[Senate Hearing 108-229]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-229
 
  ENHANCING MEDICARE FOR THE 21ST CENTURY: A PRESCRIPTION BENEFIT FOR 
                                SENIORS

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             ST. LOUIS, MO

                               __________

                            AUGUST 27, 2003

                               __________

                           Serial No. 108-19

         Printed for the use of the Special Committee on Aging




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                            WASHINGTON : 2003
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                       SPECIAL COMMITTEE ON AGING

                      LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking 
SUSAN COLLINS, Maine                     Member
MIKE ENZI, Wyoming                   HARRY REID, Nevada
GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska                  EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                     DEBBIE STABENOW, Michigan
                      Lupe Wissel, Staff Director
             Michelle Easton, Ranking Member Staff Director

                                  (ii)

  




                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator James Talent........................     2

                                Panel I

Claude Allen, Deputy Secretary Department of Health and Human 
  Services.......................................................     5

                                Panel II

Ron Levy, President and CEO for SSM Health Care, St. Louis, MO...    23
Audrey Vallely, Senior Citizen, Pacific, MO......................    29
Frederick G. DeFeo, M.D., President of Missouri State Medical 
  Association....................................................    33

                                 (iii)

  


  ENHANCING MEDICARE FOR THE 21ST CENTURY: A PRESCRIPTION BENEFIT FOR 
                                SENIORS

                              ----------                              --



                       WEDNESDAY, AUGUST 27, 2003

                                       U.S. Senate,
                                Special Committee on Aging,
                                                       St Louis, MO
    The committee met, pursuant to notice, at 10 a.m., in 
Little Theater, Harris-Stowe State College, 3026 Laclade 
Avenue, St. Louis, MO, Hon. James M. Talent presiding.
    Present: Senator Talent.
    Mr. Givens. Good morning. I am Henry Givens, Jr. I am 
President of Harris-Stowe State College and we are honored to 
have all of you with us this morning. The Honorable Senator 
James Talent, distinguished panelist, city and state 
legislators, community leaders, members of the Harris-Stowe 
State College family, distinguished guests, ladies and 
gentlemen, welcome to Harris-Stowe State College and a special 
welcome to this historic event.
    Harris-Stowe is greatly honored and privileged to have been 
chosen as a site for this Congressional hearing relating to 
healthcare benefits. The information that you will receive 
today, is one of the utmost importance to a significant portion 
of the population in metropolitan St. Louis and in the Nation 
at large.
    We are all deeply indebted to our U.S. Senator from 
Missouri who has brought these distinguished panelists to our 
community. As you know, Senator Jim Talent campaigned for the 
U.S. Senate on a platform of healthcare, job economic growth 
and national defense. Missourians elected him to serve our 
great State in the U.S. Senate last November.
    Senator Talent served for 8 years in the U.S. House of 
Representatives and 8 years in the Missouri House. Now, as a 
freshman U.S. Senator, he holds important Senate leadership 
positions and is working diligently to be Missouri's healthcare 
advocate.
    Let me just mention a few of the important bills that he 
has already sponsored in the U.S. Senate. The Small Business 
Fairness Act to provide healthcare to small business owners and 
workers.
    Another key legislation is the Sickle Cell Treatment Act to 
expand treatment and services for patients with this disease. 
This legislation has been rightfully called the most 
significant sickle cell disease legislation to be introduced in 
20 years.
    Senator Talent has a long record of public service to the 
citizens of Missouri and now to the American people all across 
the nation. It is, therefore, my distinct privilege and great 
honor to introduce the convener of this highly important 
congressional hearing, the Honorable James M. Talent, Senator 
from the great State of Missouri. Senator Talent.

          OPENING STATEMENT OF SENATOR JAMES M. TALENT

    Senator Talent. Thank you, Henry. That was more than I 
deserve and better than I often get, so I appreciate that very 
much. It is a great pleasure to be here at Harris-Stowe. When I 
visited last, Dr. Givens said, you need to come by and see our 
new Emerson Center. I said, well, not only am I going to come 
by and see it, we may use it for something that we are doing in 
town, and he was very generous and offered, and we took him up 
on it. It certainly is a magnificent facility, a part of a 
magnificent institution.
    I could spend the whole hearing talking about Harris-Stowe, 
but suffice it to say that, under Henry Givens leadership, this 
institution has continued to play a vital role in the African-
American community, but more broadly speaking, in the St. Louis 
community as well.
    We were just talking about the partnerships in which 
Harris-Stowe is at the center. I know that that role is going 
to grow, and I have been pleased to help in any way I can. We 
are grateful, again, to the college and to Dr. Givens for 
allowing us to be here.
    I am going to convene now, a hearing of the U.S. Senate 
Special Committee on Aging. It is a committee that I wanted to 
be on and was pleased to be appointed to when I went into the 
Senate, because of the importance of the issues that this 
committee confronts, one of which, of course, is prescription 
drugs, but also the future of Medicare in general, how to 
strengthen it, and how to strengthen Social Security.
    These issues are our key not only to the tens of millions 
of seniors today, but to all of us, because all of us are 
hoping, if we are not already senior citizens, to someday 
become senior citizens. We are all going to have to confront 
these issues.
    Today we are going to discuss improvements to the Medicare 
program that I hope and believe are going to provide Missouri 
seniors and the disabled with access to quality, affordable 
healthcare, including prescription drug coverage.
    Whoever is chairing the hearing gives a brief opening 
statement and then introduces the first panel, and I am going 
to do that, and then asks some questions of the panel.
    Typically, we do not have questions directly from the 
audience in a Senate hearing. I chafe at that. But what we've 
done is ask you to fill out question cards and I have one here.
    Medicare consists of two distinct parts, Part A, which is a 
hospital coverage, and Part B, which is the supplementary 
medical insurance, which is technically voluntary but which 
almost everybody participates in.
    Medicare has been that way since it was introduced in 1965, 
and I like to refer to Medicare as a tremendously important 
program that's done good for millions and millions of people, 
including both of my parents. But it is a program that was 
devised in 1965 and has not, structurally, really changed 
since.
    Now in 1965, if you think about it, really nobody who had 
health insurance coverage had prescription drug coverage. It 
was a pretty small part of people's treatments. I have asked 
physicians about this--we have physicians here today. In those 
days, you got prescription drugs if you had any problems with 
infections, usually on a short term, or for pain. It just was 
not a regular course of disease management or treatment. In 
fact, disease management really wasn't known that much then.
    So Medicare reflects those times. It was fine when it was 
introduced, but now, just about everybody who has health 
insurance coverage has prescription drug coverage, and most 
people who have coverage have access to options that will help 
them with things like wellness and disease management.
    About 16 percent of the Missouri population is enrolled in 
the Medicare program. This is a vital issue for Missouri 
seniors, and today's hearing is going to focus on the 
legislation which Congress is currently working on and how it 
can help seniors and the disabled have access to quality, 
affordable prescription drug coverage.
    Now the good news: Legislation has recently passed the 
Senate and the House to provide for prescription drug coverage 
in a context where we are going to strengthen access to 
Medicare for everybody. We have an historic opportunity. This 
is something people have been talking about for a long time. 
The window is now open, and I am hopeful that we are going to 
get this bill through this window in the next couple of months.
    We are going to hear testimony from several panels of 
witnesses on several related issues. The Senate passed bill 
provides benefits to seniors including new prescription drug 
coverage as well as a voluntary option that offers seniors the 
kind of choices that other people who are insured currently 
enjoy.
    I am going to introduce the panelists at the end of my 
remarks. Let me say also a comment about this hearing and the 
context of it. I did a number of town hall meetings earlier in 
the year on prescription drugs and heard from seniors about 
what they wanted in a prescription drug plan. It was all common 
sense. It was exactly what you would expect.
    They wanted coverage that would apply to everybody, be 
voluntary, as immediate as possible, have reasonable co-pays 
and deductibles, and not force them or their doctors to 
prescribe only certain kinds of prescription drugs.
    The bills that have passed the House and Senate, I am 
pleased to say, are consistent with all those principles. 
They're very different, but each of them respects those 
important principles.
    I am hopeful that the conference committee between the 
House and Senate will produce a final bill in the next couple 
of months. When it does, we will have another series of 
meetings around Missouri to explain what is in the bill so that 
people know the details of it.
    We don't have those details available, but I wanted to have 
a hearing to touch base on the underlying principle. I wanted 
to get an authoritative official from Washington who could 
discuss these issues and be available to answer questions, and 
that's really why we are here today.
    Under both the House and Senate bills, seniors will pay an 
estimated $35 a month premium, about a dollar a day, for 
prescription drug coverage delivered through a Medicare--
approved healthcare plan. The deductibles in the House and 
Senate bill vary from $250 to $300 a year.
    Both bills provide additional help for lower income seniors 
and people who have very high prescription drug costs. So folks 
in those situations will save more, although everybody will 
save.
    Both bills provide for immediate implementation of a 
Medicare drug discount card that will save people from 10 or 15 
to 25 percent. We can do that right away. The rest of the plan 
will take several years to set up, so there is some immediate 
relief, which is something that is important to me. The 
President has asked Congress to provide seniors with that card 
starting in 2004.
    Low-income seniors will also immediately receive--or 
receive within the six months after the President signs the 
legislation, which is as close as Washington gets to immediate, 
a $600 to $800 subsidy in each of the next 2 years while the 
full plan is implemented.
    In addition to the prescription drug benefit, the Medicare 
package would allow seniors to choose from a variety of 
Medicare-approved health care plans to fit their individual 
health needs. The idea here is to try and create a system for 
seniors which is similar, if they choose, to the Federal 
Employee Health Benefit Plan, which has worked very well for 
Federal employees.
    These plans will offer seniors more benefits, such as 
better preventative care for diseases like cancer, heart 
disease and obesity. Care coordination, which is like disease 
management for conditions such as diabetes, heart disease and 
Alzheimer's Disease, protection against high out-of-pocket 
costs, and greater choice of the doctors and hospitals they 
want for treatment.
    Everything about the new Medicare plan is voluntary, and 
that is important--and that's both in the House and Senate 
bills--and that will be in the conference report as well.
    Both bills include provisions that seniors have told me are 
important and I agree reasonable deductibles, strong 
catastrophic protection, provisions to help low income seniors 
and voluntary options.
    Senator Talent. Today's hearing is divided into two panels. 
I will briefly introduce the panelist, they will testify, and 
then I'll ask some questions, including questions that have 
been submitted to me from the audience.
    The first panel features Claude Allen, is the Deputy 
Secretary of Health and Human Services at the U.S. Department 
of Health and Human Services in Washington. He flew into town 
this morning just to participate in the hearing. I am pleased 
that he was able and willing to do that.
    Our second panel features Missourians who will testify 
about their hands on experiences with the Medicare program. The 
first witness on the second panel is Audrey Vallely a senior 
citizen. I had a chance to meet Audrey before, and she's going 
to tell us about her experiences on Medicare.
    I expect that she will be a very effective witness, and we 
are looking forward to hearing your story, Audrey. I want to 
thank you for being here, and also congratulate you on the 
birth of your first great-granddaughter. You must have married 
very, very young to have a great-granddaughter.
    The second witness on the second panel is Dr. Frederick 
DeFeo, the President of the Missouri State Medical Association, 
which represents 5,000 doctors.
    Our third and final witness on the second panel is Ron 
Levy, who's wearing two hats for us today. He's the Regional 
President and System Vice President of SSM Health Care. He's 
going to speak on behalf of that organization, as well as on 
behalf of the Missouri Hospital Association.
    I want to thank all of the witnesses for being here and 
everybody in the audience for coming. I also want to say that I 
will be available after the hearing, along with my staff, to 
visit with the folks here. If you have additional questions 
about prescription drugs or any other issue, if you don't have 
a chance to speak with me today, I invite you to call my office 
here, which is 432-5211.
    Thank you all. We will go right to the first panel. Usually 
the first panelist is somebody working in the Administration, 
and we have a very high-ranking official from the Department of 
Health and Human Services, Claude Allen.
    Deputy Secretary Allen is the No. 2 man at the Department. 
He's at the Federal Government's principal agency for 
protecting the health of all Americans and providing essential 
human services.
    The Department includes some 300 programs covering a wide 
spectrum of activities. As Deputy Secretary, Mr. Allen works 
closely with Secretary Tommy Thompson on all major policy and 
management issues, and he serves as the Department's Chief 
Operating Officer.
    He's going to describe the President's plan to strengthen 
and modernize Medicare, and he'll focus on the prescription 
drug and voluntary health plan components.
    Thank you, Secretary Allen. I appreciate your interrupting 
a vacation to come in, so I am very grateful. Please proceed 
with your testimony.

   STATEMENT OF CLAUDE ALLEN, DEPUTY SECRETARY DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Mr. Allen. Thank you, Senator. Thank you very much. Senator 
Talent, I want to thank you and Chairman Larry Craig for 
inviting me to Harris-Stowe State College here in St. Louis to 
discuss Medicare reform, and in particular, the value of a 
prescription drug benefit in the Medicare program.
    I have submitted written testimony for the record and I 
will summarize here in my oral statement.
    Senator Talent. Yes, please do.
    Mr. Allen. Thank you. President Bush and Secretary Thompson 
are strong believers in Medicare and know the tremendous 
benefit it has been to our country. Medicare is nearly 40 years 
old, however, and is out of date with modern medicine. That is 
why the President has urged Congress to provide more choices 
and benefits to Medicare beneficiaries.
    Senator Talent, I want to thank you for your leadership on 
this important issue and for helping pass Senate Bill 1. 
Through your hard work and the work of your colleagues in 
Congress, we truly are in the midst of making the most sweeping 
changes to Medicare since the program began in 1965.
    To bring about real change in Medicare, we need to combine 
the strength of the current program with the best of the 
current private sector and health insurance market, the Federal 
Government's experience in running the largest employer 
sponsored health insurance program and Medicare's experience in 
running a program for 40 million seniors and Americans with 
disabilities.
    As successful as this program has been, it has not kept 
pace with decades of dramatic improvements in healthcare. As a 
result, Medicare beneficiaries today lack many of the options 
and benefits, such as prescription drug coverage, available to 
millions of other Americans.
    If we were creating the Medicare program today, we would 
model if after what consumers are receiving in today's 
healthcare marketplace, more choices and better benefits. All 
seniors should have the option of a subsidized prescription 
drug benefit as part of modernized Medicare, as well as better 
coverage for preventative care and serious illnesses.
    Beneficiaries should have the option of keeping the 
traditional plan with no changes, but we must offer more 
choices for better health plan options like those available to 
all Federal employees and their families.
    Medicare legislation should strengthen the program's long 
term financial security with better management, streamlined 
regulations and administrative procedures and stronger fraud 
and abuse enforcement. Most importantly, Medicare should 
encourage high quality healthcare for seniors.
    The President's framework in both bills in Congress, gives 
seniors the choice of options and under all of the options 
seniors get more benefits, including prescription drug 
assistance.
    I want to just go over those options with you briefly. In 
the first option, seniors can stay and from additional Medicare 
and get the fee for service system they enjoy currently with 
more benefits including prescription drug coverage.
    In the second option, seniors can choose enhanced Medicare 
and get prescription drug coverage, full coverage for disease 
prevention, including screenings for cancer, diabetes, and 
osteoporosis, and protection from high out of pocket costs 
associated with lengthy hospital stays or lengthy care.
    Then last, under the third option, seniors can choose what 
we are calling Medicare Advantage. Medicare Advantage will give 
the benefits of low cost, high coverage managed care plans, 
which many seniors prefer and receive currently, and a 
subsidized prescription drug benefit.
    All comprehensive Medicare drug benefit proposals will 
require significant lead time prior to implementation. But we 
know that seniors need help right now. That is why the 
President's framework and Congress both have designed to 
provide significant and immediate assistance to low income 
beneficiaries with their prescription drug costs.
    To ensure that seniors are provided help with their 
prescription drug costs as soon as possible, they will be 
provided with a drug discount card that is estimated to achieve 
discounts of 10 to 25 percent on the costs of prescriptions by 
pooling the buying power of Medicare participants and other 
cost saving measures. In addition to the discount card, the 
President's framework would provide low income seniors with a 
$600 annual subsidy for drug coverage.
    One of the priority areas that I deal with on a daily basis 
at the Department, is the elimination of health disparities 
that we see in healthcare among communities of color. Statistic 
after statistic shows that communities of color fare worse than 
White Americans among diseases such as cancer, diabetes, 
cardiovascular disease, HIV/AIDS and conditions such as obesity 
and hypertension.
    The Medicare options that I described will increase the 
options for healthcare services for minorities. By providing 
better benefits and more choices, African Americans, Native 
Americans, Hispanic/Latino and Asian American/Pacific Islander 
seniors will have better options for obtaining healthcare.
    By providing assistance for health insurance, increasing 
sources of primary care, such as through the president's 
community health center initiative, and working with 
communities of color to break down the stereotypes and distrust 
of the healthcare profession, we can end health disparities in 
this country.
    I would be remiss if I did not mention the great work of 
historically Black colleges and universities, like Harris-Stowe 
State College, perform every day to help end health 
disparities.
    Senator Talent, seniors and people with disabilities in 
America need access to a prescription drug benefit. They need 
modern benefit options in Medicare. This is the year to get it 
done and we look forward to working closely in a bi-partisan 
manner with the conference committee to get a good bill on the 
president's desk as soon as possible.
    Again, I want to thank you for inviting me here today and 
look forward to answering any questions that you may have or 
the audience informs will be presented.
    [The prepared statement of Mr. Allen follows:]

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    Senator Talent. Thank you, Mr. Deputy Secretary. Now I am 
going to ask you some questions that I have heard from seniors 
around Missouri and others. Of course, this subject is 
something that those of us who have elderly parents--and my Dad 
died last October and my Mom died about 15 years ago--are as or 
even more interested in understanding than they are----
    Mr. Allen. Absolutely.
    Senator Talent [continuing]. Because sometimes folks aren't 
as interested in their own health as their kids may be.
    Mr. Allen. That's right.
    Senator Talent. There's many children of folks on Medicare 
who are worrying about their mom and dad getting their 
prescription drugs. So everybody is concerned about it and they 
raised these issues with me. Let me just raise some of them 
with you----
    Mr. Allen. Certainly.
    Senator Talent [continuing]. Since you are the expert on 
this. Assuming we get this bill passed this year, let's start 
with the drug discount card, how soon will that be available?
    Mr. Allen. As we said, we would like to have it available 
as soon as possible, and so what we are predicting is, as soon 
as the legislation's signed, the drug discount card--the 10 to 
25 percent discount that seniors and those on Medicare would be 
entitled to--would be available within 6 months after the date 
of passage. So we are anticipating that will be 6 months after 
signing of the legislation.
    Senator Talent. Now I hope that we will expedite that as 
much as possible, No. 1, and No. 2, that the procedures for 
getting the card will be as clear as possible and we'll make it 
available to seniors as soon as possible.
    Mr. Allen. That's exactly right. At the centers for 
Medicare/Medicaid services, we have already begun working in 
this area. As we have had some experience already with drug 
discount cards, we believe we can get it up and operational in 
that amount of time. Six months is the outside window that we 
are shooting for. We would try to get it sooner, if possible.
    Senator Talent. You understand the skepticism of 
Missourians who have dealt with big bureaucracies before and, I 
mean, 6 months is an outside target for me. Since we are fairly 
certain that this is going to happen, I hope the Department is 
planning now and will be able to swing into gear.
    Mr. Allen. That's exactly right. We are already planning 
for that. It is a high priority for both the President and 
Secretary Thompson because we know that, of all the benefits, 
while we are looking at Medicare needing major reforms, are 
they going to take a period of time?
    The one area that seniors cannot wait for is getting the 
prescription drugs.
    Senator Talent. Particularly for those with the greatest 
need. Along those lines, there will be an additional subsidy 
for low-income seniors. Now I have to preface this by saying 
that we are discussing what we think will be in the bill when 
it comes out of what's called a conference committee. But the 
details haven't actually been finalized, much less voted on by 
either House. However, this is what we expect.
    There will be a subsidy of $600 to $800 for lower income 
seniors. Now what do we mean by lower income, what do you think 
the bill is going to have?
    Mr. Allen. That is an area that is being worked out in the 
conference committee, we don't know that right now.
    Senator Talent. Right.
    Mr. Allen. So that's one of the areas. But we do know that 
both in the Senate bill and the House bill, that there is 
clearly provision for a benefit of between $600 and $800. I 
believe the figure right now is $600, that low income will 
receive. But the question as to what qualifies as low income 
has not been finalized yet, and that is one of the issues the 
conferees are working through.
    Senator Talent. Well, I am going to stick my neck out just 
so you all get a ballpark figure and the percentage I have 
heard tossed around is 135 percent of the Federal poverty line, 
which would be roughly an income of about $12,000 a year for an 
individual.
    Mr. Allen. That is correct.
    Senator Talent. Now it could be somewhat higher, somewhat 
lower than that, but that's the ballpark.
    Mr. Allen. That has been----
    Senator Talent. Is that a fair ballpark?
    Mr. Allen [continuing]. Pretty much, that is a fair 
ballpark I'd say, yes.
    Senator Talent. I am going to add one point about 
implementation because it's a little bugaboo of mine. I went 
back and looked up how long it took the government to institute 
all of Medicare in 1965 when it was passed, because we've said 
that system was great then, it's a little out of date now, 
we've been a little critical of it, and I think, properly so.
    But they were able to get it all instituted in 8 months in 
1965. It would seem to me that we could try to do this 
additional benefit inside of the 2 years that we are now 
planning.
    Mr. Allen. Right. Right.
    Senator Talent. So I know that you will attempt to do that, 
and I feel like we should be able to.
    Mr. Allen. Certainly. Senator, I think the point that you 
made at the outset, Medicare as we know it is 40 years old. The 
Centers for Medicare/Medicaid Services, they're using 40 years 
old software. I don't know of any major corporation in this 
country today--major insurer--that uses 40 year old software.
    So there's a lot of work that has to be done and that's 
such reforms are necessary. So we will be working very 
diligently to get it done. That's why, again, the first part, 
the prescription drug card, will come on line within 6 months 
after passage. Then we've targeted 2006 for full implementation 
of the Medicare program.
    Senator Talent. OK. Well, it's good to give an outside date 
so people don't get disappointed, but I would hope we could do 
it faster than that. All right, another issue that comes up 
concerns a seniors keeping existing coverages, will the new 
program be voluntary?
    So let's first ask a questions submitted by Velda O'Guard 
from Mexico, Missouri, Velda, where are you? Are you here 
today? There you are, ma'am. Thank you.
    She asks--and this is a question I often get--if the bill 
passes, will it affect her Medigap insurance? Would you like to 
address Medigap/Medicare supplemental?
    Mr. Allen. Certainly.
    Senator Talent. Tell us how you think it will affect that.
    Mr. Allen. That is a question of great concern that many 
seniors that I have heard from as well, whether it will affect 
your Medigap Insurance, and the answer to it is that, most 
seniors who are currently receiving and utilizing Medigap 
Insurance will be unaffected at all by this.
    However, there will likely be some changes for those 
seniors who get some of their insurance through private 
coverage. If you get some of your drugs through private 
coverage, you may be affected in your Medigap plan. But the way 
we are trying to structure the legislation and implement the 
legislation will be to your advantage.
    It will work this way: while the final details are still 
being worked out, it is possible that the final bill will 
recommend some changes to Medigap plans that cover prescription 
drugs so that they better fit with the new coverage scheme. 
Therefore, the Medigap will be benefited to you, as a 
recipient, under the Medicare plan and having a Medigap plan 
will actually get an increased benefit through. So you should 
not be harmed, but you should actually be benefited is what we 
are targeting.
    Senator Talent. Working to make certain that any changes 
are favorable. It's like if the bank finds that you are out of 
balance, but it's to your benefit.
    Mr. Allen. Correct.
    Senator Talent. I mean, that's the idea here. For example, 
Medigap options now, as I understand them, don't have very good 
catastrophic coverage, isn't that right?
    Mr. Allen. That's correct, they don't have very good 
catastrophic coverage.
    Senator Talent. One of the emphasis here is that we need to 
protect seniors from catastrophic prescription drug costs. I 
mean, one of the things I want from this bill is that, once it 
passes, nobody will have to go to bed at night worried that if 
they get some new prescription or set of prescriptions, the 
cost will take all their savings away. That there will be great 
coverage on that high end.
    Probably Medigap will be pushed more in the direction of 
providing good catastrophic.
    Mr. Allen. That's right. I think, Senator, the point that 
you made is very clear, that the way that we are trying to 
structure this is that the benefits will be to your advantage 
rather than to your detriment. So if you can think of it as 
enhancing your benefits rather than taking something away from 
you, that's what we are trying to structure it as. But, again, 
this is all being worked out still in conference.
    Senator Talent. Now we have said several times--and this is 
something I insisted on from the beginning in discussions with 
everybody, and not just me--most of the Senators did as well --
that this program be voluntary.
    That people who want to stay in traditional Medicare 
coverage can and still get prescription drug coverage, and 
people who want to take advantage of these new options can and 
will get prescription drug coverage.
    One point I want to make to folks is that newly retired 
seniors in today's world are generally coming off of privately-
sponsored health insurance that looks a lot more like what 
these new options are going to look like, then what traditional 
Medicare looks like.
    If we want to give them the opportunity to stay in the kind 
of coverage they're used to, we have to be able to provide more 
choices because that's what they're used to. So I think this is 
the kind of situation where, if the Congress does this right, 
we'll find many seniors choosing to stick with the traditional 
Medicare because that's what they're used to, but then as folks 
retire over the years, more and more of them will go into one 
of those options because that's what they're used to. Would you 
anticipate that happening?
    Mr. Allen. We do. In fact, one of the key issues is that 
currently about one in ten seniors currently receive their 
benefits through a private corporation plan.
    Senator Talent. That was going to be my next question, so 
why don't you go ahead and----
    Mr. Allen. I think that's right.
    I think your point is exactly right. Because of this, 
companies tend to be the larger firms, almost one in three 
Medicare beneficiaries is actually receiving their healthcare 
coverage from a former employer.
    So we are looking at a number of issues here. There was 
recent study put out by the Employer Benefit Research Institute 
that completed analysis. What they had said is that they 
believe that it is possible that about 1 to 3 percent of all 
Medicare beneficiaries will be impacted by the changes.
    What Congress and the administration are working to guard 
against, is having those private companies drop their coverage 
and therefore leave many of their employees in a lurch. So we 
are working very closely to ensure that that does not happen by 
giving incentives to employers to continue their coverage for 
their retirees by providing two options.
    One option would be to either continue the primary drug 
coverage that the company has for their employees, or, two, to 
accept the new government subsidy by wrapping around the 
private employers coverage around the Medicare program.
    So we are trying to minimize the impact of those 
individuals who will be retiring who have private company 
insurance coverage, so that they're not impacted adversely and 
that we also do not damage the work that's being done in the 
private sector because it's very important that insurance is 
far better than a government program.
    Senator Talent. Now on behalf of the Missourians I have 
talked to--and really for the record here since I get this 
question probably more often than any other because about one 
out of three people get some kind of benefit from the employer 
from which they are retired--how will the new benefit affect 
retiree coverage in terms of what the law may say and also 
employer practice. Employers may just say, oh well, now that 
the Federal Government's covering this, I am going to drop my 
coverage. I am glad you raised that issue.
    We are caught in a tension because employees are dropping 
that coverage already.
    Mr. Allen. Right.
    Senator Talent. If we don't do anything because we are 
afraid that if we do something, employers may drop the 
coverage, we'll be in a situation where we have no safety net 
as time goes on as more and more drop coverage.
    Mr. Allen. Right.
    Senator Talent. Much less for the folks who don't have the 
coverage in the first place. So what we are trying to do--and 
this is going to be hard so--I will look at this very carefully 
when it comes out of the conference committee--is to try and 
structure this so that we can provide the benefit without 
giving any kind of great incentive to companies that are free 
to do so contractually to drop their existing coverage.
    Mr. Allen. Right. I think that's exactly right, that we 
have to be very careful not to structure the benefit package so 
it provides an incentive for private employers to drop 
coverage, but at the same time does not prevent them from 
making business decisions and put their employees at risk--
their retirees at risk--because it's a contractual obligation 
that has been to those employees.
    Senator Talent. Right. Where it is a contractual 
obligation, they have that protection. It is a concern, but I 
personally don't think it should keep us from moving forward.
    Sarhonda Browne is here. Where are you, Sarhonda? There you 
are. Good to see you. She's from North View Village Nursing 
Home. I enjoyed my Saturday morning there. We had hot dogs and 
a little music festival. She's asking, how would the new 
Medicare prescription drug coverage benefit affect long-term 
care seniors, those in a long term residential care setting?
    Mr. Allen. Those long term care residents in residential 
settings, if they are on Medicare, for example, if Medicare is 
supporting their stays in those facilities, they, too, will 
benefit by both the discount drug card.
    But more specifically because they're low income, they will 
be benefited by the direct subsidy, the $600 to $800 subsidy, 
that will be provided in terms of drug purchasing power that 
they'll be provided.
    So if they're already participating in the Medicare 
program, receiving those benefits, those will be their benefits 
as well, enhanced under the program. So it will be consistent 
with what we are doing across the board.
    Senator Talent. Yes, my understanding as we debated this 
bill is that those residents will benefit like others who are 
under Medicare, so they'll get whatever additional benefits 
that they can get.
    Mr. Allen. Exactly.
    Senator Talent. The bill does not itself contain anything 
extra for them as residents of a long-term care facility. Now 
earlier in the year, when Congress resolved the budget issues, 
you probably recall Congress passed money through to state 
governments, and a large part of that money was passed through 
for Medicaid, which is where most of those residents, of 
course, get most of their governmental support. Not all of 
that, what was passed through for Medicaid, ended up going into 
Medicaid, as you know.
    Mr. Allen. Exactly.
    Senator Talent. But that was the intention at the time, 
that that money--and there was a considerable amount of money--
be used to help residents at that time.
    Mr. Allen. Right. The Medicare reform does not address that 
in that regard. At least not so far as from the conference 
committee that we've seen.
    Senator Talent. I'll tell you another question I get from 
folks, as seniors and as taxpayers, is what's the final cost of 
the legislation going to be? You know, can we afford it? This 
is a good question. Let's hear your response and I'll tell the 
folks I see.
    Mr. Allen. The President has stated very clearly that the 
program will be $400 billion over 10 years, and this represents 
a significant expansion of the Medicare program thus far. In 
fact, it's about a 10 percent increase over the current 
projected Medicare spending. At the same time, it will not 
cover all of the projected drug spending over the next decade, 
so we will be looking at that.
    It's important that any final program is targeted to those 
seniors who need it most and who need the most help, low income 
seniors, those with lower incomes and those with higher drug 
costs, while providing some relief for all seniors who want to 
enroll.
    So we are trying to make sure that we are addressing across 
the board seniors, but, again, our focus will be on low income 
and those who have the highest drug costs.
    It is also important that this benefit expansion be coupled 
with the reforms that are necessary. That's what we are trying 
to be very careful about, is making sure that we are providing 
the prescription drug coverage, but the reforms that are 
necessary to ensure the longevity of Medicare and the stability 
of Medicare and to the future for the next generation of those 
who will be retiring, those with disabilities that will be 
needing the program.
    So those are the areas that we are--but the dollar figure 
that we are looking at, and continue to stick by, is the 400 
billion over 10 years.
    Senator Talent. That money has been budgeted. This is a 
fair question, and I think that of all people, seniors know 
what it's like to be on a budget. They are often the ones that 
ask the question. There are three responses that I give them, 
and part of it is what you say. First of all, that's one of the 
reasons why it is important that the benefit target the 
assistance, so that while everybody will benefit, those who are 
the neediest, who have the highest drug costs or the lowest 
income would benefit the most from the bill. Both the Senate 
and House bills do that.
    But everybody is going to benefit, and there's no reason 
why you can't when you have a pool as big as the pool of 
Medicare recipients. It should be possible to put together 
plans that really take into account the deficiencies of that 
kind of a big purchasing pool.
    The second point--and it is a kind of an emotional point 
with me but I have just talked to too many people, we are going 
to hear one of them in the second panel--there are too many 
people who really are choosing between other vital needs and 
their health. They're skimping on their health.
    The government undertook to provide this benefit 35 years 
ago. The rest of the health care world is updated, and it is 
time for the Congress to do the same thing with Medicare. I 
mean, I think it's owing.
    I also believe if it's done right, it may not cost that 
much, because if somebody is able to stay on a prescription 
drug program that keeps them healthy, they don't have to go to 
the hospital, which, by the way, Medicare pays for. So we can 
end up, in many cases, avoiding traumatic episodes that will 
cost us a lot more.
    The other thing, and that's why it is key that we, at the 
same time as we provide the benefit, do it in the context of 
voluntary options that strengthen and improve Medicare. You 
mentioned this as well. Because the whole idea here is through 
competition and choices to make the dollars go further and 
still provide good quality healthcare. If we do that, then we 
help solve some longer-term problems with Medicare.
    Mr. Allen. That's right. Senator, I think you are 
absolutely right in what you raise, and two points I would make 
about that. To give you some good examples, we continue to talk 
about the need to give voluntary options to seniors, those who 
would be personally in Medicare.
    Well, one example of it is, is that while we think we can 
not only put out say $400 billion over 10 year, both the bills, 
the House and the Senate bill, contains a trust fund that 
would--the money would go into--that would be, in a sense, 
ensure that money would be available for that purpose.
    But one of the things that, and why it's so important that 
we reform Medicare is make it modern, to update it. The keys to 
ensuring that we can bring down the costs of the services and 
the cost of, for example, prescription drugs, is by using 
modern techniques, disease management, addressing preventative 
care. These are issues that are going to ensure that seniors 
will have the available programs and services, but at the same 
time, help us to achieve those efficiencies across the board.
    Two examples right here in Missouri I'll give to you that 
show you. Currently, under the traditional program Medicare, we 
don't cover diabetes management. This is a map of Missouri here 
that demonstrates across the board diabetes management. It 
talks about those counties in Missouri that are below the state 
average--are in the red--those that are below the national 
average are in the blue.
    When you look at this, you'll see that diabetes management, 
by managing someone's diabetes, you have an opportunity to 
bring down the cost of care. Well, that currently is not 
provided under the traditional program. Under the enhanced 
Medicare program and Medicare Advantage program, these will be 
standard parts of the benefits that you would receive for 
diabetes management.
    The same is true when you look at something like influenza 
and pneumococcal immunizations. Regular immunizations for 
pneumococcal and influenza should be standard practice for 
seniors. Currently, again, in the blue you see those areas 
where Missouri is below the national average. We are below the 
state average are the red counties.
    Here's another example, by having options that are 
voluntary for those who choose them, can get these services as 
a standard part without additional costs to those 
beneficiaries.
    Senator Talent. When you're in Washington you'll often have 
people describe some additional benefit or something and say 
it'll really end up saving us money. After a while you get a 
little skeptical, but this is something that really can save 
money 5 percent of the folks in Medicare for those who get 
sick, cost us--isn't it about 55 percent of the cost?
    Mr. Allen. Exactly.
    Senator Talent. Many of those folks have chronic diseases 
like diabetes and kidney disease where, in the rest of the 
health care world, insurance has adapted over time to emphasize 
more and more management, wellness, and prevention of traumatic 
episodes.
    Mr. Allen. Exactly.
    Senator Talent. Traditional Medicare, as good as it is, 
just doesn't do that very well.
    Mr. Allen. That's correct.
    Senator Talent. To the extent that we can get people into 
disease management coverages like that, we will save them ill 
health episodes and also end up making the system more 
affordable in the long run.
    Senator Frist, who's the Senate Majority Leader, and I put 
a provision in the Senate bill that--you're aware of the pilot 
program?
    Mr. Allen. Yes.
    Senator Talent. We believe so strongly in this--Senator 
Frist is a physician, and I have often been a patient, so we 
each have our own expertise in this area. We believe so 
strongly that we want to put more resources into identifying 
the high-risk type of cases and diseases and helping our 
hospitals and our doctors manage that care better in our 
patients. I hope we can save that provision in the conference 
committee.
    Mr. Allen. Senator, just one last point on that, and to 
bring it home once again, and we are here at Harris-Stowe State 
College, and the importance that this has to communities of 
color.
    The African American community, the Latino/Hispanic 
community, the Native American community, Asian American/
Pacific Islander communities have a great disease burden in 
terms of the diabetes, cardiovascular disease, cancer, all of 
these different diseases, and what these maps show, and what we 
do know, is that many of these individuals benefit from 
Medicare, and yet their the ones who need the greatest choice.
    So, therefore, when we talk about Medicare reform, we are 
also talking about closing the health gap and ending healthcare 
disparities. That's why I take it personally as a mission on 
behalf of the Department, the Secretary, the President, to talk 
in communities of color, to raise this issue that we need to be 
getting behind Medicare reform now because it's our people, 
it's our families, it's our loved ones who are bearing the 
disease burden here.
    Giving them the choices and the options to have access to 
quality care that they choose is a vital issue of great 
importance to all of us because if we help those who carry the 
greatest disease burden, we are helping all of us because it 
increases all of the quality of health that we all have.
    Senator Talent. Well, Secretary Allen, I think I'll let you 
have the last word. I know you have to go and catch a flight, 
but thank you for being here. I think it was informative.
    We are going to have our second panel, and I want to 
emphasize, again, that I'll be around afterward to visit with 
folks personally. So why don't we take a 5-minute break while 
we assemble the next panel.
    Mr. Allen. Thank you, Senator. [Recess.]
    Senator Talent. We are reconvening the hearing and will go 
right to our second panel. I will just briefly reintroduce 
them, they will give their statements and then we will ask some 
questions.
    Our first witness is Ron Levy. As I mentioned earlier, Mr. 
Levy is the Regional President and System Vice President of SSM 
Health Care, St. Louis. He's also going to speak on behalf of 
the Missouri Hospital Association, which represents 140 
Missouri hospitals and health systems.
    In his position with SSM, Mr. Levy oversees 1700 physicians 
and 10,400 employees who work in seven hospitals, three medical 
groups and a managed care organization. He has a distinguished 
27-year career with SSM Health Care.
    He currently serves on the boards of the Missouri Hospital 
Association's St. Louis Regional Health Commission, the St. 
Louis ConnectCare and a variety of community service 
organizations, including Catholic Community Services.
    He is going to describe for us how he thinks the 
Prescription Drug and Medicare Improvement Act of 2003 will 
benefit hospitals and the patients they serve, and discuss any 
concerns that he may have as well.
    Thank you for being here, Mr. Levy. Please, give us your 
statement.

 STATEMENT OF RON LEVY, PRESIDENT AND CEO FOR SSM HEALTH CARE, 
                         ST. LOUIS, MO

    Mr. Levy. Thank you, Senator Talent, and thank you for the 
opportunity to testify here today. SSM Health Care is very 
proud to the be the first ever healthcare provider to win the 
nation's highest quality award, and that's the Malcolm Baldrige 
National Quality Award. This award was presented to SSM this 
past May by Vice President Dick Cheney and the Secretary of 
Commerce, Don Evans.
    SSM Health Care, our national system, has more than 23,000 
employees dedicated to caring for patients and their families 
in four states, Illinois, Missouri, Oklahoma and Wisconsin, 
where we also operate not just hospitals, but long term care 
facilities and home health agencies.
    In 2002, our healthcare system discharged more than 170,000 
people and provided more than one million outpatient visits. Of 
those hospital discharges, more than 67,000 were Medicare 
beneficiaries. For SSM hospitals, that represents 40 percent of 
the care and service we provide to our patients is provided to 
Medicare beneficiaries.
    As the Senator mentioned, I am also representing the 
Missouri Hospital Association here today, and the MHA has been 
serving Missouri hospitals for more than 80 years. The 
Association currently represents 141 hospitals. It counts among 
its membership all the licensed Community Acute Care Hospitals 
in the State of Missouri.
    SSM Health Care and the Missouri Hospital Association are 
pleased to express support for Senate Bill 1 and the 
Prescription Drug and Medicare Improvement Act for 2003.
    In times of need, Americans depend upon the promise of 
hospitals to be there 24 hours a day, 7 days week should any 
healthcare need arise. Medicare beneficiaries are no different 
and now, by this bill, those beneficiaries will enjoy an 
enhanced quality of life as a result of this additional 
benefit. The Medicare program should enjoy savings as a result 
of drug therapies that will reduce hospital admissions and 
lengths of stay.
    The payment updates included in Senate Bill 1 are more 
important than ever before for our nation's hospitals and our 
hospitals here in Missouri. The adequacy of Medicare payments 
is especially important as society takes steps to promote 
further competition in the healthcare marketplace, and as we 
also experience additional regulation in an effort to contain 
healthcare cost.
    Adequate payments will help hospitals invest in the latest 
technology and sustain a professional workforce to most 
efficiently deliver the needed services.
    Moody's Investor Service recently forecast greater credit 
volatility for not-for-profit hospitals and health systems in 
the future citing the luminous financial challenges, including 
the rising healthcare cost for our labor and benefits to our 
employees, the increasing cost of drug supplies that we provide 
to our patients, such as the new drug alluding stint for 
cardiac catheterizations. Obviously, we are facing a major 
increase in medical liability insurance. So these costs are 
having a major impact on our healthcare delivery system today.
    Senate Bill 1 does assist hospitals in a number of ways, 
and these include the following:
    First, by providing a full market basket update and payment 
for hospitals for the first time in almost 20 years.
    Second, eliminating the disparity between small urban and 
rural hospitals and large urban hospitals by equalizing the 
inpatient base payment.
    Third, by eliminating the cap on small urban and rural 
hospitals that qualify for a disproportionate share of hospital 
payments.
    Fourth, improving and expanding the critical access 
hospital program.
    Fifth, by restoring a more reasonable indirect medical 
education payment for our teaching hospitals.
    Sixth, provision of payments for rural home health agencies 
and many other supportive provisions.
    I'd like to highlight a few of these important provisions 
in a little more detail. First, our inpatient services. 
According to the American Hospital Association, Missouri 
hospitals stand to gain $530 million in new funding because of 
this bill over the period of 2004 to 2013. The additional sum 
set forth in the Senate Bill will go a long way to help seniors 
receive the inpatient care that they need and we support.
    Regarding rural hospitals. The Senate Bill provides about 
$25 billion over the next 10 years to increase Medicare payment 
to rural hospitals and physicians starting in 2005. As rural 
hospitals struggle to survive--and I know because I used to be 
a rural hospital administrator in a previous life--we 
appreciate the language in a Senate Bill that eases the 
disparity between Medicare reimbursements for rural and/or 
urban hospitals.
    There's also a temporary fee increase for rural ambulance 
services that are currently stretched thin.
    We note----
    Senator Talent. Let me jump into clarify while it is fresh 
in the minds of folks who are listening. These updates for 
rural hospitals--maybe you could describe why they are 
necessary and comment on this.
    For years, the government's reimbursement for rural 
hospitals has been based on the assumption that their costs are 
less than for urban hospitals, which in some areas is true but 
increasingly in other areas they are not. So they're actually 
getting less than hospitals in other areas are getting.
    So this update really just brings them up to where the 
other hospitals are. Do you want to elaborate on that a little 
bit?
    Mr. Levy. Yes, and actually, why my current expertise is 
probably more urban oriented----
    Senator Talent. Right.
    Mr. Levy [continuing]. But I do remember--and it has been 
an issue for a number of years. Just as you said, Senator, 
rural hospitals, while we think they may cost less in their 
care delivery, they have other challenges; economies of scale, 
they pay the same prices for drugs and supplies--in fact they 
may pay more because they don't have access to large purchasing 
groups, et cetera.
    So their costs of care delivery has escalated at a similar, 
if not a greater rate, than urban hospitals.
    Senator Talent. It may cost them more, not less, to get 
physicians practicing in that area, for example.
    Mr. Levy. Yes. The ability to bring them up to a level of 
payment that is at or equal to the urban counterparts, is a 
very positive thing to do. We have to realize that rural 
hospitals are really the fabric of our rural communities; we 
can't afford to see any further closure or diminishing levels 
of service they provide in those communities.
    Senator Talent. Thank you for that clarification.
    Mr. Levy. I was just going to say that Senator Talent is a 
strong supporter of full funding for rural hospitals and I 
think you can see that and hear that, and we do appreciate your 
efforts, Senator, to maintain these rural health provisions as 
the bill moves through Congress.
    Regarding indirect medical education. There's also a small 
increase in the Senate Bill in subsidies for teaching 
hospitals. Every state has a teaching hospital, and the 
indirect medical education dollars are essential to training 
physicians in the future.
    Missouri currently has 32 teaching hospitals, including two 
within SSM, SSM Cardinal Glennon's Children's Hospital and St. 
Mary's Health Center in Richmond Heights, which also receive 
the indirect medical education funding. This provision would 
allow millions of more dollars to flow to Missouri to help 
train physicians of our future.
    Senator Talent. That's crucial for Missouri indirect 
medical education--the extra costs that hospitals have for 
teaching residents and medical students. At the same time that 
physicians are providing care, residents and interns that go 
around with the physicians during their rounds and that costs 
money.
    Yet teaching is essential to the quality of the whole 
healthcare system. We have a disproportionately large number of 
teaching hospitals in Missouri, so this is a very important 
provision for Missouri.
    Mr. Levy. It is, and I think at the same we are very 
fortunate in Missouri to have the number of teaching hospitals 
we do.
    Senator Talent. Oh, yes. It's a real plus.
    Mr. Levy. Because it can provide additional physicians for 
us in this state.
    Senator Talent. Yes.
    Mr. Levy. Regarding disproportionate share payments, both 
bills increase the funds that states would be allotted under 
Medicaid for hospitals that treat a disproportionate share of 
the poor, starting in 2004. Again, Senator Talent, we 
appreciate you signing on a bipartisan letter to the Medicare 
conferees in support of the increase disproportionate share 
adjustment.
    The Medicare statute requires that states make DISH 
adjustments to the payment rates of certain hospitals treating 
large numbers of low income and Medicaid patients. DISH 
payments help reimburse hospitals' costs for treating Medicaid 
patients, particularly those patients with complex medical 
needs, such as those duly eligible for Medicare and Medicaid, 
and make is possible for communities to care for those who lack 
health coverage.
    Missouri would receive approximately $67 million in fiscal 
year 2004 and $57 million in fiscal year 2005 under the 
proposal advocated in our letter.
    In conclusion, all in all, we believe that the Prescription 
Drug and Medicare Improvement Act in 2003 and the Senate Bill 1 
that was passed in the Senate will benefit hospitals, will 
benefit our senior citizens by providing them with the 
hospitals with increased reimbursement and flexibility to 
manage patient care, and certainly help our senior citizens in 
paying for the care and drugs they need.
    What this means is that hospitals like SSM will have more 
opportunities to help patients and/or community through 
improved service, which is one of the hallmarks of quality of 
care.
    Again, I thank you for the opportunity to testify today.
    Senator Talent. Thank you, Mr. Levy, and we will probably 
have a couple more questions after the other witnesses are 
finished.
    [The prepared statement of Mr. Levy follows:]

    [GRAPHIC] [TIFF OMITTED] 90720.008
    
    [GRAPHIC] [TIFF OMITTED] 90720.009
    
    Senator Talent. Now a real treat for the Committee: Audrey 
Vallely is here to testify. As I mentioned earlier, Audrey is a 
St. Louis senior citizen who is currently on Medicare. She is 
the mother of two and a grandmother of four. She currently 
lives in Pacific, where I have discovered we have several good 
mutual friends. She lives across from her great-granddaughter.
    Like many seniors, Audrey's on limited income and has 
difficulty paying for her prescription drugs and doctor bills 
because the current Medicare benefit is simply not generous 
enough. She's told me that sometimes she doesn't take her 
medicine for her ailments because she can't afford to pay for 
them.
    Today she will share her experiences as a Medicare 
beneficiary and explain why she's hopeful that the improvements 
in Medicare will benefit her and other seniors, and also any 
concerns she may have.
    Audrey, thank you for coming and sharing with us. Please, 
give us your statement. Thank you.

    STATEMENT OF AUDREY VALLELY, SENIOR CITIZEN, PACIFIC, MO

    Ms. Vallely. Thank you. Good morning. My name is Audrey 
Vallely. As Senator Talent said, I live in Pacific. I am the 
mother of two children, who are with me today; the grandmother 
of four children; and the great-grandmother of a new baby girl. 
I am also a senior who is enrolled in the Medicare program.
    I have been on Medicare since I was 62 years old, and I am 
proud to be 77 today. I have osteoarthritis, a degenerative 
bone disease, and another sinus disease called Meniere's that 
causes me to become dizzy. I had an operation for the sinus 
condition, but the dizziness returns from time to time.
    I should be taking at least two types of prescription drugs 
for these conditions. My medicine costs over $100 a month for 
maybe 15 pills. Because I am living on a limited income, I 
cannot afford to pay for these medicines. Instead, I go to my 
local pharmacy and take over-the-counter pain relief. Sometimes 
that makes me feel better, sometimes it doesn't.
    I know I should see my doctor for these conditions, but I 
simply cannot afford to do this as often as I want. One office 
visit costs me $107. I know that I am lucky that my health is 
not bad, especially as some of my friends with diabetes and 
cancer pay over $200 or $300 a month for just their medicines.
    Still, sometimes it is a choice between buying prescription 
drugs or paying rent, buying food or just living with air 
conditioning in the summer. Also, I have to drive to the doctor 
and gasoline costs $1.74. It goes up and down.
    Everyday I am hopeful that Congress will pass a meaningful 
prescription drug bill to help me and other seniors. I 
understand that the bill now in Congress will help lower my 
prescription drug costs, and the cost of my doctor's visits to 
give me enough money to live on.
    I also like that I'll be able to go to my pharmacist if I 
need to refill a prescription. Anything you can do to lower my 
price of prescription drugs and doctor's visits will go a long 
way to help me and my friends at the Route 66 Senior Citizens 
home in Eureka.
    Thank you very much for letting me be a part of your 
program today.
    [The prepared statement of Ms. Vallely follows:]

    [GRAPHIC] [TIFF OMITTED] 90720.010
    
    [GRAPHIC] [TIFF OMITTED] 90720.011
    
    Senator Talent. That was excellent, and just let me add, I 
am also a member of the Energy Committee, and your comment 
about gasoline and the price of it going up and down showed 
more common sense than I have heard in about 8 months on that 
committee, so I appreciate your contribution there as well.
    Mr. Levy, I understand, has to leave pretty soon. Is that 
correct, Ron?
    Mr. Levy. That's OK.
    Senator Talent. Can you stay?
    Mr. Levy. Yes.
    Senator Talent. OK. Well, that's good, I don't have to 
reshuffle that, and we'll go right to Dr. DeFeo.
    Our final witness is Dr. Frederick DeFeo who's the 
President of the Missouri State Medical Association, which 
represents 5,000 Missouri doctors. The MSMA's mission is to 
serve its members by promoting the science and art of medicine, 
protecting the health of the public and bettering the medical 
profession in Missouri.
    Dr. DeFeo specialized in internal medicine. He's an 
Associate Professor of Medicine at the University of Missouri, 
Kansas City. He's here today to explain the concerns that 
doctors have with the current system, concerns he feels 
patients have, and how the Senate passed prescription drug bill 
might benefit them, as well as any other concerns that he may 
have.
    We are very honored to have you with us. Thank you for your 
time, Doctor. Please, go ahead.

 STATEMENT OF FREDERICK G. DeFEO, M.D., PRESIDENT OF MISSOURI 
                   STATE MEDICAL ASSOCIATION

    Dr. DeFeo. Thank you, Senator. Medicare is 38. I remember 
the promise of President Johnson's great society, but, as a 19 
year old, I was far more interested in the goings on in that 
little country across the Pacific. How different the world is 
today, and how different is medicine.
    In 1965, when a patient had a problem, the standard was to 
admit that patient to the hospital, do appropriate tests 
resulting in a diagnosis, and then some kind of therapy. Now 
the hospital has almost become the venue of last resort and 
more work is done in the outpatient setting.
    In 1965, chronic disease was likely to result in early 
death and disability. Even presidents with coronary artery 
disease were likely to have heart attack after heart attack. 
Diabetics developed blindness and died of kidney and heart 
disease. Chronic lung patients were admitted to hospitals in 
the fall and died in great numbers as colder air came in.
    Now care of patients with chronic disease out of the 
hospital is standard. Heart disease patients live longer, more 
productive lives. Diabetics have preserved their sight and 
their kidneys, and chronic lung disease patients stay out of 
hospitals and breathe better.
    In 1965, the paperwork burden for physicians was minimal. 
Now Medicare regulations seem more numerous than the tax 
regulations, and requirements for such unfunded mandates as the 
Advance Beneficiary Notice, the counting of points when I try 
to do a history and physical of a patient so that I can get the 
correct billing, and form after form after form that requires 
the physician personally to note such things as oxygen 
saturation and frequency of diabetic testing.
    In 1965, the list of available pharmaceuticals was small, 
with the most expensive common drugs being the new antibiotics 
that might be used for a relatively short term for an 
infection.
    Now we have new, more powerful and safer drugs for many 
chronic diseases, but they are far more costly and used for a 
far longer percentage of the patient's life span. But they 
better control cholesterol, diabetes, lung disease, 
hypertension, gastrointestinal disease, and even cancer with 
successful outcomes that were undreamed of in the 1960's.
    The realities of the 21st Century show up in the design 
flaws inherent in this mid-20th Century program. Short term 
problems, financial hardships for many Medicare beneficiaries 
because of an antiquated cost sharing requirements. Without 
supplement insurance, the Medigap insurance, beneficiaries 
might pay more than $34,000 a year out of pocket. Who can 
afford that on a fixed income?
    Fewer employers provide supplemental insurance as part of 
retirement benefits. The cost of Medigap insurance is rising, 
perhaps even faster than Medicare spending, and there is no 
coverage for prescription drugs.
    Medicare beneficiaries are finding fewer physicians willing 
to provide care. Physician revenue, worse than hospital 
revenue, is generally decreasing because of such flawed ideas 
as the Sustainable Growth Rate formula, which ties physicians' 
payments to the economy, rather than the acuity of the patients 
they're taking care of.
    Physician costs over all are increasing with very little 
ability for physicians to pass these costs on. Regulatory 
burdens drive physicians away. Audits for Medicare are so 
onerous that they may actually destroy a physician's practice.
    Rural physicians and hospitals have significant payment 
bias against them in favor of urban. The best percentage in 
Missouri is still less than the one national average. The rural 
gets about .92, in St. Louis and Kansas City it's about .97, 
but still less than the one that's the national average.
    Medical education, which at Truman Medical Center and UMKC 
I am long a part of, is being imperiled because of decreasing 
payments to our teaching hospitals. The long term problems. The 
funding for the current system is a tax-based, pay-as-you-go 
system, but the myth of a trust fund for all these years still 
persists.
    Recent changes, rather than adding any new dollars to the 
system, merely cut the pie into more pieces, thus ensuring 
decreased payments for everyone. The solution is hard: 
modernize Medicare.
    Reconfigure the cost sharing to a single modest deductible 
for all services, including those services not covered by 
Medigap insurance.
    Add a pharmaceutical benefit designed to help those with 
catastrophic drug expenses. Decontrol prices. Consumer concern 
and competition should ensure lower prices in the long run.
    Review, revise and simplify the regulatory burden for 
physicians and require that Medicare carriers give clear 
guidance for their regulation. Reconfigure the basis for 
funding Medicare while there is still time.
    The Senate passed Medicare bill is a good beginning. It 
provides the prescription drug benefit as has been described. 
If patients cannot afford to take their medication, then they 
will be admitted to the hospital for far more expensive after 
the fact care.
    It provides some relief for rural hospitals, teaching 
hospitals, and hospitals in a critical area--and that's the 
Rural Equity Act, Senate Bill 816, co-sponsored by Senator 
Talent--eliminating the cap on small rural hospitals for 
disproportionate share programs, and establishing a floor on 
geographic adjustments for physician services, and increasing 
payments for health clinics, helping medical education and 
critical access programs by increasing payments for these 
areas.
    It provides critically needed regulatory relief for 
physicians. Reforming the appeals process to simply the appeal 
of a Medicare denial of claim, streamlining the process for 
reviewing doctors' billing records, simplifying the process by 
which doctors correct Medicare billing mistakes and appeal 
actions against them, and exempting doctors for penalties when 
rules violation were the result of false written advice from 
the government.
    Finally, the Senate resolution expressing the need to 
address the flawed physicians Sustainable Growth Rate formula 
should be a part of the final bill. Patients cannot see 
physicians who are not there. Medicare reform is necessary. The 
prescription drug benefit, regulatory relief, and help for our 
poorest hospitals and clinics will mean more patients with 
quality healthcare that is affordable.
    Fixing the SGR formula will ensure physicians will be there 
to treat our elderly. Our seniors deserve no less. We will all 
join them far too soon. Thank you.
    [The prepared statement of Dr. DeFeo follows:]

    [GRAPHIC] [TIFF OMITTED] 90720.012
    
    [GRAPHIC] [TIFF OMITTED] 90720.013
    
    Senator Talent. Thank you, Doctor, that was a very 
compelling testimony. I have a few questions. We covered a fair 
amount of ground with Secretary Allen in terms of what the bill 
is designed to do, so I think I'll go a little bit into where 
we are currently.
    Mr. Levy, maybe you could explain a little bit more the 
market basket issue that you raised. You mentioned that it 
hasn't been updated for 20 years. Now that's a phrase that's 
very well known to those in the field, and maybe not so well 
known to people outside it, so just say exactly what that means 
so that people understand how important that is.
    Mr. Levy. Essentially, it is the general rate increase that 
our hospitals will receive for the payments by patient. We have 
received increases, they've just not kept up with the rate of 
medical inflation or general inflation and so, when we use the 
market basket, does this basket of service keep up with the 
general inflationary trend.
    This is the first time that I recall we are potentially 
going to receive a full increase of 3\1/2\ percent, which is 
roughly the rate of inflation, probably a little less than 
medical inflation, so that's the biggest increase that we've 
seen in years.
    Senator Talent. Audrey, I had a couple of questions which 
your testimony addressed. You talk about the choices that you 
are making because of the high cost of prescription drugs and 
the fact that you don't have any coverage in basic Medicare.
    Of your friends who are also on Medicare, would you say the 
situation you're describing is common? Is it uncommon? Are most 
of your friends making those same kinds of choices or only a 
few? Give us a picture of what's going on. I know that you go 
to the Senior Center a lot, and you know a whole lot of folks 
so you're in a pretty good position to tell us this.
    Mr. Levy. Well, from just my----
    Senator Talent. Oh, I was asking Audrey, but then you can 
comment on it, Ron.
    Mr. Levy. Oh, I am sorry.
    Senator Talent. Unless you're going to the Senior Center a 
lot, too.
    Mr. Levy. No, no. I have gone to Senior Centers to visit. I 
am sorry.
    Senator Talent. So have I.
    Ms. Vallely. You are welcome to ours. From what I overhear, 
a lot of people in our Center, some of the husbands worked at 
the automobile factory, so therefore they have good coverage 
for insurance.
    My insurance alone--I have ACF. ACF is no more. They turned 
it over to United Health, but United Health did not want to pay 
it anymore, so now I have to pay for United Health. So the 
insurance that my husband thought he was leaving for me, it's 
no more. OK, so I have to pay for that, plus pay for everything 
else.
    Some of the ladies that come to the Center, that may be the 
only meal they get. They can pay $2 for a meal and get a good 
substantial meal, but it is a good meal.
    Senator Talent. It is pretty good. I have had those meals.
    Ms. Vallely. I mean, they try to give you a good meal.
    Senator Talent. Right.
    Ms. Vallely. They don't have transportation. When they go, 
they have to go on the bus, OK. Now a lot of those ladies that 
I had talked to, if they have a dental appointment, that means 
they can't go to the doctor in the same month because the 
dental problem is way up there and Medicare doesn't take care 
of that.
    Another one has an ongoing--she has so many problems and 
she takes like 20 to 40 pills a day. Her children have to help 
her with that because her husband was a farmer and she does 
have Medicare, but there's not much else coming in.
    Senator Talent. You mentioned farmers. A whole other issue 
is farmers and small business people getting access to 
healthcare. They can't leave anything for widows if they don't 
have the health insurance themselves.
    Ms. Vallely. Right.
    Senator Talent. So you are one of those in a situation 
where you had, initially, some retiree health benefits through 
your husband and that was then ended.
    Ms. Vallely. I did have--the insurance and the Medicare 
took care of my husband. He had eight strokes, he had a stomach 
aneurism, he had five ruptured disks, he had all these and 
massive mastoid operation, two carotid arteries--they paid for 
that fine, with his insurance. We didn't have any out of 
pocket.
    When he died, it took care of it, you know. But here I am 
and I have to go to a doctor that is--in Florida, where I 
lived, the doctor bill was $64 because my insurance never paid 
for the doctor's visits. Now it's jumped up to $107 here.
    In Florida you could go to the little health centers and 
get most of your stuff done and it was like going to the 
emergency room, and then Medicare would pay for it. But up here 
you can't do that.
    Senator Talent. You raise a point that bears on this issue 
because if people have a chronic problem, we want them to be 
able to go in and see their physician as much as they need to. 
In fact, more up to date insurance coverages encourage people 
to do that because it actually saves money if they stay well.
    But you----
    Ms. Vallely. Go to the dentist often.
    Senator Talent. Yes. That's another point. You've made the 
point that traditional coverage under Medicare actually is a 
disincentive to get that kind of regular wellness and 
consultation that keeps you healthy, and then you get sick, you 
go to the hospital, and Medicare has to pay a lot more.
    So one of the things we want to do is give people choices 
that will enable them to stay healthy over time.
    Ms. Vallely. Also, may I point out, that the doctor that I 
go to is tied up with HMO. So he doesn't see you but every 3 
months. When you go into to see him, he looks at you, sometimes 
he takes blood pressure, sometimes they weigh you, but it's 
still $107 for him to write out that little piece of paper.
    Senator Talent. Are you in Medicare+Choice, are you in 
traditional Medicare, what are you in?
    Ms. Vallely. I am sorry.
    Senator Talent. I am sorry, ma'am. Are you in a Medicare 
option, an HMO or are you in the traditional Medicare?
    Ms. Vallely. Oh, I am not in HMO.
    Senator Talent. That's right. So you're in the traditional 
Medicare.
    Ms. Vallely. Right. It's hard and it's hard on me. I make 
just so much money, half of what my husband was drawing. 
Together we were fine, but now that he's gone, I am very 
limited. Sometimes it is hard.
    If you have to go to the dentist or the eye doctor--I was 
supposed to go to the eye doctor to check on my eyes in April. 
Well, I haven't gone because I had to go to the dentist, I had 
a broken tooth. That cost $900. I have--that's money, plus what 
my little dental insurance, 80 percent off, did.
    What I want to know is, are we going to have a $250 
deductible on all this insurance?
    Senator Talent. It's quite likely there will be a 
deductible, although it will be lower or won't be there if you 
are below a certain income level. What that income level----
    Ms. Vallely. Do you have to pay for it?
    Senator Talent. Yes, ma'am. There will be a deductible--I 
mean, I can't be absolutely certain, but I am 95 percent 
certain that the bill that emerges will have a deductible for 
seniors who are earning above a certain amount.
    Now if you're below a certain amount, the deductible will 
essentially be gone. There may be a small co-pay. What exactly 
that figure's going to be, we are going to have to work on. 
It's hard to predict now.
    Ms. Vallely. Well, and sometimes----
    Senator Talent. You mentioned dental care. The House bill 
contains some provisions for a dental care option, the Senate 
bill doesn't. I agree with you--and we were talking before--
that this is very common, periodontal disease is the most 
common disease, and we don't, as a system, do a very good job 
of taking care of it.
    Ms. Vallely. If you can't eat, if you can't use your teeth 
to eat, then you don't eat, which makes problems in your 
stomach, which sends you to the bathroom.
    Senator Talent. But the two most miserable common things to 
have are a backache and a toothache.
    Because Audrey talked about emergency rooms, maybe you or 
Dr. DeFeo would tell us how a prescription drug benefit might 
take some of the strain off of emergency rooms in hospitals.
    Dr. DeFeo. Well, I can tell you from the viewpoint of 
Truman Medical Center in Kansas City, which is the inner city 
hospital in Kansas City. Our emergency room was overflowing 
every day, and part of the reason are people who come in who 
cannot afford their medications.
    Not just the senior citizens, but other indigent patients 
or--this is not for Medicaid, but that the Medicaid benefits 
for drugs have gone down so far, that they haven't met the 
other requirements for Medicaid. So this is an every day 
occurrence at Truman Medical Center.
    Approximately, I would say, 5 percent of our admissions 
have to do with patients who could not get their drugs, and if 
they had gotten them, would not have been admitted to the 
hospital.
    Senator Talent. That's bad for them, but also our emergency 
rooms are under stress now. One of the reasons is that there 
are a number of folks who are there who, we would prefer would 
get care some other way, because they don't have what we think 
of as a true emergency, but they are there because they don't 
have any other options. Would you----
    Dr. DeFeo. That's correct.
    Senator Talent [continuing]. Agree, Mr. Levy?
    Mr. Levy. I would totally agree. One of the things that 
we've started to track very closely is the readmission rates 
for our patients to our hospital. Particularly our diabetic 
patients, congestive heart failure patients.
    Generally if the cost is so high for the medications, as 
Audrey has so well described, and people aren't accessing the 
needed medications, particularly those that do have chronic 
disease, the formula is simple.
    If it is a cost that is too high and it limits the access, 
the emergency rooms get busier, these patients wind up being 
readmitted to the hospitals, and it winds up costing us more 
for the care and treatment of those patients.
    The bottom line is, it just complicates the care delivery 
for the senior citizens of our country. It is like playing a 
chord on a piano, but we are missing a few notes and the chord 
doesn't sound very good.
    Senator Talent. You are hearing from a couple of people who 
are not, speaking for themselves individually--it is not that 
these two gentlemen would stand to gain personally from this 
benefit, but the institutions or the systems that they 
represent is paying extra costs now in doing things that they 
would rather not do because a benefit doesn't exist.
    Let me go into something that you mentioned, Dr. DeFeo, 
because it's a concern I have had, and I just don't think the 
average person is aware of it, and so I am going to be make a 
brief statement then ask you to comment. By the way folks, 
you've all been very patient and we are wrapping this up. I 
only have a couple more questions.
    You mentioned regulatory reform for people in the system. 
Now what I don't want anybody in the audience to think is, OK, 
here's a doctor who's trying to get out of filling out some 
necessary form for quality or safety. The next time you're in 
to see your physician, ask him or her about this issue.
    Ask to see the facilities--just to stick your head in and 
see what they have to do to maintain the records that are 
necessary to submit in the current system, many of which I just 
have to believe really don't do any good for anybody.
    Another thing that's a concern. Several years ago, when I 
was in the House, I had some hospital officials come up to me 
and say that the government had claimed they had filed 
overcharges in Medicare amounting to several thousand dollars, 
and was now trying to recover criminal penalties of hundreds of 
thousands of dollars from this hospital, which is especially 
unfair when you figure that--I would guarantee you, if you were 
the most expert person in the world in filling out these forms 
for reimbursement, you would occasionally make mistakes because 
they're much more difficult than even tax forms.
    We have some folks from CMS, which is the organization that 
runs this, and I want to say this on behalf of what you said. 
This is not a group of people who are trying to get out of 
legitimate responsibilities. Do you want to elaborate on that? 
Are you aware of the fact that the conference has reached some 
conclusions about reg reform, and I think they're going to keep 
all those Senate provisions in that you like.
    Dr. DeFeo. I have heard that they had reached conclusions, 
I haven't heard what they're going to mean, yet. For instance, 
when I admit a patient to the hospital, in order to submit a 
reasonable charge, I have to document four, five things in one 
category, eleven things in a second category, nine things--kind 
of like a check list.
    If you think of a typical high school dropout, they would 
say, OK, did he check A, B, oh, he missed D, there's F and G, 
oh, he didn't have eleven of them, so therefore the payment 
can't be X. It has nothing to do with the patient and his 
severity. It has to do with can I mark these boxes down. It's--
--
    Senator Talent. Then think of the time that physicians, who 
we want to be spending time with patients--Audrey, you 
mentioned that one. They didn't go to med school to sit around 
filling out forms. It is extremely demoralizing being in the 
profession.
    Dr. DeFeo. I teach medical students and residents, I take 
care of patients, and it seems like I spend half my time 
filling out paperwork. We have a----
    Senator Talent. It may be. If not half, I bet it's close. 
So this is important, because we are all paying for this. We 
have a system where there's never enough hours to go around, so 
I get particularly upset whenever I see money being wasted. I 
mean, that gets us nothing. I am glad you raised that, and I 
think we are going to do something about it.
    The funny thing is, all these voluminous forms do not keep 
that small percentage of the shrew corner cutters and the 
cheaters from cheating. They're still out there cheating. They 
find ways around it.
    One other thing I wanted to raise, and maybe, Ron, you 
might be in a position to address this because you talked about 
reimbursement rates being driven down and held down. With the 
system that we have now, the government tries to figure out, 
based on its analysis, what a particular procedure should be 
compensated for.
    I have now been around long enough, 10 years in the 
Congress, to constantly see situations where the government 
sets a price and somebody concludes, after a while, that it was 
too high, so people are making too much off of that, and then 
what the government will do is drop it like an ax. This 
happened in the home health business a few years ago.
    It creates tremendous instability in the system and drives 
people out of business; or, and this has been more common, 
driving it down, down below what people need to get their cost, 
and then physicians and hospitals can't afford to take care of 
Medicare patients. Do you want to comment on this at all?
    Mr. Levy. I think that's an experience that has been 
ongoing for the last 20 years, ever since we implemented the 
system of payment called DRGs where you get paid by case. The 
concept is a great concept, and for a while it really worked 
because the incentive is, how can we deliver care better and 
more efficiently.
    At SSM, we really do believe it's not an either/or. We 
believe that the more we work on improving the quality of care 
by improving our work processes, by reducing our variation, by 
putting standards of care in place, when we do that, we do 
improve the quality, because we measure the outcomes, and we 
also become more efficient in the delivery of care.
    But the more efficient we become in the delivery, instead 
of gaining that incentive of here is what you are going to be 
paid, that price has dropped.
    Senator Talent. Yes.
    Mr. Levy. There's nothing wrong with continual cycles of 
innovation, we have to continue to do that and continue to be 
efficient in our care delivery. It's gets to a point, when you 
add on the regulation that you're talking about in the 
paperwork, where difficult decisions are being made that you 
can no longer provide the service.
    In St. Louis, I think everybody's familiar with what we 
face in North County with one of our hospitals, DePaul Health 
Center, making a decision that we might not be able to provide 
trauma care anymore.
    Senator Talent. Yes.
    Mr. Levy. I think that your point is an important point. If 
there is one thing that you could do, it is on the issue of 
regulation. I think we have to free up some of our time to be 
able to provide the care and service to our patients. Seventy-
five percent of a nurse's time is paperwork.
    Senator Talent. Now, repeat that?
    Mr. Levy. Seventy-five percent of a nurse's time is 
paperwork. That's not what they're supposed to be doing. 
They're supposed to be at the bedside caring for the patient 
and working with our physicians.
    The burden on physicians today and the burden on hospitals 
is--that's probably one of the many cost inflators, and so we 
have to continue to pay for nursing care, what our physicians 
do, technology changes and patients are sicker in our 
hospitals.
    I think your point about not continually depressing or 
quickly dropping the prices--we have to have a sustained 
commitment to paying for the care of the elderly and the 
indigent in this country.
    Senator Talent. Thank you, and I raised that and I'll close 
now, because it bears on what we were discussing before when 
people ask about the cost of the prescription drug benefit. It 
really is true that if we can take steps to strengthen and 
improve the system at the same time we adopt this benefit, then 
we can get efficiencies, we can get savings that will free up a 
lot of dollars for this kind of care. They've just described 
some of them.
    I am pleased and grateful to this set of witnesses, and if 
I may say so, especially to you, Audrey. I appreciate you 
coming. The other two gentlemen are honorable in their service, 
but you came a ways and I am grateful to you, grateful to 
everybody here in the audience and, again, to Harris-Stowe, 
thank you very much.
    I will be available afterwards to visit with folks and 
discuss any concerns that you may have.
    Thank you all for coming, I'll adjourn the hearing.
    [Whereupon, at 11:55 a.m., the Committee was adjourned.]

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