported drugs are safe and effective,'' 
Secretary Thompson said. ``We haven't been able to provide those safety 
assurances as required by law and with available resources. The task 
force will study if drugs can be imported safely and, if so, what 
resources would be needed to ensure safety.''
    Secretary Thompson also announced the dates for the task force's 
five listening sessions with groups and individuals who would be 
affected by drug importation. The first meeting will take place Friday, 
March 19, and will feature speakers from at least a dozen invited 
consumer groups.
    The dates of the other listening sessions are: April 2 with health 
care purchasers; April 28 with professional health care providers; May 
6 with industry representatives; and May 14 with international 
stakeholders.
    In addition, the task force will hold a public hearing on April 14 
to allow members of the general public to present their views on the 
issue. The hearing will take place in the Natcher Auditorium at HHS' 
National Institutes of Health in Bethesda, Md. Information about 
participating in the public hearing is available at http://www. 
fda.gov/OHRMS/DOCKETS/98fr/04n-0115-nm00001.pdf.
    ``Secretary Thompson asked the task force to assess the issue of 
drug importation safety and the associated public health issues,'' Dr. 
Carmona said. ``I am looking forward to working with task force members 
as we conduct a fair and objective evaluation based on the best science 
and information available.''
    In addition to Dr. Carmona, the task force members are:

      Jayson P. Ahern, assistant commissioner in the Office of 
Field Operations, U.S. Customs and Border Protection, Department of 
Homeland Security.
      Alex M. Azar II, HHS general counsel;
      Josefina Carbonell, HHS assistant secretary for aging;
      Lester M. Crawford, D.V.M., Ph.D., FDA deputy 
commissioner;
      Elizabeth M. Duke, Ph.D., administrator of HHS' Health 
Resources Services Administration;
      Mark B. McClellan, M.D., Ph.D., incoming administrator 
for HHS' Centers for Medicare & Medicaid Services;
      Mike O'Grady, HHS' assistant secretary for planning and 
evaluation;
      William Raub, HHS' deputy assistant secretary for public 
health emergency preparedness;
      Tom Reilly, public health branch chief at the White House 
Office of Management and Budget;
      Amit K. Sachdev, acting FDA deputy commissioner for 
policy;
      Elizabeth A. Willis, chief of the Drug Operations 
section, Office of Diversion Control, U.S. Drug Enforcement 
Administration; and
      Colette Winston, a trial attorney at the Department of 
Justice.

    The task force's members ultimately will offer recommendations to 
Secretary Thompson on how best to address the key questions posed by 
Congress as part of the Medicare Prescription Drug, Improvement and 
Modernization Act of 2003. The legislation directed HHS to complete a 
study by December 2004 to address the following issues related to drug 
importation:

      Identify the limitations, including limitations in 
resources and in current legal authorities, that may inhibit the 
Secretary's ability to certify the safety of imported drugs.
      Assess the pharmaceutical distribution chain and the need 
for, and feasibility of, modifications in order to assure the safety of 
imported products.
      Analyze whether anti-counterfeiting technologies could 
improve the safety of products in the domestic market as well as those 
products that may be imported.
      Estimate the costs borne by entities within the 
distribution chain to utilize such anti-counterfeiting technologies.
      Assess the scope, volume and safety of unapproved drugs, 
including controlled substances, entering the United States via mail 
shipment.
      Determine the extent to which foreign health agencies are 
willing and able to ensure the safety of drugs being exported from 
their countries to the U.S.
      Assess the potential short- and long-term impacts on drug 
prices and prices for consumers associated with importing drugs from 
Canada and other countries.
      Assess the impact on drug research and development, and 
the associated impact on consumers and patients, if importation were 
permitted.
      Estimate agency resources, including additional field 
personnel, needed to adequately inspect the current amount of 
pharmaceuticals entering the country.
      Identify the liability protections, if any, that should 
be in place if importation is permitted for entities within the 
pharmaceutical distribution chain.
      Identify ways in which importation could violate U.S. and 
international intellectual property rights and describe the additional 
legal protections and agency resources that would be needed to protect 
those rights.

    A public docket for the task force will be opened tomorrow to allow 
members of the public to submit comments for the record. The docket, 
2004N-0115, will be available at
http://www.accessdata.fda.gov/scripts/oc/dockets/comments/
commentdocket.cfm.

                                 

    Ms. DUNN. Is it your feeling that people incur a great 
danger when it comes to safety if they go across the borders to 
purchase drugs?
    Mr. THOMPSON. I can't say that, Congresswoman Dunn. I am 
just talking about drugs that were--that we stopped coming into 
this country at the border. I don't know--safety of people 
going across the border, we haven't stopped anybody going 
across the border, and I don't think we are--there is no 
intention ever to do so.
    Ms. DUNN. Those drugs that you inspect, is that a 
particular type of drug or are you just randomly inspecting?
    Mr. THOMPSON. Random drugs, Congresswoman.
    Ms. DUNN. Thank you. Thank you, Mr. Chairman.
    Mr. MCCRERY. Thank you, Ms. Dunn. Mr.----
    Mr. THOMPSON. Congresswoman, just if I could, there was a 
3-day blitz at four airports last year. The FDA identified more 
than 1,100 unapproved drugs coming in from Canada and many 
drugs that because of labeling storage or other problems 
presented safety risks.
    Mr. MCCRERY. Mr. Lewis.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Mr. Secretary, welcome.
    Mr. THOMPSON. Thank you, Congressman.
    Mr. LEWIS OF GEORGIA. It is good to see you. I want to 
raise one or two questions. One on the line that Mr. 
McDermott--we have all these reports, we have all these 
studies, and you come here every year and we hear all this 
debate and concerns about the health disparity between the 
majority population and the minority population.
    Do you have any information, any data, that would 
demonstrate that we are making some progress? Is the gap 
continuing to grow and widen? Are we narrowing the gap between 
the minority and the majority population when it comes to basic 
health care?
    In addition, I would like for you to tell me what is your 
vision or what is the vision of this Administration in 
improving the quality of health care for all of our citizens?
    Mr. THOMPSON. Well, Congressman, my vision is very simple. 
I want to make sure that we have uniform access to every man, 
woman, and child that has a medical problem to be able to get 
access to that medical care, whatever his race or background 
may be.
    I believe very strongly that we have set up an institute at 
the NIH that is working extremely hard in order to reduce the 
disparities across America. We are doing lots of research. A 
lot of research is being done on minority health at NIH and the 
Centers for Disease Control to make sure that we are much 
better prepared in order to treat minority diseases.
    As you know, I just took over the chairmanship of the world 
global fund to fight international AIDS. I just came back from 
Africa, where I spent 10 days in five different countries in 
Africa, talking to individuals on how we might be able to 
implement our programs better from the global fund to fight 
AIDS.
    We are expanding the Ryan White program in this budget in 
order to fight AIDS, especially in minority communities, where 
we are still seeing a spike-up; and I am very much in 
opposition to that and hoping that we are going to be able to 
get a handle on that and get the information out there to 
minorities in order to protect themselves.
    I have teamed up with Tom Joyner, as you probably know, 
every September to take a loved one to a doctor and especially 
African Americans. We are putting out our literature and our 
information on Medicare, as well as most of our health 
statistics and health documents, Congressman Lewis, in English 
as well as Spanish, so that Hispanics are able to get the same 
kind of information as possible.
    I speak on this subject across the country to many 
different minority groups. We are reaching out. Whether or not 
we are having the effect--I think we are. I think we are very 
aggressive. My Deputy Secretary is doing a wonderful job in 
regards to this issue; I have assigned it to him because he 
certainly knows this issue as well as anybody does, and we are 
trying to look for any kind of input from you or anybody else 
on how we can do the job better.
    We can always do a job better. We are always looking for 
ways to do it better, and we will continue to do so as long as 
I am Secretary.
    Mr. LEWIS OF GEORGIA. I appreciate that very much, Mr. 
Secretary.
    Let me just ask you a question about the new Medicare 
prescription drug bill. In your heart of hearts, do you really 
believe that this bill is a good deal, a better deal for the 
poorest of the poor? It seems like in some cases, in many of 
the States, people are going to have to pay more. In the State 
of Georgia----
    Mr. THOMPSON. Congressman Lewis, this is a very good bill 
for the poorest of the poor. Those individuals under 100 
percent of poverty are going to be able to get all of their 
drugs paid for for free. There will be no deductible. They will 
have no co-pays whatsoever.
    Mr. LEWIS OF GEORGIA. It appears to me in the State of 
Georgia about 129,000 of the poorest beneficiaries are going to 
have to pay more. I think this would be true in several other 
States.
    Mr. THOMPSON. No. Those under 150 percent of poverty, 97 
percent of those individuals under 100 percent of poverty are 
going to have all their drugs paid for. Those under--between 
100 and 135 percent, 91 percent are going to have it paid for; 
those between 135 and 155, 75 percent. It is a wonderful bill 
for those low-income seniors in America that have had to make a 
choice between purchasing this or purchasing drugs.
    Mr. LEWIS OF GEORGIA. Well, I appreciate your response. Let 
me just--before my time runs out let me ask you about something 
else. Now, on the morning that we voted on this bill----
    Mr. THOMPSON. Yes.
    Mr. LEWIS OF GEORGIA. Between 3:00 a.m. and 6:00 a.m., my 
eyes didn't fool me; didn't I see you on the floor of the 
House?
    Mr. THOMPSON. Yes, you did.
    Mr. LEWIS OF GEORGIA. Yes. Do you think it was proper and 
appropriate for a member of the Cabinet to be going from chair 
to chair, aisle to aisle, lobbying Members of Congress to vote 
on the bill? Do you think that was proper? Did you promise 
anyone anything?
    Mr. THOMPSON. I didn't promise anybody anything.
    Mr. LEWIS OF GEORGIA. Well, what were you doing there? 
Technically, you could be there, but to me it seemed like it 
is--you are coming down. Seems like it is belittling the 
Secretary of HHS or a member of the Cabinet to be going person 
to person, almost knocking on doors, almost asking for votes. 
That didn't look good.
    Mr. THOMPSON. Congressman Lewis, I spent 5 months working 
on this particular bill. I think it is a very good bill. It is 
very good for low-income Americans. I think it was only proper 
for me to be on the floor. Nobody told me I shouldn't be there.
    I wanted to see it passed. I worked very hard to get it 
passed. I believe it is the right thing, and I think in years 
to come people are going to look back and say this is a very 
good bill.
    Mr. LEWIS OF GEORGIA. I thank you, Mr. Secretary. Thank 
you, Mr. Chairman.
    Mr. MCCRERY. Thank you, Mr. Lewis. Certainly, if there was 
anyone in the Administration who could have been considered an 
expert on the legislation that was before the House at the 
time, it was the Secretary of HHS. Mr. Collins.
    Mr. COLLINS. Thank you, Mr. Chairman. I concur with that, 
Mr. Secretary. I have heard several of the comments you were 
making there and you were just explaining the provisions of the 
bill to encourage those who may not have fully decided what to 
do on that bill.
    I was pleased to hear you make some comments about the 
Community Health Centers. We have one down in the Columbus, 
Georgia, area, which is in south Columbus with a lot of 
minority residents; and it has done a very good job for the 
local residents there. We appreciate your help in that area.
    In the last few days, as I have traveled through the 
district and have spoken with many oncologists on the phone 
about the cancer drugs, they are concerned about the delivery 
of those drugs, based on the way the reimbursement now will be 
on the average wholesale price (AWP). They are concerned that 
those who have more clout in buying will be able to buy at a 
much lower rate than the physicians who actually administer in 
their offices, and that that is going to put an imposition that 
many of them will have to then send their patients to the 
hospital for this type service. I am not sure how that 
reimbursement will stack up with the hospitals getting other 
benefits because of the visits and how the comparison will be 
on what it actually costs through the Medicare system.
    What do you see in 2005 is some information that we can 
share with the oncologists as to how this is going to be 
addressed? What approach we are going to take to make sure that 
people are not forced into a hospital that may be miles away 
from where they normally have been going for their care, 
because of the way that was configured in the Medicare bill?
    What can you give us to be able to pass along to these 
oncologists that their patients will be well taken care of and 
that they will be reimbursed at a fair rate to administer the 
drug?
    Mr. THOMPSON. Thank you very much, Congressman Collins. 
First off, thank you so much for your leadership on Community 
Health Centers. Your Community Health Center in Columbus, 
Georgia, is one of the finest in the country, and I intend to 
get down and visit it with you, hopefully this summer or this 
coming fall.
    In regards to oncologists and the drugs, this was one of 
the very complex and complicated pieces of the legislation; and 
what we were doing, we were overpaying for the drugs in the 
past and underpaying for the delivery of the drugs by the 
doctors. What we are trying to do is to increase the amount of 
money that doctors would receive for giving the drugs and put 
the payment for the drugs more in line.
    As you know, it is going to be AWP, but then it is going to 
be the average sale price in 2005.
    We are setting up the procedures, and we are looking at 
that; it is a very complex thing. We are having a lot of input 
from the cancer doctors and clinicians across the country. We 
are having a lot of input from individuals like yourself on 
both sides of the aisle, and we will continue to do so, and I 
will keep you informed as we go along.
    All I can tell you is, we are trying to be fair. We are 
trying to put it more in line with what the costs of the drugs 
are, for the proper reimbursement as well as improving the 
reimbursement for doctors so that they can get paid for their 
services in a more equitable fashion; and they haven't been in 
the past.
    Mr. COLLINS. Well, I sure hope so. We were speaking with 
one earlier this morning, and this particular doctor referred 
to a particular drug that he uses that has a cost, and he used 
the number of $2,100. Based on the reimbursement fee, he would 
actually get 80 percent of $1,800 or somewhere around $1,500 
with a net loss of $600. I don't know if the fee for the 
administering is going to offset such a difference in cost 
there of the drug itself.
    So, that is the thing that we are running into, and we are 
hearing a lot about, and I hope you will keep a very open mind.
    Mr. THOMPSON. It is a real balancing act, and we are 
looking at this. We are trying to come up with the best balance 
possible. We know that there is a lot of criticism out there, 
and we are trying to find ways in which we can come up with a 
more equitable system, Congressman Collins. The best I can tell 
you is that we are working on it and we will keep you informed.
    Mr. COLLINS. Very good. Very good. Well, that's all we can 
ask. We appreciate it very much, and please stay abreast of it. 
We do look forward to your visit in the Columbus area for the 
Community Health Center there, maybe sometime in August or 
early fall.
    Mr. THOMPSON. Thank you very much, Congressman.
    Mr. COLLINS. Thank you.
    Mr. MCCRERY. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman, and thank you for 
rolling those Rs so well. Mr. Secretary, pleasure to see you 
again. Thank you very much for your testimony. I want to say 
what I said to you right before we began as well. Thank you 
very much for the work that you have done that many Members of 
Congress on a bipartisan basis have done to try to deal with 
the issue of diabetes. I think we recognize that it has become 
a crisis, and it is something that is preventable.
    So, I want to thank you for working hard on the part of the 
Administration to include within the recent Medicare bill some 
provisions which I think were instrumental in helping many 
people who are either suffering from or could get better or 
perhaps control it and live a longer life. So, I want to thank 
you for that.
    I want to get into the advertising issue a bit, because I 
think that goes into the--goes to the question of credibility. 
I think when it comes to seniors, they depend on us to give 
them the truth and explain to them exactly what we are going to 
do. So, I know that questions have been asked by some of the 
Members to you directly, and I know that taxpayers would like 
to know how the $23 million for the advertising campaign is 
going to be spent.
    Is the information that Members have requested with regard 
to how the money is being used, what programs are being sent 
out, where, whether, is all that information about the 
advertising campaign going to be provided to the Members?
    Mr. THOMPSON. Absolutely.
    Mr. BECERRA. Okay. Any idea when we will get that?
    Mr. THOMPSON. We can get it to you tomorrow.
    [The information follows:]

    By statute, CMS is required to provide education to beneficiaries. 
CMS specifically chose to include television advertising in our 
campaign because our research has shown that Medicare beneficiaries 
receive the majority of their information from television, making it 
the most effective and efficient medium for reaching the Medicare 
audience.
    On February 3, 2004 CMS launched a nationwide advertising campaign, 
``The Right Answer,'' to alert beneficiaries of the new benefits that 
are available under the Medicare Prescription Drug Improvement and 
Modernization Act of 2003 (MMA). This included newspaper print, radio, 
and television ads in both English and Spanish which direct 
beneficiaries to the Internet site, www.medicare.gov, and the toll-free 
number anyone can call at 1-800-MEDICARE. The toll-free number has 
customer service representatives 24 hours a day, seven days a week. Due 
to the controversy surrounding this very issue, the GAO conducted an 
analysis on whether our ads were political advertisements. While I did 
not believe these ads to be politically charged, I had agreed to pull 
the ad if the GAO's findings determined that it was indeed ``a 
political advertisement.'' I am happy that GAO did not find this to be 
the case.
    The ad was developed by our contractors and directs those 
interested in finding out more information about the new benefits to 
the toll-free 1-800-MEDICARE number or Medicare web site. The cost of 
the winter ad campaign was $12.6 million, the cost of the television ad 
buy which was part of that campaign was $9.5 million, and the cost of 
the beneficiary mailing that includes the Secretary's letter and MMA 
fact sheet was $10 million.

                                 


    Mr. BECERRA. Great. Appreciate that very much.
    Mr. THOMPSON. It is more than $23 million. There is a total 
of $1 billion that the Congress put in the Medicare 
Modernization Act, Congressman, for the implementation, for the 
information and for putting together this very complex piece of 
legislation. We are going to have to purchase some new 
software. We have some software that is older than the 
technicians that are administering it.
    Mr. BECERRA. I think there you are going to find that all 
of us, on a bipartisan basis, are going to be asking you to 
move as quickly as you can to get us into the modern age to 
communicate and provide information. I think what many of us 
are expressing is that some of these advertisements that we 
have seen don't seem to give much information, other than 
perhaps sell the program that passed, which many of us had a 
great deal of concern about, especially because most of the 
provisions of the bill don't take effect until 2006.
    So, to spend what I thought was a campaign so far of about 
$23 million in taxpayer funds for an advertising campaign for a 
program that really won't start for another year and a half or 
so, when most of the folks that are hearing this for the first 
time will have forgotten, it just seems misplaced. I think a 
number of us are concerned that it is not really going to have 
the effect that you want to try to educate the public and, 
certainly, seniors.
    Mr. THOMPSON. We have to get the information out about the 
card. The card is going to be rolled out in May, in June of 
this year, so----
    Mr. BECERRA. I am looking at this, a full-page 
advertisement, and I see only one brief mention of the card. 
So, if it is about the card, there is a full page that could 
have been used to give seniors a big----
    Mr. THOMPSON. As I said, we can't wait until next year. We 
have got to get moving right now.
    Mr. BECERRA. Well, again, that is where I think a number of 
us think if it is really to get the information out about the 
card, the discount card, then let's have something that really 
does give information about the discount card, not just touts 
the bill that passed.
    Nothing really says here that most of these provisions 
won't take effect until 2006. So, I think some seniors who look 
at this are going to be somewhat deceived, believing that they 
can just call this 1-800 number and find out how quick--for 
tomorrow, how they can enroll.
    I don't think anyone wants to do that. That is why I think 
there is some--much caution being raised by some of us on the 
issue, as I mentioned before, with regard to this advertising 
or just the general issue of credibility, I think at this 
stage.
    Now we are starting to hear that we went to war in Iraq, 
and it wasn't for the reasons that the President articulated. 
We find that the Supreme Court is taking on a case right now 
where the Vice President of the United States has been 
unwilling to reveal discussions he had with energy executives 
about energy policy that was going to set the policies for this 
country for years to come. We found that we had an energy 
crisis that followed and certainly, my State, it hit hard. That 
energy crisis follows many of those discussions that took place 
in the White House between Vice President Cheney and some of 
these energy executives, which included people from Enron and 
other companies.
    I think people want us to be credible. It seems difficult 
sometimes to fault the American people if they think that we 
are not being credible or that the country is heading in the 
wrong direction.
    We don't see how we are trying to tackle the fact that we 
have lost more than 2 million jobs over the last 3 years. We 
don't see what we are doing to try to help the 44 million 
Americans, most of them living in a working household, that 
don't have health insurance.
    I am wondering if you can give us a sense of what we are 
going to do today for the 44 million people, for example, who 
are uninsured, and the close to what is 80 million people who, 
at some point this year, will not have any health insurance and 
trying to tackle their dilemma of providing health care to 
their children and their families.
    Mr. THOMPSON. I mentioned it to Congresswoman Dunn when she 
asked the question. I think what we need to do is we need to 
build upon the President's tax credit provision that is in 
front of you in this budget, the tax credits of about $75 
billion.
    What I would like to do is have each State be assigned a 
portion of that tax credit, have the governors put all those 
uninsured in a particular State into a purchasing pool, allow 
this governor to set up a commission or a commissioner to 
negotiate with the insurance companies. It would be a very 
viable pool because one-third of those individuals are under 
the age of 25. A good share of those are making over $50,000 
and just don't believe in purchasing health insurance. So, you 
have got an insurable risk. You have got some that are going to 
be very difficult to insure, but if you put them all together, 
you are going to have a good risk pool, and you get the 
companies to bid on that. Then you would have a stopgap loss, 
and then you would be able to put out a bid for those 
individuals and you should be able to get a lot of individuals 
that you could get covered with health insurance.
    Mr. BECERRA. If those tax credits that you are talking 
about max out at $3,000 and the average premium for a family is 
over $9,000, how are we going to make the----
    Mr. THOMPSON. You didn't listen to me. I say you put all 
these people into a pool. Then it would not be $9,000 for an 
individual. The insurance companies committed bid for that 
whole pool, and it would be very low. Then you would be able to 
have individuals subscribe, an individual and a couple.
    Mr. BECERRA. So, that is going to begin to happen this 
year?
    Mr. THOMPSON. Well, that depends upon you. If I can get 
bipartisan support, we can get it passed. I have got the plan 
laid out. I can lay out a plan here that we can do it. All I 
have got to have is enough support in Congress to get it 
passed.
    Mr. BECERRA. You are already over budget $140 billion on 
what you have told us the Medicare bill cost.
    Mr. THOMPSON. No, CBO is still $395 billion.
    Mr. BECERRA. Mr. Chairman, thank you very much.
    Mr. MCCRERY. Thank you. Mr. English.
    Mr. ENGLISH. Thank you, Mr. Secretary. Perhaps to change 
the tone a little bit, I would like to, first of all, thank you 
for a number of the commitments you have made, including taking 
the time to be on the floor of the House of Representatives 
when we debated that very difficult Medicare bill, one that I 
think required your expertise to be there to explain to Members 
if they had questions. I, for one, find it a little unusual and 
have a taste I will leave others free to qualify, that anyone 
would criticize you for doing that.
    Second of all, I would like to congratulate the Department 
for launching the advertising campaign that, in the Medicare 
language, was specifically laid out as one of your 
responsibilities. I think it is critical at this point, given 
all of the conflicting stories that seniors have seen about 
this Medicare program and this Medicare benefit and the card 
that is going to be available soon, that they have access to 
objective information. That is all that you are providing and I 
have seen the ad. It gives a number that people can call. I 
think it is entirely appropriate as a use of public dollars 
that we reach out to seniors and make them aware of what their 
options are now, and what is going to be available to them in 
the future.
    So, I want to salute you for doing that. Again, it may be 
that some who voted against the legislation or some of the 
interest groups that opposed the bill may be on record opposing 
the advertising, but I don't see what any legitimate concern 
would be in making the information available.
    On another matter, Mr. Secretary, as you know, the law 
provides for an update to hospital wage indices at given 
intervals. One such update occurs after the decennial census 
numbers are tabulated and implemented. Given that 2000 census 
hasn't been completed, but the wage indices have not yet been 
updated as a result of this census, I wonder, first of all, if 
you could explain the process in which HHS must undergo to 
complete this decennial update to wage indices; and second of 
all, what is a typical timeframe for completing this process, 
and have there been any circumstances this year that could have 
possibly extended the time necessary to complete the decennial 
update?
    Mr. THOMPSON. We are still analyzing. It is still in CMS. 
We are going to be using the census data, and all I can tell 
you is that we will keep you informed, Congressman. Thank you 
for your kind words.
    Mr. ENGLISH. Well, I am very grateful to you for indicating 
that you will keep us informed. I wonder in your opinion, Mr. 
Secretary, do you feel Congress could exercise its authority 
properly in order to streamline this process for future 
decennial censuses?
    Mr. THOMPSON. Absolutely. We can give you some 
recommendations.
    Mr. ENGLISH. I look forward to those. As you know, for 
example, in Mercer County Pennsylvania, a number of our local 
hospitals, which are now included in the new Standard 
Metropolitan Statistical Area with Youngstown, have not yet 
received the higher reimbursement that that status would imply. 
That, in turn, affects the quality of health care and services 
to seniors in that area. I know this is not a unique situation, 
but it is certainly very close to home for us. Mr. Secretary, 
anything you can do to make that process move forward and 
expedited we would be eternally grateful to you.
    Mr. THOMPSON. Thank you very much.
    Mr. ENGLISH. I guess my final question has to do with the 
question of homelessness. Recently, one of our local TV 
stations in Erie has focused on the real problems that local 
providers have run into with primarily State funding for 
homeless programs.
    I notice that the President has offered a new initiative in 
this area called the Samaritan Initiative. I wonder if you 
could comment on how the Samaritan Initiative potentially could 
plug some homes in the safety net?
    Mr. THOMPSON. The funds are going to be awarded 
competitively to support the most promising collaborative 
strategies, such as the one that was publicized on your Erie TV 
station. It is to provide chronically homeless people with 
permanent housing in support of services. My Department is very 
involved in setting up supportive services, and we have some 
plans for them to do that much more uniformly across America 
than has ever been done before.
    Mr. ENGLISH. If I can. I want to also offer to work with 
you in this process.
    Mr. THOMPSON. Please.
    Mr. ENGLISH. As you navigate this initiative through the 
very tight budget this year, we think homelessness is a very 
serious issue. The real problem, including in some of our mid-
sized communities in America, and we do think that there is a 
compassionate, conservative way of getting at the core of this 
problem. I salute you for being a leader on that point.
    Mr. THOMPSON. Thank you very much. I am Chairman of the 
Intergovernmental Task Force on Homelessness. We are coming up 
with a report, I believe in August or September on it. I will 
keep you informed.
    Mr. ENGLISH. Thank you, Mr. Secretary.
    Mr. MCCRERY. Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman. Mr. Secretary, it is 
good to see you again, and I want to thank you for working with 
my office and Senator Conrad's office in getting clarification 
of the wage index issue, straightened out in the wake of the 
passage of the Medicare bill.
    The record you have established in your own public service 
as a well respected Governor, is that the initiatives you 
brought online, you paid for them. One of the things that 
concerns me about the Medicare package, which I supported, is 
how we sustain the benefits in light of a deteriorating, in my 
view, an alarmingly deteriorating fiscal situation in the 
United States.
    Does it concern you, in light of the record deficits and 
the aging of the population, the baby boomers set to retire 
next decade, that there might not be the fiscal wherewithal 
under this path to continue these benefits?
    Mr. THOMPSON. It concerns me because I am a member of the 
trustees for Social Security and Medicare. As Mr. Chairman 
pointed out, the trustees meet in March. After the March 
meeting, I believe he is going to have the actuaries from both 
CBO and from CMS come here to testify together.
    Yes, it concerns me a great deal. Last year at our trustees 
meeting, Congressman Pomeroy, we had a pretty vigorous 
discussion amongst the trustees about the direction of Medicare 
and Social Security. At that time we projected out that there 
was going to have some real serious problems come 2014 and 
2012. With added benefits there is going to be an acceleration 
of that.
    There is a provision in the Medicare law that says that 
once Medicare--once Medicare starts taking 45 percent of the 
gross domestic project budget, say about 33 percent now, goes 
to 45 percent, the trustees have got to project out when it is 
going to hit that.
    Then it has got to back off 7 years from that. So, if it is 
going to be 2016, the year 2016, which is what the conferees 
had suggested was possibly the date, the drop-dead date for 
doing some action by the trustees would be fiscal year 2009. 
So, there is a trigger in there to start alerting Congress, the 
President, and the administrators about the time to start 
addressing Medicare about the cost and about ways to fund it.
    Mr. POMEROY. Is it your position that as we consider 
revenue items in this Congress that might have a very 
significant revenue impact in terms of revenue lost next decade 
that this might be something we have on our minds already?
    Mr. THOMPSON. I think you always have got to consider the 
revenues. You have also got to consider the tax cuts, how they 
stimulate the economy and how the economy is going to hopefully 
continue to grow and create jobs and be able to bring more 
money into the coffers.
    It is always, I believe, the best hope for a country and an 
economy is to keep it growing and expanding so that there is 
more revenue coming in. I think that has got to be the basis 
under which we operate.
    Mr. POMEROY. You are not suggesting that we look at only 
the short-term stimulus effect and ignore the long-term?
    Mr. THOMPSON. I happen to be one of the long-term 
believers, especially in my role as fiduciary responsibility as 
trustee, Congressman.
    Mr. POMEROY. The final area of inquiry I would have, Mr. 
Secretary, gets to some funding of designated programs very 
important to rural health care. One of the reasons I believe 
the Medicare bill passed was because it at last addressed 
funding inequities to rural hospitals.
    Mr. THOMPSON. This was an excellent bill for rural America.
    Mr. POMEROY. It absolutely was. I agree with you on that, 
was pleased to co-author the amendment that improved it in that 
respect that we passed in the Committee on Ways and Means.
    The cuts in rural health outreach network development grant 
programs, the rural hospital flexibility grant programs, and 
the small hospital improvement programs collectively go from 
$94.6 million to the recommendations if the budget of $11 
million, that is especially to phase out the third program. Two 
of the three are zeroed out, the third is phased out. That is a 
real setback to rural medicine. It looks to me a bit like on 
the one hand, we address the issue, on the other hand you make 
the issue a bit worse with these types of cuts to programs 
vital to rural hospitals.
    Mr. THOMPSON. I understand, Congressman. You have got to 
realize that I come from a very rural area of the State of 
Wisconsin, and I am a champion of rural health from my 
legislative days through governorship to when I was Secretary.
    When you compare, there has to be some reductions in all of 
the programs in order to get us within the 1.5 percent limit 
under which OMB gave us. When you compare the huge increase at 
$25 billion and a loss of $30 million, the overall huge 
increases in reimbursements for rural hospitals is going to 
just dwarf the reductions that were made on the discretionary 
side.
    Mr. POMEROY. My time has expired. I have got some issues to 
take with that, but not this go-around. Thank you, Mr. 
Secretary.
    Mr. MCCRERY. I thank the gentleman for staying within his 5 
minutes time.
    Mr. HULSHOF. I am sorry, did the gentlelady from Ohio have 
a comment?
    Ms. TUBBS JONES. My question was, you don't regular order 
on your colleagues, so why on my colleagues?
    Mr. HULSHOF. I have been here for----
    Mr. MCCRERY. Regular order.
    Mr. HULSHOF. I appreciate that.
    Mr. MCCRERY. Members will resume.
    Mr. HULSHOF. I want to move away from some of the political 
themes sounded by others. Mr. Pomeroy, that is not a reflection 
of your questions. I appreciate the tone of your questions.
    I do want to, and I do--you explained at length, Mr. 
Secretary, for those of us that were here to hear it, the 
differences between your actuaries and our official 
scorekeeper, which is the CBO.
    I would like to ask you if there are any differences on 
this issue of non-interference? Back home, in Missouri a lot of 
folks are asking questions about why can't Medicare set price 
controls or set the price of drugs and implement price 
controls?
    Mr. Chairman, I am not sure if it has been asked to be 
submitted in the record, but I would ask that a letter from the 
Director of CBO dated January 23rd, to Senator Frist be 
included for purposes of this part of the discussion.
    Mr. MCCRERY. Without objection.
    [The information follows:]

                                        Congressional Budget Office
                                               Washington, DC 20515
                                                   January 23, 2004

Honorable William H. Frist, M.D.
Majority Leader
United States Senate
Washington, DC 20510

Dear Mr. Leader:

    At your request, CBO has examined the effect of striking the 
``noninterference'' provision (section 1860D-11(i) of the Social 
Security Act) as added by P.L. 108-173, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003. That section bars the 
Secretary of Health and Human Services from interfering with the 
negotiations between drug manufacturers and pharmacies and sponsors of 
prescription drug plans, or from requiring a particular formulary or 
price structure for covered Part D drugs.
    We estimate that striking that provision would have a negligible 
effect on federal spending because CBO estimates that substantial 
savings will be obtained by the private plans and that the Secretary 
would not be able to negotiate prices that further reduce federal 
spending to a significant degree. Because they will be at substantial 
financial risk, private plans will have strong incentives to negotiate 
price discounts, both to control their own costs in providing the drug 
benefit and to attract enrollees with low premiums and cost-sharing 
requirements.
    If you have any questions we would be happy to answer them. The CBO 
staff contact is Tom Bradley.

            Sincerely,
                                                Douglas Holtz-Eakin

cc: Tom Daschle, Democratic Leader
     Honorable Don Nickles, Chairman, Committee on the Budget
     Honorable Kent Conrad, Ranking Member
     Honorable Charles E. Grassley, Chairman, Committee on Finance
     Honorable Max Baucus, Ranking Member
     Honorable Jim Nussle, Chairman, House Committee on the Budget
     Honorable John M. Spratt Jr., Ranking Member
     Honorable William ``Bill'' M. Thomas, Chairman, Committee on Ways 
and Means
     Honorable Charles B. Rangel, Ranking Member
     Honorable W.J. ``Billy'' Tauzin, Chairman, Committee on Energy and 
Commerce
     Honorable John D. Dingell, Ranking Member

                                 

    Mr. HULSHOF. The non-interference provision, basically as 
you know, Mr. Secretary, we prohibit you or other secretaries 
of HHS from setting these prices.
    Do you agree, or does the CMS agree with the conclusion of 
our scorekeeper that says essentially as follows: striking the 
non-interference provision would have a negligible affect on 
Federal spending because CBO estimates that substantial savings 
will be obtained by private plans, and that the Secretary, 
referencing you, would not be able to negotiate prices that 
further reduce Federal spending to a significant degree. Do you 
agree or disagree with that assessment?
    Mr. THOMPSON. It is hard just to say agree or disagree 
because, Congressman, CBO has assumed that the repeal of the 
non-interference yields no savings. Our actuaries have not even 
addressed this particular subject as such. Until they do, I 
would like to have the input from them to determine if there is 
going to be a huge cost factor. They are the actuaries that I 
have to rely upon.
    Mr. HULSHOF. We will take that answer as----
    Mr. THOMPSON. I will be more than happy to get an answer to 
you in regards to our actuaries very quickly.
    [The information follows:]

    The office of the Actuary has reviewed the issue and, based on 
their preliminary assessment, believes elimination of the non-
interference provision would have a negligible impact on the cost of 
the Medicare prescription drug benefit.

                                 

    Mr. HULSHOF. You had a very sincere, and I thought 
passionate exchange with Mr. Ramstad earlier about preventive 
care and wellness. I think certainly within the bill as passed, 
as far as dealing with chronic care, as you know, and again, I 
think everyone on the Committee knows, perhaps those who don't 
know the intricacies of Medicare, who may not understand, is 
that basically the Medicare program, as it currently exists 
before the implementation of those reforms, is largely a bill 
payer.
    Mr. THOMPSON. Uh-huh.
    Mr. HULSHOF. Really there are no programs or there is no 
guidance to assist older patients, depending upon Medicare on 
focusing on wellness or how to manage chronic illnesses.
    What general statements can you make as far as what this 
bill does, especially as it relates to the number of 
hospitalizations or perhaps home health visit or doctors visits 
or helping those that have chronic illnesses, not only help the 
system be in a better financial health, but more importantly, 
help our senior citizens remain in better personal health.
    Mr. THOMPSON. Congressman, your question is so appropriate. 
Thank you. I have been hoping that somebody would ask me that 
question. Right now we spend 92 percent of our dollars in 
Medicare waiting for you to get sick. Then we spend that 
hundreds of thousands of dollars to get you well again; and 
less than 8 percent of the dollars to keep you well in the 
first place.
    Anybody that is developing a system like that would say 
that is wrong-headed. What we are trying to do, and the 
provision that I happen to like the best in the bill, is the 
one that I worked with Congresswoman Johnson on, is the 
preliminary physical, a baseline physical for people that come 
into Medicare.
    When you come into Medicare, right now, 125 million 
Americans are suffering from more than one or more chronic 
illnesses, that spend 75 percent of the costs of medical 
dollars goes for those illnesses. Most of those illnesses can 
be prevented or reduced or mitigated.
    What we are going to do with the baseline physicals, we are 
going to be able to get people in there. We are going to find 
out how sick you are. Then we are going to start treating those 
sicknesses before they come to such an exaggeration that you 
have to spend thousands of dollars to get you well. You will 
make the lives and quality of health better in America, you 
will save dollars, I am confident, and you will finally start 
addressing preventative health in America.
    Mr. HULSHOF. Thank you.
    Mr. MCCRERY. Ms. Tubbs Jones.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Mr. Secretary, 
thank you for acknowledging my sorority, and welcome.
    Mr. THOMPSON. Are they still here?
    Ms. TUBBS JONES. Some of them. They have been here all day. 
They are probably watching TV with baited breath as we ask you 
questions. I was about to ask you about the ability to 
negotiate best price, but my colleague has already asked the 
question, and you don't seem to have an answer that you are 
willing to give at this point. I would love to have you give a 
response at some point about pooling all of the seniors in the 
United States into a pool to purchase drugs at a lower cost. At 
some point I would love to have an answer from you. More 
importantly----
    Mr. THOMPSON. Congresswoman Jones, the problem with that is 
that, is we don't have the pooling concept. Because all of the 
private--the HMOs, it is the PPOs, it is the PBMs that are 
going to be negotiating, it is not me.
    Ms. TUBBS JONES. Those of us who supported a different 
piece of legislation suggested that was the better means of 
providing prescriptions to senior citizens.
    Let me--I want to focus in on the health disparities piece, 
because you have talked about how important it is to you. I 
have been to a couple of events where you have received awards 
for the work that you have done in health disparities, but I 
have some concerns about what appears in this particular 
budget.
    The budget, as I read it, cuts the public health 
improvement account in half. This is reductions to accounts 
that not only jeopardize electronic information, but also 
affect programs to eliminate racial disparities. Your current 
budget eliminates most health professional training programs by 
slashing spending on these programs from $294 million this year 
to $11 million in fiscal year 2005, which is a 96-percent cut.
    Let me speak specifically to the Public Health Services Act 
(42 U.S.C.), Title 7 and Title 8, where there are health career 
opportunity programs, the centers for excellence and minority 
fellowship faculty programs. All of these programs which were 
pushed by my predecessor, the Honorable Congressman Louis 
Stokes, who is known across the country as being the person who 
has pushed to see that minority health care is addressed.
    It goes on to freeze funding for maternal and child health, 
preventive health and healthy start programs, which are very 
preventive issues. You continue to discuss prevention. Clearly 
the prevention you are talking about in Medicare will be 
dealing with seniors that are already 65 or 70, so a whole lot 
of prevention that is going to happen at 70 versus prevention 
that can happen at an earlier age.
    Can you tell me why would you cut the programs that were 
providing opportunities for minorities to get into medical 
school? We know that in the studies that have been done, that 
culturally sensitive physicians are helpful in allowing people 
to really be clear to their physicians about health care. Can 
you tell me why, when you are talking about the need for 
disparity, dealing with health disparities that you would cut 
the very basic programs that are important to providing health 
care professionals for minority communities?
    Mr. THOMPSON. We thought it was a better way to put the 
dollars into programs that are going to put scholarships, and 
in the program for the national service corps, to get doctors 
of color to go into areas that really need it.
    We think that it is a much better way. We think that 
program that you are talking about is good. We just think 
putting the targeted dollars, the little bit of dollars that we 
have into areas that are going to pay for minorities to go to 
school, and then take the responsibility or sign a contract to 
go out into areas, into minority communities to Indian 
reservations, to areas that really need the kind of coverage. 
That--this directs those scarce resources to places that really 
need it. That is the difference.
    Ms. TUBBS JONES. The difference is--there should not be 
scarce resources, and that every member of the medical 
profession should be directed to help minorities, they 
shouldn't just be minorities that are directed to the minority 
communities. That minorities ought to be spread--there should 
be neurologists, cardiologists, radiologists, and so forth, to 
work in minority communities.
    All I am saying to you, Mr. Secretary, is in a program that 
was significant for building health professionals for 
minorities, please do not stick me just in a particular 
community and rank me in that area.
    I appreciate your response. The yellow light is about to 
go. Maybe you and I can have an opportunity to sit down and 
talk about these discussions.
    Mr. THOMPSON. Why don't you come on over?
    Ms. TUBBS JONES. I would love to. I would love to offer 
some legislation that you might get your Republican colleagues 
to support on my behalf. Thank you.
    Mr. THOMPSON. Stop over and have lunch and see my 
operation.
    Ms. TUBBS JONES. Thank you.
    Mr. MCCRERY. Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman. Thank you for your 
time and patience and perseverance today in appearing before 
our Committee. It is a pleasure to work with you. I also want 
to commend you and the President for your leadership on health 
care issues. Both parties have talked for years about providing 
prescription drugs under Medicare, and the President's 
leadership and your leadership----
    Mr. THOMPSON. For 12 years.
    Mr. WELLER. We got it done. For that I commend you. I also 
commend the President on the Association Benefit Plans proposal 
which has passed the House, we are waiting for the Senate to 
address. I particularly want to focus my questions in my 
limited amount of time on success that you have been making, 
with the support of us in Congress, on Community Health 
Centers.
    As you noted in your testimony, with the support of the 
Republican Congress, in the 3\1/2\ years of the Bush 
Administration, the Administration has funded 614 new and 
expanded Community Health Centers in this country, helping low-
income families and individuals, effectively increasing access 
to health care for an additional 3 million people.
    That is a 29-percent increase over when George W. Bush 
became President. For that I congratulate you, because I am a 
strong believer in Community Health Centers. I think the Will 
County Community Health Center just a few miles from my home, 
and the families and the people that have been served, and the 
health care that is available through there.
    I note in the President's budget you request an additional 
$218 million for Community Health Centers, another record 
increase in funding for Community Health Centers, which we 
agreed to last year, and providing a record increase in this 
past year. The President has a goal of doubling the number of 
Community Health Centers, having around 1,200, and I certainly 
stand in strong support of that.
    As you look at this year's record increase in funding, what 
role do you see for Community Health Centers in addressing 
issue of the uninsured?
    Mr. THOMPSON. They are the first line of defense for those 
individuals that are underinsured or uninsured. It also gives 
sort of a comfort level for people you know that are fearful of 
going to a large institution, going to a hospital or going 
someplace else. They feel uncomfortable because their neighbors 
go to the Community Health Center, they have known somebody 
that has been there that has been treated well.
    Plus, the health care, the medicine that is practiced in 
these Community Health Centers are really outstanding. The 
doctors that we have, and the nurse practitioners and the 
nurses in Community Health Centers are some of the best and 
compassionate people that we have in our society. So, you get 
good treatment. There is a comfort level. A plus they are there 
across the country to give people the access that they need to 
get their medical needs taken care of. I can't say enough about 
them. I thank you for your leadership and support for 
accomplishing even bigger and better times for Community Health 
Centers.
    Mr. WELLER. Well, I certainly agree with you, they have a 
tremendous role. Again, the Will County Center just a few miles 
from my home, serves hundreds and hundreds of families. They do 
a wonderful job. They are expanding, thanks to the support of 
this Congress. One of the concerns I often hear, though, from 
some of the health centers that are in Illinois is the issue of 
reimbursement.
    Mr. THOMPSON. Yes.
    Mr. WELLER. For providing care to Medicare patients because 
of a CMS imposed payment cap. We have raised this issue before, 
and it is an issue I would like to work with you on to ensure 
that they are adequately reimbursed. I was wondering if you had 
any thoughts on that, because obviously if we want to provide 
quality care we have to provide adequate reimbursements for 
Community Health Centers.
    Mr. THOMPSON. Well, we did try a minimum per capita 
payment, but we are always looking for ways to improve the 
system. I have found, being in politics as long as I have been, 
that some of the best ideas that I get are going out to places 
that are asking for the services, in this case Community Health 
Centers, and just talking to them and finding out what the 
problems are, but at the same time finding solutions.
    If you can work with us, our doors are wide open. Dennis 
Smith is here, who is the acting head of CMS, and we would love 
to work with you. If you have got any good suggestions how we 
can improve, let us know.
    Mr. WELLER. Thank you. Thank you, Secretary. I certainly 
support President Bush's and your goal of doubling the number 
of Community Health Centers serving America. I am certainly 
interested in working with you on this reimbursement issue. So, 
thank you, Mr. Secretary.
    Mr. MCCRERY. Thank you, Mr. Weller. Mr. Tanner.
    Mr. TANNER. Thank you, Mr. Secretary, for being here and 
for your patience. I am sorry I had to be out for a minute. I 
think we have had a good discussion about the present, Mr. 
Secretary, but what I want to ask about is the future.
    Mr. Snow, the Secretary of Treasury was here last week. It 
used to be we talked about the solvency of the Social Security 
system and Medicare. Some of us are now worried about the 
solvency of the country.
    The budget that has been submitted, although we know that 
the hope is to get to half of the yearly deficit in 5 years, 
never balances, and we know what the demographics are beyond 
that time. I am, Mr. Secretary, truly concerned about the 
financial solvency of this country. The situation is such that 
if you read the comments in the London Financial Times, you 
read what the G7 is saying about our situation, you know that 
Asian banks are considering pulling out of their currency of 
choice being the dollar.
    You know that we have a $500 billion trade deficit. We also 
realize that the true deficit this year, once one takes out the 
Social Security receipts is really on the order of $700 and 
some odd billion rather than $500 billion.
    My question really is, given your fiduciary relationship 
with the Medicare and Social Security systems, is there any 
advice you could give to this Committee, or what advice do you 
have with regard to the long-term picture? I am just beside 
myself.
    I told Secretary Snow, it looks to me like we were in a 
death spiral if we were in an airline, and unless something 
happens, we are going to hit the ground. Herbert Stein said 
what can't go on forever doesn't. At some point we are going to 
be so burdened with interest payments on the debt, that there 
is not going to be much of anything left to finance Medicare, 
Social Security, or anything else for that matter.
    I realize the short-term consequences of hard political 
decisions, but in your March meetings that you alluded to 
earlier, is there any hope that we can get some 
recommendations, maybe we can't act on them this year because 
everybody knows what kind of shape we are in in this town this 
year.
    I know speaking for some of us, we are willing to do 
virtually anything to try to stop this, what I call death 
spiral of debt, and the attendant carrying charges called 
interest.
    Nobody says that is a tax increase, but it is probably the 
largest tax increase we could put on the American people, when 
one considers that every trillion dollars that we borrow is a 
$40 billion obligation that year and the year thereafter and 
every year thereafter, for which we receive virtually nothing 
in terms of services, and for which 37 percent of it is being 
presently bought and held by foreigners as we write checks for 
interest on the obligations that the Treasurer auctions off 
from time to time.
    So, could you give us some insight as to what you believe 
might come out of these discussions based on the long-term, 
because I think the short-term speaks for itself. I don't see 
how we can continue to forecast deficits every year with no 
hope of balance, given the demographics of the country, as well 
as what is happening in the world with respect to our trade 
deficit.
    So, with that, let me just ask for your help, advice or 
insight. Thank you.
    Mr. THOMPSON. Well, first, thank you, Congressman Tanner. 
That was a well thought-out question, and I appreciate that 
very much. I appreciate your passion on the subject.
    I am concerned about Social Security and Medicare, because 
that is my fiduciary responsibility. I can see serious problems 
coming. I believe that the Medicare Modernization Act was the 
first step toward recognizing the problems, and you and I can 
differ on that.
    Let me just elucidate a little bit. First off, it is the 
first time we have indexed Part B deductibles. That is a step 
in the right direction. We had income related to Part B 
premium, which is another thing that is going in the right 
direction.
    We got a 45-percent trigger that got into Medicare, not as 
tough of a trigger as I was proposing, but it is still a 
trigger. I think that the trustees are very concerned, and 
agree with some of your assumptions in regards to the 
importance to address Medicare in Social Security in the 
future.
    I think Congress is going to have to address Medicare and 
Social Security. They are going to have to. There is no other 
question. I think that maybe not this year, but 2005 and 2006 
are years in which I think this country has got to start facing 
up to looking at ways and how we are going to finance Medicare 
and Social Security, especially with the demographics. I happen 
to agree with you.
    Mr. MCCRERY. Thank you, Mr. Secretary. Mr. Ryan.
    Mr. RYAN. Thank you, Mr. Chairman. It is great to see you, 
Secretary.
    Mr. THOMPSON. It is always a pleasure to see you, Paul.
    Mr. RYAN. It was snowing a lot in Wisconsin this morning. 
So, it is nice and warm here. So, nice to see you here rather 
than Wisconsin today.
    Mr. THOMPSON. Thank you.
    Mr. RYAN. I have a couple of specific questions on the new 
Medicare law. Number one, I want to talk about quality; number 
two, I want to ask you about some of the Medicare advantage 
plans that grow out of those. One of the most important parts 
of this bill I think and others have said it, are the new 
health savings accounts. That empowers consumers to be 
consumers, but you can't be a good consumer in the health care 
marketplace if you are not equipped with good knowledge of 
quality and price. So, that is why the quality initiative that 
is in Medicare legislation with respect to hospitals, in 
particular, I think is so important.
    Where is--where is the agency on the quality initiative? I 
know that you have a couple of dates that you have a choice to 
pick when the quality initiative is rolled out; at the 
beginning of the summer or at the end of the summer, I think.
    Otherwise, if the hospitals don't meet I think their market 
baskets, they won't get the full update. Could you give me a 
quick summary on where you are with the quality initiative, and 
are there any other quality and price data rollout initiatives 
that you are contemplating over there at the agency? Then I 
have a quick follow up.
    Mr. THOMPSON. Well, first off, the Department has set up a 
whole plethora of rollouts as far as quality are concerned. We 
have the nursing homes, the comparison in nursing homes, which 
is up and running, which wasn't even thought of until 3 years 
ago. We started it under my leadership, and we are doing things 
with the home health. We have got some new quality initiatives 
on home health. We are going to do something on hospitals.
    In regards to the Medicare, the acute care hospital 
payments updates, that is going to be one where data is going 
to have to be submitted for the most recent available calendar 
quarter of discharges for both Medicare and non-Medicare 
discharges. I can give you a whole package of these things, but 
right now we are still working on implementing them.
    Mr. RYAN. Are you going to do the hospital initiative at 
the beginning of the summer or the end of the summer?
    Mr. THOMPSON. June 1st.
    Mr. RYAN. Great. That is good news. Second question. The 
Medicare advantage plans. I am just curious at your response 
that you have gotten from the market that is out there, the 
PPOs, the HMOs and the other types of plans that would be 
offering plans. Obviously, they are going to want to see what 
the regions are going to look like before they really get 
serious about taking a look at offering plans to areas. So, 
question one is, where are you on getting these regions set up? 
Have you begun to get the rough sketch of the regions?
    Number two, I am just curious, what has been the reaction 
in the private sector with respect to the advantage plans 
kicking in, especially with the PPOs?
    Mr. THOMPSON. As you know, the law, Congressman, is that we 
have to have at least 10 and less than 50, and each region has 
got to have at least one State in it. I can--we are looking 
basically at somewhere in the area of 12 to 15 regions. That is 
what we are looking at, more on the lower side than the 50. We 
think it would be much more efficient and allow for----
    Mr. RYAN. Did you say 12 to 50?
    Mr. THOMPSON. The law says it has got to be between 10 to 
50. We are looking at the lower end of it, because we think it 
would be better to have larger regions than smaller ones. We 
haven't made a final decision. We will keep you informed as a 
lot of people are concerned about this and interested.
    In regards to the interest, everybody is really pretty 
excited about the law. There is just a lot of interest. Those 
people that have been in Medicare+Choice, I think you are going 
to see an expansion this year where we have seen nothing but 
declines in the past. We are down to 11.8 percent, 11.8 percent 
of the individuals in Medicare+Choice. We think that is going 
to grow. We are seeing a lot of individuals who have indicated 
that they are going to be reducing their premiums and 
increasing their benefits in order to grow their share.
    So, it looks very, very promising. I think our actuaries 
think that within 10 years that one-third of the individuals 
will be in Medicare advantage programs, or PPOs.
    Mr. RYAN. I think that is so important. Of all of the 
things and the responsibilities that you have ahead of you, 
this is a huge responsibility. When folks come to you and say 
we wish we had access in Medicare to plans just like you as a 
Federal employee and Members of Congress have, this is what it 
is. These Medicare advantage plans give seniors access to the 
same kinds of plans that we as Members of Congress and Federal 
workers have for themselves and their families.
    So, I am just excited about the fact that seniors have a 
few choices available to them that are comprehensive. I am just 
eagerly awaiting the rollout of these plans. As soon as you 
have those details, we would really like to take a look at 
these.
    Mr. THOMPSON. Thank you. Thank you for your leadership in 
the State in regards to this. Appreciate it.
    Mr. MCCRERY. Mr. Shaw.
    Mr. SHAW. Thank you. Mr. Secretary, it is also a delight to 
see you. You are one of my heroes in the Administration. Every 
time I see you, I think back to 1996 when we were able to form 
a partnership, you as a Governor and me as the Chairman of the 
Subcommittee on Human Resources to, really on a rescue mission, 
to take so many people out of poverty.
    Back then it was predicted by the opponents of the welfare 
reform bill that we were going to throw a million kids into 
poverty. There were comments made in this Committee room and on 
the House floor that people are going to be sleeping on grates 
and how horrible it was going to be.
    Quite the contrary has happened. We have taken 2 million 
kids out of poverty. We have cut the welfare rolls by 50 
percent. We have maintained level spending on TANF in order to 
get to the hardest to help and the hardest to get out of 
poverty. Do you think the $17 billion, and I believe that 
figure is correct, correct me if I'm wrong but----
    Mr. THOMPSON. It is $16.5 billion.
    Mr. SHAW. Do you think that is sufficient?
    Mr. THOMPSON. Absolutely. When you have got half of the 
population of the--they are going to be harder to place, but 
each individual applicant is going to have $7,000, closer to 
$16,000 behind them in order to get that individual placed.
    We think the increased money that this House, you have 
supported an additional billion dollars, is going to be good 
for child care. So, we think it is a very good proposition that 
you sent over there. We think it is going to be very good.
    All I can say in completing my answer to you is that we 
would not be here if it would not have been for your 
leadership, Clay. I thank you very much. You were outstanding. 
You were steadfast. You took a lot of criticism, but you were 
resolute in your leadership, and I always appreciate that and 
thank you very much.
    Mr. SHAW. You are very kind. I appreciate that, 
particularly coming from you. I want to switch into another 
area, this is a troubling area that I have jurisdiction over as 
Chairman of the Subcommittee on Social Security. This is 
something we have got to get on very quickly.
    All kinds of stories are saying don't worry about it until 
2040, but you and I both know that we are going to have to 
look, beginning in 10 to 12 years, are we going to look around 
and say where are we going to get the money to pay the 
benefits? We can't send Treasury bills to our seniors. So, I 
hope we can really get this up.
    I know in an election year, such as that we are about to 
finish up, that it is going to be very difficult to get 
particularly bipartisan support. That was, you know it is, even 
though President Clinton vetoed that welfare reform bill two 
times, he did sign it on the third time, we gave it bipartisan 
credibility, which was tremendously important.
    I keep reaching out to try to pick up allies on the other 
side of the aisle in order to bring a welfare bill to the House 
floor. I know the President is committed to it, and I hope that 
we can get on this very quickly.
    I want to, in the time I have here, your jurisdiction is so 
vast, 5 minutes isn't nearly enough, but I want to bring 
something to your attention, and also to my colleague, Nancy 
Johnson's attention, who is Chairman of the Subcommittee on 
Health.
    Something that I ran into this weekend--perhaps you already 
know about it--but it actually, I think, proves that this 
discount card is going to work. I had a constituent at one of 
the meetings that I was holding down in Palm Beach County who 
has diabetes and high blood pressure. The amount of medication 
he was taking and his prescription was costing like $60. I will 
leave the drug store unnamed at this particular point.
    Then he went to one of the discount places and found out 
that he could get the same medicine for $12. This means, and I 
think that we need to look into exactly what drug stores are 
charging, and what opportunities that patients have to shop 
around and look for the best deal. It is a marketplace that is 
going to save us on this. I think that is going to play very 
heavily into the workings of the 25 percent or the discount 
that we are hoping to get. That means that someone in the 
private sector can do that shopping for our seniors and get 
them the best deal possible.
    Mr. THOMPSON. Absolutely. We are going to have on our 1-
800-Medicare and our computers, that you are going to be able 
to call up and you are going to be able to find out and compare 
card to card as to say, Lipitor, which is a very popular drug 
for cholesterol.
    Mr. SHAW. This is the one of the ones----
    Mr. THOMPSON. You are going to be able to have some 
comparison shopping on your computer as to what card is giving 
you the best discount on Lipitor. You can bet your bottom 
dollar, once that happens, that there is going to be some other 
companies and other PBMs that are going to be cutting that to 
make sure that they get the market share.
    You are going to see a ratcheting down of drugs when we 
roll out these cards. We are going to put some comparison 
shopping up on the board so that you can come up and get the 
information as a senior. If you don't have a computer which 
somebody says, well, they don't have a computer, you are going 
to put people in the community that is going to assist you in 
order to be able to find out the best card for you.
    Mr. SHAW. That is great news. I think the marketplace is 
the best controller.
    Mr. THOMPSON. The marketplace is going to drive down the 
price of drugs.
    Mr. SHAW. Most people just go to the drug store and give 
them a prescription and come back and pick it up and never shop 
it.
    Mr. THOMPSON. We are going to do the shopping.
    Mr. SHAW. It is like going to the filling station with the 
lowest price posted.
    Mr. THOMPSON. That is what we are going to do.
    Mr. SHAW. Thank you.
    Mr. THOMPSON. We found on comparison of nursing homes, we 
put the quality up there, and you can't believe how many 
seniors are checking in on the quality standards that we put up 
on nursing homes. That is driving quality improvements in the 
whole nursing home industry.
    We are going to do that with hospitals, now with the card. 
You are going to find that the seniors are going to be looking 
to Medicare to get them the information to do the correct 
shopping for themselves.
    Mr. SHAW. Good news. Thank you, Mr. Secretary.
    Mr. MCCRERY. Ms. Johnson.
    Mrs. JOHNSON. Thank you, Mr. Chairman. Mr. Secretary, I am 
sorry my plane was so late that I missed your comments and most 
of the hearing. First of all, it is--I know there is this 
controversy about cost, but that goes back. I will look at what 
you said.
    Mr. THOMPSON. I went over all of the cost.
    Mrs. JOHNSON. I am sure that you did. That goes back to 
some differences in judgment. What is really exciting about 
this bill, that so far all of the news is very good.
    As you mentioned, the advantage plans are pushing down 
premiums, increasing benefits. They are just going to take off. 
They are the first access seniors will have to disease 
management, because for the first time we mandated that they 
have to provide disease management. The discount and the number 
of companies going to want--having put in letters to say that 
they want to be part of the discount plan----
    Mr. THOMPSON. There is 106.
    Mrs. JOHNSON. One hundred six. That means that competition 
will be intense and the prices will be pushed down 
dramatically.
    I just want to compliment you and your staff on 
implementing, to this point, the cancer care new system of 
payment. The speed with which they have implemented the new 
practice expense formula, the degree to which they have kept 
physicians informed, and the groups in Washington part of the 
conversation, has really alleviated a lot of the concern and 
fear. There are plans for a very open process during this year, 
really, going to help assure that cancer care treatment in 
communities will not be adversely affected by a more honest 
payment system.
    While they implemented the statutory provisions in regard 
to practice expenses the next portion where we go through the 
coding system and make sure that the codes are updated for what 
is really a very different kind of delivery system than 
ordinary office practice, will be very important. It will be 
very important that they oversee that well. It will be very 
important that the cancer community be very involved in that, 
because that has to come out right so that 2005 and 2006 and 
the years thereafter will come out right.
    I am very impressed with how well they have kept the 
community informed, and under rather adverse circumstances, 
because of the way the law--at the time in which the law was 
passed. So, I really commend them on their work with oncology 
at this point and look forward to working with them.
    What I wanted to ask you is how are you coming on 
implementing the chronic care provisions? One of the most 
startling, and kind of outrageous failings of Medicare is that 
it doesn't provide seniors with chronic disease the kind of 
help and support they need to keep healthy, to improve their 
quality of their retirement years and to control Medicare 
costs.
    In the very polarized debate that characterized the public 
discussion of this bill before the votes and for the most part 
immediately thereafter, this whole issue of quality care and 
the way this bill pushes forward a whole new era of quality 
care for seniors was lost.
    Since these programs are at the heart of improving quality 
and also the responsible way to approach cost control, I 
thought it would be a good idea if you could update me and the 
Committee on, and the public on how you are coming with 
implementing the disease management programs under the new law?
    Mr. THOMPSON. First, let me just quickly go through this 
chart with you. Do you have that chart?
    Mrs. JOHNSON. I got the chart.
    Mr. THOMPSON. A $100 million difference is mainly on people 
wanting more access. The first one, $47 billion is for 
individuals that are low-income, that are going to be partaking 
of the services more. That is the biggest difference. Over one-
third of the difference is that more low-income Americans are 
going to come in and use the system. I think that is positive.
    Mrs. JOHNSON. If you will let me interrupt for a minute. I 
think when people figure out how good this is for low-income, 
you may very well be right. When you look at how many people 
are eligible for Medicaid and don't do it, are eligible for 
Quimby, Slimby and simply don't do it, I think that is what 
affected our estimates. So, that is perfectly reasonable.
    Mr. THOMPSON. The second part is, we think that 94 percent 
of the individuals are going to participate in it, whereas CBO 
thinks 87 percent. You know that is $32 billion. That is human 
nature. Who knows what is going to be there in 5 or 6 years? I 
think it is quite positive.
    In regards to your prevention and chronic illness and 
disease management, let me thank you. To me, this is the most 
important part of the bill. You and I teamed up on this one. I 
happen to think, this happens to be yours and my baby. We are 
going to make it work. I happen to be more interested in making 
this thing work than anything else.
    If there is one way to improve the quality of health in 
seniors, it is through first a baseline physical, that we got 
in, then to start managing their diseases after we find out how 
sick they are. To me it is the right thing to do. We are 
already starting soliciting comments. We are also going to 
hopefully have our first contract later on this year so that we 
can get started early next year.
    I just think that first off, thank you. Second off, I can 
assure you that this is one thing I have a personal stake in, 
and I am going to make everything revolve around this 
particular proposition.
    Mrs. JOHNSON. Thank you.
    Mr. MCCRERY. Mr. Rangel.
    Mr. RANGEL. Thank you, Mr. Chairman. I want to thank you, 
Mr. Secretary, for the tone in which you set at these hearings 
and recognizing that our goal has to be a bipartisan effort. 
Also to see whether or not we can reinstate the cooperation 
that we have always had on this Committee with the chief 
actuary. As you know, as independent as they are, it is 
necessary for the committees of jurisdiction to be able to 
communicate with them.
    In the past this has not been so, and as you pointed out 
that many of the issues that we were concerned about was 
discussed in the conference, and without belaboring the point 
that still did not give us access. So, in the spirit of the 
cooperation in which this office was developed, I assume that 
we can depend, on your cooperation, to give the majority and 
the minority access to the chief actuary for purposes of 
formulating legislation.
    Mr. THOMPSON. Congressman, absolutely. I think--I may have 
been derelict in allowing my administrator, Tom Scully, to have 
more control over it than I should have, but he did an 
excellent job. He is very intelligent. Maybe he micromanaged 
the actuaries and the actuary service too much. I can assure 
you that from now on, for the remaining days that I am 
Secretary, you will have as much access as you want to anybody 
or anything in the Department you want, and all you have to do 
is call me.
    Mr. RANGEL. Thank you very much, Mr. Secretary.
    Mr. MCCRERY. Mr. Secretary, thank you very much. You have 
been very generous with your time today and as usual, your 
responses to the Committee's inquiries have been forthright and 
very informative. We look forward to seeing you next time.
    Mr. THOMPSON. Thank you.
    [Whereupon, at 5:00 p.m., the hearing was adjourned.]
    [Additional written questions submitted from Representative 
Portman to Mr. Thompson, and his responses follow:]

    Question: Mr. Secretary, I was extremely pleased to see that the 
President's budget proposes to continue the Children's Hospitals GME 
(CHGME) program's full funding for FY05 at $303 million. That's a 29-
percent increase since President Bush took office.
    This is a program that our Chair, Nancy Johnson, sponsored and many 
of us enthusiastically support. The Department has done great work in 
implementing this discretionary grant program and the program greatly 
benefits children's hospitals like Cincinnati Children's Medical 
Center, which will receive more than $12 million this year under the 
CHGME.
    As you know, the CHGME program is now located in the Health 
Resources and Services Administration--HRSA--under the Public Health 
Service and not in the jurisdiction of this Committee. But, it does use 
Medicare rules, particularly in determining the number of Full Time 
Equivalent residents the hospitals receive payment for. I understand 
that Children's Hospitals are happy with this arrangement. Otherwise, 
they would have no framework for the program, and it would have taken a 
long time to set up. Also this program was meant to provide ``equity'' 
in federal GME funding for the children's hospitals until any larger 
GME reform that could encompass them might be enacted. So, FTE 
residents should be counted the same way, by and large.
    Many of the children's hospitals fill out full Medicare cost 
reports and are providing GME related data to both CMS and HRSA. Last 
year, HRSA began operating its own separate fiscal intermediary 
contract for the CHGME program.
    I'm interested in learning more about how HRSA and CMS are able to 
coordinate information and expertise to enable the CHGME to run as 
efficiently as possible with the least possible duplication of data 
requirements with Medicare. For example, many of the children's 
hospitals have a significant number of residents ``rotating'' through 
their facility from other teaching institutions, as well as the 
resident programs they sponsor. CMS, with its fiscal intermediaries, 
has data on these rotators through its resident tracking system to help 
assure that they are not counted more than once.
    Are HRSA and its fiscal intermediary able to use the Medicare data 
system to avoid duplications, or does HRSA also have to collect data 
and develop its own system for children's hospitals?
    I'm hoping that you can share with us your comments on how HRSA and 
CMS are working together on CHGME, whether HRSA is using the CMS fiscal 
intermediary (IRIS) resident information, and any other major issues 
that have arisen that might require our attention, since changes that 
we make in Medicare GME provisions can have implications for the 
children's hospitals GME program.

    Answer: The Children's Hospitals Graduate Medical Education Payment 
Program (CHGME PP) established a comprehensive methodology for 
assessing the full-time equivalent (FTE) resident counts reported by 
eligible children's hospitals for purposes of CHGME payments. This work 
is being done under contract, and the HRSA's contractor for this work, 
Blue Cross and Blue Shield Association (BCBSA) located in Chicago, is 
also the principal contractor for similar auditing activities carried 
out by the Center of Medicare and Medicaid Services (CMS).
    HRSA developed a methodology that parallels that of Medicare. As 
part of this assessment process, the CHGME fiscal intermediaries (FIs) 
conduct ``duplicate checks'' based on the data that is available for 
that area by using the Medicare data systems. If a resident is being 
claimed by another acute hospital (general or children) the resident is 
not counted, and the children's hospital is asked to resolve the 
duplication. There is no national database of all residents being 
claimed by teaching hospitals and there is generally a lag time before 
Medicare completes the audits of FTE residents being claimed by 
teaching hospitals. However, HRSA has instructed its fiscal 
intermediaries to use the current Medicare data system to avoid 
duplications of FTE resident counts. Furthermore, about \1/3\ of 
children's teaching hospitals receiving CHGME payments never reported 
FTE resident counts to Medicare. In order to assist these hospitals, 
HRSA developed and distributed free software (IRIS) that helps 
children's hospitals with the FTE resident assessment process and 
allows the CHGME and the Medicare FIs to conduct the ``duplication 
checks.''
    As part of its effort to minimize burden on the children's 
hospitals, CHGME FIs are instructed to obtain work-papers (or audit 
papers) from the Medicare FIs before requesting such papers from the 
children's hospitals. Furthermore, upon completion of an FTE resident 
assessment by the CHGME FI, copies of work-papers are sent to Medicare 
FIs in cases where the two FIs work for different organizations. BCBSA 
intervenes in cases where the CHGME and the Medicare FIs disagree in 
the audit findings and helps resolve any outstanding questions. These 
steps are designed to ensure that there is no duplication of efforts 
and that the hospitals are audited once to establish the FTE resident 
counts.

    Question: I was very pleased with the President's budget proposal 
to continue to allow states to transfer up to 10 percent of their TANF 
funds to the social services block grant (SSBG). The ability to 
transfer these funds has allowed Ohio to provide a wider variety of 
services to families than would be allowed under the TANF program. The 
flexibility afforded by this transfer has been instrumental in the 
success of Ohio's welfare reform efforts by allowing us to more 
holistically meet the needs of the poor.
    The 10 percent transfer annually provides millions of additional 
SSBG dollars in Ohio for domestic violence programs, child welfare, 
home-based services for disabled children and adults, adoption 
assistance and supports local food banks. This transfer is also vital 
to support the counties' local reform efforts and without this 
transferability many of our most successful prevention and retention 
programs would be lost.
    Will the administration continue to support state's ability to 
transfer TANF funds into SSBG?

    Answer: Yes. The President's welfare reauthorization plan, Working 
Toward Independence, proposed to permanently restore full 10% transfer 
authority to the Social Services Block Grant.

    Question: As you know, the Education and Research Centers--ERCs--
funded through the National Institute for Occupational Safety and 
Health provide the leadership in occupational medicine, environmental 
and industrial hygiene, safety engineering and occupational health 
nursing, as well as continuing education and service to the community 
in all of these disciplines.
    The University of Cincinnati ERC serves a region of the country 
that includes substantial employment in agricultural, manufacturing and 
service sectors, and a large population base that may be at risk during 
release of a hazardous material, either intentional or unintentional.
    The region's extensive highway system and port facilities along the 
Ohio River increase these concerns. The ERC research conducted at the 
University of Cincinnati is valuable both to the region and the nation. 
Recent projects have included respiratory disease among employees 
exposed to metal working fluids, better understanding of injury during 
auto collisions, the influence of landscape and buildings in dispersion 
of hazardous materials spills, and identification of factors 
contributing to workplace violence.
    In addition, NIOSH ERCs play a crucial role in preparing 
occupational safety and health professionals in the fight against 
terrorism. Even before the tragedy of September 11, ERC faculty and 
graduates have worked for several years with emergency response teams 
to minimize losses in the event of a disaster. Some participated 
directly in monitoring efforts at the disaster sites. These tragic 
events, and the new threats faced by emergency responders, mail 
handlers, and other workers, illustrate the great concern for workplace 
health and safety needed in the ongoing war on terror. The role of ERC 
research and training has now been expanded to include more attention 
to identifying and reducing vulnerabilities to terrorist attacks. So, I 
believe the need for the expertise of the graduates from this program 
yearly is growing dramatically, and I'm delighted that since President 
Bush took office, spending on ERCs has increased by about 11 percent.
    As the workplace continues to become a critically important focus 
of homeland security, I would welcome your thoughts on the need to 
encourage more professional education in these areas.

    Answer: Thank you for your concerns about worker safety and health 
and your recognition of the important role of the CDC's National 
Institute for Occupational Safety and Health and the NIOSH Education 
and Research Centers in protecting the workplace from both well-
recognized hazards and new and emerging threats. NIOSH supports 16 ERCs 
at leading universities across the country--including the ERC you 
mention at the University of Cincinnati. The ERCs provide graduate and 
continuing education programs in core occupational safety and health 
disciplines such as occupational medicine, occupational health nursing, 
industrial hygiene, safety, and related fields such as occupational 
epidemiology and injury prevention. ERCs are important regional 
resources for those involved with occupational safety and health, 
including industry, labor, government, academia, and the general 
public. They prepare practitioners, specialists, and research 
scientists to meet critical regional workforce needs and to conduct 
needed research to improve the safety and health of working Americans.
    We recognize and appreciate the important work of NIOSH and its 
ERCs in addressing the challenges of the changing workforce, 
strengthening the base of health and scientific researchers and 
practitioners qualified to help protect and promote worker health, and 
expanding capacity to address terrorism, emergency preparedness and 
response, and related homeland security issues in the workplace. We 
will continue to support and encourage the valuable role of NIOSH and 
these key centers of excellence in these important new areas.

                                 

    [Submissions for the record follow:]
  Statement of National Association of Chain Drug Stores, Alexandria, 
                                Virginia
    Mr. Chairman and Members of the Subcommittee. The National 
Association of Chain Drug Stores (NACDS) is pleased to submit this 
statement for the record regarding our priorities for programs under 
the direction of the Department of Health and Human Services (HHS), as 
reflected in the President's proposed Federal Fiscal Year 2005 budget 
submission. Some of these priorities are directly related to budget 
matters, while others reflect program implementation and operational 
concerns. We look forward to working with you and the Members of this 
Committee on these issues.
    NACDS represents more than 200 companies that operate more than 
35,000 community retail chain pharmacies. We employ more than 107,000 
pharmacists and about 3 million total employees, and provide over 70 
percent of all outpatient prescriptions in the United States.
                                Medicare

    Medicare Prescription Drug Benefit Implementation: NACDS looks 
forward to working with the Congress and Administration on 
implementation of various provisions of the Medicare Modernization Act 
(MMA), P.L. 108-173. This will clearly be an enormous undertaking for 
the Administration in a rather short time frame, and we are already 
interacting with staff of the Centers for Medicare and Medicaid 
Services (CMS) on such issues as implementation of the discount card 
program and the Part D prescription drug coverage program which begins 
in 2006.
    Among our highest priorities for the Part D coverage program are 
assuring that the pharmacy access standards included in the Part D 
section of the bill are implemented consistent with Congressional 
intent. This refers to the so-called ``TRICARE access'' standards. We 
are concerned that CMS's implementation of these standards in the 
Medicare-endorsed prescription drug discount card and transitional 
assistance program is inconsistent with Congressional intent. As a 
result, beneficiaries' access to their local community retail pharmacy 
will be reduced. As we understand it, CMS is allowing endorsed card 
sponsors to implement these standards on average across an entire 
service area, rather than in each state in the service area. We are 
particularly concerned about the impact of this interpretation on 
beneficiaries in rural areas, who might have to travel much longer 
distances to a pharmacy if the one closest to their home is not in the 
pharmacy network. These shortcomings should be corrected before the 
Part D coverage program is implemented, which is scheduled for 2006.
    We will also work closely with CMS and Members of Congress to 
assure that beneficiaries are able to obtain covered Part D services--
covered prescription drugs and medication therapy management services--
from their pharmacy provider of choice. That is, we believe that the 
law requires plan sponsors to allow beneficiaries to obtain the same 
amount, scope, and duration of services from retail pharmacies as mail 
order pharmacies, whether the pharmacy is part of the network or not. 
We believe that it was clearly the intent of Congress to create as 
level a playing field as possible between retail and mail order 
pharmacies, and that the entities that are administering the Part D 
prescription drug coverage programs should do all they can to make any 
cost differences between mail order and retail pharmacy minimal for the 
beneficiary. In fact, in a colloquy between Senator Enzi, the 
provision's sponsor, and Senate Finance Chairman Grassley, it is clear 
from Senator's Grassley statements that:

        ``Medicare drug plans and Medicare Advantage organizations 
        should not force seniors or the disabled to choose a mail order 
        house when they would prefer to patronize their local community 
        pharmacy . . . it is my expectation that any differential in 
        charge be reasonable and based on the actual cost of providing 
        the service in or through the setting in which it is 
        provided.'' \1\
---------------------------------------------------------------------------
    \1\ Congressional Record, Senate, November 24, 2003, p. S15744.

    Finally, we are concerned about the structure and payment rates for 
drugs and pharmacy services that will be established for Medicare 
prescription drug ``fall back'' plans. These plans will exist in areas 
of regions where there are no risk-based Part D prescription drug 
plans. We want to be sure that pharmacies are paid adequately for 
providing pharmaceuticals and pharmacy services under these plans, and 
that payment rates are structured so that generic drugs are encouraged 
---------------------------------------------------------------------------
when they are the most cost-effective and therapeutically appropriate.

    Medicare Part B Covered Drugs Supplying Fee: The interim final rule 
for the new Part B covered drug payment rates--published on January 7th 
by CMS \2\--fails to provide for a statutorily-mandated pharmacy 
supplying fee for certain Part B covered drugs. In its interim final 
rule, CMS indicates that it will not pay a separate Medicare Part B 
pharmacy supplying fee for 2004, but will rather ``bundle'' that 
payment with payment for the drug.
---------------------------------------------------------------------------
    \2\ Medicare Program; Changes to Medicare Payment for Drugs and 
Physician Fee Schedule Payments for Calendar Year 2004; Interim Final 
Rule, CMS-1372-IFC, January 7, 2004.
---------------------------------------------------------------------------
    We believe that this effectively ignores the statutory requirement 
to establish a pharmacy supplying fee. Establishing a pharmacy 
supplying fee was consistent with the entire approach taken by this 
program reform, which was to more accurately pay for the cost of 
acquiring drug products, but also more accurately reflect the cost of 
safely delivering the product to patients. We believe that the pharmacy 
supplying fee is essential to this ``logic.'' We urge CMS to publish a 
final rule quickly that would provide this supplying fee for this year, 
as well as future years.
    We are also concerned about future changes in reimbursement to the 
Medicare Part B program that would tie pharmacy level reimbursement to 
manufacturers' level pricing metrics--such as average sales price (ASP) 
or average manufacturers' price (AMP). Even with some percentage 
markups, these metrics do not reflect the additional costs added to the 
cost of the drug product as it moves from the manufacturers' level to 
the community pharmacy level. In addition, their use is not appropriate 
in a real-time environment in which manufacturers' prices are changing 
constantly, since ASP and AMP rely on data that are generally several 
months outdated. They can also discourage generic usage, since they do 
not allow for sufficient incentive to encourage the dispensing of 
generics.

    Pharmaceutical Transition Commission: It is important to create a 
seamless transition to the new Part D prescription drug benefit for 
Medicare beneficiaries who currently have outpatient prescription drug 
coverage--whether it is from state pharmaceutical assistance programs, 
Medicaid, or employer-based coverage.
    For that reason, we strongly support the establishment of the State 
Pharmaceutical Transition Commission established under the MMA, and 
request that representatives of the community chain pharmacy industry 
be appointed to the Commission. Our industry has significant experience 
with existing sources of prescription drug coverage for Medicare 
beneficiaries, and will be the focal point for helping seniors 
coordinate their various prescription drug benefit programs. Among 
other items which we believe the Commission should address, 
requirements to obtain and provide information to pharmacies about 
other sources of beneficiary coverage should be placed on the Part D 
plans, not the pharmacies.

    Billing for Supplies Using a Real-Time Standard: NACDS urges CMS to 
assure that upcoming modifications to HIPAA transaction billing 
standards assure that retail pharmacies and other components in the 
prescription drug distribution and billing system (i.e. PBMs, insurers, 
health plans, etc.) are able to adjudicate claims for prescribed 
supplies in the NCPDP 5.1 real time transaction standard and, not 
exclusively using a batch standard.
    Both the discount card program and the Part D coverage program must 
provide a prescription drug benefit (which may include some covered 
supplies, such as insulin syringes) in a real time manner. Using batch 
standards to process any part of these claims will cause delay for the 
beneficiary in receiving their supplies and significant administrative 
complexities for the pharmacy provider in filling prescriptions for a 
beneficiary.
                                Medicaid

    Medicaid Reimbursement: State Medicaid programs continue to face 
unprecedented challenges in balancing their budgets. However, many 
states are proposing draconian reductions in pharmacy reimbursement 
that we believe will severely jeopardize Medicaid recipient access to 
pharmacy services. Many of these reductions are being implemented 
without any justification or evidence that the rates are fair or 
adequate to maintain access to pharmacy services. For example:

      The state of California is proposing an arbitrary 
reduction of 10 percent off a Medi-Cal provider's total reimbursement 
rate.
      The state of New Mexico is proposing a significant 
decrease in a pharmacy's Medicaid dispensing fee from $3.65 to $1.50 
for brand name prescriptions, and then a 3.5 percent reduction off the 
total reimbursement;
      The state of Alabama is proposing to decrease pharmacy 
reimbursement for dispensed drug products from AWP minus 10 percent to 
WAC plus 4 percent;
      The state of New Hampshire recently made an arbitrary 
determination that it would pay pharmacies AWP minus 16 percent plus 
$1.75 for each prescription.

    These reductions are draconian and should not be approved by CMS. 
It costs pharmacies almost $8.00 to dispense the average prescription, 
but the cost of dispensing Medicaid prescriptions are higher. CMS must 
provide a ``safety wall'' for Medicaid recipients against these 
draconian cuts, which are arbitrary and being adopted simply for 
budgetary reasons.
    In each case, the state has failed to both demonstrate why these 
reductions are justified, as well as perform the requisite analysis to 
show that access to pharmacy services is not jeopardized. We urge that 
these reductions be rejected by CMS. States can use other cost savings 
features that will get to the root of the case of Medicaid prescription 
drug escalation, and produce more long-term reductions in Medicaid 
spending.

    Uncollected Medicaid Prescription Co-payments (42 USC 1396(e) and 
42 CFR 447.57(a)): In order to achieve cost-savings and control 
prescription drug utilization, many state Medicaid agencies are 
imposing and requiring pharmacies to collect co-payments on 
prescriptions dispensed to Medicaid recipients. Co-payments are in 
addition to any reimbursement a provider receives. By law, these 
prescription co-payments can range between 50 cents and $3 per 
prescription. A pharmacy cannot deny prescription drugs to Medicaid 
recipients if they are unable to pay the co-payment.
    Moreover, federal regulation prohibits states from increasing 
payments to any provider to offset uncollected or uncollectible 
payments. This means that a pharmacy is required to absorb the 
uncollected co-payment. In some states, as many as half of all Medicaid 
prescription drug co-payments go unpaid. These uncollected co-payments 
essentially reduce pharmacy reimbursement to a level that may be well 
below the cost of providing the prescription to the patient. If 
patients are not obligated to pay the co-pay, there are serious 
questions about whether drug co-payments are effective in impacting 
drug utilization patterns.
    If recipients don't have to pay co-pays, the co-payments serve only 
as a reduction of pharmacy reimbursement since Federal regulations 
prohibit states from compensating pharmacies for unpaid co-payments. 
NACDS asks that language be included in the FY 2005 Labor/HHS 
Appropriations bill that would repeal the Federal regulation that 
prohibits states from compensating Medicaid providers for uncollected 
cost sharing amounts.
                      Food and Drug Administration

    Availability of Generic Drugs: NACDS supports increased funding for 
the FDA Office of Generic Drugs to speed approval of generic drugs to 
market, over and above that which has been proposed in the FY 2005 
Budget submission. Many popular brand name medications will be losing 
patent protection, and it is important, consistent with the law, to 
make sure that these generic drugs are marketed as quickly as possible 
so that public and private payors, as well as cash-paying prescription 
consumers, can earn the benefits.
                Assuring an Adequate Pharmacy Workforce

    NACDS supports enactment of legislation that would establish 
permanent programs in the Public Health Service Act that would create 
specific grant and loan programs to encourage students to enroll in 
pharmacy schools, as well as encourage pharmacists to teach at schools 
and colleges of pharmacy. A chronic, nationwide shortage of pharmacists 
is hampering the ability of hospitals, nursing homes, and community 
pharmacies to provide important pharmaceutical care services. Numerous 
government and industry-sponsored studies have documented the 
pharmacist shortage, including a Congressionally-mandated report by the 
U.S. Health Resources and Services Administration (HRSA).
    On November 25, 2003 The Pharmacy Education Act of 2003 (S. 648), 
introduced by Senators Reed (D-RI) and Enzi (R-WY), passed the Senate. 
On November 21, 2003 Representatives Cubin (R-WY), John (D-LA), 
McGovern (D-MA), Pickering (R-MS), Rogers (R-MI), and Simpson (R-ID) 
introduced a companion bill in the house (HR 3591). Each bill 
authorizes funding for a program of educational loan repayments for 
pharmacy students and prospective pharmacy school faculty.

      NACDS conducted a survey of its members, which indicated 
that community pharmacies have almost 4,663 vacant pharmacist positions 
as of July 2003.
      Forty-six percent of the nation's hospitals are 
experiencing a shortage of pharmacists with an average pharmacist 
vacancy rate of 12.5%.\3\
---------------------------------------------------------------------------
    \3\ Letter to Congress, American Hospital Association and the 
American Association of Colleges of Pharmacy, 6/5/02.
---------------------------------------------------------------------------
      According to the General Accounting Office, ``there is 
evidence of increasing demand for pharmacy services, which . . . is 
outpacing growth in supply.'' \4\
---------------------------------------------------------------------------
    \4\ ``Supply of Selected Health Workers,'' GAO-02-137R, 10/10/01.
---------------------------------------------------------------------------
      A report by HRSA indicates that the pharmacist shortage 
is ``a dynamic shortage'' and concludes that ``the factors causing the 
current shortage are of a nature not likely to abate in the near future 
without fundamental changes in pharmacy practice and education.'' \5\
---------------------------------------------------------------------------
    \5\ ``The Pharmacist Workforce: A Study of the Supply and Demand 
for Pharmacists,'' Health Resources and Services Administration, Bureau 
of Health Professions, 12/00.

    Now is the time for Congress to commit to assuring a long-term 
sustainable pharmacy workforce pool that will assure that medications 
are used appropriately and effectively in all populations, especially 
Medicare beneficiaries.
    We very much appreciate the opportunity to provide our views on 
these important programs, and look forward to working with the Congress 
and the Administration on assuring that these programs remain 
sustainable and viable as we move forward.

                                 
    Statement of Stephen A. Silverstein, and Mark C. Baff, Sandata 
             Technologies, Inc., Port Washington, New York
    Chairman Thomas, Ranking Member Rangel and distinguished Committee 
members:
    We appreciate the opportunity to offer this statement on behalf of 
Sandata Technologies, Inc., a leading provider of advanced information 
technology solutions and services, in connection with the Committee's 
consideration of the Administration's proposed Fiscal Year (FY) 2005 
Budget for the Department of Health and Human Services.
    As you know, government-funded health care programs are under great 
pressure to deliver quality health care to eligible individuals while 
controlling overall expenditures. Recent estimates of the federal 
budget deficit, which is projected to exceed $520 billion in FY 2004, 
underscore the importance of these efforts. In response, policy-makers 
are rethinking ways to deliver quality services in a cost-efficient 
manner and to prevent the loss of limited health care dollars due to 
waste, fraud and abuse.
    Improvements in health care information technology can play a 
critical role in accomplishing those objectives. Recognizing their 
potential, the Administration's proposed FY 2005 Budget targets 
additional federal funding to expand development and utilization of 
such technologies.
    Specifically, it proposes $50 million in new funding ``to support 
State or regional demonstration grants to test the feasibility of 
information exchange among health care settings and to fund other 
innovative information technology projects that improve health care 
quality.'' The Budget also proposes $50 million to fund grants through 
the Agency for Healthcare Research and Quality (AHRQ) ``to continue 
efforts to promote, accelerate, and demonstrate the development and 
adoption of information technology, including in small and rural 
communities where health information technology penetration has been 
low.''
    In addition to financial resources, however, it is critical for the 
federal government to work in partnership with the private sector to 
identify and eliminate regulatory barriers that currently prevent the 
broader deployment of information technology. For example, many State 
Medicaid programs require handwritten signatures on paper documentation 
instead of accepting the electronic record and electronic signature. By 
contrast, Medicare accepts electronic records on a nationwide basis.
    This example is particularly relevant, because health care is 
increasingly delivered in home- and community-based settings. Further, 
the Administration's FY 2005 Budget includes several proposals to 
expand home- and community-based care options for individuals with 
disabilities, including the Medicaid-financed ``New Freedom 
Initiative'' and ``Money Follows the Individual'' demonstrations.
    To meet the growing needs of patients in these care settings, 
providers can rely on cost-efficient, proven information technology 
known as ``telephony for home care.'' This technology allows providers 
to deploy a capable management infrastructure to reduce administrative 
costs and prevent waste or fraud, while ensuring that necessary 
services are delivered to achieve positive health outcomes for 
patients.
    Telephony for home care ensures that patients receive the quality 
of care defined in their individual plan of care for the appropriate 
cost. It delivers important benefits to both payors and providers by 
reducing costs without cutting benefits to patients. For example, the 
City of New York's Medicaid-funded home care program is estimated to 
save 5.5 percent of expenditures from the difference between authorized 
hours and actual hours of service provided.
    This service is available wherever telephone service is available, 
even under crisis conditions. During the 2003 blackout in the 
Northeastern United States, for example, the service continued to 
collect data to confirm that patients were being served. Given the 
distance involved in providing home- and community-based services to 
patient in rural areas, telephony is particularly effective as a 
management tool in those settings.
    In addition, telephony can play an important role in addressing 
concerns identified by the General Accounting Office (GAO) in its June 
2003 report regarding deficiencies in government oversight under 
Medicaid home- and community-based waivers. GAO noted that ``[n]o 
nationwide data are available on states' quality assurance approaches 
or the status of quality of care for beneficiaries served by waivers 
for the elderly, but concerns have been identified about the quality of 
care provided under many of these waivers.'' With its accurate, real-
time data collection capability, telephony can increase management 
visibility into field operations, track tasks accomplished and match 
them against the patient's plan of care, and provide a comprehensive, 
permanent audit record.
    In the near term, federal health care programs will continue to 
face significant budgetary pressures. It is therefore essential to 
ensure that limited federal resources are targeted in the most cost-
effective manner possible. Telephony for home care is a proven, 
reliable tool to advance that objective by reducing expenditures for 
government payors and providers without cutting benefits to patients.
    Like many advancements in technology, however, broader utilization 
of telephony for home care has been impeded by outdated regulations. 
These include State Medicaid rules barring use of electronic records, 
as previously noted. Federal policies should remove these barriers by 
directing States to allow Medicaid-contracting providers to use 
telephony and other technologies to create and maintain electronic data 
records in lieu of paper records. The federal government should also 
provide grant funding to assist States in updating their health 
information technology systems.
    We look forward to working in partnership with the Committee to 
accomplish the Administration's stated goal of working successfully 
``to advance the effort to translate information technology 
opportunities into higher quality, safer and more efficient health care 
for all Americans.''
    Thank you for your consideration of our views.

                                   - 
