[Senate Hearing 108-615]
[From the U.S. Government Publishing Office]
S. Hrg. 108-615
DOES CMS HAVE THE RIGHT PRESCRIPTION? IMPLEMENTING THE MEDICARE
PRESCRIPTION DRUG PROGRAM
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HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 8, 2004
__________
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Amy B. Newhouse, Chief Clerk
------
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska RICHARD J. DURBIN, Illinois
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois FRANK LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire MARK PRYOR, Arkansas
Andrew Richardson, Staff Director
Marianne Clifford Upton, Minority Staff Director and Chief Counsel
Kevin R. Doran, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Voinovich............................................ 1
Senator Lautenberg........................................... 4
Senator Durbin............................................... 27
Senator Pryor................................................ 34
WITNESSES
Thursday, April 8, 2004
Michael McMullan, Deputy Director, Center for Beneficiary
Choices, Centers for Medicare and Medicaid Services............ 5
Gail R. Wilensky, Ph.D., Senior Fellow, Project HOPE............. 19
Nancy-Ann Min DeParle, Senior Advisor, J.P. Morgan Partners, LLC. 23
Alphabetical List of Witnesses
DeParle, Nancy-Ann Min:
Testimony.................................................... 23
Prepared statement........................................... 70
McMullan, Michael:
Testimony.................................................... 5
Prepared statement with attachments.......................... 41
Wilensky, Gail R., Ph.D.:
Testimony.................................................... 19
Prepared statement........................................... 58
APPENDIX
Questions and responses for the Record from Ms. McMullan from:
Senator Voinovich............................................ 83
Senator Durbin............................................... 180
Senator Akaka................................................ 183
DOES CMS HAVE THE RIGHT PRESCRIPTION? IMPLEMENTING THE MEDICARE
PRESCRIPTION DRUG PROGRAM
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THURSDAY, APRIL 8, 2004
U.S. Senate,
Oversight of Government Management, the Federal
Workforce and the District of Columbia Subcommittee,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:42 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. George V.
Voinovich, Chairman of the Subcommittee, presiding.
Present: Senators Voinovich, Durbin, Lautenberg, and Pryor.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. The hearing will come to order.
I do apologize to the witnesses for being late but the
Members of the Senate were being briefed by the Secretary of
Defense and the Chair of the Joint Chiefs of Staff about what
is going on in Iraq today. So we stuck around a little bit
longer just to get a real flavor for what is happening there. I
apologize for being late.
The Subcommittee on Oversight of Government Management, the
Federal Workforce and the District of Columbia will come to
order and we welcome you.
Today's hearing is entitled, ``Does CMS Have the Right
Prescription: Implementing the Medicare Prescription Drug
Program.'' I thank all of you for coming today and hope that
the hearing will provide an opportunity to have a forthright
discussion about the management challenges facing the Centers
for Medicare and Medicaid Services.
The existence of these challenges should not detract from
the agency's significant accomplishments. Medicare has been and
continues to be a successful program for the American public,
providing vital health care to our Nation seniors. Yet the
agency currently has more on its plate than it has since the
creation of Medicare and Medicaid in 1965.
While Medicare and Medicaid have been essential for our
Nation's seniors by providing coverage for the cost of doctor's
visits and hospital stays, prior to enactment of the Medicare
Prescription Drug Improvement and Modernization Act on December
8, 2003, it was structured for a 1960's health care system.
Unfortunately, the system did not evolve with the new
developments in science that allows physicians to treat
diseases that once required surgery with modern prescription
medications.
Thanks to Congress' action last year, our Nation's seniors
will now have access to a prescription drug program through
Medicare. It is now our responsibility to make sure that CMS
has the means to implement this new benefit in an efficient and
effective manner. While the task ahead of CMS is enormous, the
agency has faced similar challenges in the past.
In fact, implementation of this new benefit is similar to
the previous administration's implementation challenge with
Medicare Plus Choice. When Medicare Plus Choice was ready to be
rolled out nationwide, I was serving as Governor of Ohio. I
recall after reviewing the implementation plan I was concerned
that the agency was not ready to handle all of the phone calls
they were going to get after a massive advertising campaign.
Ms. DeParle will remember my concerns at the time. She was
the head of the agency preceeding CMS--HCFA. I approached her
and then-Health and Human Services Secretary Donna Shalala. I
told them that I felt that before they rolled it out nationwide
they ought to do some pilot projects to see how it would work.
To their credit, they adjusted the program. My State became
one of the five test States and the program was implemented
smoothly. I think that just like Medicare Plus Choice, CMS has
a lot of work to do before it will be ready to roll out this
benefit in 2006.
Remembering this experience will help us keep in
perspective the administrative challenges facing CMS, which we
will learn more about today. I believe that when we begin to
discuss the details involved in implementing such dramatic
changes the perception will shift from why is it taking 2 years
to provide the benefit to amazement that CMS intends to provide
it in 2 years.
I am encouraged to see that CMS already has taken
substantial steps to offer a temporary drug discount card. On
February 5, CMS announced that over 100 separate entities
submitted applications to offer Medicare approved cards to
beneficiaries.
By March 25, CMS was able to announce that they had
reviewed the applications and, I understand, awarded 28 private
card sponsors. This is the first step, and we have to make sure
that this progress continues, particularly as the mailings go
out and beneficiaries are going to be asked a lot of questions
about how to take advantage of the card.
I understand Ms. McMullan will talk about the discount card
but neither the details nor the merits of the program are the
topic of this hearing. Understand that. I do not want to get
into a debate about the program. There have been numerous
Congressional hearings about that issue.
The purpose of this hearing today is to discuss the
capacity of CMS to respond to the challenge of implementing the
drug benefit program by 2006 and to establish a baseline of
where the agency is today.
Even before passage of the Medicare Modernization Act, CMS
was coping with administrative challenges. For example, a 2002
report by the National Academy of Social Insurance highlighted
the fact that between fiscal years 1992 and 2002 benefit
outlays increased 97 percent and claims grew by 50 percent,
however program management funds increased by only 26 percent
and authorized full time equivalent positions only 12 percent.
So the workload increased, but there was a question about
whether the dollars were there to provide for the management
that was needed to deal with the increases.
One of the challenges facing CMS in moving forward with
implementation of the prescription drug benefit is the agency's
human capital resources. In general, governmentwide strategic
human capital management remains on the General Accounting
Office's high-risk list. Currently 18 percent of CMS workforce
is eligible to retire. The number is significantly higher, 30
percent, in the career Senior Executive Service. We are not
talking about early retirement.
In addition, over the past 3 years, CMS has lost a quarter
of its career executives to retirement. If that does not seem
like a daunting challenge, 46 percent of the existing CMS
workforce will be eligible for regular retirement by 2009.
These statistics leave me asking the question will CMS have
the expertise and the leadership it needs to get the job done?
During my time as Mayor of Cleveland and Governor of Ohio,
I worked to address the workforce challenges within our local
and State governments. Working with a wide range of
stakeholders, we successfully empowered our employees while
establishing a culture of quality management.
Since coming to the Senate in 1999, I have stressed to my
colleagues the urgency of the Federal Government's human
capital challenges, the need to get the right people with the
right skills and knowledge at the right place at the right
time, something that has been ignored by this government for as
long as I remember. And before I came here I lobbied this place
for 18 years as a mayor and governor on this same issue.
So the question is, do we have the people to get the job
done?
Human capital management is but one of the many management
challenges we are going to touch upon today. For example, the
Medicare program has been on GAO's high-risk list since 1990. I
look forward to discussing what the future looks like for CMS.
Testifying before the Subcommittee today are three
individuals with significant expertise and insight into CMS.
While I have highlighted what I see as some of the challenges
facing CMS, I look forward to hearing from CMS about the
challenges they have identified and the steps the agency has
taken to address them.
At this time I would like to welcome Michael McMullan.
Ms. McMullan is the principal career executive in charge of
the Center for Beneficiary Choices. She has been with the
agency for 31 years and I certainly hope you are not
considering retiring, Ms. McMullan.
The Center is a focal point for innovation in the Medicare
program, including clinical quality measurement and assessment,
the Medicare Plus Choice program and beneficiary education.
In addition, we are privileged of have testifying today
before us two past administrators of the Health Care Financing
Administration, Gail Wilensky, who served from 1990 to 1992,
and Nancy-Ann Min DeParle, who served from 1997 to 2000. I have
had the privilege of working with both Ms. Wilensky and Ms.
DeParle during my time as governor.
More recently it was their presentation at the John F.
Kennedy Commonwealth Health Policy Conference in January that
highlighted for me the tremendous management task before CMS.
I look forward to their assessment of CMS's ability to
manage the new drug program and what they would do if they were
in charge of CMS today.
I would now like to recognize Senator Lautenberg for an
opening statement. Senator, thank you for being here.
OPENING STATEMENT OF SENATOR LAUTENBERG
Senator Lautenberg. Thank you, Mr. Chairman.
You know that I think that Ohio had chosen wisely when they
sent someone with the experience and the commitment that you
have, Mr. Chairman, and I enjoy our chances to get together.
I am sure that some of our meetings are not quite as
pleasant as some of the others, but we always have the same
mission in mind, Mr. Chairman. And so I look forward to this
hearing and commend you for calling it.
The Medicare Modernization Act is being closely scrutinized
by all sides. We are not here to debate the merits of the new
law, but rather to review how the Centers for Medicare and
Medicaid Services will implement the most significant changes
to Medicare since its inception. It is not going to be an easy
job. It is precisely the implementation of this law that I have
some serious concerns about.
As you would expect, the view of the law where the class is
half-full or half-empty is where we are. The Chairman sees it
as half-full. I see it as half-empty. His interest in getting
the program underway is one certainly that I think we all would
like to see in place.
Questions are raised about why the year 2006 was chosen, I
think. I came out of the computer business and the Chairman has
long studied Medicare and the health care problem. But I know
that our recordkeeping is a lot better today than it was in
1965 when Medicare was created and it took us only 11 months, I
think, to get the Medicare program up and running. With the
computer technology and the recordkeeping that we have today, I
think it could take a lot less time. I am rather suspicious
about deferring the date until 2006.
I have repeatedly asked the Administration to stop
producing misleading Medicare advertisements that have a
political tone. The reality is that the recent print and
television ads promoting the law do really little to inform the
Medicare beneficiaries. Rather, they are thinly veiled
political ads paid for with taxpayer funds.
At my request, the General Accounting Office reviewed these
ads and found that they contained ``notable omissions and other
weaknesses'' such as misleading seniors about the prescription
drug program's premiums, which will very likely exceed the
Administration's estimate of $35 a month. These ads sugar coat
the description of the Medicare drug discount card program by
failing to note that the cards require the payment of annual
fees and that the discounts will vary greatly. The ads promise
the same Medicare when the law contains new structural
incentives for the gradual privatization of Medicare.
In a similar vein, false news reports scripted by the
Administration repeat the litany of intentional errors and
misleading statements. Masquerading as journalism, video news
releases, VNRs, produced by the Administration tout the new
legislation. In a video produced by HHS, the cheering crowd
stands there applauding the President as he signs the Medicare
Modernization Act into law. It is fairly obvious that this had
to be staged.
And even the government's official 1-800-Medicare help line
extols the new law, literally forcing callers to describe the
changes as Medicare improvement before permitting them to
access a counselor. Once a caller submits to say Medicare
improvement, he or she is led to an automated voice with a
familiar misleading message. It says it is the same Medicare
you have always counted on with more benefits. You can keep it
as it is and you do not have to change a thing. The
Administration's obligation is to educate and not spin.
The legislation is now law and understanding its many
changes, including some which will offer legitimate help to
people with low incomes or high drug needs, is daunting enough
for people without being misled by Administration ads or video
news releases.
If the Administration's primary interest truly lies in
getting Medicare beneficiaries and their families to understand
the changes under this law, we insist that it remove bias and
distortion from its so-called educational efforts.
Mr. Chairman, I would like to be as cooperative as I can to
get the program underway, but I just have a concern about how
this is being presented to the American public.
Senator Voinovich. Thank you.
It is the tradition of this Subcommittee to swear in the
witnesses. Will the witnesses please stand as I administer the
oath?
[Witnesses sworn.]
Senator Voinovich. The record should reflect that the
witnesses responded in the affirmative.
Ms. McMullan, I want to thank you very much for being here
today. I want to also publicly thank you for your 31 years of
service to our government and the people that you have come in
contact with over the years. We look forward to your testimony.
TESTIMONY OF MICHAEL McMULLAN,\1\ DEPUTY DIRECTOR, CENTER FOR
BENEFICIARY CHOICES, CENTERS FOR MEDICARE AND MEDICAID SERVICES
Ms. McMullan. Chairman Voinovich, distinguished Members the
Subcommittee, thank you for inviting me today to discuss
implementation of the Medicare Prescription Drug Improvement
and Medicare Modernization Act or MMA for short.
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\1\ The prepared statement of Ms. McMullan with attachments appears
in the Appendix on page 41.
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The Centers for Medicare and Medicaid Services is very
proud----
Senator Voinovich. Ms. McMullan, I usually ask people to
speak for 5 minutes, but I do not want you to rush through
this. We have three witnesses today and I want to make sure
that we hear you.
If you could just move up closer to the mike, too, so that
we can hear what you have to say.
Ms. McMullan. The Centers for Medicare and Medicaid
Services is very proud to have a significant role in
implementing this historic legislation and is working
diligently to meet the numerous and aggressive deadlines
outlined in the Act.
The MMA represents a fundamental change in the Medicare
program by offering our beneficiaries more choices in how they
receive their care and by establishing a responsive
relationship with providers of that care.
This will begin with the Medicare-sponsored discount card
and will continue as the full prescription drug benefit is
implemented in 2006, and represents a lasting change in how CMS
and the Medicare program will operate.
CMS is unique among government agencies in that it
accomplishes its mission principally through contractors and
other government entities. The agency employes about 4,500
people in locations across the country. However, these
employers are only a small portion of a very large, complex
network of people and groups that make our programs work
successfully.
The chart that I have attached to my testimony gives an
idea of the scope of this contracted work.\1\ For example, in
2003, it is expected that CMS contractors will have provided
claims processing services to about 33 million beneficiaries,
worked with approximately 1.1 million health care providers,
processed more than 1 billion Medicare claims, paid more than
$236 billion for beneficiary services, and handled more than
7.3 million review requests and other kinds of appeals.
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\1\ The chart referred to appears in the Appendix on page 50.
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CMS' MMA implementation challenges can be categorized into
a number of broad categories, including a prescription drug
discount card and transitional assistance program, a new
voluntary Medicare prescription drug benefit, modification of
the existing Medicare Plus Choice program now renamed as
Medicare Advantage, and contractor and regulatory reform.
The MMA also modified numerous payment systems under
Medicare and Medicaid, particularly those affecting rural
providers. It established new preventive benefits, established
a number of demonstration programs, provided for administrative
improvements and regulatory process changes and numerous other
provisions.
Given the nature of the work before the agency and the need
for effective steady leadership, we appreciate the Senate's
swift confirmation of Dr. McClellan as our new Administrator.
As an example of what we have already done to implement
MMA, on December 15, 2003, just 1 week after the law was
signed, CMS published a regulation establishing a new
prescription drug discount card program. We solicited
applications from organizations interested in sponsoring such a
program, and on March 25 announced the approved applications.
On April 1, CMS announced the actual drug discount cards
that the sponsors will offer. And on April 29 we expect to post
on our Web site specific discount prices available through
these programs. Beneficiaries will be able to sign up for the
cards in May and begin realizing the associated discounts on
their drug purchases effective June 1.
In addition, qualified low income beneficiaries will
receive a significant additional benefit of a $600 credit
applied toward their drug purchases.
Establishing the drug discount card program, although a
major effort, is not the only work that CMS has accomplished in
the past 5 months when it comes to MMA implementation. The
second attachment to my testimony details more than 100 tasks
that CMS has completed to date. It is obvious from this list of
accomplishments that CMS is making good headway in meeting the
ambitious timeline within the MMA.
The MMA provides CMS with about $1 billion to spend over 2
years for implementation. This money will be spent on hiring
additional personnel, upgrading and adding new information
systems for operations and analysis, educating and providing
information services to beneficiaries and providers. CMS has
already made important funding decisions related to the
implementation of the drug card and to hiring new employees.
CMS continues to develop and implement the budget plan as it
moves toward implementation of the remaining provisions.
To implement the MMA, CMS will need to hire individuals
with expertise in pharmacy benefit management, clinical
professionals such as pharmacist and physicians, individuals
experienced with disease management and prevention, health
economists, public policy analysts, and individuals who know
how employers structure their retiree benefit practice. CMS
will also need additional IT professionals experienced in
building systems and telecommunication infrastructure
contemplated by the law. Finally, CMS will need to hire
individuals experienced with government contracting, as much of
the work under MMA, as with other Medicare operations, will be
contracted out. We have begun staffing a number of these new
positions.
Once contracts have been established for the administration
of the program set up by CMS, the work of the contractors must
be monitored and supervised to ensure program integrity and
effectiveness. The main oversight work of CMS is to see that
contractors and providers implement these new programs as
directed by statute and established by the agency.
For example, CMS will need to monitor pricing of drugs and
benefits provided under the drug discount card program, by the
drug benefit plans, and the Medicare Advantage plans. The new
programs must be studied for their effectiveness, to see
whether they have carried out the statute as Congress intended,
and if they have provided appropriate benefits and assistance
to Medicare beneficiaries. Error rates in payment will need to
be established and education made available to providers to
help them avoid billing errors.
CMS must also monitor for fraud and abuse. The agency needs
to be able to address any inappropriate behavior, either
through remedial education or punitive measures.
The implementation of Part D and the new and revised
payment systems require substantial IT development and changes.
The agency will need to develop and manage plan enrollment and
management systems, systems to process beneficiary eligibility
requests and enroll beneficiaries in the new benefits, track
utilization of services, and measure and track clinical
quality.
Revised and new IT systems will need to interact with
systems supporting MMA managed by other Federal agencies such
as the Social Security Administration and the Internal Revenue
Service, States, and private insurers who contract for the new
benefits under MMA and those offering Medigap plans.
CMS recognizes that opportunities for beneficiaries to
choose new benefits and how these benefits will be delivered
represent a change for Medicare beneficiaries. Therefore, CMS
has begun a substantial and varied education campaign to assist
beneficiaries as they take advantage of these new benefits.
The timelines required under MMA are ambitious and will
require prudent planning and wise use of resources. Although
there are many decisions left to make with respect to budget
and personnel, CMS is committed to informing Congress about
these issues as they progress.
I thank you for your invitation to testify this morning and
I welcome your questions.
Senator Voinovich. Thank you, Ms. McMullan.
I would like you to go back to about the last 2 minutes of
your testimony. I would like you to repeat for us that last
part about all the things that you have to do, that is a
mouthful and you went quite rapidly through it. Just go through
it real slow.
It is right at the end of your testimony, you were
discussing bringing IT people on board.
Ms. McMullan. The types of people that we need to
administer the programs?
Senator Voinovich. That is right, could you repeat that
again?
Ms. McMullan. In order to implement MMA, we are going to
need people who understand pharmacy benefit management, a
principal task under the new Part D, clinical professionals
such as pharmacists and physicians, individuals experienced
with disease management and prevention, health economists,
public policy analysts and individuals who understand how
employers structure their employee benefit packages.
We will also need IT specialists who understand how to
structure the systems and the telecommunication infrastructure
contemplated by the statute in implementing both Part D and the
other programs under the statute.
Senator Voinovich. That is a mouthful.
Ms. McMullan, you have been in the agency a while. What
lessons has CMS learned from the twin challenges passed by the
Medicare reforms mandated by the Balanced Budget Act of 1997
and the Y2K computer migration, in terms of prioritizing and
implementing a lengthy list of important and complicated
program changes?
Just listening to what you have said, what have you learned
from past experience that will help you now?
Second, these people with specific expertise that you need
to hire, are they available today to be hired? Is the budget
that has been made available to the agency adequate enough to
get the job done?
And, finally, but not least, what I am most interested in
is do you think that you need some additional workforce
flexibilities in order to get the job done?
For the last several years, I have been working on the
issue of human capital management. One of the concerns I have
had is that some agencies have been unable to keep people they
need. And then, more important than that, agencies have been
challenged in attracting new people into the agencies. I have
worked to ensure agenceis have the flexibilities and the tools
and the other things that are needed.
You have been at CMS a long time. So if you would talk
through these issues for me, I would appreciate it.
Ms. McMullan. To start with the lessons learned, I think
that the most important thing that we learned in both doing the
implementation of the Balanced Budget Act and in Y2K is the
need to think through the plan for each of the activities that
is contemplated in the statute for us to implement and
understand what the business requirements are for the task, and
the critical path to implementing the different activities.
And so, we are in a very careful planning and prioritizing
stage now for many of the parts of the statute that have
implementation dates in 2006 through 2011.
So that is a critical task and activity that proved to be
very useful and important in our implementation of the Balanced
Budget Act (BBA) and in the Y2K management. So we are actively
doing that, reporting on a regular basis on our accomplishment
against those plans and working with our colleagues and other
Federal agencies and the States to coordinate the activities
that have to be implemented against the plan.
So that is probably the greatest learning that we have done
over time; understanding the importance of that first task of
planning.
Having said that, then you take those business requirements
in the plan and look at what the tasks are ahead of us that are
the most important for us to accomplish in implementing the
statute. And for Part D, that is substantially information
systems and contract development and management because we will
be contracting out for the management of the Part D benefit to
private drug plans as well as Medicare Advantage plans. The
private drug plans is a new entity in the marketplace and so we
are going to be working through and thinking about having to do
that.
Medicare Advantage offers a new option with the PPOs, so we
are working to think through and understand how best to
organize that and to be able to contract for it.
The business requirements for the systems deal with how do
you add to our already existing plan management and monitoring
capacity that we have now for the Medicare Advantage plans? How
do we expand out those systems that already exist? And then,
for Part D, establishing new systems to manage eligibility and
payment. It is a different program. So that we have to think
through those requirements and put the systems in place.
As far as the human capital aspect of that, significantly
to accomplish the work done to implement those programs we will
rely on contractors. And so the human capital that we need
within CMS are the people who can define the requirements and
manage the contractors. So it is very important that we have
expertise inside of CMS and the Department.
Senator Voinovich. An important part of this program, and I
have been through it as a governor, will be putting requests
for proposals together for private contracting. It takes some
really good people to do that.
Once it is done, it is important to have the people to
review the proposals. Do you have that capacity now to do that?
Ms. McMullan. We have the capacity now to do part of the
work that we are doing now, and then we will build up the
capacity over time to do the work that we will have to do
between now and 2006. And then eventually, with contractor
reform, through 2011.
So we need to increase capacity both for people who
understand government contracting and in the IT systems, as
well as the expertise that we need in understanding how to
manage the pharmacy benefit and the clinical staff that can
help us understand the coverage and rules. We also have disease
management and prevention, so we need more clinical staff in
that area as well.
So we do understand we have to build out the staff within
CMS in order to manage the program. The significant human
capital though, will be acquired through contracts as we do
now.
Senator Voinovich. Do you feel confident that the people
you need to bring in to CMS to do the RFPs, request for
proposals, are available to be hired?
Ms. McMullan. We have had significant success hiring
expertise in government contracting. We often acquire people
from other government agencies that do contracting. There are
significant resources out there in trained resources.
So I think that on managing government contracts we
probably do have a sufficient supply available to us within the
existing government contracting world.
We are also using ways to attract scarce resources by
offering recruitment bonuses as well as for our clinical staff,
special pay provisions for physicians and others that qualify
for those provisions.
Senator Voinovich. Do you have those flexibilities right
now?
Ms. McMullan. We have them and we are interested in
employing some additional ones that can be made available to us
through the direct hiring authority available through the
Office of Personnel Management, as well as the hiring potential
that is available through the statute itself. So we are
interested in using those additional hiring authorities.
Senator Voinovich. We are going to have a couple of rounds
of questions. Senator Lautenberg.
Senator Lautenberg. Thank you, Mr. Chairman.
May I have your permission to show a short video just to
clarify what was said and when, that kind of thing?
Senator Voinovich. That is fine.
[Videotape played.]
Senator Lautenberg. Thanks, Mr. Chairman.
This news story, fake news story, was produced by CMS. It
was distributed to TV stations around the country, run as if it
were just an unbiased news clip. The video did not identify
that it was produced by the government. The GAO has launched an
investigation concerning the legality of this video.
And I thank you, Ms. McMullan, for your testimony. I know
how arduous the task has been to get all these things into
shape and I respect it greatly.
I just have some questions that I think need clarification.
Do you know who Karen Ryan is, the reporter in this video?
Ms. McMullan. It was a name used in developing the video.
We produce video news releases, audio news releases, and
paper press releases that we give to the press in order to give
them information. The way that the press stations use these,
the VNR in particular, is to cut and paste certain portions of
them.
The use of a voice in going through the VNR from beginning
to end is meant to provide context in ways that news stations
may use them. Most news stations just use pieces of the VNRs.
Very few of them use any of them from start to finish, and that
is really the decision of the news director. But most of them,
as I say, use them as just little snippets.
And along with the information you show, we also include
other kinds of materials that they can use called B-roll. I do
not know what the B stands for, but it is called B-roll. That
is added to the VNR just to provide them with other information
that they can use.
So it is very much like a paper press release that
newscasters and others use at their discretion.
Senator Lautenberg. But it does not identify anyplace that
this was put out by CMS because it portrays what one would
normally think of as a news report, ``today thus and so
happened.'' The President signed the bill, and here is what the
law is going to be.
Usually that would carry a legend that says this is
produced by, paid for by or otherwise.
But I think what comes across is, as you have just
confirmed, is that you use voices and people to portray things
that usually always, I think, are required to identify the fact
that this is produced by the government. This certainly did not
have that character.
How many stations played this so-called new report? Do you
know?
Ms. McMullan. No, I do not know but we will be happy to
provide that for the record. We do have the information.
Information provided for the Record follows:
The video news release (VNR) was aired on 40 different
stations in 33 local markets throughout the country.
Senator Lautenberg. I think the number was about 40, but I
would appreciate your confirmation.
Should CMS be in the business of covertly distributing news
stories that are not really representative of just the issue,
but rather, in my view, certainly has a political overtone
here? Do you think that is appropriate to pitch, cut, and
paste, and do that kind of thing, presented as if it was pure
news without saying that this is a program that still has some
way to go, and things to do?
We talk about senior citizens being able to get all kinds
of drugs, everything they want. But the fact of the matter is
they cannot get the health savings account if they are a
Medicare beneficiary. That was pulled, Mr. Chairman, from the
first circular that was printed because it is not a benefit
that is available to those who are beneficiaries of the
Medicare program.
The General Accounting Office found that the Medicare flyer
and the ad campaign that the Centers for CMS produced contained
notable omissions, had a political tone, and overstated the new
drug law's benefits. These are tough criticism by a nonpartisan
organization, GAO. And will CMS revise these materials in
response to GAO's criticisms?
Ms. McMullan. The materials that GAO reviewed were ads that
had been on the air. We will be airing additional new ads on
the drug discount card. We use the power of television to reach
the maximum audience that we can.
The information that we include in ads, and note that ads
are 30-second ads, so that there is not a significant
possibility to include all information about all parts of the
program. So we try to target it on one or two messages to make
sure that people understand, particularly where do they go to
get additional information on any of these.
When we do the ads, we substantiate the information in the
ads to make sure that it is accurate and presented correctly.
So we do intend to continue to use television advertising to
help people understand Medicare.
Senator Lautenberg. So you dismiss the commentary, the
response by GAO that said that there were notable omissions,
the ads had a political tone, and overstated the new drug law
benefits? You dismiss those as not being meritorious in this
case?
Ms. McMullan. I would never dismiss any good advice that we
get from anyone. In looking at what they had to say, we take
all of that into consideration in moving forward. But I would
just note, in providing a 30-second ad, we have to limit the
number of messages just because of the time. And we want to
make sure that people understand what they are getting.
Senator Lautenberg. But that does not mean that you would
change the facts.
Ms. McMullan. We do not change the facts. They are fact-
based.
Senator Lautenberg. Then what is the 30-second relevance,
in terms of when I say over----
Ms. McMullan. Well, when you mention that there are
significant omissions, it is hard to include a complete
analysis of anything in a 30-second ad, so we target it to just
a few facts.
Senator Lautenberg. How about overstating the benefits and
the political tone? Will those ads in the future say produced
by the CMS and so forth? Should that legend be on there, do you
think at all? Or is it appropriate to just have this out there
and let us say pretend that it is a news story? Because it is
not basically a news story.
Ms. McMullan. You have two different issues here. One is
that the ads are always attributed to the Department of Health
and Human Services.
Senator Lautenberg. This was not.
Ms. McMullan. The television ads. The video news release is
much like a press release. The video news release, when we send
it out, we send it out from the Department of Health and Human
Services. So it is attributed to the Department of Health and
Human Services when it goes out to the new stations, just like
the press releases and fact sheet include our information.
What news stations choose to use is at their discretion,
just like a newspaper reporter would not necessarily attribute
a paragraph in a news story to a fact sheet that he gets from
Health and Human Services. So it is much more akin to a press
release than it is to the television advertisement, which on
the television ads we do include an attribution.
Senator Lautenberg. How do you differentiate, who makes the
decision that this one is supposed to create the impression
that it is a news release, that it is a discovery by the
reporter or the station? As opposed to an ad? Why was this not
an ad? Because to me it looks like one.
Ms. McMullan. For the ads, we buy time on television to
present them to the public. The VNRs we produce and send out to
the news stations and they make the choice as to whether they
use any of it or not. We do not pay for the release of that
information.
Senator Lautenberg. Did any other networks, the larger
stations, use this, that you are aware of?
Ms. McMullan. I do not know but I will be happy to provide
that for the record.
Information provided for the Record follows:
The VNR was not aired on national network newscasts but was
aired only by local affiliate stations of all four major
networks (ABC, NBC, CBS and Fox), as well as Telemundo and some
independent stations.
Senator Lautenberg. We did some checking because we take
heed to what GAO said.
The VNR did not go out from CMS. It went out from HHS
public relations firm, a professional firm. So there was no ID
on the videos as to the source from whence they came.
And to me, Ms. McMullan, as we discuss this I am more
convinced than ever that there was something out there that was
deceptive, misleading and ought to be reviewed very seriously
by CMS and by HHS.
And I am going to go further with this and see if we cannot
insist that all of these carry the legend that this is sent out
by either CMS or HHS to make sure that people understand that
this is not just some news story that you go ahead and run,
because it is misleading in character.
Mr. Chairman, what is your preference on time?
Senator Voinovich. I would like to ask some questions and
then return to you.
Senator Lautenberg. Thank you.
Senator Voinovich. I would just like to comment, this is
not the purpose of this hearing. But let me clarify.
The ad that we have seen was sent out as a news release, a
television news release. When it was sent to the stations, they
knew that it came from CMS and HHS; is that correct?
Ms. McMullan. Yes.
Senator Voinovich. The point you were making is when they
got it, stations could use the whole thing or a snippet of it.
It was their decision to make, in terms of what they were going
to use; is that right.
Ms. McMullan. Correct.
Senator Voinovich. Sometimes I sent a news release out when
I was governor. We would do a TV spot, put it together, and
send it to the stations. And most of the time they did not use
it but sometimes they did. But rarely did they ever run the
whole piece. They just took parts of it. OK, that is one thing.
The other thing, you are guaranteeing to us that for any
30-second commercial that you paid for will notify everyone
that it has been paid for by the Department or the government,
so that there is no question about where it is coming from; is
that correct?
Ms. McMullan. Yes.
Senator Voinovich. OK, clear.
One of the things I am really worried about is the
advertising of the 1-800-Medicare number. I had a little
experience last night. I called the company that takes care of
my drugs with a question about whether one drug that I was
getting was cheaper or more expensive than another one that
supposedly is the same thing.
I am writing to the president of this company. I waited for
15 minutes before I got a pharmacist, 15 minutes. And then,
when I got the pharmacist, I could not understand the
pharmacist.
I do not know where this person was, but I was really
upset. Finally, after 5 or 6 minutes, I got what I needed, but
it was unbelievable.
What testing have you done on the 1-800 number? How much
time are you going to be giving the individuals that are making
the call? And the people answering going to be U.S. citizens,
who can enunciate their words? And I have nothing wrong with
accents. My grandmother and grandfather on both sides, they
learned to speak English.
My concern is that you are dealing with senior citizens.
You must have people answering questions that have good
diction, understand callers, and can communicate.
How much testing have you done on this 1-800-Medicare
number. Once people start calling that number, if they are not
happy with it, they are calling my office. They are going to
call Senator Lautenberg's office. They are going to call our
Department of Aging in Ohio.
So I would like to know, what testing have you done to make
sure that thing really works.
Ms. McMullan. At our 1-800-Medicare number, we have
increased the number of customer service representatives from
352 to 1,400 people. To answer your question about volume, will
we be able to handle the volume.
They are scripted with answers to questions that we
carefully develop and test with both the customer service
representatives and with Medicare beneficiaries.
We also provide a quality assurance activity within the
call centers where their managers listen in on the calls to
make sure that people are following the direction carefully and
answering the questions with the right kind of consideration to
the caller.
We have another tool that we use where we can offline watch
the calls being answered and how people are navigating through
the scripts to make sure that they are using the right answers
to the scripts.
And we also have something called mystery shopping where we
have contractors who call, ask questions as if they are a
Medicare beneficiary, and tell us whether or not they are
getting the appropriate answers in return.
Senator Voinovich. How long have you had the 1,400 people
on? Are they all hired?
Ms. McMullan. They are being hired and will all be
available by May. So they are being hired and trained now.
Senator Voinovich. But people are already calling 1-800-
Medicare.
Ms. McMullan. And we are able to answer the questions now.
The people there are being trained and scripted as we speak. So
as we started with the marketing and advertising campaigns, we
had the ability to answer those calls.
The calls are answered within a very short wait time,
almost immediately. If there is a period of the day when there
is a heavy call volume and they have to wait more that 2
minutes, we let them know that they can either wait or call
back another time when there is less volume. But no one waits
15 minutes.
Our call center is operated 24 hours a day, 7 days a week
with English and Spanish speaking customer service
representatives. And all of the call centers are in the
continental United States.
Senator Voinovich. Good. Senator Lautenberg.
Senator Lautenberg. Thanks again, Mr. Chairman.
Ms. McMullan, is Homefront Communications a division of
government, do you know?
Ms. McMullan. Homefront Communication is one of our
contractors who developed the VNR on our behalf.
Senator Lautenberg. You said that they would know that this
came as a news release from CMS. But here is the script and it
says the address for this is Homefront Communications at 1620 I
Street, and the phone number is definitely not a government
phone number.
So is this not a little deceptive to have this released as
if it was fresh news without saying hey, this is put out by our
Department in the interests of selling this program? Because it
has a political bias to it that is, I think, almost impossible
to challenge.
We have seen a few things, Ms. McMullan, that are
disturbing. You know the claim that there will be a $35 premium
for the Medicare drug plan. It is only an estimate of what the
actual premiums are going to be in 2006. And you know what
happens with estimates, invariably they go up. The CMS
materials give the misleading impression that the premium will
be about $35 when, in reality, it could be substantially
higher.
Would you stake your family farm on the fact that this is a
$35 charge and nothing more?
Ms. McMullan. Like many things we estimate prospectively
what we anticipate it will be and that is our current estimate.
That is our best knowledge at this time.
Senator Lautenberg. How long do you think the $35 premium
will last, Ms. McMullan?
Ms. McMullan. I do not know. I do not know what our
analysis showed as far as how long we thought that would be
$35. The estimates are done by people who do these kinds of
estimates all of the time based on the information that they
have. So I expect that they do the best that they can.
Senator Lautenberg. Do you know what the cost of this new
program will take over the next 10 years? How much it will cost
to do, to put this program into place?
Ms. McMullan. Those estimates are available. I do not know
them off the top of my head, I am sorry.
Senator Lautenberg. Do you recall the number $400 billion
over a 10-year period?
Ms. McMullan. The CBO estimate was close to that, $395
billion was the CBO estimate.
Senator Lautenberg. Are you aware of the contest that
emerged with a re-estimate of that by Mr. Foster, whose name I
am sure you have heard, suggesting that it might be 30 percent
higher than was originally, 30 or 40 percent than originally
estimated? You are aware that there was a challenge to that?
Ms. McMullan. I am aware that the CMS actuaries had a
different estimate based on a different set of assumptions that
went into those estimates.
Senator Lautenberg. But you are satisfied that the $35 is
an estimate that we can live with?
You are aware of the flyer, familiar with the flyer that
was sent out, that was prepared for mailing, 36 million, I
think, of these pieces; am I correct?
Ms. McMullan. It was mailed to every Medicare beneficiary
household, which is about 36 million.
Senator Lautenberg. When this was examined, we challenged
the section called News for All Americans that talked about
starting immediately so Americans would be able to set aside
money, in the health savings accounts.
This was stricken from the later production because it was
challenged. The GAO looked at this. Are you aware that there
was a section removed in this?
Ms. McMullan. Yes.
Senator Lautenberg. So was that a mistake or was that as a
result, if I may suggest, that this was kind of a knuckle rap
by GAO and some review of this?
Ms. McMullan. In the initial development of the flyer, we
were responding to the fact that we were getting lots of
inquiries from people with Medicare trying to understand what
was in the new Medicare Modernization Act. The health savings
account information is in the Medicare Modernization Act. So in
developing the first version of it we thought that we should
explain that important attribute.
Since people with Medicare can, before they become Medicare
eligible, have an HSA we thought we should explain it. However,
you are right. Once you are Medicare aged, you can apply for a
Medicare savings account but not an HSA. So upon further
review, we decided that we needed to remove it.
Senator Lautenberg. Thank you, very much.
Senator Voinovich. One of the questions that I had was the
same as Senator Lautenberg, in terms of the cost. And I had it
explained to me by the Secretary.
CBO still claims it is going to cost $395 billion over 10
years. It is OMB that came back and said that it is going to
cost, I think, $530 billion or $540 billion, a substantial
increase from the $395 billion.
It is my understanding that the difference is the estimate
of how many people will take advantage of Part D. And I think
CBO based their estimate on the percentage of people that are
currently taking advantage of Part B of Medicare. Do you know
what that percentage is?
Ms. McMullan. It is about 90 percent.
Senator Voinovich. It is my understanding that when OMB
looked at it they said that they thought a larger percentage.
In other words, when CBO did its analysis, it said 90 percent
participate in Part B. I think the Secretary gave me a larger
number. Are you sure that number is right, 90 percent for Part
B?
Ms. McMullan. We are pretty sure that that is correct, but
we will also provide that for the record if it is not.
Information provided for the Record follows:
Generally, 91 percent of those beneficiaries eligible
participate in Medicare Part B. We assume that about 94 percent
of those eligible for Part D will choose to participate.
Senator Voinovich. If you could do that.
But the fact is that there is a difference of opinion about
how many people are going to take advantage of this Part D that
will be offered to them in 2006. And that is the reason why we
have different numbers. But CBO, at this stage of the game, has
not backed off the $395 billion and there is a difference.
Quite frankly, if we are being honest about it, we are not
really sure. It may be between $395 billion and $540 billion.
Hopefully, it is not going to be more than $540 billion, but
only time will tell because we just do not know how many people
are going to take advantage of the program.
In line with having people take advantage of the program,
you are going to have a Web site; is that correct?
Ms. McMullan. Yes.
Senator Voinovich. One of my concerns is that you have a
lot of vulnerable people out there. The ones that I am really
concerned about in this country are the least of our brothers
and sisters, the people who today are poor and are unable to
buy prescription drugs or, in the alternative, buy them and
ration them.
One of the things that this program is aimed at is that
vast number of people, particularly those under 150 percent of
poverty. They are most vulnerable people in this country today
because they do not have prescription drug benefits.
How can somebody that is in this vulnerable position, that
does not have a computer, or maybe like this Senator, is not
computer literate--thank god that my wife is--going to get the
information so they can intelligently decide which card they
should receive? What efforts are going to be made to help them
take advantage of this program?
Ms. McMullan. We are making a significant commitment to
reach out to the low income population. We have several
strategies that we are using. In fact, we have 700 people in
Washington yesterday and for half a day today, that come from
States and other organizations that assist people with
Medicare, and understanding how to take advantage of the drug
discount card program, particularly those people who qualify
for the $600 credit. So we are training people, through this
approach, with the conference.
We have put additional resources into our regional offices
to work with State and local organizations to train additional
community-based organizations to reach out to the low income
population.
We have our State Health Insurance and Assistance programs
which are grants to States that we have added money to so that
they can also assist the low income individuals and find those
opportunities to engage the low income population.
We are putting additional resources into establishing
longer term partnerships with organizations that reach low
income beneficiaries because that is also a very important
aspect of Part D. So we have a significant amount of resources
going to exactly the population that you are speaking about.
Additionally, anyone calling 1-800-Medicare can be walked
through the Web site and helped to narrow the choices of drug
cards that are available to them and also get additional
information about other drug discount programs that may be
available to them such as State pharmacy assistance programs in
those States that offer those programs.
Senator Voinovich. I will close on this one comment. I have
really worked with our governor and our Office on Aging and the
Department of Insurance to expand OSHIIP. We started that
aggressive program when I was governor. This has been very
helpful and it seems to me that you ought to be encouraging the
States to really go out and recruit more people in the OSHIIP
program.
It seems to me that you ought to have an expert at every
senior citizen club, every senior facility, living facility, so
that there is somebody there that can help these individuals
take advantage of it.
I just want to, for the record, say I had a staff member
call 1-800-Medicare. For the record, there was approximately 90
seconds of recorded information. After that an agent picked up
immediately. So far, so good, Ms. McMullan.
Senator Lautenberg.
Senator Lautenberg. That is better than you get from the
telephone company if you call for a service call.
I would just ask one other thing, Ms. McMullan. I thank you
for your cooperation and your patience in this, but we want to
get to the bottom of it and we will be sending you additional
questions for response to the record.
But the subject of the pharmacy assistance program was
brought up. There is automatic enrollment for those who are
presently in Medicare, in the discount drug program. Why are we
prohibiting the pharmacy assisted program beneficiaries from
automatically being enrolled?
Ms. McMullan. There is no automatic enrollment in the drug
card. We have been working closely with the States that offer
pharmacy assistance programs to look at the opportunities to
allow automatic enrollment for their pharmacy assistance
members, and we will do that. It is an interesting combination
of both Federal issues and State law issues. But we have worked
out a mechanism where we can provide the opportunity for
automatic enrollment.
The one issue that we need to have, because it is stated in
the rules around the drug card, is that we have to have a
signature. So we are working with those programs to offer their
members to make sure that they understand that they are being
enrolled in this benefit. But we will allow the States that
have pharmacy assistance programs to automatically enroll,
given the fact they ask for a signature of those members.
Senator Lautenberg. Thanks, Mr. Chairman. Thank you again,
Ms. McMullan.
Senator Voinovich. Ms. McMullan, I have several other
questions I would like to ask you, but I am going to submit
them to you in writing and would appreciate your responding to
me in regard to those questions.
You have been very gracious to come here this morning. We
really appreciate your testimony. You have a very formidable
task ahead of you. I have been involved in implementing
programs, and god bless.
Ms. McMullan. Thank you.
Senator Voinovich. I would now like to call Gail Wilensky
and Nancy-Ann Min DeParle to come forward.
As I mentioned earlier, Ms. Wilensky and Ms. DeParle are
former administrators of HCFA, CMS's predecessor. I look
forward to hearing what they believe are the major challenges
facing CMS as the agency moves forward with this benefit.
Ms. Wilensky, if you could start. Again, I really am
grateful that the two of you are here today and I am so glad
that I was with you at the John F. Kennedy School of
Government's 2-day health seminar. Had I not been there and
heard from you, we would not be having this hearing, and I
would not have been on the phone and working so aggressively to
make sure that Mr. McClellan was confirmed to take Mr. Scully's
position. A lack of leadership by CMS at this time would have
been a disaster.
Ms. Wilensky.
TESTIMONY OF GAIL R. WILENSKY, Ph.D.,\1\ SENIOR FELLOW, PROJECT
HOPE
Ms. Wilensky. I agree with your assessment. I believe the
people running the January meeting, sponsored by the
Commonwealth Fund and the Kennedy School, should feel this is a
signal of the success of that meeting. And Senator Lautenberg,
I hope sometime you will join us, as well. It is open to all
Members of Congress.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Wilensky appears in the Appendix
on page 58.
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Mr. Chairman, Members of the Subcommittee, thank you for
inviting me to appear before you.
I am currently a Senior Fellow at Project Hope, an
international health education foundation. As you have
indicated, I am a former administrator of the Health Care
Financing Administration from 1990 to 1992.
I also served as the first chair of the Medicare Payment
Advisory Commission, MedPAC, from 1997 to 2001, and chaired the
Physician Payment Review Commission from 1995 to 1997.
I say that because it has given me a very broad perspective
of issues both from an operational and administrative point of
view, running the program but also advising the Congress on
issues of payment and change.
Additionally, I have spent 8\1/2\ years in the Federal
Government as a senior researcher and career staff person and
that allows me to have a somewhat better understanding of the
issues that career people have faced.
What I would like to do is review some of the challenges
that I believe are present with regard to the regulation and
implementation phase of the Medicare prescription drug program,
to consider the adequacy of resources available, and also to
provide some suggestions about how Congress might be helpful.
Before I start, I would like to make a comment in regard to
a statement Senator Lautenberg had made about the timing,
because I agree with the statement you made earlier, that
having the full drug benefit occur January 2006 is going to
require a Herculean task. I appreciate the assessment from
somebody who has had a very successful career in the private
sector in the computer industry that it seems like a long time
to get a new benefit implemented.
But the computer industry and the rest of corporate America
do not have to go through the APA process. It truly is not just
a question of making the decisions and of implementing them.
Although there are many discussions to be made, I am just going
to hint at some of them. Nancy-Ann DeParle, because she was
present to implement the Balanced Budget Act, can give you more
of them.
But I have had the experience of having controversial
regulations have to go through the APA process, including the
process of proposing the regulation, of putting it out for
comment, of having hearings and dealing with comments,
particularly for controversial regulations. And some aspects of
the regulations included in this bill will indeed be
controversial, either with the provider community, industry or
with senior citizens.
That process, along with the decisions and the
implementation, will in my mind make 2006 a very difficult date
to meet, although one that I think is possible.
It is not just the series of benefit changes. Although
these will also be challenging. We have, as one of the specific
challenges, the provision of a new benefit, the Part D benefit,
using a new delivery system or, if it is not done as Part D
benefit directly, it will be done as part of the Medicare
Advantage program.
Initially these are just payment increases, but by 2006
there also are a number of specific new issues involved in the
Medicare Advantage program in terms of bids, regions, appeals
processes, etc., that will also have to occur for the Medicare
Advantage program to hit full force in 2006.
There are, in addition, a series of changes to the
outpatient drug program that is currently covered under Part B.
I am just going to mention them briefly, as well as the usual
host of payment changes and adjustments and modifications to
all of the other Medicare providers.
I thought I understood the Medicare payment system rather
well after spending 2\1/2\ years at HCFA, but I was constantly
astounded at PPRC and MedPAC about the enormity of the changes
and detail that is involved in the Medicare program. I had not,
when I was at HCFA, focused on post-acute care in the way that
MedPAC and the Congress has focused on what goes on in both
home care and long-term care.
Let me just remind the Senators about a few of the issues
that will need to get taken care of regarding Part B drug
coverage. Then I would like to comment about the early results
of implementation. And more importantly, I have a few
suggestions to make about how to proceed over the next period
that I hope you will find useful.
With regard to Part B drugs, and I am assuming that Nancy-
Ann DeParle is going to comment more on some of the Part D drug
issues as she did down in Florida, at the Kennedy School/
Commonwealth meeting.
But let me remind you, while all the effort is being
directed for the introduction of the drug discount card, which
appears to be going well, and the Part D benefit for January
2006, Part B drugs will continue as Part B drugs at least for
now. These are the drugs, outpatient drugs, mostly chemotherapy
or other related drugs, that have to be provided by a physician
and have previously been covered by Medicare.
Up until now, the reimbursement mechanism has been a
percentage of the average wholesale price or AWP. The Congress
has noted, the GAO has noted, the IG has noted that average
wholesale price is not a very satisfactory measure to use.
Initially reimbursement will be a lower percentage of AWP. But
starting in 2005 the basis will be average selling price, a
different measure that will become the basis of reimbursing
Part B drugs.
And then, in 2006, physicians will have the choice either
of continuing with the ASP or going to a competitive
acquisition process, a very different process, one that they
may or may not choose. We will have to see what happens.
In order to have that in place for 2006, a lot of decisions
will have to be made and regulations issued about the
competitive acquisition process. The number of regions, the
kind of appeals process, what happens if there are not two
contractors, etc. And it will have to be done by 2005 so that
it can be in place for 2006.
None of this is impossible. It is just a lot of work, given
all of the work that will be going on to get the Part D benefit
to start in January 2006.
Early results are looking good. The regulations about the
discount card got out in December. Of course, we need to
remember this was a strategy or a plan that the program, that
the Administration had been thinking about for at least 2
years. So in some ways it is not surprising that they could
respond so quickly. There appear to be a large number of
sponsors. There appears to be good response in terms of trying
to make the adjustment from the State pharmacy assistance
programs for low income populations, as you mentioned and as
Ms. McMullan mentioned, to the low income support program. It
appears to be going well and those are good signs.
The fact that Mark McClellan was able to be confirmed
within one quarter, one calendar quarter, from the time that
his predecessor left is something I do not remember ever
happening. I applaud the Senate for helping that to occur so
rapidly. It would have been very bad to have had a leaderless
CMS during this period. Not that the acting people are not
capable, but for all the reasons that you need to have
presidential appointees in place to lead their agencies, to
deal with the Congress, to make decisionmaking, it would have
been an awful time to have not had a leader in place. I am
astounded it happened so quickly.
The Congress also wisely recognized the burden that was
being put on the agency by making $1 billion available from the
trust fund through September 2005, and $500 million available
to Social Security. That is the good news.
Let me give you a few thoughts about what I think might
help to have this all happen. First, recognize the Herculean
task that has been put on CMS' plate.
Second, remember that if the Congress chooses to make any
significant changes to the legislation between now and January
2006 that affect the decisionmaking, the implementation or the
rulemaking process, this will seriously jeopardize the ability
of the agency to meet the January 2006 deadline, which really
is October 2005. That is when the materials have to be out to
the seniors so they can enroll in November 2005.
You are, of course, entitled to make those changes as you
wish. It is just important to make sure the consequences are
known.
The third is that it may be useful for relevant
Congressional committees to have occasional briefings on the
progress that is being made to implement the legislation. It
should not occur too frequently or it will become another
burden to the agency. But if there is a problem either in the
way the legislation is written or in the adequacy of CMS
funding, knowing sooner rather than later would improve the
likelihood of a successful resolution to the problem.
I had a problem with legislative language, implementing the
relative value scale for physician payment. It caused a lot of
internal frustration and some time could have been saved
perhaps if that had been vetted with the Congress.
I would consider, if there is a problem, allowing the
agency to use temporary hires, such as IPAs from other parts of
government or universities, and other flexible hiring
strategies in order to try to help solve what may be a
temporary problem with a temporary solution.
It will be very difficult to hire people who have
experience in rulemaking. If you can have them come in in a
temporary way, that would help.
The agency will need more people with private sector
experience than they have had. I assume that should be
relatively easier to find. I do not know whether the salaries
will be competitive.
Finding people who know how to write rules for Medicare,
rules from any regulatory agency, and to work the process is
difficult to find. It is not a skill you need in the private
sector.
CMS and HCFA have had a long history of having a disconnect
between funding and the responsibilities that are given the
agency. This disconnect was recognized in an open bipartisan
letter that was published in Health Affairs several years ago.
I was a signatory to it. There are a number of individuals who
have been both directly involved and who worked for the
Congress, Republicans and Democrats, as well as public policy
analysts who signed this letter. It was reaffirmed in a MedPAC
report while I was chair to the Congress, just reminding the
Congress that either it needs to make sure there are adequate
resources to match the increasing responsibilities that it puts
on the agency or the Congress should turn to other agencies
that it is more willing to fund.
It is in this vein that I commend the $1 billion that was
made available.
And finally, the new CMS Administrator Dr. McClellan will
have his own vision of how the agency can best function to meet
the needs of the people that receive its benefits, the
providers that provide the services, and of course the
taxpayers that fund these services. Congress should pay serious
attention to what he thinks needs to be done in order to have
this new legislation implemented on time.
Thank you for inviting me and I would be glad to answer any
questions.
Senator Voinovich. Thank you very much. We really
appreciate your testimony. Ms. DeParle.
TESTIMONY OF NANCY-ANN MIN DePARLE,\1\ SENIOR ADVISOR, J.P.
MORGAN PARTNERS, LLC
Ms. DeParle. Thank you, Chairman Voinovich, Senator Durbin,
and Members of the Subcommittee.
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\1\ The prepared statement of Ms. DeParle appears in the Appendix
on page 70.
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As you know, I served as the Administrator of the
predecessor agency to CMS, HCFA, from 1997 to 2000. It was my
honor to work with many of you on the Subcommittee and I
appreciate your having this hearing today to focus on the real
management challenges that I think face the agency as it
undertakes probably its biggest mission ever, which is to
provide a prescription drug benefit to some 42 million
beneficiaries.
I want to begin by noting that Michael McMullan, who
testified here on behalf of the agency this morning, is one of
the finest public servants that I have ever had the honor of
working with.
In fact, Senator Voinovich, you referenced the meeting in
Florida, the Kennedy School meeting at which Dr. Wilensky and I
talked about CMS. And I think you asked a question there about
whether I thought CMS could get the Medicare prescription drug
benefit implemented by January 2006. And I answered you, in
part, by saying there is one person that I have in mind. And if
she is there, and if she is allowed the flexibility to get the
job done, I think that it can be done.
Michael McMullan was the person I had in mind. She has, as
you heard, served at the agency for 30 years and is a
tremendous asset to the government. I want to thank her for
everything she did while I was there.
So I do think that CMS can get the job done but I also
think that there are some significant execution risks. And
there are some particular things that this Subcommittee can
help CMS with.
I think, if you look back at the record of the past few
years, you will see a couple of things. One is that the agency
Dr. Wilensky just alluded to, has been asked over a decade or
more to do more and more with less and less, fewer and fewer
people, fewer and fewer resources. That is something that has
to change or we are going to be facing some real near-term
problems as both we try to implement this prescription drug
benefit and CMS tries to do all the other things that it needs
to do to improve the health care services that we are offering
to millions of Americans.
I think the record shows, though, that when CMS has a major
project and it has adequate resources and flexibility, focused
and stable leadership, and the support of Congress that it can
get the job done. In my written testimony I gave you a number
of examples of where I think the agency has been successful
there.
Let me focus this morning, though, just on the execution
risks because I know you have a tight agenda. The first risk I
think that exists is one that I would characterize as a
leadership risk. When we were in Florida I spoke about my
concern that the agency was left without an administrator who
had been confirmed as soon as the bill was signed. A number of
other key political appointees had left as well. And the agency
does not have that much depth in terms of political leadership.
It is a relatively small agency.
As Dr. Wilensky said, the career people are terrific. They
are focused. But you need a clear point of view, you need a
leader who can be depended on. For the first few months of the
implementation of this drug bill they did not have one. That is
beginning to be corrected with Dr. McClellan having been sworn
in a week or so ago.
I think there is still some risk around this, though,
because, as I pointed out in Florida, Secretary Thompson said
more than a year ago that he would be leaving HHS soon after
the election. He has confirmed that recently, saying that he
would not be there for the launch of the prescription drug
benefit in January 2006.
So given the difficulty of working within the Department of
Health and Human Services just to get regulations issued and
things like that, I do think there is a political instability
that should continue to be focused on.
But the more troubling concern that I have about leadership
is one that is, in some ways, highlighted by Michael McMullan's
presence here today. As I pointed out to you, I looked back at
my redimentary list of the senior staff when I was there. There
are a number of ways you can look at this, but I looked at the
Senior Executive Service (SES), the most senior career folks in
the agency, the real leadership that you depend on. And there
has been a real brain drain of those people over the past few
years.
In the Spring of 2001 there were 43 SES staff members.
Since that time more than half of those people have left the
agency. These are people who were working shoulder to shoulder
with Michael McMullan. These are presidential rank award
winners. These are people who I depended on when I was
implementing the Balanced Budget Act.
It is an unprecedented loss. You highlighted, Chairman
Voinovich, some of the additional losses that we may be facing
in the future. And I think that is something for this
Subcommittee to really grapple with as you look at the
importance of these programs and the unfortunate timing of the
departures of these staff. Because I would not have wanted to
be trying to do this without them.
The administrative complexity is the other big execution
risk.
Senator Voinovich. To clarify for Senator Durbin, the
number I used was 30 percent of the Senior Executive Service
currently are eligible to retire. So they could walk out the
door tomorrow.
Ms. DeParle. That is on top of the more than half who have
left since the Spring of 2001. As I said, these are the people
with the experience, the knowledge, and the history to get the
job done. And that is what concerns me.
But to talk about the other execution risk, that is, I
think, administrative complexity. Dr. Wilensky alluded to that
in her testimony, as well.
The BBA, which we went through together, as you all know,
was complex and contentious. We had to design new payment
systems for virtually every provider. Virtually every hospital
and doctor in the country, as well as almost every other health
care provider, had their reimbursements cut. I think I heard
from just about every one of them. I know all of you did and
you told me about them. So it was a very difficult and
contentious period.
That said, in the BBA, CMS was dealing with a familiar set
of providers and a familiar benefit. And we knew a lot of the
providers. We knew the trade associations. We kind of had an
established process of working with them.
The difference here, and I think Michael McMullan talked
about this, this morning, is that the Medicare prescription
drug benefit poses a different kind of a challenge because CMS
is being asked to build a whole new delivery system for a
product it has never offered before with a whole new set of
partners that it has never worked with before. Now it is
getting some experience with those partners, with some of them,
with the prescription drug cards that it is doing now. But the
fact remains that CMS needs not only human capital but, along
with that, intellectual capital around things like how to
manage prescription drugs in a smart way.
And frankly, the severe time constraints that are built
into the law pose a really huge execution risk. We have already
had some discussion about that this morning, but I agree with
Dr. Wilensky that the notion that on January 1, 2006 your 4
million--how many beneficiaries are in Ohio? I do not even know
exactly any more.
Senator Voinovich. We have 1.7 million.
Ms. DeParle. One-point-seven million Medicare beneficaries
in Ohio are going to be expecting to have a prescription drug
benefit available to them 20 months from today. And really I
think even that is unrealistic when you think about what CMS
has to get done in order to have the open enrollment as the law
mandates start in November 2005. Beneficiary education is
supposed to start October 1, 2005.
Chairman Voinovich, you recalled our interaction over the
beneficiary education campaign in the BBA, and one can wonder
whether starting the beneficiary education campaign, as far as
telling beneficiaries how much the premiums are going to be,
what the drugs are going to be that are available in October,
is really sufficient time to allow them to understand it
without being confused.
But if you just stick to the deadlines in the law, CMS
basically has 18 months to build a brand new delivery system.
And I think that is going to be a big challenge,
notwithstanding what Senator Lautenberg said about computer
systems. In fact, I think computer systems are a big part of
the issue. Michael McMullan talked about that, as well.
I attached to my testimony a very high-level, abstract list
of the steps that CMS has got to take between now and basically
November 1, 2005 to get open enrollment going. And Michael
McMullan alluded to the list they have, and I am sure their
list has much greater detail than what I put forward. But just
looking at my list, I think you can get an idea that these are
not easy little things you can just check off the box on.
For example, how is CMS going to design an information
system to keep track of what each beneficiary spends on drugs?
They have to be able to do that: To make the deductibles, the
catastrophic limits that you put in the bill, the so-called
``doughnut hole,'' to make all those details work, they have to
be able to keep track of what beneficiaries are spending on
drugs.
Now the law stipulates certain ways that the spending is to
be counted. For example, spending in the ``doughnut hole'' is
supposed to count. I apologize for using that terminology but
that is what you all are familiar with, I think.
But it does not count if you buy drugs in the doughnut hole
that are not on the formulary of the plan that you were in,
even if your plan is not contributing during that time.
And it does not count if it is for a drug in the beginning
if it was not on your plan's formulary. And if it is paid by a
family member it can count, but if it is paid by a third party
it cannot count.
All of those are things that we could sit here and write
the rules for but then somebody has to program computers to
keep track of that. I believe CMS will have to modify the
massive database that it maintains what is known as the Common
Working File, which is a repository of all the claims that come
in on each beneficiary, in order to keep track of this.
That is not going to be a simple task and it is a high-risk
task as well. I know this from my experience with Y2K, which
you alluded to, Mr. Chairman. We were successful there in
remediating all the computer systems but that was a terribly
high-risk and difficult chore.
Senator Voinovich. Senator Durbin has to go to another
meeting. Would you mind if he asked some questions here before
he leaves?
Ms. DeParle. Of course not.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you very much. Thank you, Mr.
Chairman, for that. Senator Pryor, thank you, as well.
I was happy to vote for Dr. McClellan because I have a lot
of confidence in him. I think he has done a fine job at the FDA
and I believe he has an extraordinary challenge here and I hope
that he can meet that challenge, for his sake and for all the
people who will depend on him.
I told him when I met with him that I think this whole
program is fatally flawed. As you describe the complexity of
this law, it was an effort to superimpose a new system of
reimbursement instead of turning to the obvious. And that is
using the Medicare system to create a prescription drug option
for seniors. We decided we were going to invent something new.
And we put in rules that are unintelligible to the senators and
to the seniors. And now, this agency is going to have to try to
make something intelligent out of them.
I bet there are not too many survivors, but it would be
great some time to have some people who were in on the
implementation of Medicare to come and explain to us how,
before computers, they established a Medicare program for
America 8 months after the bill passed and was signed by the
President. How did that happen? Miracle of miracles.
Well, it could have been that the concept, as big as it
was, was very basic and simple in its approach. We have,
instead, taken off on an opposite course. We have built into
this so much complexity and we have given a 2-year opportunity
to implement it.
And when I read statements by Mr. Scully, they really
relate to, I think, the reason for this hearing and the passion
of Senator Voinovich here. Mr. Scully said, in January of this
year to a group, and I will read this from the Pink Sheet,
which is probably the best place to turn. It is the
Prescription Pharmaceuticals and Biotechnology Newsletter. Here
is what they said: CMS itself has ``no idea how they are going
to do it, he declared. They do not have a staff so they are
probably looking to quit like I did, he joked.'' And then he
goes on to say, ``Congress gave them about $1 billion in new
funding to hire more people but there is going to be complete
chaos in this whole area brought in from the outside world and
at CMS in the next couple of years.''
He went on to say, when he was asked about how they were
going to deal with coverage decisions, which you have just
referred to ``this is something CMS has no clue how to do, by
the way. It is completely new for them and they are not
particularly well set up to do it.''
Thank you, Mr. Scully, for your observations. So a law that
I think is fundamentally flawed and extremely complex and has
avoided the obvious of using Medicare to deliver a prescription
drug benefit, is now going to be implemented by an agency that
Mr. Scully announced in his sayonara is totally unprepared for
the job. Well, there is good news for America. Anything more we
can tell them, in terms of what we are doing to help them here?
Ms. DeParle, what you have said here, when you start
describing how to deal with the computer program, you can
imagine how much fun it is for me to stand in front of a group
of seniors and explain how this is going to work in their real
lives. And Ms. Wilensky, there is an assumption in your
testimony and others that all seniors are going to sign up for
this. We have to at least prepare for that eventuality.
I think there is more skepticism out there at this point,
when you are told you cannot buy a Medigap policy and the like.
And the skepticism is built on this same complexity.
I guess the horse is out of the barn here, but do you
conclude as I do that we have created the mess that we now find
ourselves in with this legislation?
Ms. Wilensky. It is a complex program, there is no
question. Let me try to guess at the answer as to how did it
happened in 1965? The original Medicare looked exactly like
BlueCross BlueShield, which was the predominant financing
system in the private sector. It is an interesting question
about how did they pull it off. My guess is the government made
Medicare look like what everybody else had.
The problems of turning to Medicare, and this is clearly a
discussion for a different committee, and putting the drug
benefit in traditional Medicare had to do with whether having
Medicare use its usual administered pricing was the best way to
provide this new drug. This has been subject to a lot of
controversy in the Clinton Administration and in the current
Bush Administration. I believe it was the majority consensus
that that was not going to happen.
The question of whether this is the right answer, whether
it is workable, is something else. I think it can be done but
it is a complex issue.
Senator Durbin. But you have admonished--admonished is not
the right word. You have warned us, make any changes here and
all bets are off. And I am sitting back here and saying well
first, I did not vote for it because I thought it was not fair.
I thought the pharmaceutical companies made out like bandits in
this deal. I do not think it really was designed for seniors as
it should have been.
Now to step back and kind of be forewarned any changes are
going to delay implementation and complement it, that I think
on its face is obvious. Any changes have to be assimilated into
the program and its administration.
But it strikes me that if there is a way to cut through the
complexity of this, to get down to something that is just basic
that you can understand and explain it to the average person,
that is going to help us in setting up computer programs and
appointing people to administer them.
So I may not follow your warning about changes. I think
honestly a few changes might be for to benefit of the program
we need to make it more reasonably understood and easily
administered.
Ms. Wilensky. Solve some problems and create others. And
obviously that is your job as members of the Congress to
decide.
Ms. DeParle. The one I talked about, in particular, the
problem of keeping track of beneficiary spending, if you could
fill in the doughnut hole, that might help you some there. But
the problem is that would cost hundreds of billions of dollars,
I suppose, which is why it is there to begin with.
Senator Durbin. If you are not negotiating with the
pharmaceutical companies to keep prices under control, then
frankly the costs are going to outstrip the resources of this
program is such a short period of time. But again, that gets
down to the policy side of it.
But I really do go back to the original premise. We created
Medicare in 8 months. We may have modeled it after BlueCross
BlueShield. We were up and running and rolling in 8 months
after the bill was signed into law.
Now with a 2-year timeframe, people are in a genuine panic
in this town as to whether or not this can happen. I think it
reflects on the fact that we made this too complicated. It
should have been more straightforward.
Ms. DeParle. That is part of it. And also, the
Administrative Procedure Act and the rulemaking requirements
are much more onerous now than they used to be. But I do not
think you have any disagreement here that this is very complex.
Senator Durbin. Ah, for the good old days.
Mr. Chairman, with your permission, I would ask my full
opening statement be included in the record.
Senator Voinovich. Without objection.
Senator Durbin. Thank you.
[The prepared opening statement of Senator Durbin follows:]
PREPARED OPENING STATEMENT OF SENATOR DURBIN
The Center for Medicare and Medicaid Services (CMS) has a
monumental task ahead. The Balanced Budget Act of 1997 was a complex
bill that forced the agency to go in directions it had never gone
before, but BBA pales in comparison to this new Medicare bill.
In the next 20 months, CMS will have to not only figure out exactly
how this bill is going to work at a practical level, it will also have
to set up complex new administrative systems and ensure seniors know
how to get their benefits.
Seemingly, the most challenging part, from a management
perspective, is the constantly changing environment the bill creates.
Prescription drug plans can drop in and out of the program, as can
PPOs; drugs can drop on and off formularies; drug prices can rise at
unpredictable levels; and seniors can rise above or drop below
eligibility levels for low-income benefits and means-testing limits.
These are only a few of the fluctuating parts of the bill that will
make CMS's job hard and confuse seniors.
Take the drug discount card, which should be the simplest part of
the bill. However, even it is complex at the management level and
confusing at the senior level. Different drug cards will offer
different discounts for people on different drugs at different
pharmacies in different locations for different fees. The volume of
calls CMS will get from confused citizens will probably rival any
previous piece of major social legislation.
While CMS is answering questions from seniors, it will also have to
monitor pharmacy benefit managers, pharmacists and Prescription Drug
Plans to make sure the savings garnered from drug manufacturers are
being passed to the seniors. CMS will have to ensure there is
appropriate management of the $600 each low-income senior will receive;
ensure people are not being disenrolled; ensure there is pharmacy
network access where it is supposed to be, guarantee beneficiary
privacy is being protected, and make certain enrollment fees do not
exceed $30.
CMS will also need to monitor drug prices on a weekly basis to
identify drug discount card programs that are deviating from ``expected
changes'' in drug prices.
These are no small tasks, and my list is not even fully
comprehensive. This Committee appreciates the job you have ahead of you
and wants to make sure you have the resources to do it. The seniors of
America are depending on it.
Senator Voinovich. Before we go to Senator Pryor, have you
finished your testimony? Would you like a few more minutes?
Ms. DeParle. I had a couple of more points to make. May I?
Senator Voinovich. Sure, go ahead.
Ms. DeParle. I was talking about the difficulties of the
computer system, so let me just go on to say that is just one
example of a lot of high risk activities that CMS will have to
undertake.
And as you pointed out, Mr. Chairman, if these things are
not done perfectly all of you will be hearing about it. So it
is not as though CMS can just do it quickly. They have to be
very careful about how they do this. And they have to do it
under the structures of the Administrative Procedure Act.
And my experience was, when I was there, we did a very
simple, pretty straightforward rulemaking about modifying the
conditions of participation for hospitals and got 50,000
comments. And there have been others that have gotten more
comments than that.
And I cannot imagine that a drug bill that is going to
involve $500 billion or so changing hands over the next 10
years is going to elicit few comments. I think it is going to
be a massive number.
So the rulemaking is going to be very difficult here, too.
In the meantime, CMS has a lot of other challenges. Just
finishing up the implementation of the other provisions of a
MMA could be a full-time job. Dr. Wilensky talked about the AWP
changes to the other Part B drugs. There are all sorts of other
administrative changes, changing Medicare Plus Choice into
Medicare Advantage. So just finishing up MMA could be a full-
time job.
And then, in addition, they have to run all the other day-
to-day things that go with managing the Medicare program. And
then there is Medicaid and S-CHIP, which all of you care about
as well, and which some of you do not think the agency is doing
an adequate job with now. So all of that is on their plate.
I made three recommendations to this Subcommittee, the
first of which was that you request that CMS provide you with
an updated strategic plan, including a human capital plan of
the sort that you talked about, Mr. Chairman, detailing what
they are going to need to get this job done. And I recommend
that you provide them with the resources.
The MMA took a step in the right direction in giving the
agency $1 billion but it really did not say what the money was
to be used for. And it disappears in September 2005. That
really does not make sense. And so in the next budget, the
Administration should tell you what it is going to need to
really manage this benefit. And the Congress should look
seriously at that request and try to help CMS here instead of
asking it to do more and more with less and less.
There are also some gaps in their current budget. I
mentioned the fact that it is my understanding that the OIG and
the DOJ are facing layoffs in their program integrity efforts.
It seems to me to be the wrong time to have that happening with
Medicare spending getting up to almost $300 billion this year.
Senator Voinovich. Where did you say that was, what gaps?
Ms. DeParle. First of all, it is my understanding that the
funding that the Congress gave to the Department of Justice and
the Office of Inspector General under HIPAA, the Health
Insurance Portability and Accountability Act, to do Medicare
program integrity activities, that is now flat and that those
programs are facing layoffs. That is my understanding.
And if that is the case, it seems to me to be the wrong
time to be doing that when Medicare spending is supposed to
increase to almost $300 billion this year, without a
prescription drug benefit. We are introducing a whole new
prescription drug benefit that, depending on whose estimates
you believe, is going to cost at least $500 billion over the
next 10 years. We need to pay attention to the program
integrity side of this, as well.
In addition, the agency has been, for years, sort of
robbing Peter to pay Paul to come up with its beneficiary
education plans. It seems to me that needs to be a more serious
plan that they work out with the Congress and where there is a
specific appropriation for beneficiary education. And that has
not been the case in the past.
Second, I would recommend that you give CMS more
flexibility. I talk in my written testimony about personnel
flexibility. They need to be able to bring back retirees. They
need to be able to hire more high-level staff without FTE
restrictions. I suggested to them that they might want to put
together a SWAT team of some people with experience in writing
regulations and things like that from other agencies.
Those kinds of things are what happened when the original
Medicare was implemented back in the 1960's and I think they
need to do some of those things now.
Finally, I would agree with Dr. Wilensky that the Congress
needs to make sure that it allows CMS time to focus, that if
you add new legislative mandates this year or next year on top
of requiring the prescription drug benefit to be up and running
January 1, 2006 you will probably not be able to get it done.
So you need to understand that there are going to be some other
things that will probably suffer in the next few months as they
focus their time on the drug benefit.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you very much. I am really
grateful to the two of you for coming here today.
Senator Pryor, you came in late and I do not know what your
schedule is, but I would invite you to ask some questions.
Senator Pryor. I am OK. I want you to go first. I will go
second. Thank you.
Senator Voinovich. Do you believe that we are going to be
able to pull this off?
Ms. Wilensky. It can happen. It will be hard.
I have thought about whether at some point it would be
prudent to have a backup plan in case CMS is a quarter late.
What happens if CMS is not really ready to have educational
materials mailed out October 1 but could be ready by December
1? Is it possible to have the first year be a three-quarter
year?
I would recommend, without having given it sufficient
consideration, that that type of planning be put in place
because it is easy to imagine the need arising. Controversial
regulations are very difficult to deal with.
I had two during my tenure, CLIA and the proposed rule for
the RBRVS, the reform payment for physicians. HCFA got 100,000
comments on RBRVS.
I do not know whether there is anything that is that
controversial. A lot of comments are part of letter campaigns.
But the agency, under the APA, has to respond in writing at the
interim final rule with how it has dealt with each of the
issues that have been raised. And that is difficult.
There are a lot of reasons that the timeframe is a very
tight squeeze. Understanding what would be acceptable to the
Congress and the Administration if the agency is a quarter
behind schedule for the first year is very important.
Obviously, should the Congress choose to go in a completely
different direction in terms of a drug benefit bill, that would
stop the clock at that point. But I would assume until such
time as that were to happen, the perception is this is the
legislation you have, recognition that change really impedes
its implementation, and have a backroom plan for what happens
if CMS is a quarter late.
I recognize there are a lot of political issues about why
that would be difficult to make public.
Senator Voinovich. Ms. DeParle.
Ms. DeParle. I agree. Yes, I think it can be done. But I
would want to be working with the Congress on a contingency
plan and I will tell you why.
I think Dr. Wilensky is right that the rulemaking on this
will be very difficult. Just the amount of time that it takes
to get a rule written, cleared through the Department, cleared
through OMB, and then out on the streets and then to allow
sufficient time for the public to comment is going to take a
number of months.
But that is not even the thing that makes me the most
concerned. It is more that this bidding process that has to
occur for the prescription drug plans and the Medicare
Advantage plans to say how much they are going to charge
beneficiaries and what their drug plan is going to look like.
All that has to be done by October 2005 so that if a
beneficiary in Cleveland is thinking about signing up for this
they will know here are the plans that are available to me.
Here is how much each one of them would charge me in a premium.
Here is how much my subsidy will be if I am a low-income
person.
There is a lot of details that will have to be final when
they get a piece of paper in the mail in October that says here
is what you have. That is my concern, is getting all of those
things finalized.
And also, if it is not done well, I am harking back to your
concern about beneficiary education. The soft kind of
beneficiary education that has been occurring so far that
Senator Lautenberg highlighted, that is one thing. But when you
get down to sending someone a piece of paper and telling them
here is how much the premiums are under the plans you are
looking at, you need to allow them some time to figure out,
``OK, I take Lipitor. Is that on here? Can I get that?''
And I am just concerned that you want to do this right.
That is very important, I think, to you and the Congress and to
all of us. If I were at CMS, I would work with the Congress to
design a contingency plan, as well.
Senator Voinovich. I want to clarify something. I go to
meetings and I think I have had 9 or 10 meetings already in
Ohio where I have had listening sessions with senior citizens
and get a chance to get some input from them. This is
complicated stuff.
It seems to me that if it is going to work they are going
to have to have the best information that they can have to make
good decisions. We are going to need a whole lot of help.
Governor Taft and I are going to go to an OSHIIP training
session this month to find answers so that we are more
sophisticated in terms of our interface with people. I also am
bringing all of my regional representatives in so that they are
better educated. But this is going to be a monumental
undertaking in Ohio to make sure it gets done.
So the first thing you would do if you were in Dr.
McClellan's place is to look at the big picture and determine
what the reality is and then maybe come back with some
suggestions on how to maybe do it better?
But one fact, and I want to clarify this, is that this is a
monumental task. It is not something you can snap your fingers
at and have it done. At some of my listening sessions seniors
will ask me why they cannot have it now. I try to explain to
them that there is a whole lot of work that has to be done
before this program can be rolled out. I suspect also that
there might be some consideration given to cascading
implementation over a longer period of time. This would give
the agency some experience with the program rather than just
launching the rocket and not knowing if it will get off of the
ground and what will happen when it does.
Ms. Wilensky. Senator Voinovich, it would have been easier
if the Congress had chosen to stagger the changes that came in
place, for example, of not doing anything to the Part B drug
coverage until 2006 and only then start to change Part B
coverage. Or having fewer changes with regard to other parts of
payments, for it to change to the rurals, changes to oncologist
payments, which involve a lot of recalculations with regard to
physician payments. I am not suggesting delaying these changes,
either politically or at a policy level, would have been
necessarily desirable.
It is the fact that these changes, each of which probably
could have been accomplished and may well be accomplished
during the relevant time period, are happening at the same time
as Part D coverages is starting is what makes it so difficult.
The Medicaid changes are also huge--neither of us have spoken
about Medicaid but next week I am going to speak twice about
it, so I have been thinking about what happens to the dual
eligibles.
Many changes are required so that beneficiares are regarded
as being seniors first and second, in terms of whether they are
Medicare or Medicaid participants, plus all of the other
Medicaid changes that are going on because of waivers and the
children's health insurance program and all of the HIPAA
changes. It is astounding how much one agency has going on,
change in at least three different areas, only one of which is
Medicare Advantage and Part D drugs.
That is the part most peole don't understand. I do not know
if it will help you in responding to your seniors, as to why
implementing the new benefit is so difficult and takes so long.
Of course, in 1965 we had a very narrow program, basically
hospital and physician coverage, modeled to look like something
that was out there, BlueCross and BlueShield. The complexity of
all that this agency does now, did not exist then.
Again, I am not willing to say it cannot be done. But it is
important to understand how many moving parts there are, not
just because the delivery mechanisms are complex but because so
much is included in this one bill that impacts a single agency.
That is ignoring all of the problems that have been raised
about the unusual numbers of people who are retiring.
I had the advantage of thinking about this problem in the
early 1990's. We could see what was going to happen over the
next decade because of the age structure of the workforce,
recognizing it was a significant problem on the horizon, and
having the advantage of knowing it would be somebody else's
problem.
Senator Voinovich. Thank you. Senator Pryor, thank you for
coming today.
OPENING STATEMENT OF SENATOR PRYOR
Senator Pryor. Thank you Mr. Chairman. Thank you.
Let me first ask a question based on my old job as Attorney
General of the State of Arkansas. In my 4 years there, we had a
number of incidents where scam artists would come to seniors
and convince them to purchase fake drug cards. Then these
unsuspecting seniors would purchase these cards and would take
them down to the local pharmacy, to realize that the cards were
worthless.
We also had another occurrence where legitimate companies
were aggressively marketing drug cards. But when you actually
took the drug cards to the pharmacist, they really did not live
up to the senior's expectations. So now the Congress has passed
into law and the President has signed a bill that will have a
national drug card.
So my question for the two of you is, given potential for
fraud and scams, etc., should CMS somehow begin educating the
public to beware of bogus drug cards and how to recognize the
real drug card? I would just like to get your thoughts on that.
Ms. DeParle. Yes. It is my understanding that there has
been a spike in the incidents of the type you are describing
where there have been perhaps some new shysters who are going
door-to-door with what they are offering as cards and asking
for payment for them. And I think the agency has put out an
alert on that. But it may be that it will require something
more aggressive either from CMS or the Justice Department.
Ms. Wilensky. I have read that exact situation you are
describing has indeed been happening. There has been an alert.
There is a lot of money at stake here. That usually invites
scam and fraud artists to join. It will be very important that
while everything else is going forward that some attention is
being paid to this issue so that you do not frustrate the
seniors and bilk them of their funds and, of course, bilk the
taxpayers as well.
Senator Pryor. One thing, Mr. Chairman, that does concern
me about this is a lot of times these scam artists and these
folks who are going to rip seniors off and prey on the
unsuspecting, a lot of times they will take some sort of event
out there that sounds plausible and all of a sudden they come
in and offer some sort of service.
We had that after 9/11 where people would come in and try
to rip people off and say we are sending money to New York
City, and they were not.
Unfortunately, you see these types of scams in many
situations. I just see the potential right there so I am glad
to hear that CMS is taking steps.
Let me also ask about something else that made a lot of
news in the last few weeks and that is where Tom Scully,
potentially, told one of his employees not to be candid with
Congress. In my view it is extremely important that CMS, your
former agency, is candid with Congress because we are the
policymakers. We are going to pass this law. And now a lot of
us feel like we did not receive accurate information as we were
deliberating this.
Let me just ask, from your experience at HCFA, now CMS, are
you aware of anything like this happening on your watch when
you were there? When you told someone in the agency not to
provide information to Congress? Are you aware of anything like
that?
Ms. Wilensky. I am not. I actually had a conversation about
this with Guy King, who was the chief actuary for 16 years or
so, including the period when I was there and during both
President Carter and the Reagan/Bush Administration.
There does seem to be some change. He indicated it would
have been very uncommon for the HCFA actuary to have had
conversations with the Congress on new legislation unless they
involved the Trust Fund. Otherwise that conversation normally
would not have occurred.
There is a long history of CBO and HCFA actuaries having
different estimates. And my experience has been that once CBO
has made an estimate about the cost of new legislation Congress
really did not care what administrations said because Congress
basically follows its advisers, the CBO, and not the
Administration. That is why the CBO was created.
But I am not aware of anybody either being directed or to
not come forward with information or threatened if they did.
Ms. DeParle. I worked with the CMS actuary, Rick Foster,
for 3 years when I was Administrator and it was an honor to
work with him. And not only did I not ever instruct him not to
give information to Congress or to be candid with Congress, in
fact I urged him to speak directly with members of Congress
whenever they needed information and not even to tell me what
they asked. Because I do think there is a public interest in
members of Congress having as complete and accurate information
as they can have. Actuaries can be wrong. So can economists.
But I think we, as citizens, have an interest in your having as
much information as possible when you make your decisions.
Senator Pryor. Thank you and I agree with you both on that.
Mr. Chairman, if I may, I would just like to ask one or two
more questions. And that is a little bit of a follow up on
Senator Durbin's question a few moments ago. He quoted an
interview by Tom Scully. One of the things Mr. Scully said is
that CMS is not going to be a passive payer anymore. CMS is
going to be a market organizer.
I am interested if you have any thoughts on Mr. Scully's
comment there that CMS's role has changed so much that it will
now, under this bill, be a market organizer.
Ms. Wilensky. Well, CMS follows administered pricing for
the most part. That is set in statute. Medicare pays a price
for individual physician services or hospital discharges or
nursing days that is not negotiable. So to that extent, it has
been passive.
But it has not been passive in a lot of other ways in terms
of who is allowed to participate or determining quality and
appropriateness. This mix of authorizing complicates what the
agency can do. Prices are set, whether or not the service is
being performed with different quality or even if it was
medically appropriate.
I presume what Mr. Scully was referencing to is the bidding
process that will go on both for Medicare Advantage and for the
Part D private prescription drug plan participation. We will
see whether or not there is enough participation to have very
much competition.
I am a big supporter of the Federal Employees Health Care
Plan which negotiates the prices and benefits that the plans
offer.
I think it is a little early to predict a dramatic change
for Medicare. The bidding process system is influencing only,
at least at this point, a relatively small part of the Medicare
program. If the CMS actuary is correct and there is substantial
participation in the Medicare Advantage program, which is one
of the reasons that there was such a big difference between CMS
and CSO, the agency may become involved in price negotiations
and become more of a market organizer.
But I would like to remind the Congress that both the
actuary and CBO radically overestimated the participation of
private plans in the Medicare Plus Choice program, and the
actuary was even more bullish than CBO. So I think it is a
little early to predict a major change in function for the
agency.
The basic choice is either to do administered pricing or to
rely on competitive purposes to moderate spending. This bill
moves towards a bidding process and is why CBO has said that it
would not score additional savings if administered pricing
power was granted to CMS regarding Part D drugs.
Senator Pryor. Do you have any comments on that?
Ms. DeParle. No, I am sitting here trying to guess what he
means by that. I am not even really sure.
Senator Pryor. Mr. Chairman, if I might ask one last
question. Again, Mr. Scully in this interview said ``You are
going to find that most of the expertise to pull this off, this
new Medicare drug benefit at CMS, lies on the Medicaid side of
the agency. I can tell you, having run the place for 3 years,
the relationship between the people who run Medicare and the
people who run Medicaid is a little like the Serbs and the
Croatians. They do not really talk to each other that much.''
I am curious about your experience there with the Medicare
side versus the Medicaid side and who, in the agency, has the
expertise to administer this?
Ms. Wilensky. The reason Medicaid would be more relevant,
although not at the Federal level, is Medicaid covers
prescription drugs. So a lot of the issues that need to be
dealt with are dealt with in Medicaid.
But the major role of the Federal Government in Medicaid is
mostly oversight. Medicaid is basically a State program that
has Federal oversight, very different from Medicare which
clearly is a Federal program.
I disagree with the characterization of the people running
Medicare and Medicaid. When I went to HCFA, I pulled the people
out of Medicare who were working in both Medicare and Medicaid
and created a center for Medicaid or Medicaid bureau because I
was afraid Medicaid was getting short shrift by having the same
people working in both areas, given that Medicare dominates
everything that HCFA did. And it was a way to try to give more
attention and focus to the people who did work in Medicaid.
But I am not aware, or do not believe, at least when I was
there, that there was any friction or difficulties between the
group working on these two programs.
Some of the issues in Part D will have to be helped by
bringing in people from the private sector who have worked for
PBMs. People who have worked for insurance companies that
worked on the prescription drug side, could provide some
private-sector expertise.
The fact is I do not think either Medicare or Medicaid
provides the right expertise.
To the extent that you are using private prescription drug
plans, however, it does not require the hands-on expertise that
Medicare needs when it is trying to price out DRG 351 or which
of all of the 9,000 CPT codes should get included in the RBRVS.
One of the advantages of having the kind of program
structure that is in the legislation is Medicare actually is
not responsible for individual price negotiation of individual
drugs or their presence on a formulary. That is done by the
plan. Medicare's major involvement is in determining the
bidding process and the definition of geographical areas, and
the appeals and the rights processes that are put in place.
So I am not even sure that private prescription drug
experience you mentioned is needed.
Ms. DeParle. I agree. I would not characterize it that way,
either. I did not see friction.
I think every administrator struggles with trying to
balance the focus on the two programs. And frankly, I came out
of the State of Tennessee where I had worked on Medicaid
issues. And I think the agency's focus is, to some extent,
reflective of the Administration's focus and the Congress'
focus.
President Clinton was very interested in Medicaid so we
spent quite a bit of time on it. But the fact is for every one
letter I got from a member of Congress about Medicaid, I got 50
about Medicare. And perhaps that is somewhat symptomatic of the
time I was there, because I was there during the Balanced
Budget Act. And as we have discussed, every provider in the
country was upset about getting their Medicare reimbursements
cut.
So I found it was difficult to spend as much time on
Medicaid as I would have liked. But I did not find the Serbs
and Croatians.
What I think he is referring to is that there are two
career staff in the Medicaid bureau who had experience with the
prescription drug rebate law, which I know you know about. And
they had a lot of the intellectual capital when we began
looking at prescription drugs and the pharmaceutical companies
and all those sorts of things that CMS has never dealt with
before. Those two gentlemen had the experience in dealing with
them.
But as Dr. Wilensky says, substantial intellectual capital
will have to be built now, building on what is there in
Medicaid as well as bringing in some people from the private
sector.
A lot of this though is not even going to be intrinsic to
prescription drugs. It is just getting rules written, figuring
out how to oversee contracts, the hard stuff that you talked
about earlier in your statement. And for that, I think, you
could bring over some good people from SSA if there are some
people there who could be spared, as well as from some of the
other agencies who do that kind of thing, and get them on a
SWAT team to help the agency.
That is what I would be looking at.
Senator Pryor. Thank you.
Senator Voinovich. I want to thank you very much for being
here today. I can assure you that not only your written
testimony but the responses that you have made today will be
sent over to Mr. McClellan. I think your suggestion that it
might be good to have him in here to have an opportunity to
spend some time with us is a good one, to ascertain what it is
that he thinks we need to do to be of help to him.
I think the issue of workforce flexibilities in order to
hire the people that they need to get the job done is one
issue. Another, I think is the issue of the budget, a $1
billion deal. But what will CMS need, in terms of additional
money, to get the job done once this program is up and running?
This is just a one-shot deal.
Looking at some of the other areas in the Department where
they have been shortchanged in terms of dollars are also issues
that we need to really get at right away.
One of the things I have learned here and Senator Pryor
probably joins me in that because he was an attorney general,
is Congress in so many instances has really no appreciation for
the management challenges of some of these programs.
We get this idea that we pass a law, snap your fingers and
it is all done. A lot of my colleagues have never been a mayor.
They have never been a governor or an attorney general. And so
they just have no idea about how much work it takes to get
something done.
It seems to be illogical because if you look at any
organization its strength really is in the people that are in
that organization. We just do not pay enough attention to that.
So I am really grateful that the two of you have come over
here today. Dr. McClellan can learn a great deal from your
testimony.
I was thinking about whether we would do that or not, but I
would like to invite him in and give him a chance to share with
us his observations and maybe discuss some of these issues that
you have raised. Are we too ambitious? Are we being asked to do
too much at the same time? Are some of the things that Congress
asks for in this legislation things that maybe we could delay
for a year or 2 years rather than trying to get it all done at
one time?
Or is the alternative cascading some of this over a period
of time so we get a little more experience with it, so that we
can determine whether or not the grand plan is really doing the
job that we expect it to do?
Again, thank you very much. The hearing is now adjourned.
[Whereupon, at 11:53 p.m., the hearing was adjourned.]
A P P E N D I X
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