[Senate Hearing 109-224]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-224
 
            Mandatory or Optional? The Truth About Medicaid

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             June 28, 2005

                               __________

                           Serial No. 109-10

         Printed for the use of the Special Committee on Aging



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                       SPECIAL COMMITTEE ON AGING

                     GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama              HERB KOHL, Wisconsin
SUSAN COLLINS, Maine                 JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri            RUSSELL D. FEINGOLD, Wisconsin
ELIZABETH DOLE, North Carolina       RON WYDEN, Oregon
MEL MARTINEZ, Florida                BLANCHE L. LINCOLN, Arkansas
LARRY E. CRAIG, Idaho                EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
CONRAD BURNS, Montana                BILL NELSON, Florida
LAMAR ALEXANDER, Tennessee           HILLARY RODHAM CLINTON, New York
JIM DEMINT, South Carolina
                    Catherine Finley, Staff Director
               Julie Cohen, Ranking Member Staff Director

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon Smith........................     1

                                Panel I

Diane Rowland, Sc.D., executive vice president, The Henry J. 
  Kaiser Family Foundation, Washington, DC.......................     2

                                Panel II

Pamels S. Hyde, J.D., secretary, New Mexico Human Services 
  Department, Santa Fe, NM.......................................    31
Howard Bedlin, vice president, Public Policy and Advocacy, 
  National Council on the Aging, Washington, DC..................    43
Jeffrey S. Crowley, project director, Health Policy Institute, 
  Georgetown University, Washington, DC..........................    62
Sister Karin Dufault, SP, RN, Ph.D., chairperson, Board of 
  Trustees, Catholic Health Association of the United States, 
  Seattle, WA....................................................    85

                                APPENDIX

Prepared Statement of Senator Jeffords...........................   103
Questions from Senator Jeffords for Diane Rowland................   103
Questions from Senator Jeffords for Pamela Hyde..................   105
Questions from Senator Jeffords for Jeffrey Crowley..............   106
Questions from Senator Jeffords for Sister Karin Dufault.........   109
Statement submitted by Association for Community Affiliated Plans   113
Testimony submitted on behalf of the American Congress of 
  Community Supports and Employment Services (ACCSES) and 
  Disability Service Providers of America (DSPA).................   115
Statement submitted by National Citizens Coalition for Nursing 
  Home Reform (NCCNHR)...........................................   121
Statement submitted by National Mental Health Association........   124

                                 (iii)




            MANDATORY OR OPTIONAL? THE TRUTH ABOUT MEDICAID

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



                         TUESDAY, JUNE 28, 2005

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 3 p.m., in room 
G50, Dirksen Senate Office Building, Hon. Gordon H. Smith 
(chairman of the committee) presiding.
    Present: Senators Smith and Carper.

         OPENING STATEMENT OF CHAIRMAN GORDON H. SMITH

    The Chairman. Ladies and gentlemen, welcome to this hearing 
on the Aging Committee. Our topic is ``Mandatory or Optional? 
The Truth About Medicaid.''
    We are glad you are all here, and I am especially pleased 
to welcome our distinguished panel of witnesses, who I am 
certain will share with the committee a great deal of 
information that will help us make decisions as Congress moves 
forward with development and consideration of a reconciliation 
package later this year.
    Medicaid is a vital safety net program for 54 million 
elderly, disabled, chronically ill and poor Americans who rely 
upon it for their health care. The purpose of this hearing is 
to learn about a fundamental aspect of the program, use of 
mandatory and optional populations and benefits.
    To some these categories simply mean that those who are 
considered mandatory populations should receive care through 
Medicaid, and that those who are optional probably have other 
alternatives and do not really need Medicaid's help.
    Well, by the end of this hearing I believe we will all 
learn that it is not necessarily the case. In fact, if we allow 
optional beneficiaries to lose Medicaid coverage, they will 
simply join the ranks of millions of uninsured Americans and 
end up costing taxpayers far more in the long run. We also may 
learn today that there are whole groups of Americans without 
health care coverage, and no matter how poor or sick they may 
be, they cannot receive care through Medicaid.
    Exploration of these issues is very important as we move 
forward to try to determine, one, how to meet the $10 billion 
reconciliation instruction given to the Finance Committee, and 
two, how to improve and reform this vital program.
    As we consider proposals intended to respond to the budget 
reconciliation instruction and deliberate ways to improve the 
overall Medicaid program, we must proceed with very real 
caution and heightened sensitivity.
    It is my experience, both as a State Senator in Oregon, and 
as president in the Oregon Senate, and now as a member of the 
U.S. Senate, that much good can be accomplished when we work 
together and remain focused on the people this program helps. 
Unfortunately, because of its complexity and the severity of 
many beneficiaries' health status, much damage can also be done 
if Medicaid is not approached in the right way.
    That is why I continue to advocate for bringing all 
stakeholders to the table, because only when all voices have 
been heard can a solution be discovered that will be able to 
garner majority support from the U.S. Senate.
    Using the Aging Committee, I plan to hold a series of 
hearings over the next year and a half to provide a forum to 
share ideas, concerns and hopefully craft proposals that will 
result in a higher quality, more efficient, more sustainable 
Medicaid program. The focus of these hearings will be divided 
between the short-term challenge of meeting the reconciliation 
instruction and the long-term challenge of improving the 
program.
    So I look forward to working with my colleagues as we delve 
into Medicaid and welcome input from all Medicaid stakeholders. 
After all, every voice must be heard because all have an 
important and unique perspective to bringing to the table the 
right kind of solutions and reforms.
    We hope to have more of my colleagues here. There are a 
tremendous amount of things going on on the floor and other 
meetings that were called and canceled, so hopefully more will 
find their way to join us soon.
    We have two panels today. The first will be Ms. Diane 
Rowland, who is the executive vice president of the Henry J. 
Kaiser Foundation in Washington, DC.
    Diane, why do you not take the hot seat, and share with us 
what you would have us know.

 STATEMENT OF DIANE ROWLAND, Sc.D., EXECUTIVE VICE PRESIDENT, 
             THE HENRY J. KAISER FAMILY FOUNDATION

    Ms. Rowland. Thank you, Mr. Chairman. I am delighted to be 
here and very pleased that you are holding this hearing as well 
as the series you have planned on Medicaid.
    Medicaid is today our largest health care program, and as 
you know, the only real source of long-term care assistance in 
the Nation. It assists 54 million Americans, including 8 
million with severe disabilities and 5 million who are low-
income elderly. The elderly and disabled are not the face of 
Medicaid. It is often the children that the program covers. Yet 
they account for 70 percent of all spending on the program. So 
really, Medicaid has very much become a program for the elderly 
and disabled, even though the majority of its beneficiaries are 
children.
    Much of the spending in the program is driven by long-term 
care. Medicaid now covers half of all long-term spending in the 
Nation, and 60 percent of nursing home residents depend on 
Medicaid for assistance with the substantial cost of long-term 
care. Financing these roles, however, as you've noted, has 
become an increasing challenge for both the Federal and State 
Governments.
    The structure of Medicaid provides for joint financing 
between the Federal Government and the States. There are 
certain requirements put on the States in terms of who they 
must cover and what services they must provide in order to 
receive matching funds from the Federal Government for the 
services they cover. The matching rate varies from 50 to 77 
percent depending on the per capita income of the State so that 
the Federal Government assists those States that are poorer at 
a greater level.
    On average today 57 percent of all spending on Medicaid to 
covered by the Federal Government, so there is a large Federal 
stake in what happens to the State programs under Medicaid.
    In terms of what is required for Medicaid coverage, States 
are required to cover all children under the poverty level, 
pregnant women and children who are under age 6 in families 
with incomes under 133 percent of the poverty level, and the 
aged and disabled who are recipients of cash assistance through 
the Supplemental Security Income Program. Those are the so-
called mandatory populations for Medicaid.
    What is optional in Medicaid coverage is that states can 
cover individuals with higher incomes who meet these 
categories, and especially a group we call the medically needy. 
The medically needy are individuals who meet the categories for 
Medicaid assistance under the mandatory rules, but have 
somewhat higher incomes, whose medical expenses allow them to 
spend down below the Medicaid eligibility levels and obtain 
Medicaid. Nursing home care is one of the most frequently 
utilized services for people who spend down to Medicaid 
eligibility.
    Twenty-nine percent of all people covered by Medicaid today 
are covered at the option of the State and not required by 
federal law; expenditures for populations and services covered 
at state option account for almost 60 percent of overall 
program spending. About 48 percent of all elderly people 
covered by the Medicaid program are covered as optional groups, 
compared to only 22 percent of children. So it really is in the 
services the program provides to people who are elderly and 
those with disabilities where the term ``optional eligibility'' 
becomes most appropriate, mostly because nearly half spend 
down.
    On the benefit side federal law requires States to cover 
physician services, basic hospital care, laboratory services 
and some nursing home services, but leaves many of the other 
benefits, including prescription drugs, home and community 
based services, personal care services, and a lot of what is 
needed for someone with long-term care needs as optional 
benefits.
    It is hard to imagine if you were putting together a 
benefit package today that you would leave some of these 
services optional and put others into the mandatory category. 
This point was just so aptly demonstrated by Congress in making 
prescription drugs a part of the Medicare benefit package.
    Medicaid's evolution as a long-term care provider has 
largely grown through the optional services. Benefits offered 
today at State option account for about 30 percent of all 
Medicaid spending.
    So overall when we look at the picture of mandatory versus 
optional populations and spending, we see that 61 percent of 
all Medicaid spending is either for optional services for 
people who are covered as mandatory populations or for optional 
and mandatory services for the optional population.
    But are they really optional? Is any of this really at 
State option? As the laws are changed to move toward broadening 
Medicaid coverage beyond its origin as the source of coverage 
for the welfare population, often those additions were made 
optional for the States so that new requirements would not be 
imposed on States unable to afford their State matching share.
    Increasingly, the Congress moved to make children more of a 
mandatory population, but the elderly and the disabled were 
left more at State option, in part, I believe because of the 
substantial cost that those individuals can impose, given their 
greater health care needs and use of long-term care.
    About 85 percent of all Medicaid spending on long-term care 
is optional. So when we think of long-term care services as the 
dominant role that Medicaid plays for people who are elderly or 
with disabilities, we are really talking there about a set of 
services that is largely considered optional. However, if you 
talk to any of the individuals needing these services, they are 
anything but optional, they are in fact essential benefits.
    One can clearly make the case that if you were revisiting 
Medicaid and trying to design it anew today, you would probably 
never make many of the optional benefits optional, nor limit 
the populations covered to the income levels that Medicaid 
covers as mandatory. You would clearly redesign it to provide a 
broader range of protection for all low-income individuals and 
a more stable benefit package for those in need.
    The question has always been one of resources and the 
options were put in place to try not to impose additional 
resource requirements on States that were resource poor. The 
question today of resources continues. States now want 
increased flexibility but without additional resources that 
increased flexibility is very likely to lead to penny-wise and 
pound-foolish solutions.
    Cost-sharing for poor families on Medicaid is one of the 
flexibility options that States have asked for. We know that 
you can collect some money from low-income individuals, but if 
they are living on $750 a month it may be pretty difficult to 
pay 5 or 10 dollars per prescription. We know that cost-sharing 
leads to barriers to primary care, and I think it is pound 
foolish because in the end we will see many of these 
individuals end up sicker and needing hospital care, sicker in 
the emergency room, and in the end will have to pay more for 
the cost of their care because we delayed the early primary and 
preventive care that can make a difference.
    Similarly, some States have begun to look at imposing 
enrollment premiums even for the lowest-income individuals, 
people living at less than 8 or 9 thousand dollars a year. Your 
own State of Oregon actually tried the premium route and 
discovered that enrollment in the program declined by over 
50,000 people largely as a result of their inability or 
unwillingness to pay the premium. That was about half of the 
enrollees covered who were subject to premiums. So we know that 
premiums may sound good and seem like a way to save some 
additional funds, but may in the end result in growing our 
uninsured population instead of providing additional revenues 
to the Medicaid program.
    The Chairman. What was the amount of the premium Oregon 
charged?
    Ms. Rowland. It ranged from $6 to $20 a month, depending on 
the income. It was on a sliding scale. Sounds modest, but what 
we find is that our ability to understand what it takes to live 
on $750 a month for a family of 3 may mean that what seems like 
very nominal cost-sharing or premium amounts to us may in fact 
not be within the budget of the families we are talking about.
    The Chairman. How would that compare to copays or an up-
front portion for a particular service?
    Ms. Rowland. The copays might range from 3 to 5 or 10 
dollars. They have been limited under the Medicaid program to 
date, but one of the areas of flexibility States have requested 
is to raise the copays.
    In the Utah experience there was an expansion of coverage 
to additional low income people with an annual enrollment fee 
of about $50 a year, hospital services and many mental health 
services were not covered and substantial copayments well 
imposed on covered services.
    So we are seeing costs for beneficiaries imposed within the 
program. It may be worthwhile looking at how costs have 
affected some of the higher income children who cost-sharing is 
allowed under the SCHIP program. In Medicaid we are primarily 
talking about adults who in some states are covered at 28 or 29 
percent of the poverty level and do not really able to have 
much in the way of financial resources to pay for their care.
    Instead of cutting benefits, I believe, the real solution 
to making Medicaid sustainable is actually to make it less 
necessary. If we had universal health coverage or if we had 
some broader form of long-term care assistance, the future 
sustainability of Medicaid would not be in question. But now in 
the absence of these broader solutions, I think as you have 
stated so well in your opening statement, we really do need to 
take care to make sure that any changes to Medicaid do not 
shred the only safety net out there for millions of our sickest 
and frailest citizens. I believe we should be looking at ways 
to better coordinate care under Medicaid and to better organize 
services through Disease Management and other programs that 
help the chronically ill to get the care they need and not fall 
through the cracks and get sicker before we treat them.
    There are also ways I think we can really move to improve 
the delivery of long-term care services, with more home and 
community based services. We need to be building on these 
experiences.
    You also mentioned the uninsured and the fact that some 
individuals, no matter how poor, never qualify for Medicaid, 
and that is the case for adults without dependent children who 
do not meet the disability definition. We should really be 
looking at ways to secure coverage for our lowest income 
population and not through Medicaid shred the safety net 
Medicaid provides. I am glad you are holding this hearing to 
begin to explore these issues.
    Thank you, and I would welcome any questions.
    The Chairman. Can you talk a little bit more about the 
creation of mandatory and optional, and would you just discard 
those definitions or would mandatory become more of the 
preventive kind of medicine and optional, I guess, cosmetic 
surgery?
    Ms. Rowland. Clearly, Medicaid, when it was enacted in 
1965, was a follow-up program to what was then known as the 
Kerr-Mills Act, which was assistance to States to provide care 
for the aged. When it was enacted it was seen as a program that 
could help people who were on welfare. So at the time the Aid 
to Families with Dependent Children Program, and by 1972 with 
the Federalization of Cash Assistance with the Supplemental 
Security Income Program for the Aged, Blind and Disabled, 
Medicaid really became the provider of medical services for the 
cash assistance population.
    One historical thing of interest is that in 1972 when the 
Aged, Blind and Disabled became a Federal cash assistance 
program under Supplemental Security Income, there was concern 
that not all States would be willing to provide full Medicaid 
coverage to all of the SSI Federal entitlement people. States 
were thus given the option of not providing coverage and using 
their old rules for the aged and disabled that were in place in 
1972. A few States still follow those rules.
    So I think that the implementation of disability coverage 
under Medicaid really provided the first ``if we are going to 
expand coverage to a population, not all States may be able to 
step up to the plate and cover that full population, so we will 
give them options.''
    Therefore, if you really look at the history of the 
program, optional populations were always those that had a 
worthiness to be covered by Medicaid. No one doubted that they 
were too well off, but coverage was optional because Congress 
did not want to impose requirements on States that may not have 
had adequate resources to provide coverage. Over time, some 
groups especially children, became a popular part of the 
program. Today many children are mandated for coverage because 
of the progression of a year at a time covering all children 
under poverty. That has not been the case for adults, so adults 
have remained largely covered at the option of the State.
    The Chairman. Obviously, I was being facetious when I 
mentioned cosmetic surgery as an optional procedure, but can 
you name something that is an optional procedure now that 
really ought to be a mandatory procedure?
    Ms. Rowland. Well, I certainly think that prescription drug 
coverage, which is an optional benefit, but available now in 
all the States, would be part of any benefit package today. 
Clearly a lot of the other services, such as prosthetic 
devices, and durable medical equipment, are optional services 
that you would think would be required for a program that 
covers people with severe disabilities. I think most of the 
other services that tend to be in the optional category like 
dental services and vision care may be optional if you were 
talking about a benefit package for working Americans, but when 
you are talking about the benefits needed by some of the lowest 
income and poorest Americans, you may want to include those as 
mandatory rather than optional services.
    Where the real options are that I would consider part of a 
mandatory program are around the long-term care benefits, where 
intermediate care facilities for the mentally retarded, home 
and community based care and other services are not part of the 
mandated benefits, only nursing homes.
    The Chairman. How about mental health? Can you speak to 
that as an optional service?
    Ms. Rowland. Mental health I think is one of the area 
obviously that has emerged as a place where prescription drug 
coverage is essential. While mental health services in terms of 
physician visits are covered under the mandatory section of the 
program, prescription drugs are optional so clearly one of the 
main treatment options is an ``optional'' benefit.
    In fact, I just heard that the State of Florida is planning 
to impose some prior authorization requirements on use of 
psychotropic drugs. I think one of the areas where mental 
health really needs to be addressed is that if the services 
needed for treatment are optional, then providing people with 
access to the provider, but no access to the agents that they 
need to maintain their status is really counter productive.
    It is also an area where we found that many States, as they 
look to slim down or restructure their benefit packages have 
left mental health services out. Specifically when Utah was 
doing its primary care benefit package, it did not include 
mental health services.
    The Chairman. At all?
    Ms. Rowland. Not at all. You know, it included the basic 
physician services with copays and four prescription drugs per 
month with copays, but mental health specialist services and 
hospital care were excluded from the benefit package.
    I think one of the dangers we have today is that when we 
talk about the Medicaid benefit package being too 
comprehensive, many of the services that are optional today are 
being considered for elimination. The slimmer the benefit 
package, the less able this program will be to meet the diverse 
health needs of the population it serves.
    The Chairman. When you cut out the mental health component, 
have you ever quantified in the research that you do what it 
means to other costs that are borne by the State in terms of 
county jails, in terms of State hospitals, emergency rooms?
    Ms. Rowland. We have not done any studies that would relate 
to the other societal costs for cutting out mental health 
services from Medicaid specifically. We do know from some of 
the work on the uninsured population, the societal costs for 
people without health insurance coverage who do not get the 
health care they need contributes to problems among children in 
school, to people not engaging productively in the labor force, 
and to more preventable hospitalizations, because if people 
were under treatment they would not need to be hospitalized for 
care.
    There are definite costs to not providing coverage that we 
see from our analysis of the uninsured. I think we know from 
States that have been looking at cutting back on some of the 
prescription drug coverage for people with mental illness, that 
there is obviously going to be a rise in costs in other areas, 
probably hospitalization, but also I think as you are pointing 
out, to the prison system, and to society in general.
    The Chairman. In your testimony you spoke of the Oregon 
experience, my State, and some of the cost-sharing or cost-
shifting that has gone on under the Oregon health plan. Can you 
speak to the Oregon experience as you see it and what the 
Congress might learn from mistakes that may have been made 
there?
    Ms. Rowland. Well, I think we see from Oregon a State that 
tried to do as much as possible to provide adequate and broad 
coverage to its low-income population. It was willing to take 
some risks and challenges in how it tried to set up its tiering 
of benefits. It had broad use of managed care and also has been 
a State that led the way in terms of community based care as an 
alternative to nursing home care.
    Yet I think that when budgets get tight and revenues from 
the Federal Government are not there to help support States 
through some of the economic downturns they face, you see that 
as you trim on benefits you have people who go without the care 
they need. We see a higher rate of hospitalization for 
conditions that are avoidable if they are subject to early 
preventive care. Especially around use of cost sharing we see 
people deferring care that should be available at the 
beginning, and we see providers saying that they are seeing it 
imposing greater administrative burdens on them for trying to 
collect the cost sharing. This really results in providers 
actually getting less payment for the services they provide 
since under Medicaid law they cannot require the beneficiary to 
pay the cost sharing before rendering services. As a result I 
think in some States we have seen some providers unwilling to 
continue to participate in the program, thereby further 
compromising access for the low income population.
    The Chairman. If premiums are not the answer or maybe 
counterproductive to the right answer, what could be reasonably 
required in terms of to induce responsibility, avoid abuse, 
without hurting peoples' access to using Medicaid but not 
abusing Medicaid?
    Ms. Rowland. I think that cost sharing is probably more 
difficult than premiums, so let me just differentiate between 
the two.
    The Chairman. They are very different, but what works and 
what does not?
    Ms. Rowland. I think that premiums have their negative 
effect on overall participation, but they do not influence how 
someone uses the health care system, whereas cost sharing 
influences how somebody accesses the health system, when they 
access it and how much they use.
    I think that one of the more effective ways to control 
utilization and work with patients is to have them enrolled in 
managed care plans that actually try to manage their care and 
give them incentives. I think it is counterproductive to have 
cost sharing for preventive services where you want people to 
have no barriers to use services. I think if you try to 
distinguish within the benefit package on the benefits that may 
be less necessary, perhaps that is one place where you could 
impose some of the cost sharing. But premiums I think work the 
best if you are trying to get participation in the program 
financially from individuals, but they do discourage 
enrollment.
    If one is going to use premiums, one of the most important 
things is how you keep people established in the program. So if 
I used premiums I would combine them with longer term 
eligibility so that you do not have people dropping on and off.
    The Chairman. As you see the Finance Committee wrestle with 
a $10 billion reconciliation, are there some obvious things 
that you would suggest to us to do so that we do not hurt the 
people we are trying to serve and improve the program? What 
would you have the Finance Committee do with that $10 billion?
    Ms. Rowland. They always say that you should go where the 
money is if you are trying to save money, and I think one of 
the places that we see tremendous opportunity to improve care 
as well as potentially reduce costs is in better coordination 
between Medicare and Medicaid of the care of the dual eligible 
population.
    About 18 percent of all Medicare beneficiaries are 
currently also getting assistance from Medicaid. They account 
for 42 percent of all Medicaid spending so. We need to look at 
better management, especially around some of their prescription 
drug needs, around their coordination of care between the 
Medicare benefits and Medicaid, around long-term care to 
achieve possible savings. This is the group for whom disease 
management and better care management may well result not only 
in some savings to both Medicaid and Medicare but also in 
improved quality of care.
    I think around the children's services----
    The Chairman. Can you quantify that? How much would that 
save? I mean, 5, 10?
    Ms. Rowland. I think you could probably get to 5 or 10 over 
a couple of years.
    The Chairman. We have 5 years to do it, so.
    Ms. Rowland. Really 4, right?
    The Chairman. Exactly, 4. We are burning up the first year 
here.
    Ms. Rowland. I think that is one area. The other area is 
obviously where States have already been very aggressive in 
trying to get better prices for prescription drugs, to try to 
better control utilization of the prescription drugs. Possibly 
introducing some tiering so that some of the brand name drugs 
are not as available and have limited differential cost sharing 
could be used. Most of the current employee benefit plans have 
tiered cost sharing in the Medicaid program working with 
preferred drug lists and working with better pricing is a 
priority getting better prices is both important to make sure 
that the drugs that are needed are available but also as a way 
to save some money.
    The Chairman. A lot of the information sharing on that is 
being done by a number of States. I believe even Oregon is 
doing that. Do you think we can glean from that the kind of 
information that will allow for tiering and for more effective 
use of----
    Ms. Rowland. I think you can glean some from that. I think 
the other issue that you really are going to have to visit is 
what the implications on January 1, 2006, of pulling the dual 
eligibles drug coverage out of Medicaid and over to Medicare is 
going to mean for the State's ability to continue to get the 
kind of discounts and rebates that they have gotten in the 
past. They will obviously have a lower market share now.
    Second, obviously, revisiting some of the issues in the 
clawback and the lack of a wraparound for some of the dual 
eligible beneficiaries where States are not eligible for 
federal matching funds--if they try to supplement the Medicare 
package. This is the area of concern to people with mental 
illness who really need some of the drugs that may not be well 
covered under the Medicare formulary. I think that is an area 
where helping the States to be able to still obtain Federal 
matching funds if they wrap around is an important item to 
consider. It would not save money, but it might really save 
lives.
    The Chairman. Do you think policies on copays should wait 
to consider options for all program aspects, or can we look at 
drugs and not cause damage in other areas?
    Ms. Rowland. Well, we have always looked at drugs a little 
differently, because as I said, they have been an optional 
benefit. Adults covered by Medicaid can be changed minimal 
copays imposed on prescription drugs.
    One of the experiences though is that many States used to 
have a dollar or two dollar copay for prescription drugs. They 
decided in many ways that that was too expensive to administer, 
and so a lot of States dropped copays on drugs.
    One of the most negative experiences with copays for 
prescription drugs was actually in the State of New Hampshire, 
where they imposed copays on individuals who often needed 
mental health drugs. They did not take their drugs and they 
ended up in nursing homes and hospitals, costing the State 
substantially more.
    I think that the one thing to always remember with this 
population is what may seem like a prudent policy for 
individuals who are relatively healthy does not always apply to 
the Medicaid population where individuals not only have fewer 
resources than others in society, but also often have more co-
morbidities and health care problems that require very delicate 
balancing to make sure they do not get out of kilter.
    The Chairman. I think you have answered my questions. You 
have been very, very helpful, Ms. Rowland. You have added 
measurably I think to the Senate record, and I think your 
advice to us is be careful of the designations of mandatory and 
optional populations. I think I am understanding you to say 
that flexibility may ultimately save money short term, but cost 
money long term and will not ultimately save us money, and may 
throw people off coverage that really should be covered.
    Ms. Rowland. That is right. One of my colleagues likes to 
say there is no such thing as an optional person, and I think 
that is something to remember as we move forward in this 
debate.
    The Chairman. Anybody optional here? [Laughter.]
    No. I think everyone here is mandatory. Thank you very, 
very much for your time and for sharing the experience of the 
Kaiser Family Foundation.
    Ms. Rowland. If there is anything else we can provide we 
would be glad to work with you and look forward to working with 
you. Thank you.
    The Chairman. We look forward to that as well. Thank you so 
very much.
    [The prepared statement of Ms. Rowland follows:]

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    The Chairman. We will now call up our second panel. That 
panel will consist of Pamela S. Hyde, who is the secretary, New 
Mexico Department of Human Services at Santa Fe, NM--welcome, 
Pamela; Howard Bedlin, vice president for Public Policy and 
Advocacy, the National Council on the Aging here in Washington, 
DC; Jeffrey Crowley, project director, Health Policy Institute 
at Georgetown University here in the District; and Sister Karin 
Dufault, who is the chair of Board of Trustees, Catholic Health 
Association in Seattle, WA.
    Why do we not go in the order announced? So, Pamela, you 
are first at bat.

  PAMELA S. HYDE, J.D., SECRETARY, NEW MEXICO HUMAN SERVICES 
                    DEPARTMENT, SANTA FE, NM

    Ms. Hyde. Thank you, Chairman Smith, distinguished members 
of the committee when they get here.
    The Chairman. Yes. [Laughter.]
    Ms. Hyde. My name is Pamela Hyde. I am secretary of the New 
Mexico Human Services Department. That is a department that is 
responsible in New Mexico for the Medicaid program. We also 
administer several other Federal and State programs.
    I am grateful to the chairman and to the committee for 
holding these hearings, and I am especially grateful to you, 
Senator Smith, and to our Senator Bingaman, for your leadership 
in trying to find some compromise in this process and for 
trying to resist the massive cuts that were originally proposed 
to the program. So thank you.
    The Chairman. You are welcome.
    Ms. Hyde. I would like to make three points about the role 
of the Medicaid program in serving people with mental illness, 
and then make three recommendations.
    First, Medicaid is a critical source of funding for the 
services upon which persons with mental illness rely. Reducing 
that funding will not make those service's needs go away. 
Individuals served through Medicaid are often severely disabled 
by mental illness or substance abuse, and without services 
designed to assure their ability to live and work in the 
community, they end up in other systems where services will 
significantly be more costly, such as inpatient settings, 
emergency rooms, or they will be inappropriately addressed, 
such as jails, prisons, juvenile justice settings and homeless 
shelters.
    Medicaid now exceeds for the first time half of the public 
mental health expenditures nationwide. In New Mexico Medicaid 
accounts for over 60 percent of those public mental health 
expenditures. States need Federal assistance to increase their 
expenditures for mental health and substance abuse, not 
decrease them, by absorbing reductions in Federal funding or 
forcing States to reduce the single most important source of 
funding for behavioral health treatment in support of services.
    Medicaid recipients of mental health services generally 
need ongoing services due to the severity and chronic nature of 
their disorders. However, some of the adults most in need of 
mental health and addictions services are not quite disabled 
enough to receive a disability designation. The irony is that 
in many States a member of a ``mandatory population'' with a 
less critical clinical need may be entitled to a mandatory 
mental health service, while an optional or even ineligible, 
high-need, high-risk adult or child cannot get an optional or a 
mandatory service such as assertive community treatment, multi-
systemic therapy, or even medications.
    Second point. Many of the populations and most of the 
services considered to be optional in the Medicaid program are 
simply not optional for people with mental illness. Mandatory 
services, as you know, include outpatient, inpatient, physician 
services. However, they do not include medication monitoring or 
prescription medications, which are critical, especially for 
people with severe mental illness.
    They do not include clinical services of psychologists or 
social workers or personal assistance programs. Mandatory 
services do not include those community based services that are 
particularly helpful for the management of symptoms and life 
with mental illness.
    They also do not include those most widely accepted 
evidence-based practice such as medication algorithms, 
assertive community treatment, family cycle education, 
therapeutic day care, respite care, multi-systemic therapy or 
even targeted case management. Even psychologists and social 
workers, as I indicated, are not mandatory in the Medicaid 
program.
    These are all services that are not optional by any means 
for adults with serious mental illness or children with severe 
emotional disturbance. States are forced to reduce the cost of 
their Medicaid programs. They have no choice but to reduce 
those services that are considered optional by the Federal 
Government. Since some populations in need of behavioral health 
services in almost all the services needed by seriously 
mentally ill adults and severely emotionally disturbed children 
are optional, these artificial distinctions have a 
disproportionate impact on such individuals.
    Third. Medicaid rules and regulations stifle creativity in 
the treatment of persons with mental illness and addictions, 
and prevent the utilization of evidence based practices for 
such individuals.
    I have mentioned that some already, but some of the most 
appropriate supportive services for these individuals, such as 
a supported housing, supported employment, integrated treatment 
approaches for co-occurring disorders, respite care for adults, 
after-school therapy, they are difficult if not impossible to 
get in the Medicaid program even through waivers. States find 
themselves in the awkward situation of being required to fund 
medically oriented services for populations that would best be 
served by a rehabilitative or supportive therapies approach.
    The mandatory and optional categories just do not work well 
for people with behavioral health needs, and some CMS waivers, 
Oregon being an example, even allows mental health and 
substance abuse benefits to be excluded from some of the 
limited benefit package approaches being tried through waivers.
    Because of the historical unwillingness of the Federal 
program to pay for institutional care for adults between 18 and 
64, we have something called the IMD exclusion which makes it 
very difficult for States to make the case about financing of 
home and community based services in order to obtain these 
waivers for adults with mental illness.
    I want to highlight just three recommendations in this 
short time, and would be glad to answer questions.
    First, Medicaid reform cannot be disconnected from 
Medicare. Many adults with serious mental illness are duly 
eligible for both programs as are many children. Once Medicare 
Part D begins, many of these individuals are going to find 
themselves dealing with multiple formularies and having to 
receive some of their medications through Medicare, some 
through Medicaid, and some not through either. Medicare does 
not cover all the needs of persons with mental illness and in 
many ways is discriminatory about that benefit, especially not 
the Medicaid optional rehab services. So coordination of 
benefits is necessary and it is always difficult to do that 
coordination for the individual, for their families and their 
providers.
    Additionally, dual-eligible individuals have to wait 2 
years, as do all dual-eligibles, to become Medicare eligible. 
They may receive Medicaid services during that 2 years, then 
they must switch to those services that Medicare will cover and 
begin the coordination of benefits. The 2-year waiting period 
should be eliminated so that those dually eligible individuals 
can be covered by Medicare upon receipt of their disability 
determination. Better yet, Medicare should pick up all the 
medication costs for this population from the day they are 
determined to be disabled, and should assure that the 
formularies cover all the drugs they need, including the newest 
anti-psychotic medications that have less side effects and 
therefore higher compliance rates.
    Congress should seriously consider having the Federal 
Government take over the whole care of persons who are dually 
eligible. I know that is controversial, but in fact, I believe 
that it would save a lot of administrative costs both at the 
provider level, at the State level and at the Federal level, 
trying to do this coordination of benefits.
    Second. Make it simple to allow States to put evidence-
based practices into their State plans or waiver programs. 
States have to wait long periods of time for approvals of State 
plan amendments and waiver requests even if they are changes 
other States have been doing for years. Mexico right now is 
waiting for approval for the addition of ACT teams. Almost 
every other State already has these in their State plan, it 
should not be a big thing to do.
    Anything another State has been allowed to do, especially 
if it helps to implement an evidence-based or promising 
practice for adults or children with behavioral health needs, 
should be allowed on a fast-track approach. CMS needs to work 
with States to come up with creative ways to deal with the IMD 
exclusion so that housing supports and supported employment can 
be available for persons with mental illness. These services 
are available through waivers for other disability categories.
    Third. As Congress considers reforms, do not make those 
reforms different for optional and mandatory populations 
without considering what may not be optional in the lives of 
those with serious behavioral health needs, and frankly, avoid 
simply making current optional services mandatory or simply 
protecting current mandatory populations and services. The 
assumption is that States are going to behave inappropriately 
in order to gain more Federal money. In fact, we share common 
goals including increasing services as well as containing 
costs.
    States do not want to be in a situation where they have to 
reduce services or eligibility that will hurt the most 
vulnerable individuals because the Federal Government wants to 
preserve services for so-called mandatory populations and 
reduce its own spending for so-called optional ones. We should 
work together to contain costs while providing critical 
services for those most in need.
    Thank you. I would be glad to answer any questions.
    [The prepared statement of Ms. Hyde follows:]

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    The Chairman. Thank you very much, Pamela. You mentioned in 
your testimony that some States have obtained waivers in order 
to exclude mental health from the optional category. How many 
States have done that?
    Ms. Hyde. Mr. Chairman, I am sorry, I do not have the 
number of the States that have done that, but Oregon is 
certainly an example. When they did a limited plan, one of the 
things that were excluded were mental health and substance 
abuse services. New Mexico has a limited benefit plan that we 
are about to implement, but we did include mental health and 
substance abuse services, but that was an option. Had we chosen 
not to do so to save more money, we could have done that. But 
the point here is those are considered optional, they are not 
considered critical to the health of our Nation.
    The Chairman. Has New Mexico quantified the other costs 
that are borne by the State when this option is pursued? I mean 
what has New Mexico done? Have you cut back on the mental 
health?
    Ms. Hyde. Mr. Chairman, at the moment, no, and I think I 
need to say I have a fairly strong behavioral health 
background, so as the person in charge of this program I would 
probably lay my body down before we did that.
    But having said that, we are actually--the only way we can 
increase services, because we have lost Federal money--we have 
lost FMAP because our economy got slightly better. We have lost 
the extra FMAP that the Federal Government provided, and we 
have lost huge proportions of it, more than other States, more 
than every other State except Texas even though we are an 
extremely poor State.
    Having said that, the only way we are able at this point to 
increase services--and frankly, mental health is one of the 
sets we are trying to increase--is through better matching of 
existing State dollars. So we have something called the 
Interagency Behavioral Health Purchasing Collaborative. It is a 
unique approach. We are trying to look at every dollar and 
every State agency that is legitimately considered matchable, 
and use that to increase, for example, ACT teams we are trying 
to put into our State plan. We are trying to add intensive 
outpatient therapy and maybe next we will be looking at multi-
systemic therapy which is now only done as an enhanced service 
at MCOs' options. In other words, our managed care 
organizations can do it just because they think it is a good 
thing to do, but it is nothing that we require in our State 
plan at this point.
    The Chairman. As someone with your professional background, 
I assume you can attest to the fact that physical health and 
mental health are not exclusive, that both are legitimate 
fields?
    Ms. Hyde. Mr. Chairman, absolutely, and in fact, what we 
know, that a lot of times people with severe mental illnesses 
or children with severe emotional disturbances also have higher 
physical health implications. So the cost to any health care 
program for untreated mental health services could be high, 
higher accidents, higher health and heart disease, higher high 
blood pressure, other high physical health needs go together 
with these issues.
    The Chairman. Thank you very much, Pamela.
    We have been joined by my colleague, Senator Tom Carper, 
former Governor of Delaware.
    Senator Carper. A graduate of Ohio State University. 
[Laughter.]
    The Chairman. Yes.
    Senator Carper. I see that Pamela Hyde spent some time in, 
was it Columbus?
    Ms. Hyde. Senator, yes, I did.
    Senator Carper. What did you do there?
    Ms. Hyde. Actually, I worked for Governor Richard Celeste 
as his mental health director in his cabinet there, among other 
things.
    Senator Carper. When did you leave Ohio?
    Ms. Hyde. I left Ohio, Senator, about 1990.
    Senator Carper. I think that was the year that George 
Voinovich was elected Governor.
    Ms. Hyde. Mr. Chairman, that is correct.
    Senator Carper. All right, good enough. [Laughter.]
    The Chairman. You have an opening statement, right?
    Senator Carper. I have no statement, but I am anxious--not 
anxious. I am looking forward to being able to ask a couple of 
questions when the time comes, but thanks very much. To our 
witnesses, whether you are from Ohio or not, you are welcome.
    The Chairman. Or Delaware.
    Senator Carper. When I was at Ohio State I used to think 
Delaware was a little town just 30 miles north of Columbus. 
Later on after I graduated from Ohio State, I found out it was 
a whole State, and they were looking for a Governor, so I 
showed up and applied. [Laughter.]
    Ms. Hyde. Mr. Chairman, Senator, I lived in Delaware for 
not too long. Delaware, Ohio, of course. [Laughter.]
    Senator Carper. Someday I will tell you a great story about 
going back for my high school reunion and running into a guy, 
and I had a State trooper with me. I was trying to get to a 
high school reunion, and just north of Columbus looking for 
this place, and I ran into this guy in a convenience store, and 
I had to get to this high school reunion just before 7 o'clock 
in the evening before they took the picture, the class reunion 
picture.
    We went into this convenience store just about halfway 
between Columbus and Delaware, Ohio. This guy was coming out 
and I said I am trying to find my class reunion and told him 
where it was. He said, ``Well, just go down this road, take a 
turn, go there and there.'' He said, ``By the way, where are 
you from?'' I said, ``Well, I am from Delaware.'' he said, 
``Well, what do you do there?'' I said, ``Well, I am their 
Governor.'' he said, ``I work in Delaware every day.'' He was 
thinking Delaware, Ohio, I am thinking the State. So here was a 
guy did not know we had a State either. [Laughter.]
    The Chairman. All right. Our next witness, Howard Bedlin. 
You know where Delaware is?
    Mr. Bedlin. I go to the beach there all the time.
    Senator Carper. God bless you.
    Good for the economy. [Laughter.]

 STATEMENT OF HOWARD BEDLIN, VICE PRESIDENT, PUBLIC POLICY AND 
    ADVOCACY, NATIONAL COUNCIL ON THE AGING, WASHINGTON, DC

    Mr. Bedlin. Thank you, Mr. Chairman, Senator Carper. I am 
Howard Bedlin, vice president for Public Policy and Advocacy 
with the National Council on the Aging.
    Over 5 million seniors receive some form of assistance from 
Medicaid. A typical senior on Medicaid is a very poor, 
chronically ill widow in her 80's. In our view, the 
distinctions between mandatory and optional populations and 
services are not helpful in evaluating how to reform the 
program. Optional beneficiaries are among our Nation's most 
needy and vulnerable. They are not less worthy. Many optional 
services are essential, they are not less valuable.
    Over the past 6 years both the Administration and the 
National Governors Association have recommended treating these 
populations and services quite differently, essentially by 
eliminating minimum Federal consumer protections. But would 
Federal nursing home quality standards for optional groups be 
eliminated? Could a State charge 50 percent coinsurance for 
home care to a senior at the poverty line, or could a State 
mandate children to supplement their mothers' nursing home 
payments? I hope not.
    With the Federal Government paying 57 percent of Medicaid 
costs, imposing minimum standards is not unreasonable. Seniors 
may have the most to lose if Medicaid reform results in the 
elimination of Federal protections for optional populations and 
services since over 84 percent of Medicaid spending on the 
elderly is optional.
    It is very difficult too for a senior to qualify for 
mandatory Medicaid services. In general they must need nursing 
home care. They have to have a monthly income below only $590--
that is a little over $7,000 a year--and have non-housing 
assets below $2,000, which is not adjusted for inflation and 
has not been updated for over 20 years.
    The primary senior Medicaid question we need to address is 
who will pay for long-term care? The States do not want to pay 
for it. The Federal Government does not want to pay for it, and 
seniors and their families simply cannot afford it.
    Our long-term care crisis is growing worse. Overburdened 
caregivers are sacrificing their own health. Seniors have few 
choices to stay in their own homes, and after working hard 
throughout their lives, millions of seniors are forced to 
bankrupt themselves before getting help from Medicaid, which 
pays about 43 percent of our Nation's long-term care costs, 
more than any other source.
    While Medicaid nursing home coverage is mandatory, only 16 
percent of Medicaid's long-term care dollars for seniors are 
spent on home and community services, primarily through the 
Home and Community Based Waiver Program and the Personal Care 
Program, both of which are optional, but should be mandatory. 
Both fall far short of meeting consumers' and families' needs 
and suffer from enormous State variations. Even Medicaid 
protection against spousal impoverishment is institutionally 
biased since it is mandatory for nursing home care, optional 
for home and community based waivers, and non-existent for 
personal care.
    Congress needs to take action this year to improve access 
to home and community services. NCOA recently released a report 
estimating that over 13 million households of those over age 62 
are candidates for using a reverse mortgage to pay for home 
care, and the private sector funding could increase for such 
households that have an impaired member by $953 billion. 
Congress should permit States to use Medicaid dollars to reduce 
up-front reverse mortgage costs, and allow seniors who take 
them out to protect some assets from a State recovery.
    Additional Medicaid reforms to promote independence and 
choice and reduce per capita costs are included in our written 
statement. For example, States should be able to provide home 
and community care through a State plan amendment rather than a 
burdensome waiver. Another important Medicaid category of 
service for seniors and people with disabilities is the 
Medicare savings programs which pay for Medicare premiums and 
cost sharing. These include the so-called QMB and SLMB 
programs. In addition, the QI-1 program also pays Medicare 
premiums for low-income beneficiaries, but it is a 100 percent 
Federal capped allocation and it is scheduled to expire this 
October 1.
    While these programs are mandatory, there is no requirement 
that the Federal and State Governments find and enroll those 
who are eligible. Very few actually receive the benefits they 
are entitled to. QMB take-up rates are only 33 percent, while 
SLMB take-up rates are an abysmal 13 percent. That is about 1 
out of 8 of those who are entitled to it actually get it.
    Important lessons can be learned from a study issued just 
last week by the NCOA-chaired Access to Benefits Coalition 
which analyzed the best practices on outreach and enrollment.
    Congress needs to strengthen the Medicare savings programs 
by simplifying and consolidating them, improving outreach and 
enrollment, indexing the asset test to inflation, and extending 
the QI-1 program for 5 years at a minimum.
    In conclusion, our Nation's moral compass should be guided 
by how we treat our poorest and most vulnerable citizens, and 
frankly, Mr. Chairman, in terms of how we are caring for 
America's most frail mothers, grandmothers and great-
grandmothers, we are doing a lousy job. With the aging of the 
baby-boom generation, there is a great need and opportunity for 
a national dialog and debate about how to best address our 
Nation's long-term care crisis. America needs a comprehensive 
national strategy that includes a strong public sector safety 
net and foundation of support, supplemented by a variety of 
high-quality private sector funding mechanisms.
    NCOA looks forward to working with you, Mr. Chairman, and 
members of this committee and Members of Congress to address 
these challenges in a way that protects the most vulnerable, 
provides quality services, spends dollars as efficiently as 
possible, and promotes choice, independence and dignity. Thank 
you.
    [The prepared statement of Mr. Bedlin follows:]

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    The Chairman. Howard, as we look for ways to save $10 
billion over 5 years without reducing coverage to the people 
that should be on Medicaid, are there any things in your view 
that we ought to be considering? I mean how would you counsel 
us on that?
    Mr. Bedlin. Well, other than questioning whether we really 
should be saving $10 billion--we will leave that aside for the 
moment----
    The Chairman. But I mean are there some programmatic things 
that we ought to be doing differently that would save the money 
so we can serve more people?
    Mr. Bedlin. Well, the two that I mentioned in my statement, 
for example, are looking at reverse mortgages, No. 1. We asked 
the Lewin Group to analyze how much savings could potentially 
be realized if we made those more available and a greater 
number of seniors who have an impairment, that have an ADL 
dependency, many of whom are very good candidates for a reverse 
mortgage actually took one out, and I think the study found 
that there could be savings of 3 to 5 billion. It is not I 
think over the next 5 years, but it is something that we think 
should be very seriously looked at this year. We could 
certainly share those estimates with you to give you a sense of 
what would need to be done to achieve those level of savings.
    The Chairman. For the benefit of the committee, describe 
these reverse mortgages and how they would work in answering 
the question of long-term care.
    Mr. Bedlin. A reverse mortgage is essentially a loan that 
would allow a homeowner to convert home equity into cash while 
living at home for as long as they want. The borrower could 
continue to live in their home. They can receive payments as a 
lump sum or a line of credit or a monthly payment, and then the 
loan comes due when the last borrower moves out, dies or sells 
the home. They would never owe more than the value of the 
house, and we believe that many people could use their home to 
stay at home, and that they could delay the need to spend down 
onto Medicaid, and we think that it makes a lot of sense for a 
whole host of reasons, and could save some money as well.
    The Chairman. Where is it being done now?
    Mr. Bedlin. The FHA makes so-called HECM loans available, 
and there are not a great many that have been sold. I think 
consumers need to learn more about them. There is a great deal 
that could be done in terms of public education. The up-front 
costs in some instances are prohibitive, and we think that 
there are ways that those could be reduced to make them more 
available.
    We did a pretty comprehensive report this past January that 
we are happy to share with the committee. We had the author, 
who is an expert, Barbara Stucki, testify a couple months ago 
before the House Energy and Commerce Committee, and detail some 
specifics about the potential as well as what Congress could do 
to promote these. So that is one thing we think could save 
money.
    Second, we do believe that making home and community 
services more available could reduce per capita costs. We would 
love to see the Congressional Budget Office take a broader view 
of the potential cost savings, not only in Medicaid but in 
Medicare and other programs as well. We do think that making 
home and community services more available could delay 
institutionalization. It could reduce cost, could improve 
quality of life, and through some pretty straightforward 
changes to Federal law, the institutional bias could be reduced 
somewhat, and we think that those could reduce Medicaid 
spending as well.
    The Chairman. Because it would be far less expensive to 
leave them in their homes than putting them in these other 
institutions, that is your point.
    Mr. Bedlin. That is certainly our view, and if you look at 
Oregon, for example, which has, I would argue, one of the 
Nation's best home and community base care programs, and 
Wisconsin, Senator Kohl's State, those two States have done a 
wonderful job. I think there are important lessons that could 
be learned from those States, and I think that they spend their 
long-term care dollars much more efficiently and wisely than 
many other States.
    The Chairman. That is a very good suggestion and certainly 
one that I am hoping that we will produce to answer the 
question of long-term care and who pays for it, and obviously I 
think while my State and others have done some things wrong, we 
certainly have done some things right, and that is one of them, 
and I appreciate you pointing it out. But I did not hear you 
promoting new premiums or higher copays. Would you speak to 
that as how effective or ineffective you think that would be?
    Mr. Bedlin. Well, I certainly have very serious concerns 
about higher cost sharing on populations that have such low 
income and assets. I think there are a number of studies, one 
recently by the Center on Budget Policy and Priorities, that 
found that higher cost sharing would keep the people in need 
from using the services that they really require to be well. So 
I think in the long run, while it could reduce utilization, you 
probably would find more people in emergency rooms because they 
would delay or neglect their health care needs.
    So I think we really need to be extremely cautious about 
shifting even more costs onto the poorest Americans because I 
think at the end of the day it will not serve them well.
    The Chairman. Thank you, Howard.
    Senator Carper, do you have a question for this witness?
    Senator Carper. Yes, I do.
    Mr. Bedlin, I want to come back and talk just a little bit 
about home and community-based services if we could. I think 
you mentioned that these are primarily optional services, and I 
would ask a couple of questions. What else can we do to 
increase the availability of these home and community services? 
A corollary to that is, maybe just talk a little about the cost 
of those services, and are they cheaper in your view than the 
cost of institutionalization?
    Mr. Bedlin. Thank you. Our written statement includes a 
number of specific recommendations. For example, there is a 
piece of the legislation that the administration has 
recommended that was introduced I believe by Senator Harkin, I 
believe, Senator Smith, you are a cosponsor, S. 528, Money 
Follows the Person proposal, which we think makes a great deal 
of sense for people transitioning out of institutions. The 
Federal Government would cover 100 percent of the first year of 
Medicaid home and community-based waiver costs. We very much 
support that and would like to see that enacted into law this 
year.
    I mentioned earlier a State plan amendment rather than 
having to go through a waiver, would give States more 
flexibility. We also think that under current Medicaid law, in 
order to receive a waiver service, an individual needs to meet 
a nursing home level of care requirement. In other words, if a 
State has a three activities of daily living impairment 
requirement to get nursing home care, an individual getting 
home and community-based waivers also needs to have a three ADL 
impairment level. We think States should have more flexibility 
to distinguish between those two. So it might be three ADLs for 
nursing home care, but two ADLs for home and community 
services.
    I mentioned spousal impoverishment protections, mandatory 
for nursing home care, optional for home and community-based 
waivers, non-existent for personal care. That could be 
addressed.
    There is also a great deal that is going on in States on 
consumer directed care. Cash and counseling demonstrations in 
Arkansas, New Jersey and Florida have had very positive 
results. There are some things that could be done at the 
Federal level to make those more available, and I think a lot 
of people would be very interested in those kinds of 
alternatives.
    In terms of savings, the concern has always been that 
people are going to come out of the woodwork because they want 
home and community services, and generally are not rushing to 
get into nursing homes. So the question is whether or not the 
savings that I think are probable on a per capita basis, 
whether or not those might be offset by more and more people 
utilizing the service. So that is really I think the issue that 
we need to look very closely at.
    I know that in Wisconsin they have run I think some very 
good numbers showing that overall that there would be net 
savings. I do think that if you look at it on a case-by-case 
basis certainly you would find that home and community services 
are much less expensive. You know, for nursing home care, 
Medicaid on average is paying over $50,000 a year. It is much 
less than that for home and community services, and I do think 
that if you target the home and community-based care 
effectively, you can definitely realize cost savings in the 
long run and I think have a much more family friendly policy 
for folks that are caring for not only seniors but younger 
people with disabilities as well.
    Senator Carper. Thanks very much for responding to that.
    Mr. Chairman, I am going to have to slip out and go meet 
with a former Governor of Ohio in just a moment. Can I ask 
another quick question of Ms. Hyde?
    The Chairman. Sure.
    Senator Carper. Who is your Governor now?
    Ms. Hyde. Mr. Chairman, Senator Carper, in New Mexico, 
where I am from, it is Governor Richardson.
    Senator Carper. Bill Richardson?
    Ms. Hyde. You bet.
    Senator Carper. You know he was a member of the class of 
1982 elected to the U.S. House of Representatives with Mike 
DeWine, Tom Ridge, John McCain, John Spratt, Marcy Kaptur also 
from Ohio. There are a whole lot of people, and yours truly. 
When you see him, tell him that an old classmate says hello. 
Give him my best.
    Ms. Hyde. I will do that, thank you.
    Senator Carper. I am going to try to come back before the 
panel finishes. Thank you.
    The Chairman. Thank you, Senator.
    Jeff Crowley.

   STATEMENT OF JEFFREY S. CROWLEY, PROJECT DIRECTOR, HEALTH 
    POLICY INSTITUTE, GEORGETOWN UNIVERSITY, WASHINGTON, DC

    Mr. Crowley. Mr. Chairman, Senator Carper, good afternoon. 
I am Jeffrey Crowley, a project director at the Georgetown 
University Health Policy Institute. Thank you for inviting me 
to provide a disability perspective to the current Medicaid 
policy discussion.
    An estimate 9.2 million non-elderly people with 
disabilities depend on Medicaid, and an unknown percentage of 
the 5.4 million seniors on Medicaid also have disabilities. For 
these individuals, Medicaid is generally the only place they 
can turn to have the full range of their needs met for health 
and long-term services.
    Medicaid is the largest source of funding for developmental 
disability services, largest source of health coverage for 
people with HIV/AIDS, largest source of funding for State and 
local spending on mental health services, and it provides 
critical support for people across the spectrum of disability, 
including persons who are blind, individuals with traumatic 
brain injuries, spinal cord injuries, epilepsy and multiple 
sclerosis.
    Much recent discussion has taken place over the difference 
between mandatory and optional beneficiaries. For people with 
disabilities the mandatory/optional distinction has no 
connection whatsoever to the level of disability or the need 
for health and long-term services. Some parties have 
characterized optional beneficiaries as higher-income 
individuals with less serious need for Medicaid assistance. 
Virtually all Medicaid beneficiaries with disabilities have 
extremely low incomes and all have met the same standard for 
serious long-term disability.
    Seventy-eight percent of Medicaid beneficiaries with 
disabilities are mandatorily eligible. States, however, have 
several options to extend coverage beyond Federal minimums. 
These include the Poverty Level Option, which is particularly 
important for States that wish to extend coverage to many SSDI 
recipients; the Medically Needy Option, which permits States to 
cover individuals who spend down to coverage by subtracting 
medical expenses from their incomes.
    There is no relation however, between the income standard 
for mandatory Medicaid and the Medically Needy income limit. 
Therefore, individuals may start out with income above Medicaid 
standards, but their effective income after their medical 
expenses are counted, leaves them often extremely poor. In one 
State individuals must spend down to $100 per month.
    The Chairman. Where is that?
    Mr. Crowley. That is in Louisiana, and also Arkansas has a 
Medically Needy income limit of $108 per month.
    Although these and other options respond to differing needs 
of certain groups within the disability community, they share 
important commonalities. All the populations covered by the 
optional categories meet the same standard of need as mandatory 
populations, and the vast majority of individuals receiving 
Medicaid coverage through these options have very low incomes.
    Although all mandatory services are critical, the EPSDT 
benefit is a mandatory service that is unique to Medicaid and 
is especially important to people with disabilities. The EPSDT 
benefit ensures that children on Medicaid are screened on a 
regular basis, and if a disability or health condition is 
diagnosed, the State covers the treatment. The rationale for 
this essential protection is that by intervening early, the 
harmful effects of disability can be minimized, and in some 
cases lifelong disability can be prevented.
    Medicaid optional services sometimes have been 
characterized as discretionary services. The list of optional 
services, however, I think are more appropriately characterized 
as indispensable disability services because they are not 
frequently needed by people who are otherwise healthy. 
Moreover, many people end up on Medicaid because they have 
tried and failed to obtain these services elsewhere in the 
private market or in Medicare.
    Critical optional services include prescription drugs, 
physical therapy and related services. The personal care option 
is also particularly important for extending access to 
community living services.
    Optional services are mandatory for meeting the needs of 
people with disabilities, therefore, a State should not be 
permitted to not cover them or eliminate them every time there 
is an economic downturn.
    The savings required by the budget resolution should not be 
achieved at the expense of Medicaid beneficiaries. I encourage 
you to focus on prescription drug reforms to achieve savings. 
Additionally, 42 percent of Medicaid spending is for services 
for low-income Medicare beneficiaries, the dual-eligibles. Even 
minor program adjustments to reduce the Medicare cost shift 
could relieve significant pressure off Medicaid.
    Congress could, for example, end or phaseout the Medicare 
waiting period. Net savings could be achieved, however, through 
reductions in or elimination of the $10 billion in funding 
provided under the Medicare Modernization Act for the regional 
PPO stabilization fund.
    Many other policy proposals to achieve Medicaid savings I 
believe are misguided and are a direct threat to people with 
disabilities. It would be very dangerous for the Congress to 
grant any new benefits package flexibility. New flexibility for 
States could only lead to new discrimination for people with 
disabilities. People with disabilities already have experience 
with States' ability to tailor benefits to specific populations 
through the Home and Community-based Services Waiver Program. 
What we have seen there is that which populations can access 
services and which cannot is not rationale.
    Several policymakers have proposed relying more heavily on 
the private market. Unfortunately, people with disabilities 
often end up on Medicaid because the private market has failed 
them. Individuals with disabilities are already subject to cost 
sharing in Medicaid. In fact, when Medicaid does impose cost 
sharing, people with disabilities and chronic conditions, the 
people that use the most services, tend to bear the highest 
burden.
    The best and perhaps only way to make long-term progress is 
not to look to Medicaid alone for policy solutions. The 
challenges facing Medicaid are a result of broad failures with 
our health system and long-term care system. Until broader 
reforms are implemented, however, we must continue to shore up 
Medicaid so that it can continue its successes at serving 
people with disabilities and others.
    Thank you for the opportunity to appear before you today.
    [The prepared statement of Mr. Crowley follows:]

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    The Chairman. Jeff, I wonder if you could comment for me on 
a recently issued proposal by the Governors suggesting that 
Medicaid should provide flexibility like SCHIP provides. What 
does that do?
    Mr. Crowley. What that would do is provide a benefits 
package that is inadequate for people with disabilities. The 
SCHIP package has been modeled on the private sector standards 
which are based on serving health populations, and we have 
Medicaid as a safety net, and so people often move from the 
private market onto Medicaid so that they are very different 
populations.
    The Chairman. You have made very clear in your testimony 
that services currently classified as optional really are not 
optional for the disabled population, so they ought to be in 
the mandatory category.
    Mr. Crowley. That is correct. I often hear people talk 
about the cost of services and wanting to tailor services, but 
I think that people do not use services unless they need them. 
So if there is a problem with Medicaid beneficiaries getting 
services when they are not medically necessary, I think that 
calls for a policy response, but we have not seen any evidence 
of that. So when these services are made available, people only 
get them when they do truly need them.
    The Chairman. We have heard a lot in Congress on the whole 
issue of asset transfers to be paper poor so you can get 
Medicaid. What is the experience of the disabled population in 
terms of asset transfers? Is this a real problem or is this 
more imaginary with the disabled?
    Mr. Crowley. I think for people with disabilities, that 
does not really affect them because many of them have not 
accumulated assets. I would say--and this is not an area I have 
a lot of expertise in--is that there are special protections in 
the Medicaid law right now that allow parents and other family 
members to set up special trusts for their children with 
disabilities, adult children, so that after their deaths their 
children can continue to have additional support to supplement 
Medicaid, and I would just want to make sure that if changes 
are made in the asset transfer policy we continue to protect 
those special exemptions.
    The Chairman. In the savings area you mentioned the drug 
benefit and States' ability to negotiate, and making sure that 
those kinds of medicines that the disabled tend to use most 
frequently are on their formulary.
    Mr. Crowley. I mentioned----
    The Chairman. Describe again the savings you would 
envision.
    Mr. Crowley. With respect to prescription drugs.
    The Chairman. Right.
    Mr. Crowley. I think we could look to a number of areas. 
One issue that has been proposed is just to address the Federal 
rebate. Some States do get supplemental rebates, but not all 
States are able to obtain them. I think there is some concern 
that States' ability to obtain those supplemental rebates would 
be diminished with the implementation of the Medicare drug law, 
but I also think there is room to just increase the Federal 
rebate.
    I also think there are ways to use evidence-based medicine, 
and I heard you earlier state that your State has been a leader 
in that, to achieve real savings. Some of the discussion about 
cost sharing has been what level of sort of cost sharing 
measures are appropriate given the low incomes of many Medicaid 
beneficiaries?
    One thing I have noticed is that Missouri, they believe 
that they save a lot of money on mental health drugs, and their 
approach is not to really push the consumer, but they do a 
retrospective review. If they see that physicians are 
prescribing mental health drugs that they think are 
inappropriate for clinical standards, they send them a letter. 
It starts out with a letter just from the Department of Mental 
Health, but they escalate it, and they eventually get up to 
where it is one of two or three top psychiatrists in the State 
that intervenes personally. So they are not punishing 
individuals. They are not saying doctors cannot prescribe 
drugs. But they are really applying peer pressure.
    The Chairman. They are looking for outcomes.
    Mr. Crowley. Right. It has not hurt access, it has improved 
access to care, but it is also saving the State money. So I 
think we could look at other ways to use evidence.
    The Chairman. So just monitor the process better than we 
are.
    Mr. Crowley. That is correct.
    The Chairman. Missouri is a State that has done that 
effectively?
    Mr. Crowley. Missouri has done that with respect to mental 
health drugs. A number of States have very effective evidence-
based medicine programs.
    The Chairman. How about New Mexico, Pamela, on mental 
health?
    Ms. Hyde. Chairman Smith, we are just implementing what we 
call a preferred drug list in New Mexico, and we are just 
beginning that with all of our medications. We have essentially 
exempted out the door the psychiatric medications from, ``try 
other drugs first'' or the ``you must do a generic first,'' 
because of all the issues about psychiatric drugs. However, the 
organization that is managing that for us happens to be headed 
by a physician whose son is mentally ill, so we have a very 
sympathetic doctor running that program, who does work with 
psychiatrists around their prescribing practices.
    I think that Mr. Crowley is correct, that dealing with it 
on a peer basis is much better than some sort of arbitrary, 
kind of, ``you cannot prescribe this medication unless you have 
tried 3 others first.'' That generally is really bad for people 
with mental illness.
    The Chairman. In terms of all the controversy around some 
of these psychiatric drugs right now, does the State of New 
Mexico feel any exposure if it gets more involved in the 
prescribing? Maybe you have a thought about that, Jeff. Are 
States being enjoined in some of the lawsuits that are being 
filed on these issues?
    Ms. Hyde. Mr. Smith, New Mexico is not yet, and we are not 
too worried about it at the moment, because in fact, as I said, 
the way we are implementing this is we are actually treating 
psychiatric drugs differently. We are letting psychiatrists 
prescribe without any kind of up front authorization. It is 
more of a, as Mr. Crowley said, a retrospective review using 
peer involvement about it. It is not quite as formal as being 
described in Missouri, but we certainly recognize that you 
cannot treat anti-psychotics the same way you treat drugs for 
gastrointestinal disorders or other kinds of things of that 
nature.
    Mr. Crowley. Could I also add, I do not think it is fear of 
lawsuits that is holding States back, and in some States, quite 
frankly, it is the pressure from the pharmaceutical 
manufacturers, and I think that might be a roll for Congress to 
step in and establish some standards.
    I can also say, however, in States like Kansas, Washington 
States, they have managed to overcome this, and now I think 
they have a process that even the pharmaceutical manufacturers 
believe works effectively, but that was a big stumbling block 
initially.
    The Chairman. Very good. Thank you.
    Sister Dufault.

STATEMENT OF SISTER KARIN DUFAULT, SP, RN, Ph.D., CHAIRPERSON, 
 BOARD OF TRUSTEES, CATHOLIC HEALTH ASSOCIATION OF THE UNITED 
                      STATES, SEATTLE, WA

    Sister Dufault. Good afternoon, Mr. Chairman. I am Sister 
Karin Dufault, a member of the Sisters of Providence religious 
community and vice president Mission Leadership for the 
Providence Health System.
    I am pleased to be here with you today as the chairperson 
of the Catholic Health Association to address your committee.
    The Catholic health ministry provides care and services to 
Medicaid patients throughout the continuum of care. Our concern 
for Medicaid patients is rooted not only in our experience as 
service providers but as faith-based organizations and people 
committed to the common good and called to offer special 
protection for the poor and vulnerable.
    As policymakers strive to make improvements in the Medicaid 
program, we believe that it is important to keep in mind the 
primary oath of medicine, first do no harm. There is too much 
at stake if we get this wrong.
    CHA does believe that it is time for a serious and careful 
discussion about the Medicaid program and how best to modernize 
it. Mr. Chairman, we appreciate your efforts to do just that, 
to establish a bipartisan Medicaid commission to examine 
modernization of the program absent Medicaid budget cuts.
    We also believe that the process should not be driven by 
cost saving target and that modernization be developed and 
implemented with primary consideration of the impact on 
patients and a goal of ensuring coverage, access and quality.
    CHA supports providing States with flexibility to operate 
their Medicaid programs more efficiently, but we remain 
concerned about how that is done. Specifically, two components 
of increase flexibility, cost sharing and benefit package 
design have not achieved the desired goals of more appropriate 
utilization, reduced program costs and significantly increased 
the numbers of persons covered.
    Our hospitals in Oregon have witnessed and experienced 
firsthand the results of increased Medicaid patient cost 
sharing. In 2003, under the Medicaid waiver, Oregon established 
a new Medicaid premium policy under which poor adults pay a $6 
to $20 dollar monthly premium based on income. Oregon also 
implemented a new lockout period for non-payment of premiums 
and removed the ability of low-income and homeless 
beneficiaries to obtain waivers. What we saw is that patients 
who were unable to afford required cost sharing delayed needed 
medical services until the condition reached an urgent level.
    Following the changes, the 7 Providence hospitals in Oregon 
experienced a 25 percent increase in uninsured patient activity 
in the emergency rooms, while hospital uncompensated care costs 
doubled over a 2-year period.
    We cannot stress enough the importance of coverage provided 
through State optional categories. While categories of 
beneficiaries and services may be deemed optional, these 
categories do not seem like an option for the beneficiaries we 
serve.
    I would like to provide you with one example out of many 
that we could provide that illustrates this point. Sally 
George, we will call her, age 70, a double amputee who suffers 
from Crohn's disease, was living in low-income housing when her 
health deteriorated. With the help of Medicaid she was able to 
move into Providence ElderPlace in Portland, OR. This 
innovative PACE program serves frail elderly in a community-
based setting that is less expensive than traditional nursing 
facilities.
    Sally, a caretaker herself, who looked after her own mother 
until her death at age 97, is grateful for the services she 
receives and the independence that she enjoys at ElderPlace. 
She feels fortunate that the doctor is in house, as well as the 
nurses, physical therapists and other caregivers. Sally hopes 
that the Medicaid funding for this optional program will 
continue to be there for her, even though she works hard to be 
as self-sufficient as possible.
    Medicaid is a primary source of revenue for America's 
safety net institutions including many Catholic hospitals which 
serve a disproportionate share of low-income, uninsured and 
under-insured in their communities every day. In order to 
ensure continued access to services, attention must be paid to 
Medicaid payment rates for all providers. When Medicaid payment 
rates fail to keep pace with the cost of providing care, access 
to care for Medicaid patients is affected and the quality of 
care could be jeopardized.
    We currently have some 45 million uninsured persons in our 
Nation. They rely on America's hospitals for their health care 
needs, and creating barriers to Medicaid will simply worsen an 
already terrible situation. Making the continuum of health care 
services and facilities more effective for patients and for the 
system itself requires that we focus most of our attention on 
helping people maintain health and independence while treating 
their chronic illness in the most appropriate setting.
    Home and community-based services are proving to be cost 
effective means for keeping frail and disabled persons as 
independent as possible and avoiding or delaying the need for 
costly institutional care. However, it is important to realize 
that to be effective, a broad range of supportive services must 
be available. We strongly support policies that coordinate 
Federal and State supported health and housing services and 
move our Nation toward a more rationale and comprehensive long-
term health care policy.
    Medicaid represents a measure of how we as a society and 
the wealthiest Nation in the world treat the poorest and most 
vulnerable among us. The cumulative effect of Medicaid program 
reductions and cuts in other essential services for low-income 
individuals and families could be devastating.
    Mr. Chairman, as Congress considers Medicaid reform, we 
urge you to make decisions that will preserve and strengthen 
this vital program while protecting those with the greatest 
need and the fewest resources.
    Thank you for the opportunity to speak before you.
    [The prepared statement of Sister Dufault follows:]

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    The Chairman. Thank you, Sister. I wonder if you can share 
with the committee and the audience, when you saw your 
emergency room utilization go up 25 percent and the ranks of 
the uninsured go up, how did you deal with that as a system, as 
Providence Health System? Did you have to eat it on your bottom 
line, or were you in a position where you would ultimately have 
to pass that on to other paying patients?
    Sister Dufault. Well, it certainly did affect our bottom 
line. We did eat the cost. Our commitment to serving the 
uninsured and the under insured continues to be there. However, 
in order to sustain our ministry, and again, looking at that in 
the long run, how long----
    The Chairman. You cannot eat it forever.
    Sister Dufault [continuing.] Can we continue to do that and 
still continue to invest in our facilities and services? This 
is an issue in terms of recapitalizing our institutions and 
adding additional services. That is very important for us to 
consider.
    So we certainly recognize our responsibility, but we do see 
it as a shared responsibility with our State and with our 
Nation.
    The Chairman. So you would probably agree with me then that 
ultimately your ministry does not call on you to go bankrupt, 
and eventually you have to find a way to invest in the future 
and keep your books in balance as part of your ministry. So 
ultimately paying patients will have to bear these increased 
costs.
    Sister Dufault. That is correct. There is a cost shifting 
that does occur. We know that when we have talked about the 
Medicare program as well, that there does have to be some 
bearing of the burden. However, I would say that this is 
becoming more and more difficult to do, especially as we 
negotiate with our managed care insurance companies.
    Again, how long this shifting? The shifting is becoming 
more and more difficult to do.
    The Chairman. So your comment then on copays and premiums, 
your experience is that those are counterproductive.
    Sister Dufault. I think that we have been able to 
demonstrate in Oregon that it is counterproductive, that people 
are going off of Medicaid because of it or during this period, 
if they miss a payment and they are off of Medicaid for 
supposedly a 6-month period, they are unable to get back on 
because of the limits, in terms of the number of Medicaid 
eligibles that are allowed in the State. So again, what we saw 
was the uninsured continued to go up, and that is a serious 
problem. It is aggravating, on the other side, the increase of 
the uninsured population for our Nation.
    The Chairman. The reason I am asking these questions, I 
would like the audience, and obviously, the larger public that 
may be viewing this, to understand that we are paying these 
costs already, and perhaps not very efficiently. But rightly or 
wrongly, the public generally, and I think many Members of 
Congress believe that there needs to be some sort of incentive 
not to abuse the system while you use the system. Are there 
things that you have found in Providence in Oregon or elsewhere 
that are good checks against abuse, but permit use?
    Sister Dufault. Well, I think that one of the areas that 
has been mentioned by others is that we do have a health plan 
in Oregon, the Providence Health Plan, and we do have Medicaid 
recipients who are a part of that plan. We have been able to 
demonstrate that we have been able to manage the costs of the 
beneficiaries' care in a much more efficient manner than 
previously when they were not in a managed care program. I 
think that one of the other factors is that for those who go 
off and then use the emergency room, they are either using the 
emergency room for care that should have been provided in a 
primary care setting, or their situation is grave at the time 
that they are receiving care.
    So again, the costs--and if that goes in the uncompensated 
care category, the charity care category, that cost goes up. So 
either that is passed on to others, the whole goal of providing 
the right care at the right time is not being done, increasing 
the overall cost to the system as a whole.
    So what we advise is that the recipients receive the right 
care in the right place and be incentivized to be able to do 
that. The copays just add another incentive for not going there 
until things get a little worse.
    So I hope that that addresses the question that you asked.
    The Chairman. It very much does. On balance do you think 
Oregon has learned some good things that have been helpful to 
Providence?
    Sister Dufault. Oregon has learned many good things, and I 
guess this is one of the other pieces that the committee may 
want to consider, is that the waivers, the demonstration 
projects that have been going on throughout this country need 
to be mined for what has worked and what has not worked. That 
will offer some opportunities for those things that have really 
worked to be a part of the program rather than a part of a 
waiver.
    The Chairman. There are some savings in there as well that 
allow the right kind of coverage at the right time that it is 
needed.
    Sister Dufault. Correct.
    The Chairman. But I mean we ultimately, just like anywhere 
else, we have to do a better job of balancing our books here, 
and the more information experientially that you can give us to 
how to provide the outcome, serve the people that need it, 
qualify for it, with the best outcomes, that is really what we 
are looking for.
    Sister Dufault. One of the areas that I mentioned was in 
terms of the PACE project, which is now being spread in many of 
the States. I think that we have been able to show how we have 
avoided hospitalizations by virtue of that program, reducing 
the costs, or being able to help people maintain a quality of 
life and reduce their need for acute care by virtue of the 
close supervision that they are being provided through such 
settings as the PACE program.
    The Chairman. You have talked about some of the things 
Oregon has done well. What are the mistakes Oregon has made?
    Sister Dufault. I think that one of the mistakes has been 
what we have spoken about in terms of the premium and also the 
copay. Incentivizing people to go off of Medicaid and be on the 
uninsured list is one of the areas. I think that has been a 
really big-mistake creating barriers. Then reducing what some 
of the ``optional'' category of services in order to have more 
people covered has also been counterproductive in many ways 
because it has just increased the need for some of the acute 
services.
    The Chairman. What other States are you in? I know you are 
in Washington State.
    Sister Dufault. Alaska, Washington, Oregon and California.
    The Chairman. Are there things those States have done that 
you think could be good national models?
    Sister Dufault. We have been able to replicate the PACE 
program in Washington based on our experience in Oregon, and 
again were able to get the waivers by virtue of what we 
demonstrated in Oregon. We have not replicated it in our other 
States, though it is being seriously considered. That is one of 
the principal areas where Providence Health System, I think, 
has assisted our Medicaid population.
    The Chairman. Those States would need to apply for the same 
waivers that Oregon has under the current system?
    Sister Dufault. Actually, it is one of the optional 
services now. It was not at the time that we initiated it. We 
did ask for waiver when we initiated it in Washington, and have 
multiple sites related to the PACE program.
    The Chairman. You have answered my questions, been very 
helpful.
    Any of you, hearing the others, have any closing comments 
you would like to make? You do not have to, but you are welcome 
to. Pamela.
    Ms. Hyde. Senator Smith, you asked a couple questions of 
other folks that you did not ask of me, and I would like to 
tell you what we are doing in New Mexico. One was about the 
copay issue, or I should say cost sharing because there is two 
different kinds. Oregon has of course done a premium approach. 
We are in the process of requesting authorization to do an 
enrollment fee approach. If I personally had my own druthers, I 
would not do it, but the legislature said we should, and there 
is sort of pressure to do cost sharing. The theory of 
individuals should participate in their own care, I think 
philosophically is understandable. It is frankly going to cost 
us more to implement this than it is to save anything out of 
it.
    We do have cost sharing already in our SCHIP program, so 
that is for the higher income children. For our working 
disabled program, we have increased those cost sharing, and by 
that I mean the copays. Other than that we do not have any kind 
of a premium or enrollment fee at this point.
    The Chairman. What would the enrollment fee be?
    Ms. Hyde. The enrollment fee we are proposing to be, I 
think it is $25 per month per family, and the point being here 
you could have 4 people in your family and if you did it per 
person that really would be prohibitive. I thoroughly 
anticipate--and I know it is in some of the other materials--
that frankly, what will happen is probably what happened in 
Oregon, which is nonprofits and others will probably try to 
come up with money to help people enroll. I think that is just 
shifting costs to the charity population or the charity 
providers.
    The other thing that is a little odd about this situation 
with cost sharing is we are not at this point allowed to 
require it except through waiver. Oregon is one of those that 
have done that. Utah has been able to do it through sort of a 
State plan definition. But what that does is it essentially 
means that if a person does not have the 2 bucks or the 5 bucks 
or whatever, then the provider eats it because they really 
cannot turn away that individual. So we do have to balance this 
issue for providers and others.
    In our State the cost-sharing proposal is not going to 
impose any cost sharing at lower income levels for middle 
income, if you will, slightly over 100 percent of FPL. We are 
going to have this enrollment fee plus a modest amount for 
prescription drugs and physician services, but a higher amount 
for emergency room, $25 for an emergency room visit, the theory 
being to try to get people to go to physicians rather than 
waiting until they are sicker.
    I do not know if this is going to work. I just want to echo 
this whole issue of cost sharing as a difficult one. I 
certainly philosophically understand the idea of personal 
responsibility. As a person responsible for the Medicaid 
program, I do not have any choice on some of these matters, but 
it is not a simple one as it seems on its face.
    The Chairman. I think that is right. I think we would all 
acknowledge a need for personal responsibility. I mean all the 
paying patients that Providence has obviously exercise that, 
and there is not an unreasonable request that everybody pay 
something. But I guess what I am searching for is what is the 
level at which it is counterproductive, that on the one hand 
satisfies the demand of the tax-paying public, but the tax-
paying public does not want these things so unproductive that 
they get these shifts in other billings that they get in the 
mail from their insurance companies.
    I do not know that we have that answer, but obviously, 
whether it is called an enrollment fee or a premium or whatever 
we want to call it, I am really searching for what is the right 
level, what is the effective thing and the fair thing for the 
patient, the needy and the taxpayer?
    Ms. Hyde. Senator Smith, one of the things that I think--
again, it is not simple--but for those, let us take medications 
for example. One could say $2 is not enough to ask. If you are 
somebody who makes enough money to pay taxes, $2 probably seems 
like not much to ask. If you are a person on multiple 
medications, especially if those medications are not much fun 
to take, and you just soon not be taking them anyway, as is the 
case with some conditions, then this is just one more reason 
not to go get your medications.
    So it may be an area where giving States a little more 
flexibility in the context of some guidance might be useful, 
rather than going all the way to where Oregon went, which I 
think was to try to impose a private sector model of cost 
sharing that I think really is not appropriate in these 
populations.
    The Chairman. Another part of the question--and as a State 
administrator you would really be in a position to tell us 
this--I mean what does collecting the fee cost us in 
Government? I mean the Administration costs could be fairly 
astronomical to pick up a couple bucks.
    Ms. Hyde. Senator Smith, when we look at the amount that it 
is going to cost us to implement these really relatively modest 
cost-sharing proposals--because our premium is not going to be 
a monthly premium, it is going to be a one-time enrollment fee, 
so an annual enrollment fee to try to make it less onerous on 
us and the families. Even at that, the overall savings is 
pretty much offset by the cost that it is going to cost us to 
do. Which means essentially we are doing it for the benefit of 
the tax-paying public who feels that it is important that 
people participate.
    We have not analyzed--I do not know how we can until we do 
it--what the implications will be for people who either do not 
sign up or for people who fall off and cannot pay the money to 
get back on or for people who do not take their medications 
because of it. We have not implemented yet, so we do not know 
what that is.
    Now again, we already have cost sharing at the higher 
income levels, and for the working disabled they are more than 
happy to pay $2 or $3 a prescription. That is different for 
somebody who is making 33 percent of the Federal poverty level, 
or maybe on SSI and has a major schizophrenia or manic-
depressive illness or whatever.
    The Chairman. I would be really interested to stay in touch 
with you, Pamela, to find out what your experience is. I hope 
you have a way to track it and can monitor it, because I think 
the whole country is looking to the laboratory, the 50 States, 
to help us find the right level, the right formula. HHS gives 
out 2,000 waivers a year.
    Well, there have got to be some nuggets in there somewhere 
that we can learn from and include in not this $10 billion we 
are talking about, but ultimately whatever long-term reforms 
that we pursue in Medicaid, we really do need the States to 
share with us the kind of information you are likely to 
develop.
    Sister, as you have ideas too, please do not be hesitate to 
share them with us.
    Sister Dufault. Senator, I do not know if Oregon has done 
an analysis with regard to the recipients who went off of 
Medicaid with the premium, but I think that that would be 
something to really ask, because again, we do have--I mean we 
know that people went off. We do not know how much each of them 
were charged and what their income level was, because, you 
know, it is by income level. So that would be something that 
maybe the State could provide that data.
    The Chairman. We will ask.
    Howard or Jeff, do you have any closing comments?
    Mr. Bedlin. I just want to reiterate a point that did not 
come up in the Q&A but I think is very important, and that is 
that there are so many low-income families, children, people 
with disabilities, seniors, who are eligible for help under 
Medicaid and other programs that just are not getting it. I 
mentioned the QMB and SLMB programs, but if you look at the 
elderly who are eligible for Medicaid, only 60 percent of them 
actually get it. There are 40 percent of the seniors out there 
who could get Medicaid and are not getting it.
    So I think at the same time that we are worrying about 
hitting a $10 billion savings figure and trying to figure out 
ways to shift more costs onto these populations, I think we 
also need to look at the bigger picture and try to get the 
neediest Americans the help that they are entitled to.
    The Chairman. Why do the 40 percent not do it in your 
opinion?
    Mr. Bedlin. Lots of reason, and there is some analysis out 
there. It is burdensome in terms of forms that are very 
complicated to fill out. There is a stigma attached to many of 
these programs. Many are not available in languages other than 
English. There are real burdens in terms of finding these 
individuals. It is true for food stamps. Only 30 percent of the 
seniors after 40 years that are eligible for food stamps are 
getting it.
    There is a lot that needs to be done, and I am concerned 
that while we are talking about trying to impose more costs 
onto these populations we are not getting them the help that 
they are eligible for, and that is one of the reasons why this 
is so unaffordable, that they are not even getting the 
assistance from a whole host of Federal programs because we are 
not committing the resources that are ultimately needed to find 
these people and enroll them in these low-income means tested 
programs, and I think that is a big problem that people are not 
focusing sufficient attention on.
    The Chairman. Jeff, do you have a closing comment?
    Mr. Crowley. Yes. Senator, you have spoken a lot about cost 
sharing, and I guess I just want to share my fears, as the 
Congress considers that, in that you may seek to eliminate this 
current protection that says services must be provided even 
when individuals cannot pay the cost sharing. I only have 
anecdotal data, but I have talked to many Medicaid 
beneficiaries that tell me they are embarrassed when they 
cannot pay $2 in cost sharing. It is not that they are 
willfully just gaming the system.
    I am just really concerned that that will produce bad 
health outcomes, increase hospitalizations and other things if 
people just cannot get the services they need.
    The last point I would make is that I know you are trying 
to get to what is a fair level of cost sharing, and while cost 
sharing is not charged in every State, what is fair may not be 
additional cost sharing. A study that was recently published by 
the Center on Budget and Policy Priorities found that the 
average cost sharing for SSI beneficiaries in Medicaid was $441 
a year. So I think many Members of Congress will be surprised 
that individuals are already paying that level of cost sharing.
    The Chairman. Ladies and gentlemen, we thank you. This 
panel has been very helpful in illuminating a very complex 
problem, and certainly has not made the Congress' challenge any 
easier, but you certainly have made us more informed. So you 
have added measurably to the Senate record, and you shared your 
time and your talent, and for that we thank you.
    We are adjourned.
    [Whereupon, at 4:45 p.m., the committee was adjourned.]


                            A P P E N D I X

                              ----------                              


              Prepared Statement of Senator James Jeffords

    Thank you Mr. chairman. I want to commend you and Senator 
Kohl for holding this important hearing today. While it is 
important that we understand the structure of the Medicaid 
program--it is even more important that we know who the people 
are who depend on Medicaid for their healthcare.
    This is all the more true as the Congress begins to debate 
what, if any, changes need to be made to the Medicaid program.
    Mr. Chairman, I also want to note for the record your 
contributions to this effort and to say that I was pleased to 
join you and Senator Bingaman in calling for a bipartisan 
Commission to review the Medicaid program.
    I envisioned an effort similar to the commission on the 
Medicare program. That is, a commission whose members would 
include a range of stakeholders and who would have the 
opportunity to vote on its recommendations. Unfortunately, that 
did not happen and it remains to be seen whether the 
Administration's effort will contribute much to the Medicaid 
debate.
    I also want to join you in welcoming our witnesses at 
today's hearing. Their testimony promises to shed light on who 
is served by the Medicaid program.
    As we listen to them though, I would urge that we be 
careful not to stereotype or categorize those served by the 
Medicaid program.
    All too often, we fall into the ``jargon-trap'' in 
Washington and suddenly people stop being viewed as people. 
Instead they become program ``mandatories'' or ``optionals'' or 
``dual eligibles''. The worst is when Medicaid beneficiaries 
are called ``bennies''.
    So I would just urge, that as we all listen to today's 
testimony, we remember that we are talking about ``people''. 
Their healthcare is not an option.
    Let me also say that I am very concerned that we not let an 
artificially-set budget number--in this case $10 billion 
dollars--drive the policy making process.
    Instead, our focus should be on determining if there is a 
better way to manage the Medicaid program and how we can help 
the States better provide services to people who depend on 
Medicaid.
    In closing, I again want to commend Senator Smith and 
Senator Kohl because I believe this hearing is moving us in 
that direction.
                                ------                                


           Questions from Senator Jeffords for Diane Rowland

    Question. Ms. Rowland, I want to thank you for your 
statement and also commend you and the Kaiser Family Foundation 
for your ongoing work on Medicaid and providing health coverage 
for the uninsured.
    Your statement closed by noting that there are no ``easy 
answers'' to covering the 50 million Americans who depend on 
Medicaid. You also note that policymakers, absent broader 
solutions like universal health care, need to maintain the 
``safety net.''
    The Kaiser Commission on Medicaid and the Uninsured has 
delved deeply into this issue and there are other efforts 
underway by several think tanks.
    Can you share with us the current thinking among health 
policy experts on approaches that can assist us in maintaining 
the safety net?
    Answer. Medicaid's performance as a safety-net in the 
recent economic downturn offers important insights into how 
Medicaid's eligibility and financing structures work to assure 
the program's safety-net role. By guaranteeing coverage to all 
who meet its eligibility standards and guaranteeing federal 
matching funds to states for their Medicaid spending as needed, 
Medicaid was able to offset the decline in job-based coverage 
among children from 2000-2003, and it kept the increase of 5 
million uninsured adults from being even greater. Medicaid can 
respond to economic downturns and other health problems as a 
safety-net because it directs coverage and resources in 
accordance with need.
    The pressure the recession generated on state Medicaid 
spending highlighted the importance of a greater federal role 
in financing Medicaid during economic downturns. An increased 
federal role is appropriate in light of the much more limited 
fiscal capacity of the states, the large share of Medicaid 
spending attributable to Medicare beneficiaries, and the 
national scale of the demographic and economic trends that 
drive Medicaid spending. Notably, the temporary federal fiscal 
relief granted to states in September 2003 enabled many to 
stave off or hold the line on an array of Medicaid cuts while 
addressing their budget shortfalls due to declining revenues.
    Finally, as broad a safety-net as Medicaid provides, 45 
million Americans--15 million of them living below poverty--
remain uninsured. Under federal law, adults without children, 
no matter how poor, are excluded from Medicaid because they not 
meet the ``categorical requirements'' for federal matching 
funds under Medicaid. Federal financing to support Medicaid 
coverage for all Americans living in poverty would patch this 
weak place in our nation's safety-net health insurance program.
    In sum, maintaining the existing financing structure--in 
which dollars follow services provided to individuals and 
federal matching funds follow state spending--is critical to 
Medicaid's role as our nation's health safety-net, able to 
respond when and where health needs increase. Increased federal 
support during economic downturns and recessions, when the 
demands on the program tend to rise sharply, would strengthen 
Medicaid's safety-net role.
    Question. In listening to your statement I began to realize 
that we are not talking about a single Medicaid program. What 
we really are facing is at least 50 different Medicaid 
programs, each with its unique coverage policy and funding 
mechanism.
    I know for example, that Vermont operates one of the most 
effective Medicaid programs and significantly, Vermont ranks 
very high health-related outcome measures. But Vermont, like 
other states, is also facing budget constraints that are 
forcing a reevaluation of its program.
    Should there be some reassessment of what benefits should 
constitute a minimum national benefit package?
    What in your opinion constitute the key elements that a 
state Medicaid program should have?
    Answer. In the context of efforts to control Medicaid 
spending, some have questioned whether Medicaid's comprehensive 
benefits are necessary and proposed, instead, a limited basic 
benefit package with additional benefits for people with 
special needs.
    In reassessing Medicaid's benefit package, it is important 
to bear in mind the people Medicaid serves and what their needs 
are. Medicaid's beneficiaries include infants and children, 
pregnant women, adults and children with disabilities, those 
with chronic physical and mental illnesses, seniors, people 
with HIV/AIDS, and many others, whose very low income and 
limited resources permit them to qualify for Medicaid. To 
address the diverse and extensive needs of these individuals, 
Medicaid covers a broad set of both acute and long-term care 
services, with no or nominal cost-sharing.
    Despite the breadth of Medicaid's benefits and limits on 
cost-sharing, researchers have found that, when health status 
differences are taken into account, Medicaid beneficiaries do 
not use services at a higher rate than the low-income privately 
insured. Other research shows that Medicaid spending is highly 
concentrated in a small proportion of beneficiaries with 
intense health needs and utilization. These findings indicate 
that Medicaid's broad benefit package has not led to wide use 
of all covered services, but, rather, has facilitated access 
based on health needs. A comprehensive benefit package is 
necessary to ensure that Medicaid beneficiaries can obtain the 
care they need. To ensure that they obtain only the care they 
need is the role of states and managed care organizations, 
applying an array of utilization and disease management 
strategies.
    Question. Congressional consideration of Medicare reform 
included several years of debate--and the debate itself was 
preceded by a national commission charged with making 
recommendations to strengthen Medicare.
    The recent Medicare Modernization Act included many of 
these recommendations--not all of which were agreed to by 
everyone.
    But one of the outcomes was the inclusion of new health 
promotion and disease prevention benefits. Some experts believe 
that these benefits will save money in the long run by 
preventing people from getting more serious diseases.
    Short of EPSDT, are there any comparable efforts underway 
to bring modern health promotion into the Medicaid program?
    Answer. As distinct from Medicare, Medicaid has always 
covered preventive care. Furthermore, to promote access to 
care, children and pregnant women are exempt from cost-sharing 
under Medicaid, and cost-sharing for others must be nominal.
    EPSDT, the Medicaid benefit package for children, 
integrates early intervention, health promotion and disease 
prevention with more traditional coverage of treatment for 
disease and disability. Federal Medicaid law authorizes states 
to cover screening and preventive services, as well as case 
management, for adults too. Many states provide some coverage 
for immunizations, preventive services, health education, 
screening mammography, and other such benefits.
    The wide and pioneering adoption of managed care in 
Medicaid as a care delivery model represents a broader kind of 
health promotion/disease prevention effort in the program. In 
its most successful form, managed care can improve access to 
appropriate care and effectively manage it for Medicaid 
beneficiaries, whom the fee-for-service system often does not 
serve adequately. Disease and care management strategies, which 
also have promise for improving the quality of care, are also 
being adopted by some states in their Medicaid programs.

                                ------                                


            Questions from Senator Jeffords for Pamela Hyde

    Question. Thank you for your statement Ms. Hyde. I agree 
with your assessment about the special challenges people with 
mental illness face in accessing health care services through 
the Medicaid program. I'm coming to the conclusion that the 
Medicaid program's exclusion of funding for Institutions for 
Mental Disease discriminates against people fighting mental 
disease. For example, in Vermont the Brattleboro Retreat has 
operated for many years under a waiver program that is now 
being withdrawn by CMS. Are there not instances where the best 
and most cost-effective treatment can be provided in these 
hospitals.
    Answer. It is true that at times, the best care for an 
individual person for a short period of time is in a hospital 
setting, and some of the state-operated hospitals in the 
country are now among the best. The exclusion of IMDs is a 
historical artifact of the federal government not wanting to be 
responsible financially for services that were traditionally 
paid for by state governments. However, in the case of persons 
with developmental disabilities, the federal government does 
allow home and community based services, even when the 
institutional services from which individuals in such programs 
are diverted are state-funded and operated. It is also true 
that most states have now moved significant numbers of 
individuals from state facilities or large private facilities 
into more community based settings. Today, the IMD exclusion 
operates in some cases to prevent states from moving 
institutional funding for services for adults 18-64 into 
community settings that have a residential component, and 
operates to prevent states from providing some of the services 
that adults with mental illness need, such as supported 
employment and supportive housing settings. These same services 
are available for persons of all ages with individuals with 
developmental disabilities, using federal funds. In this sense, 
the IMD exclusion is in fact discriminatory.
    The solution, however, may not be a full scale removal of 
the IMD exclusion, since we do not want to encourage the re-
institutionalization of adults with serious mental illness 
(SMI). Rather, the solution, I believe, rests in CMS allowing 
states to include in their state plans the same services for 
adults with SMI that they allow for DD individuals, including 
residential supports and supported employment, as well as some 
of the flexible services and items that are being allowed by 
CMS for DD individuals under self-directed waiver approaches 
where a set amount of funds are provided for each individual to 
spend for the services and things they need to live 
successfully in the community. Another aspect of the solution 
may be to allow states to receive federal funds (FMAP) for 
community-based programs (including residential treatment and 
supports in small home-like facilities, just as DD individuals 
enjoy) for SMI adults that would otherwise be in larger 
institutional settings, so long as the state continues to 
provide the same level of state support that was provided for 
such individuals in the past or so long as the state reduces 
the number of individuals in large institutional settings. 
There must be creative ways to support adults with SMI to be 
successful in the community just as there has been with DD 
adults.
    It's time we understood that the keys to success for 
Medicaid-eligible adults with SMI include housing and 
employment, things that are currently not fundable using 
federal funds.
    Some people advocate for allowing federal funding for the 
acute care (less than 21 or less than 30 days) provided by 
state facilities, just as they would for acute care in private 
hospital settings. This might be a compromise, but with limited 
dollars, I personally would rather see federal funds more 
easily used to support smalled home-like environments and 
rehabilitation and supported employment and/or supported 
education approaches that are more geared to assisting adults 
with SMI to find their own recovery path.
    The committee should note that the recent Bush 
Administration Medicaid reform proposals for which legislative 
language was just released include narrowing of the definitions 
of case management and rehabilitative services that will have a 
devastating affect on many states an on adults and children 
with serious mental and emotional illnesses. This is NOT the 
way to save money in the Medicaid program. It is in fact, a 
step backwards. It may in fact result in more adults and 
children institutionalized and is absolutely in opposition to 
the recommendations of the President Bush's President's New 
Freedom Commission on Mental Illness report.
    I urge Congress to resist these attempts to limit federal 
funding for persons with mental illness throughout our country.

                                ------                                


          Questions from Senator Jeffords for Jeffrey Crowley

    Question. Mr. Crowley, Medicaid plays an important role for 
schools in covering the cost of ``related services'' that are 
required by a child's Individual Education Plan (IEP) under 
IDEA.
    Over the past few years, CMS has conducted a series of 
audits of school-based Medicaid claims. Vermont has been the 
subject of one of these audits. CMS and the state disagree on 
the findings of the audit, and CMS has been slow to respond to 
the issues raised by Vermont.
    I have some real concerns about the timing and conduct of 
these audits. I am concerned that we might be discouraging 
schools from providing services to which our children are 
constitutionally and legally entitled.
    Can you discuss the need for school-based Medicaid and the 
effect of these audits?
    Answer. The civil rights law, the Individuals with 
Disabilities Education Act (IDEA), entitles children with 
disabilities to a free, appropriate public education in 
conformity with an individualized education program (IEP). An 
IEP is developed for eligible individuals with disabilities 
that describe the range of services and supports needed to 
assist individuals in benefiting from and maximizing their 
educational opportunities. The types of services provided under 
an IEP include services such as speech pathology and audiology 
services, and psychological and occupational therapies. While 
IDEA confers rights to individuals and obligations on the part 
of school systems, it is not directly tied to a specific 
program or an automatic funding source. For years, the Federal 
government has failed to provide anywhere near the level of 
funding promised in the IDEA statute. States' ability to 
appropriately rely on Medicaid funds for Medicaid services 
provided to Medicaid-eligible children pursuant to an IEP helps 
defray some of the state and local costs of implementing IDEA. 
This, in turn, helps assure that children receive all of the 
services they have been found to need in order to meet their 
full potential.
    The sources of funding available to fund services under 
IEPs have been a contentious issue in the past. Some time ago, 
the Health Care Financing Administration (HCFA, the predecessor 
to the Centers for Medicare and Medicaid Services, CMS) 
attempted to limit the availability of Medicaid funding for 
services under IEPs. In 1988, the Congress addressed the issue 
in enacting the Medicare Catastrophic Coverage Act of 1988 
(Public Law 100-360) in which it clarified that Medicaid 
coverage is available for Medicaid services provided to 
Medicaid-eligible children under an IEP. Under current law, the 
Social Security Act at section 1903(c) reads,

``Nothing in this title shall be construed as prohibiting or 
restricting, or authorizing the Secretary to prohibit or 
restrict, payment under subsection (a) for medical assistance 
for covered services furnished to a child with a disability 
because such services are included in the child's 
individualized education program established pursuant to part B 
of the Individuals with Disabilities Education Act or furnished 
to an infant or toddler with a disability because such services 
are included in the child's individualized family service plan 
adopted pursuant to part H of such Act.''

    Nonetheless, federal officials have, from time to time, 
suggested that costs for school-based services are being 
inappropriately shifted to Medicaid. In response to these 
concerns, the HHS Office of the Inspector General (OIG) has 
carried out a number of reviews over the years, including a 
recent audit of Vermont's Medicaid school-based health 
services. The results of this audit were made public in January 
2005. While I am not in a position to comment on the validity 
of the specific audit findings, I believe it is important to 
ensure that the rules governing these issues are clear, 
consistent, and implemented in an even-handed manner across all 
HHS regions. I also believe that, working within both the 
Medicaid and IDEA statues, the Federal government should take 
every opportunity to provide services to low-income children 
with disabilities. This has not always been the case.
    While CMS and federal officials have important 
responsibilities to ensure that all federal Medicaid payments 
are appropriate and reimburse states for only allowable 
Medicaid services, without transparent rules and fair 
administration, supervisory unions in Vermont may be unable to 
provide optimal school-based services to children with 
disabilities. Moreover, there are significant concerns by 
representatives of children with disabilities in Vermont that 
federal officials are attempting to restrict Medicaid 
reimbursement in a manner that is expressly prohibited by the 
Social Security Act, and that audits are being used as a tool 
to create uncertainty that reimbursement will be allowable, 
thus leading states and school systems to preemptively restrict 
the school-based services it provides to children with 
disabilities. Indeed, my understanding is that Vermont has been 
a leader among states in using schools to meet the needs of 
children, and when appropriate, to receive Medicaid 
reimbursement for the cost of providing some of these services 
to Medicaid beneficiaries. There is a strong concern that this 
audit has had a chilling effect and has led supervisory unions 
to limit the services they provide under IEPs because they are 
unsure they will be able to receive Medicaid reimbursement for 
these services. The Congress could not have been clearer in its 
intent that it wants Medicaid to support the goals of IDEA; 
these narrow interpretations of the law are inconsistent with 
that intent.
    Question. Vermont has been trying for two years now to gain 
approval from CMS of its Early and Periodic, Screening, 
Diagnostic, and Treatment (EPSDT) program.
    The uncertainty that surrounds the administration of this 
program has led 25% of the Supervisory Unions in Vermont to 
withdraw from the program. They did not want to get caught in 
an audit if Vermont's plan was disallowed two years after its 
submission.
    I fear the lack of response from CMS has hurt Vermont 
schools any may have denied children access to care.
    What can be done to provide some certainty to the states so 
that they can focus on providing care to our neediest children?
    Answer. The Early and Periodic Screening, Diagnostic and 
Treatment Services (EPSDT) benefit is a mandatory Medicaid 
benefit that provides critical protection to children who 
receive Medicaid. EPSDT ensures that all children are screened 
on a regular basis, and when a disability or health condition 
is diagnosed, it ensures that Medicaid covers the treatment, 
even if a state does not provide the same service to its adult 
beneficiaries. EPSDT services can do much to help children 
maintain the ability to function as independently as possible, 
as well as improve their abilities, prevent secondary 
conditions, and reduce the incidence of increased disability. 
Access to these critical services can help families avoid 
institutionalization and keep their children at home. A 
critical outcome of EPSDT is that it allows children with 
disabilities to attend public schools in their neighborhoods or 
communities. According to the National Mental Health 
Association, a recent national survey found that mental illness 
begins very early in life, with 50% of lifetime cases starting 
by age 14. The problems caused by early onset of these and 
other illnesses is compounded by the fact that treatment is 
often delayed for ten or more years increasing the risk of 
school failure, teenage childbearing, unstable employment, 
early marriage, marital instability and violence. The early 
screening and diagnosis provided by the EPSDT benefit in 
Medicaid is critical to detecting and treating mental illnesses 
and a variety of disabilities and other conditions that can 
strike so early in life.
    In Vermont, it is a common practice to use school nurses to 
conduct outreach and refer for treatment children covered by 
Medicaid who are eligible for services under EPSDT. Since not 
all of a school nurse's time should be billed to Medicaid, 
school systems have been instructed by CMS to rely on time 
studies to determine the percentage of time that school nurses 
are involved in such activities. Under this approach, a time 
study is conducted to determine the amount of time that school 
nurses (or other personnel) expend on outreach, find Medicaid 
providers, and facilitate enrollment in services. Schools then 
seek reimbursement from Medicaid based on the percentage of 
time that can be attributed to providing a Medicaid based on 
the percentage of time that can be attributed to providing a 
Medicaid beneficiary with EPSDT services, as determined by the 
time study.
    Over the past ten years, the manner in which states can 
seek Medicaid reimbursement for school based services has been 
subject to controversy. During much of this time, there was no 
national policy on this issue and CMS regions had differing 
rules regarding permissible services and permissible 
reimbursement standards. In May 2003, CMS issued the Medicaid 
School-Based Administrative Claiming Guide, establishing a 
national standard for Medicaid payment for school-based 
services. The guide cites OMB Circular A-87 to state that 
``substitute systems'' for allocating salaries and wages to 
federal awards are permitted in Medicaid. These sampling 
systems (including time studies), however, are subject to 
approval by the funding agency.
    While I do not have the knowledge or expertise to respond 
to the specific issues affecting Vermont, it appears that the 
delay relates to federal approval for a time study as a 
substitute system for allocating salaries and wages to 
Medicaid. I have learned many Vermont stakeholders share the 
concern raised by Senator Jeffords that the lack of approval by 
CMS has led to considerable uncertainty and the end result is 
that children with disabilities may not be receiving all of the 
services they need; and for which Medicaid reimbursement should 
be available. Given the urgency of ensuring that children on 
Medicaid have access to the full range of school-based services 
that they need, consistent with EPSDT, federal policy makers 
should be required to provide a timely review of state 
submission of substitute sampling systems, and if the state 
proposal is deficient in some way, to provide technical support 
to the state so that it may construct a suitable system. Given 
the long history with this issue, it may be necessary for the 
Congress to press CMS to clarify permissible practices for 
states in seeking Medicaid reimbursement for providing Medicaid 
services in school settings to Medicaid-eligible children. As a 
first step, I encourage the Aging Committee to request from CMS 
all outstanding requests for substitute sampling systems used 
to bill for school-based services, including all approved and 
rejected sampling systems along with the date of action by CMS.

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