[Senate Hearing 113-275]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-275
 
                      PRESIDENT'S FISCAL YEAR 2014 
                         HEALTH CARE PROPOSALS 

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2013

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance


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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHN CORNYN, Texas
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado
ROBERT P. CASEY, Jr., Pennsylvania

                      Amber Cottle, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Baucus, Hon. Max, a U.S. Senator from Montana, chairman, 
  Committee on Finance...........................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                         ADMINISTRATION WITNESS

Sebelius, Hon. Kathleen, Secretary, Department of Health and 
  Human Services, Washington, DC.................................     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:
    Opening statement............................................     1
    Prepared statement...........................................    29
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    32
Sebelius, Hon. Kathleen:
    Testimony....................................................     5
    Prepared statement...........................................    34
    Responses to questions from committee members................    41

                                 (iii)


                      PRESIDENT'S FISCAL YEAR 2014
                         HEALTH CARE PROPOSALS

                              ----------                              


                       WEDNESDAY, APRIL 17, 2013

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:10 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max 
Baucus (chairman of the committee) presiding.
    Present: Senators Cantwell, Nelson, Menendez, Cardin, 
Bennet, Casey, Hatch, Grassley, Crapo, Roberts, Thune, Isakson, 
Portman, and Toomey.
    Also present: Democratic Staff: Mac Campbell, General 
Counsel; David Schwartz, Chief Health Counsel; and Matt Kazan, 
Health Policy Advisor. Republican Staff: Chris Campbell, Staff 
Director; Kim Brandt, Chief Healthcare Investigative Counsel; 
and Stephanie Carlton, Health Policy Advisor.

   OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 
            MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Warren Buffett once said, ``Price is what you pay. Value is 
what you get.'' This morning we are here to discuss the health 
care proposals in the President's fiscal year 2014 budget. As 
we do, we must determine the value in what we are paying. 
Specifically, I would like to focus on the value of Medicare 
and Medicaid. These programs touch the lives of more than 100 
million Americans, nearly 1 in every 3 citizens.
    I also want to examine the progress the administration has 
made in implementing the health reform law. If the 
administration implements it correctly, millions more Americans 
will gain access to health care next year as a result of the 
law. These programs fall under the purview of our witness this 
morning, Secretary Kathleen Sebelius, and the President's 
budget affects all of these programs.
    I am sure you are quite busy, Madam Secretary. In just 167 
days, millions of Americans will begin enrolling in health 
insurance plans in their State's marketplace. Time is short. 
You need to use each of these days to work with States to make 
sure the marketplaces are up and running, ready to help 
uninsured Americans access affordable coverage.
    The President's budget requested a total of $5.2 billion 
for program management at the Centers for Medicare and Medicaid 
Services. Of this, $1.5 billion will be devoted to establishing 
and supporting the health insurance marketplaces.
    I am concerned that not every State, including Montana, 
will have an insurance marketplace established in time. I want 
to hear how the money requested in the budget will be used to 
ensure those marketplaces will be ready to go on Day 1. The 
President's budget also requests $554 million for outreach and 
education for the health and insurance marketplaces.
    For the marketplaces to work, people need to know about 
them. People need to know their options, how to enroll. I would 
like to hear the administration's outreach plan leading up to 
the enrollment period which begins October 1st. What has been 
done? I want these new marketplaces to be simple and 
successful.
    I think it would be good that small businesses be able to 
focus on job creation, not confusion. More importantly, I want 
to know the plan moving forward to better communicate the 
benefits of the Affordable Care Act. I am concerned that lack 
of clear information is leading to misconceptions and 
misinformation.
    People generally dislike what they do not understand. I 
hear from people on the ground in Montana that they are 
confused about the law. People are worried about the impacts of 
new rules and how marketplaces will affect their families and 
businesses. I especially hear that from small businesses in 
Montana. They just do not know what to do.
    I reached out to Steph Larsen, who works in Montana with 
the Center for Rural Affairs. She has been traveling across the 
State, talking to business groups and consumers about the new 
marketplaces. She reported that few people are attending the 
informational meetings, and those who are often express a lack 
of understanding about the marketplaces and what they offer. 
Steph told my staff, ``There is a lot of misinformation about 
how all that is going to work.''
    This difficulty is compounded by the unknown as to what the 
marketplaces will look like. My constituents do not understand 
the role of tax credits, because they simply do not have enough 
information. The administration needs to do a better job.
    And it is not just Montanans. There was a poll last month 
by the Kaiser Family Foundation that found that 57 percent of 
Americans say they do not have enough information about the law 
to understand how it will affect them.
    The lack of clear information is leading people to turn to 
incorrect information. In fact, 40 percent of Americans thought 
the law establishes a government panel to make end-of-life 
decisions for people on Medicare. Forty percent thought that 
under the Kaiser poll. Of course, the law does not provide 
that.
    The poll also found that 57 percent of Americans thought 
the law includes a public option. Of course, the law does not 
do that either. The administration's public information 
campaign on the benefits of the Affordable Care Act, I think, 
deserve a failing grade. We need to fix it.
    The budget also offers belt-tightening measures to address 
the deficit. The President's budget proposes $379 billion in 
Medicare and Medicaid spending reductions. There are some 
proposals I agree with to cut our debt: for instance, wealthy 
beneficiaries should pay higher premiums.
    Also, we should not pay private plans offering Medicare 
benefits at a higher rate than traditional Medicare. And 
efforts to root out fraud must be strengthened, because every 
dollar invested in fighting fraud generates a 500-percent 
return in taxpayers' money received. That is good.
    But there are other policies that concern me. I am 
concerned the proposed level of cuts to nursing homes may be 
too high and reduce access to care. I also have concerns over 
the President's chained CPI proposal. Moving to chained CPI not 
only impacts Social Security, it also reduces payments to 
Medicare providers and increases out-of-pocket costs for some 
seniors.
    Cutting Social Security and Medicare will hit our seniors 
with a one-two punch. These chained CPI changes are on top of 
the $360 billion in cuts to Medicare that the President 
specified in his budget. Cutting our debt will require 
compromise. Everyone will need to pitch in, but we cannot 
balance the budget on the backs of America's seniors.
    A plan to reign in our budget deficits cannot just be cuts 
to Medicare. It cannot just be a package of tax increases. We 
need a balanced approach that is fair to all. The 
administration's budget also recognizes the need to work with 
Congress to reauthorize the Temporary Assistance to Needy 
Families, otherwise known as TANF.
    This program is a vital lifeline for our Nation's poorest 
families. I look forward to working with my Finance Committee 
colleagues to update the TANF program so that it is a more 
efficient job creator and a pathway out of poverty.
    I am happy the budget makes an investment of $5.9 billion 
in early learning, including child care. This will allow us to 
make sure over 100,000 more kids start off on the road to 
success with early education. Montana families understand the 
value of good education in maintaining our responsibilities as 
parents and neighbors.
    Secretary Sebelius, as we think about these issues and 
their effect on the budget, let us remember Mr. Buffett's 
advice. While the price is what we see in the budget, the value 
of what we receive is what matters.
    [The prepared statement of Chairman Baucus appears in the 
appendix.]
    The Chairman. Senator Hatch?

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. Thank you for 
scheduling today's hearing. Secretary Sebelius, we want to 
thank you for taking time to come here to speak to us today.
    Last week, the President released his proposed budget for 
fiscal year 2014. Although the budget was 65 days late, it does 
not appear that the administration used that extra time to find 
ways to address the critical problems facing our country.
    Perhaps most significantly, the President's budget fails to 
address the fundamental challenge of health care entitlement 
spending in any significant way. What this document lacks in 
courage, it more than makes up for in the same partisan 
rhetoric and policies.
    Keep in mind, CBO Director Doug Elmendorff has stated that 
our health care entitlements, Medicare and Medicaid, are our 
``fundamental fiscal challenge.'' Apparently, if this budget is 
any indication, the administration is not interested in taking 
up this challenge.
    Under the President's budget, Medicare and Medicaid 
spending will reach nearly $11 trillion over the next decade. 
Annual mandatory health spending will nearly double, from $771 
billion in 2013 to $1.4 trillion in 2023. That is, if their 
numbers are right. Although we are projected to spend nearly $7 
trillion on Medicare over the next 10 years, the Hospital 
Insurance trust fund will continue to run significant deficits.
    According to the 2012 Medicare trustees' report, the trust 
fund has $5.3 trillion in unfunded liabilities, and it is 
expected to be insolvent by the year 2024. Under this budget, 
the fund will continue on its path to insolvency.
    The budget also fails to address many problems facing 
Medicaid, even though we will be spending more than $4 trillion 
on that program over the next 10 years. Under this budget, 
Federal Medicaid spending as a percent of GDP will increase by 
25 percent, from 1.6 percent to 2 percent over the next decade, 
thanks to the expansion of the program courtesy of Obamacare.
    It is unacceptable that a program that is the biggest line 
item in most State budgets and is crowding out essential 
spending in both education and public safety is barely 
addressed. All told, we will spend more than $22 trillion over 
the next 10 years on our major entitlement programs: Medicare, 
Medicaid, and of course Social Security.
    The President's budget would reduce that amount by only 
$413 billion, or roughly 1.8 percent. No one seriously disputes 
that entitlement spending is the main driver of our debts and 
deficits, yet for the most part this budget has opted to ignore 
that reality and kick the proverbial can even further down the 
road.
    These programs need serious structural reforms if they are 
going to be around for future generations. Entitlement reform 
is one of the fundamental challenges of our time. It will 
require a united effort from members of both parties.
    Sadly, this budget fails to show this much-needed courage. 
I hope that we all will be willing to come to the table on 
serious structural reforms to our entitlement programs. I 
believe the President wants to do the right thing. What we need 
now is action. As you know, on January 1st I went to the Senate 
floor and unveiled five bipartisan entitlement reform 
proposals, five structural reforms to Medicare and Medicaid 
that have been supported by both Republicans and Democrats in 
the recent past.
    I have put these ideas forward in hopes of starting a 
bipartisan conversation on entitlement reform. I have shared 
these proposals with the President, and I am ready and willing 
to work with him on solutions to these problems.
    Secretary Sebelius, I will look forward to talking with you 
about these critical issues, and I want to thank you once again 
for being here, and I want to thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. Welcome, Secretary Sebelius. We appreciate 
you coming here. You have a big job, and we wish you the very 
best. Your full statement will be in the record. Just tell us 
what you think, and let her rip.

 STATEMENT OF HON. KATHLEEN SEBELIUS, SECRETARY, DEPARTMENT OF 
           HEALTH AND HUMAN SERVICES, WASHINGTON, DC

    Secretary Sebelius. Good morning. Thank you, Chairman 
Baucus, Ranking Member Hatch, and members of the committee. I 
appreciate the opportunity to be with you today to discuss the 
President's 2014 budget for the Department of Health and Human 
Services.
    This budget supports the overall goals of the President's 
budget by strengthening our economy and promoting middle-class 
job growth. It ensures that the American people will continue 
to benefit from the Affordable Care Act.
    It will provide much-needed support for mental health 
services and will take steps to address the ongoing tragedy of 
gun violence. It strengthens education for our children during 
their critical early years to help ensure they can succeed in a 
21st-century economy. It secures America's leadership in health 
innovation so that we remain a magnet for the jobs of the 
future. It helps reduce the deficit in a balanced, sustainable 
way.
    I look forward to answering the members' questions about 
the budget, but first I would like to briefly cover a few of 
the highlights.
    The Affordable Care Act, signed into law in March of 2010, 
is already benefitting millions of Americans. Our budget makes 
sure we can continue to implement the law. By supporting the 
creation of new health insurance marketplaces, the budget will 
ensure that, starting next January, Americans in every State 
will be able to get quality insurance at an affordable price.
    Now, our budget also addresses another issue that has been 
on all of our minds recently: mental health services and the 
ongoing epidemic of gun violence. I know, Mr. Chairman, that 
the Senate later today will deal with legislation around 
keeping dangerous individuals from getting their hands on a 
gun.
    As a Secretary of Health, a mother, and a new grandmother, 
I hope that the Senate gives very serious consideration to that 

common-sense bipartisan legislation that could indeed make this 
tragedy that is seen every day on streets across America less 
frequent than we see each and every day.
    Now, we know that the vast majority of Americans who 
struggle with mental illness are not violent, but recent 
tragedies have reminded us of the staggering toll that 
untreated mental illness can take on our society. That is why 
our budget also proposes a major new investment to help ensure 
that students and young adults get the mental health care they 
need, including training of 5,000 additional mental health 
professionals to join our behavioral health workforce.
    Our budget also supports the President's call to provide 
every child in America with access to high-quality early 
learning services. It proposes additional investments in new 
Early Head Start-Child Care Partnerships, and it provides 
additional support to raise the quality of child care programs 
and promote evidence-based home visiting for new parents.
    Now, together, these investments will create long-lasting, 
positive outcomes for families and provide huge returns for the 
children and society at large. Our budget also ensures that 
America remains a world leader in health innovation. The 
budget's significant new investments in NIH will lead to new 
cures and treatments and help create good jobs.
    The budget provides further support for the development and 
use of compatible electronic health record systems that have a 
huge potential for improving care coordination and public 
health. Even as our budget invests for the future, it helps to 
reduce the long-term deficit by making sure that programs like 
Medicare are put on a more stable fiscal trajectory.
    Medicare spending per beneficiary grew at just four-tenths 
of 1 percent in 2012, thanks in part to the $800 billion in 
savings already included in the Affordable Care Act. The 
President's 2014 budget would achieve even more savings. For 
example, the budget will allow low-income Medicare 
beneficiaries to get their prescription drugs at lower Medicaid 
rates, resulting in savings of more than $120 billion over the 
next 10 years.
    In total, the budget would generate an additional $370 
billion in Medicare savings over the next decade on top of the 
savings already in the Affordable Care Act. To that same end, 
our budget also reflects our commitment to aggressively 
reducing waste across our Department.
    We are proposing an increase in mandatory funding for a 
health care fraud and abuse control program, an initiative that 
saved the taxpayers nearly $8 for every $1 spent last year. We 
are investing in additional efforts to reduce improper payments 
in Medicare, Medicaid, and CHIP, and to strengthen our Office 
of Inspector General.
    This all adds up to a budget guided by the administration's 
north star of a thriving middle class. It will promote job 
growth and keep our economy strong in the years to come, while 
also helping to reduce the long-term deficit.
    Now, I know many of you have questions, and I am happy to 
take those now. Again, thank you for having me here today.
    The Chairman. Thank you, Madam Secretary.
    [The prepared statement of Secretary Sebelius appears in 
the appendix.]
    The Chairman. I frankly have to leave this instant to take 
a phone call and will be right back. Senator Hatch, why don't 
you take over, and I will be right back?
    Senator Hatch [presiding]. Secretary Sebelius, I am curious 
as to how your Department is funding overall efforts under the 
health law, now that much of the initial funding has been 
depleted. A quick review of the HHS budget in brief seems to 
suggest that you are diverting funds from other areas of the 
Department to put towards implementation. Some estimates 
estimate as much as half a billion dollars might be moved from 
other portions of the budget.
    Would you describe the authority under which you believe 
you have the ability to conduct such transfers, and whether or 
not you believe that Congress should be notified when these 
transfers occur?
    Secretary Sebelius. Senator, we did request additional 
funding with the continuing resolution in 2013 and were not 
given additional resources by the U.S. Congress, although we 
have the duty to implement the law. So I have, for 2013, used 
both my transfer authority, which is statutorily in our budget, 
as well as the non-recurring expense fund, for one-time IT 
costs, and a portion of funding for the prevention fund to use 
for outreach and education.
    You heard Chairman Baucus describe the level of concern and 
questions in States around the country, and we want to make 
sure that Americans fully understand the benefits that are 
coming their way and the decisions that they can make. We have 
requested in the budget that is before you, in the 2014 budget, 
an additional $1.5 billion to fully implement the Affordable 
Care Act.
    Senator Hatch. All right.
    Federal Medicaid spending as a percentage of the economy, 
according to the budget, will increase by 25 percent over the 
next decade, driven by the Affordable Care Act expansions in 
long-term care spending. Now, that is more than $4 trillion 
over the next decade, and that is not even counting the 
trillions of dollars States will spend on Medicaid.
    According to the National Governors Association, ``Medicaid 
represents the single-largest portion of total State 
spending.'' Now, Madam Secretary, this budget backs off of 
prior proposals to lower spending on Medicaid, such as the 
blended FMAP rate and provider tax reductions.
    Now, this is especially discouraging since there are 
bipartisan proposals that would have achieved significant 
Medicaid savings and improved patient care. In fact, your 
predecessor under President Clinton, Secretary of Health and 
Human Services Donna Shalala, said that Medicaid per capita 
caps mean ``there are absolutely no incentives for States to 
deny coverage to a needy individual or to a family. It is a 
sensible way to make sure that people who need Medicaid are 
able to receive it.''
    Unfortunately, your fiscal year 2014 budget only proposes 
to save one-half of 1 percent in Medicaid, and it lacks any 
serious reforms to the Medicaid program. Now, my question would 
be, why does your budget completely fail to address one of the 
country's fundamental, most serious challenges?
    Secretary Sebelius. Well, Senator Hatch, I think there is a 
very positive story to tell about Medicaid. Believe me, as a 
former Governor, I am dealing with my former colleagues and the 
CEOs of States around the country each and every day. Medicaid 
spending last year, between 2011 and 2012, actually decreased 
by almost 2 percent per beneficiary--decreased by 2 percent. 
That is virtually unheard of.
    We are engaged in a series of what I would call very 
innovative strategies around the dual-eligible population, 
often those individuals whom you have just referred to in 
nursing homes, around progress on reforming high-quality, 
lower-cost Medicaid health care delivery, working with States 
who are engaged in just exactly what States do the best, which 
is very innovative strategies looking at their overall health 
care spending.
    So I think that the Medicaid story is one that is 
enormously positive, where Governors are very much engaged. We 
have been very pleased at the number of Governors who are 
interested in expanding their Medicaid population and providing 
health benefits for some of the lowest-income workers in a very 
cost-effective strategy.
    Senator Hatch. Would you be open to work with us on 
bipartisan ideas to improve patient care and of course save 
money in the Medicaid program?
    Secretary Sebelius. I would be happy to work with you and 
others on that.
    Senator Hatch. Well, thank you so much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    As you somewhat know, Madam Secretary, I am a bit of a 
Johnny One-Note on implementation of the law, especially with 
respect to sign-ups and exchanges, et cetera, and am very 
concerned that not enough is being done so far. Very concerned. 
When I am home, small businesses have no idea what to do, what 
to expect. They do not know what the affordability rules are. 
They do not know when penalties may apply. They just do not 
know.
    I mean, I was talking to one CPA. He is not histrionic; he 
is being straight with me. He says, ``Max, I just have to tell 
you, my clients, small business people, are just throwing their 
hands up, and I do not know what to tell them.'' That is just 
from a small business perspective, let alone all the other 
issues that are going to be arising here.
    As I discussed earlier and as you well know, a lot of 
people have no idea about all of this. People just do not know 
a lot about it. The Kaiser poll pointed that out. I understand 
you have hired a contractor. I am just worried that that is 
going to be money down the drain, because contractors like to 
make money more than they like to do anything else. That is 
their job. They have to worry about their shareholders and 
whatnot.
    Also, the other agencies are all involved. I think people 
are going to be really confused. You could maybe give some 
thought to one-stop shopping somehow, so you go to one 
location, a business person, to get the answers. I just would 
tell you, I just see a huge train wreck coming down. You and I 
have discussed this many times, and I do not see any results 
yet. What can you do to help all these people around the 
country wondering, ``What in the world do I do? How do I know 
what to do?''
    Secretary Sebelius. Mr. Chairman, as you know--and we have 
had these discussions a number of times--we certainly take 
outreach and education very, very seriously. It is one of the 
reasons that I think we were incredibly disappointed that our 
request for additional outreach and education resources was not 
made available in the CR of 2013.
    Having said that, we have engaged in efforts with the Small 
Business Administration, which is doing regular meetings around 
the country with our regional personnel. We have just released 
a Request for Proposal for on-the-ground navigators, 
individuals who come out of the faith community, out of the 
business community, out of the patient community, out of the 
hospital community, who will be available to answer questions, 
walk people through scenarios, hold seminars.
    We do regular seminars and webinars, but we also understand 
that people have a lot of questions, and we are deploying as 
many resources as we can to answer those questions and get 
folks ready to engage in open enrollment on October 1st.
    The Chairman. Well, do you have benchmarks? Do you have 
dates by which a certain number of people know what is going 
on? I mean, all these polls, for example, show that we are not 
making much headway. Do you have a goal that 2 months or 30 
days from now, when that same poll is taken, that that 
percentage is down by X percent, in 60 days from now it is down 
by X percent, so people know where to go and what to do?
    Are you surveying the professional accountants who work 
with businesses to get a certain percent who feel confident? I 
mean, you need data. Do you have any data? You have never given 
me any data, you just give me concepts, frankly. Government is 
not a business, but you are going to have to have some data 
benchmarks to figure out how much progress you are or are not 
making.
    Secretary Sebelius. Well, we do not have benchmarks for how 
many people know what. We do not intend to do polling and 
testing in terms of what people know. We do have some very 
specific benchmarks around open enrollment, and we have a 
campaign and a plan to lead up to open enrollment.
    The Chairman. And what is it, the campaign and the plan?
    Secretary Sebelius. Well, Mr. Chairman, as we have 
discussed, there will be people on the ground starting this 
summer. There will be----
    The Chairman. How many?
    Secretary Sebelius. I cannot tell you at this point.
    The Chairman. At what point in the summer? Geographically, 
what States? This is the kind of information I am asking for. 
You are only going to be able to do a decent job if you know 
the answers to these questions.
    Secretary Sebelius. Yes, sir. And I would be happy to give 
you all of the specifics. As I said, we just put out the 
Request for Proposal. I cannot tell you about the numbers 
because we do not have the information back yet about how many 
people in which States are going to be actively engaged on the 
ground, but I will be happy to share that with you as we move 
forward.
    The Chairman. And it depends upon States that have 
exchanges and those that do not. There are just a lot of 
factors here.
    Secretary Sebelius. We will be focusing the Request for 
Proposal for navigators at this point on the States where the 
Federal marketplaces will be in place.
    The Chairman. What is a navigator?
    Secretary Sebelius. A navigator is going to be an 
individual who will go through training and be available to 
help educate individuals or groups of people----
    The Chairman. How many Americans know what a navigator is?
    Secretary Sebelius. Pardon me?
    The Chairman. How many Americans do you think know what a 
navigator is?
    Secretary Sebelius. I have no idea.
    The Chairman. I will bet you it is about--well, we have 2 
here. All right. You can understand my angst. I am going to 
keep on this until I feel a lot better about it. Thank you.
    Next, Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman. Madam Secretary, 
thank you for your public service.
    Back when we passed the health care bill in this committee, 
I was kind of lonely in offering an amendment. There was great 
angst that was taken in the White House for my amendment, which 
was that the Federal Government, in paying for drugs for 
Medicaid recipients, when they became 65 years of age, they 
were suddenly eligible under Medicare for their drugs with the 
prescription drug bill.
    But, lo and behold, the U.S. Government, the taxpayers of 
America, were not going to pay for the price of the drugs with 
the discounts or rebates that they paid when they were 64 years 
of age, but, when they turned 65, they got their drugs under 
Medicare, and we were paying premium prices for the same drugs, 
for dual-eligibles.
    My amendment was defeated 10 to 13, and a very strong 
position was taken by the White House in opposition. The 
President has reversed course in this budget. It, when I 
offered the amendment, saved $117 billion over 10 years. Now it 
is $123 billion in savings in the President's budget, and CBO 
scores it and says it is something in excess of $140 billion. 
Why the change?
    Secretary Sebelius. Well, Senator, I think that the wisdom 
of your original proposal has finally been seen. There is no 
question--again, you and I have both worked at the State level 
in prior lives. Having negotiated Medicaid rates as a Governor 
and then having that same individual, as you say, move into a 
premium class, did not make a lot of sense, particularly as we 
are looking to, not only save dollars in these very important 
public insurance programs, but save dollars for the individual 
who is, again, responsible for part of the drug benefit.
    So I think this proposal captures what you were trying to 
do years ago and will save these important programs some 
significant dollars at the State and Federal level, which is 
all good news.
    Senator Nelson. Well, you know the attacks against the 
President's proposal and the amendment 4 years ago. It is going 
to reduce research, it is going to limit access, it is going to 
result in higher consumer prices. How do you respond to those 
attacks?
    Secretary Sebelius. Well, I think that we have a pretty 
good track record on Medicaid negotiated rates and the wide 
variety of drugs available to individuals in the Medicaid 
program. There is no question that the dual-eligible 
population, the approximately 9 million Americans who qualify 
for both Medicare and Medicaid, are often the most expensive 
population in any Medicaid program in any State in the country, 
so having a sensible, and I think proven, way to lower some 
costs around that population, while not slashing benefits, is a 
win-win situation.
    Senator Nelson. Madam Secretary, we are losing a lot of 
money to Medicare fraud, Medicaid fraud as well, and we are 
going to be having a hearing on this in the Aging Committee. 
Can you give us some sense of, do you see that we are going to 
be making any progress, and what new activities are trying to 
stop this hemorrhaging of all the money?
    It is so bad in Miami that people open up a store front, 
and there is no activity in the store front, and they start 
billing Medicaid. Of course, just recently there was this 
person down there who was billing, and ended up getting $50 
million for mental health services. That is one way to save a 
lot of money.
    Secretary Sebelius. Well, Senator, I could not agree more. 
I think that is one of the reasons the President's budget has 
asked for additional mandatory fraud resources, because we have 
a very good story to tell. This President asked the Attorney 
General and me to elevate the anti-fraud effort to a Cabinet-
level position. We created a new joint task force. 
Unfortunately, in your State are some of the hot spots, I would 
say, in the country.
    But we have implemented a variety of strategies: more on-
the-ground strikes, more prosecutions, more money than ever 
before. In fact, we have doubled the amount returned to both 
the Medicare trust fund and Medicaid beneficiaries but, in 
addition, implemented re-credentialing for some of the known 
areas where providers were just entering the program and 
billing.
    We have a much stricter standard to get in in the first 
place. We also have implemented predictive modeling, a 
computer-based system which tries to track the billing 
irregularities the same way a credit card company could go 
after someone who suddenly charged five flat screen TVs from 
Dubai to your credit card, and they can spot that and call you 
in advance and stop the payment going out the door. We finally 
have that capability within the Medicare system. It never 
existed before. So we are trying to approach this from multiple 
fronts.
    I think the story is good, but there is a lot more we could 
do. Returning almost $8 for every $1 we spent last year I think 
is very good news, but clearly this is a huge program. 
Thousands of providers, millions of dollars go out the door 
every day. We take fraud and abuse incredibly seriously and 
want to use more resources to really beef up the efforts that 
have proven successful.
    Senator Nelson. Mr. Chairman, in closing I would just say 
that all the new doctors we are going to need to implement the 
health care bill, we cannot keep cutting graduate medical 
education, which is a Medicare subsidy for residents. That has 
happened to my State, it has happened to your State, it has 
happened to Nevada. That is inadequate in the President's 
budget.
    Thank you, Mr. Chairman.
    Senator Hatch [presiding]. Well, thank you, Senator Nelson.
    Senator Roberts, you are next.
    Senator Isakson. Mr. Chairman? Mr. Chairman? Down this way.
    Senator Hatch. Yes?
    Senator Isakson. Could I be so rude as to interject for 1 
second? Last week I accommodated Senator Roberts and let him 
take one question out of my time so he could go to a meeting. I 
have to leave too, but I have one relevant point for Ms. 
Sebelius with regard to Chairman Baucus's question on the 
navigators. So, if Mr. Roberts would yield for just one second?
    Senator Roberts. I would be more than happy to yield to my 
distinguished colleague. It's ``Se-bee-lius,'' by the way, not 
``Se-bay-lius.'' He was the composer, she is the Secretary. 
[Laughter.]
    Secretary Sebelius. From my Senator.
    Senator Isakson. I stand corrected.
    Senator Hatch. Both are good at composition, is all I can 
say.
    Senator Isakson. Right. Madam Secretary, Senator Baucus 
asked you the question about these navigators.
    Secretary Sebelius. Yes, sir.
    Senator Isakson. I understand you are about to award $54 
million in contracts to hire navigators in the States with 
exchanges. Is that correct?
    Secretary Sebelius. That is correct, sir.
    Senator Isakson. Yet, CMS's rule on medical loss ratio is 
putting most agents and insurance brokers in the business of 
selling health insurance out of business because of the 85-
percent threshold for the medical loss ratio.
    So we are spending $54 million to hire navigators, yet, 
because of the rule on the medical loss ratio, we are cutting 
out most of the people who provide these services in the 
private sector, which costs the government nothing.
    I have legislation with Ms. Landreiu and some others to 
amend that, because I think we need to revisit that medical 
loss ratio rule and see what effect it actually has on people 
getting credible information from people who make a living 
doing it, and have for years.
    Secretary Sebelius. Well, Senator, I would be happy to take 
a look at the legislation. There is no prohibition, first of 
all, for agents and brokers to be navigators. Second, exchanges 
at the State level can designate agents and brokers as part of 
the funding stream to do the outreach, but we certainly have 
not eliminated their ability to do their jobs and to actually 
bring people into insurance companies as they have for a long 
time.
    The medical loss ratio, as you mentioned, deals with what 
is characterized as medical costs versus what is characterized 
as overhead costs. You are correct that the rule does not 
include an agent and broker's salary or commission as part of 
what is characterized as a medical cost.
    Senator Isakson. I appreciate your looking at it, because, 
as it is applied, what it basically does is preclude those 
people from being compensated by the way the ratio applies. 
That is the reason that we think it ought to be----
    Secretary Sebelius. Well, they could easily be in the 20 
percent of overhead. They just cannot be counted in the--it is 
basically 80/20, but they cannot be counted in the 80 percent 
that has to go to medical costs.
    Senator Isakson. Thank you very much.
    Thank you, Senator Roberts. I appreciate it.
    Senator Hatch. Senator Roberts? Re-start the time for him.
    Senator Roberts. I thank the Senator for his contribution 
and his question. I know the Secretary will be taking a hard 
look at that. And she was an insurance commissioner for our 
State of Kansas prior to becoming Governor, so she certainly 
has that background.
    Madam Secretary, we have 83 hospitals, as I think you know, 
that are designated critical access hospitals. In the budget on 
page 53, I noticed that we are going to take a whack--another 
Lizzie Borden whack--at the critical access hospitals' Medicare 
reimbursement rate, and there is a mileage requirement. We are 
back to that.
    I can remember years ago when we had somebody from--at that 
point it was Health, Education, and Welfare--indicating it was 
100 miles, but it was all right to not include Goodland because 
they had 4-wheel drive. I could never figure that out. So, I 
hope we do not go back to that. I wish you would take a look at 
the critical access situation. The chairman of the committee 
has a lot of feeling about that in Montana, and I know in a lot 
of other rural areas, so, if you could take a look at that, I 
would appreciate it.
    Then, on page 56 of the budget, there is a line here in 
regards to IPAB. Well, my opinions about IPAB are well-known. I 
think we would probably be at odds with that, but I think they 
will ration patient care. They are going to set the Medicare 
reimbursement according to a formula here. I will not read the 
whole thing. It is a growth rate to meet the target, and they 
are going to save $4.1 billion. So we have $1.4 billion out of 
the critical access hospitals, $4.1 billion in regards to IPAB. 
They are not even set up yet.
    I just do not understand. They have not been set up, and we 
have no idea how the recommendations are going to be 
implemented, yet we are going to expand and strengthen them. I 
wish you would take a look at that and see if you could get 
back to us. I apologize for handing three questions to you, 
but, because of the time limit, I wanted to cover these three.
    About 53 people--we think 53 people--have died, and over 
700 people have become ill as a result of the meningitis 
crisis. I am talking obviously about pharmacy compounding. The 
FDA has put forth a legislative proposal which has been 
detailed on the Commissioner's blog, and she has stated: 
``Funding will be necessary to support the inspections and 
other oversight activities outlined in this framework, which 
could include registration or fees.''
    I am working on legislation, and so are the members of the 
committee, that would hopefully be of help here, both to 
guarantee the efficacy of the program and then access to 
compounding. It is not mentioned in the President's budget. I 
have looked, and we cannot get a cost estimate.
    If you could provide that, with regards to the legislative 
proposal put together by the Commissioner of FDA, I would 
greatly appreciate it. If you could comment on that or anything 
else that I have brought up, you have about 2 minutes.
    Secretary Sebelius. Well, I would be happy to, Senator. 
First of all, I will try to get a specific cost estimate for 
the very important legislation I think that you and your 
colleagues are working on with the Food and Drug 
Administration, which I think would give some additional 
authorities over the non-traditional compounding and make sure 
that traditional compounding can move forward.
    I do not think that the FDA has a legislative proposal that 
is specific. They have been working around some principles with 
the HELP Committee, so that may be part of the confusion. They 
do not have a draft piece of legislation. I think they have 
been providing technical assistance to the HELP Committee, but 
I will see where we are on a dollar recommendation.
    With IPAB, the President has recently sent to the 
leadership of the House and Senate, majority and minority, a 
request for recommendations for potential candidates. The 
legislation contemplates the President making appointments, but 
in consultation with the House and the Senate, so those letters 
have been received by leadership.
    The President's budget does suggest that the Independent 
Payment Advisory Board would not kick in unless Medicare 
spending exceeded the inflation by more than 0.5 perent, CPI 
plus 0.5 perent. We do not anticipate, according to the latest 
CBO initiatives, that that would hit until about 2019 on the 
track that we are on.
    So we are in the process of consulting with leadership 
around potential members, but, as you know, those members would 
have to be confirmed by the Senate, so there will be multiple 
steps and opportunities for consultation before that board 
would ever occur.
    Finally, I share your concern about the incredible 
importance of critical access hospitals, particularly in rural 
communities, and we will certainly take a look at the specifics 
in the budget and be back in touch.
    Senator Roberts. I appreciate that. Thank you.
    Secretary Sebelius. Certainly.
    Senator Hatch. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thank you.
    Madam Secretary, thank you for being here today and for 
your great public service. This is hard work that you are 
doing, especially with regard to health care, in addition to 
the other responsibilities you have. I appreciate the time we 
spent prior to the hearing.
    I wanted to ask you about children. But, as a preface to 
that, I wanted to note in the budget a couple of highlights, 
some of which you have already referred to, but the parts of 
the budget that focus specifically on children bear mentioning.
    The home visiting program, as well as Early Head Start and 
the Child Care Partnerships, both of which you have set forth 
on page 4, the Child Care Quality Fund, child support, and 
fatherhood initiatives, all of those are so important, and I 
want to commend you and the Department for that. I know that 
for NIH, the proposed increase is $471 million. That is 
commendable and necessary, despite all of the challenges we 
have. If we are not investing there, we are making a big 
mistake.
    But I wanted to focus on maybe two questions, really, on 
children. First, with regard to the Children's Hospital 
graduate medical education program, I am told that we have 
three great examples in Pennsylvania: two in Philly, one in 
Pittsburgh--with Children's in both cities, and then St. 
Christopher's in Philly. But I am told that these hospitals 
comprise less than 1 percent of all hospitals, yet train nearly 
half--the number, I guess, is 49 percent--of all pediatricians.
    This is a budget allocation which has been in the 6-figure 
millions. The proposal in the budget is just $88 million in 
funding for that program. I think that is a mistake. I do not 
agree with it. I do not know how we are going to get the 
trained pediatricians that we need and I think the Affordable 
Care Act contemplates, if we do not have that investment. If 
you could give us the rationale for that $88 million.
    Secretary Sebelius. Well, Senator, first of all, I do not 
disagree at all that the children's hospitals provide not only 
incredibly important service and health care for children, but 
also training opportunities for pediatricians, so they are sort 
of doing double duty.
    What the President's budget reflects is graduate medical 
education direct costs. What is eliminated from the budget 
recommendation is the overhead and administrative costs. We 
feel that this is sufficient to provide the number of residency 
slots.
    Often children's hospitals operate, frankly, at a more 
significant margin than other hospitals do, and it is not a 
choice we would have made in better budget times, but providing 
the direct costs for the number of residency slots that are 
currently in hospitals is one way to make sure that we train 
the pediatricians of the future.
    Senator Casey. Well, I hope we can spend some time on this, 
because, when you have that small of a percentage of hospitals 
providing that level of training, I think we should go back to 
work on that so we can get back to you and spend some time on 
that.
    I also wanted to ask--and I raised a similar question or 
two with regard to Marilyn Tavenner's confirmation hearing--how 
children will fare in the new world of the exchanges and how 
you see the Department's role in monitoring the impact on 
children with regard to the exchanges and making sure that, if 
a child would, under a different set of circumstances, get a 
particular level of care, that they are going to still be able 
to get that same kind of care and treatment under the 
exchanges.
    Secretary Sebelius. Well, I think it is a great question, 
Senator. The CHIP program, which does offer, I would say, 
enhanced benefits for children, as you know, continues to 
exist. One of the benefits for children that is sort of an 
indirect benefit, but I think can be very real, is that there 
is a lot of evidence that indicates that, if parents have 
insurance, children are more likely to go to the doctor on a 
regular basis.
    If the family does not have a health home, in spite of the 
fact that a child may have access to services, if the family 
really does not have family coverage, then the likelihood of 
actually accessing those services is significantly diminished. 
So I would say there are some value-added benefits around 
family coverage that do not exist right now that will be the 
case in the future.
    While the exchange programs will not have a specific 
mandated package of benefits for children, what I think does 
exist in the commercial market right now, particularly in the 
employer market which is being modeled as the benchmark plan, 
is a pretty robust set of services and supports around 
children's health, and it is there because of employee demand.
    So we will watch that very closely, and we would be 
delighted to continue to work with you and your office. I know 
looking out for American's children is certainly one of the 
areas that you have taken a great leadership role on, and we 
would be happy to work with you as these plans are being 
implemented.
    Senator Casey. I appreciate that. I hope, as some of the 
benefits from medical homes play out for families, that that 
will have a positive impact on kids, especially children with 
chronic and complex medical conditions.
    Secretary Sebelius. Well, certainly the medical home model, 
I think, and coordinated care models, both offer some enhanced 
benefits for children who have, as you say, chronic or multiple 
conditions. Right now, too often that care is segmented into a 
variety of specialists who do not talk to one another, who may 
not coordinate with the family, so I think testing some of 
those models around chronic conditions--while people often 
think of that as an older Americans issue, I think there are 
cases where certainly it will be of enormous benefit to some of 
our youngest patients.
    Senator Casey. Thanks very much.
    Senator Hatch. Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman.
    Madam Secretary, thank you for your extraordinary service 
during a very difficult time. I want to bring up a couple of 
subjects in regards to the implementation of the Affordable 
Care Act and how the budget submitted by the President would 
advance those goals. Shortly after the passage of the Act, you 
and I had a chance to talk about the commitment we made to 
minority health and health disparities, the elevation of the 
Institute at NIH and the offices in all the relevant agencies, 
including HHS.
    You made a commitment then to adequately fund those 
initiatives, and I thank you for following up on those 
commitments. There is some concern today as to whether there is 
adequate budget support to implement the type of grant-making 
in the offices, including your Office of Minority Health, and 
whether the Institute at NIH has adequate resources in order to 
make the type of progress that we would like to see made as a 
matter of what is right policy for this country, as well as 
smart policies that reduce health care costs.
    Can you just give me an update as to how your strategy is 
being implemented to fund this commitment?
    Secretary Sebelius. Yes, Senator. I think that there is no 
question that we have taken very seriously the charge to not 
only track health disparities, but reduce health disparities. 
The passage of the Affordable Care Act and the full 
implementation of the Affordable Care Act, I think, will 
advance that cause, probably faster than any other single thing 
that we could possibly do to close the gap in health coverage.
    Having said that, while the budget, I think, in some of the 
offices within the Secretary's office may have a reduction of 
some grant funds, the overall budget has a significant increase 
in funding for minority health issues, and that is one issue 
that we take very seriously. I think there are an additional 
couple hundred million dollars that are both in the Health 
Resources and Services Administration and some funding within 
the NIH.
    Unfortunately, NIH funding does not increase as 
significantly as we would like, and they also lost $1.5 billion 
through the sequester cuts. So we are in a more restrained 
situation I think than we would be otherwise, with not only a 
tight budget moving forward, but also a fairly significant cut 
in their grant-making authority that hit in 2013.
    Senator Cardin. Thank you. I understand the challenge of 
sequestration, and I would just urge us to be as strategic as 
we can to make sure that mission moves forward.
    Secretary Sebelius. Yes.
    Senator Cardin. I am going to make a request of you to 
personally take a look at a regulation that has been issued as 
it relates to pediatric dental care. Ms. Tavenner was before 
this committee, and I questioned her and then submitted 
questions for the record.
    As you are probably aware, you are in the process of 
implementing a regulation that would allow for stand-alone 
pediatric dental policies to have separate deductibles, with no 
assurance that in fact individuals will have that coverage. I 
believe both of those actions by HHS are contrary, clearly to 
the intent of Congress, but I think also contrary to the legal 
ability to issue such regulations.
    We intended that pediatric dental care be an essential 
benefit. ``Essential benefit'' means people have affordable 
coverage. A $700 deductible per child is not a quality plan, it 
is 2nd-class coverage. Most families will not reach $700 a year 
in pediatric dental care. Why would they then buy insurance, 
particularly if it is not going to be required? That to me is 
contrary to what Congress intended, and I believe it is 
contrary to law.
    So I would just ask if you would personally review this 
regulation and the legal basis of this regulation and make an 
independent judgment as Secretary as to whether you believe 
this is the right policy and the right legal path for us to 
take as it relates to pediatric dental care.
    Secretary Sebelius. Senator, I will commit to do that. I 
know that concerns have been raised about what is a proposed 
regulation. The comment period is still very much open, and so 
this is not a settled formula going forward. But I hear your 
concerns. We have heard them from a number of people, and I 
will commit to taking a personal look at exactly what the 
impact would be on the very families we want to serve.
    Senator Cardin. Thank you. I appreciate that, Madam 
Secretary.
    Secretary Sebelius. Sure.
    The Chairman. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Madam Secretary, welcome back to the committee. Thank you 
for being here.
    I have worked with several of my colleagues on this 
committee on a white paper which we issued yesterday, and it 
outlines concerns we have about the electronic health record 
program that was created by the stimulus bill.
    One of the chief concerns is that the program was not 
thoughtfully planned and that CMS and the Office of the 
National Coordinator for Health IT are insufficiently focused 
on the issue of interoperability.
    I am also concerned that the Office of the National 
Coordinator has a philosophy that is focused on simply pushing 
Federal taxpayer dollars out the door and using the dollars out 
the door as a measure of success of the program without 
sufficient oversight of those payments. I am wondering if you 
agree with that.
    Secretary Sebelius. I do not.
    Senator Thune. Well, it is noted in our report that 
providers simply self-report that they have met the necessary 
criteria to receive Federal incentive payments for adoption of 
health IT with no documentary evidence necessary.
    Your agency's Office of the Inspector General has warned 
that this is a potential problem. The Inspector General issued 
a report last year saying that Medicare ``does not verify the 
accuracy'' of the self-reported information by health providers 
claiming the incentives prior to the payment, and even noted a 
few examples of providers who had reported themselves eligible 
but had not actually met the requirements.
    So my next question is, do you agree that self-attestation 
is a problem in terms of them certifying themselves eligible?
    Secretary Sebelius. Well, Senator, we take the adoption of 
electronic health records very seriously. I cannot imagine any 
other industry which represents close to 17 percent of our GDP 
which is trading information on paper files.
    So this is a significant move forward. We have about one-
third of the individual providers online, with another third in 
the queue, and almost two-thirds of the hospitals are now in 
the process of adoption.
    I think what has to be attested to--my understanding is--
will be able to be tested more thoroughly when the 
interoperability standards go live in 2014, as you know, in 
Meaningful Use Stage 2. That is not yet up and running. There 
is a lot of concern.
    It is sort of the gold standard of electronic health 
records. If they cannot talk to each other, it is really not a 
venture that takes us very far. We understand that. But it is 
not live and running, and it has been the focus of both the 
Policy Committee and the Production Committee from Day 1.
    Senator Thune. Well, in responses to questions from this 
committee, Ms. Tavenner, the nominee to head CMS, stated in 
written comments that there will now be a delay in 
implementation of Stage 3. I asked the question. But given that 
it seems clear that the leap to interoperability is not 
possible from the already existing requirements for Stage 2 to 
Stage 3, what are your plans for Stage 3 that ensure taxpayer 
dollars are being wisely used to invest in interoperability?
    Secretary Sebelius. Well, again, we have not gotten to 
implementation of Stage 2 yet, so you may be reading the final 
chapter before we launch it.
    Senator Thune. Right.
    Secretary Sebelius. January of 2014 is when the portion of 
Stage 2 that deals with meaningful use will be up and running, 
and I think we have full plans and a timetable to then move to 
Stage 3. But we do not right now have a plan about what could 
or could not happen, because we need to fully implement Stage 
2.
    Senator Thune. But are the rules for Stage 2 not final?
    Secretary Sebelius. The rule is final? Yes. Yes.
    Senator Thune. All right. Well, in terms of----
    Secretary Sebelius. But it is not up and running yet. The 
timetable has not been reached.
    Senator Thune. The thing I guess I would say I am concerned 
about is, the leap from the current Stage 2 requirements, 
particularly with regard to interoperability, is going to be 
very difficult in terms of the challenge that is going to be 
faced by a lot of rural providers. So my next question is, what 
are you doing to ensure that small rural providers' needs are 
being considered in terms of Stage 2, and then ultimately Stage 
3?
    Secretary Sebelius. Well, Senator, part of the framework of 
this implementation was really to create information and 
technology exchanges in every part of the country. They are 
focusing most specifically on critical access hospitals and on 
small providers, knowing that the luxury to have a big IT 
department or have people who could implement this in a 
significant period of time was not there.
    So in every State there are individuals who are sort of 
the--I compare them to the farm extension services, folks who 
are on the ground who literally come office to office, hospital 
to hospital, spend time on how to convert what the best 
strategies are, how to be engaged and involved.
    We have found, at least in a State like Kansas, which 
shares the challenges I think that you see in your State, that 
that strategy has been enormously effective, and small 
providers are engaged and enrolled with those extension 
operations and find them to be kind of their service team on 
the ground.
    Senator Thune. Well, the only thing I would say is, I hope 
that, as we move forward with this, that the focus really will 
be on the issue of interoperability.
    Secretary Sebelius. You bet.
    Senator Thune. Because we have asked questions numerous 
times at the committee here of folks who have testified in 
front of the committee about what is happening with regard to 
interoperability. It may be that a lot of providers are 
creating their own health electronic records, but the idea that 
somehow they are going to be able to communicate with others 
just seems to be non-
existent in many cases.
    So, you have these silos out there, but until they can talk 
to each other, we have not solved this problem. And that is why 
I say, a lot of the money that has gone out the door, that 
seems to be the metric instead of, what is the metric or what 
is the measuring stick for whether or not we are succeeding in 
the issue of interoperability?
    Secretary Sebelius. Well, I would say, again, Senator, from 
the outset--and I would certainly agree with you that that has 
to be the north star of whether electronic records work--it is 
not whether paper files are in somebody's computer, but it is 
whether or not you can measure, share information, not only 
across a State, but across the country and conceivably across 
the globe.
    So that has been part of the framework of the formula to 
look at what sort of IT systems would qualify, what the specs 
have to be. It is part of what has to be attested to, that a 
conversion to an electronic record system has to have the 
capacity to actually get to Stage 3 along the way and 
demonstrate that. It does not have to be part of the operating 
system from Day 1, but it has to have the capacity to add that 
on.
    There are very specific kind of specs as a part of what 
qualifies for the incentive payments, so I think that has been 
part of what the technical committee that has been the advisor 
to the Office of the National Coordinator from the beginning 
has been focused on: how, at the end of the day, you make sure 
that these systems actually work.
    We were strongly advised, Senator--and it came at the 
dismay of, I would say, some of the biggest IT companies--but 
we were strongly advised not to choose one system, not to have 
one winner in this market and everybody else a loser, but 
rather to focus on a series of specs that would, at the end of 
the day, make sure that these systems were interoperable but 
then would allow providers, hospitals, and others to either 
make conversions to the systems that they had or purchase any 
variety of new equipment. That has really been the framework, 
to have it be more open-source, but certainly with 
interoperability at the end of the day.
    Senator Thune. I am glad to hear that you are focused on 
these specs. I do not know that these specs exist. Again, the 
self-
attestation model that is being used seems to lack the kind of 
documentary evidence that the folks who are eligible for some 
of the assistance that is coming with this are actually focused 
on, these right metrics that you are talking about.
    So I guess the only thing I would say in conclusion is that 
we look forward to engaging with you and your department on 
this, and we are going to continue to solicit feedback from 
stakeholders about where they are. I think this report that we 
put out will maybe put a fine point and additional focus on 
that. So, thank you.
    Secretary Sebelius. Thank you.
    Senator Cantwell [presiding]. Thank you, Senator Thune.
    Madam Secretary, welcome. Thank you for being here. Thank 
you for your help on the basic health plan. I appreciate that 
very much. I also thank you for the President's budget as it 
relates to $1 billion for mental health programs for substance 
abuse and mental health services and $460 million for the 
mental health block grant services. I think that will go a long 
way to helping States deal with these issues, so I very much 
appreciate that.
    I wanted to follow up on my colleague from Pennsylvania's 
question, particularly as it related to graduate medical 
education. This is a big issue for all of us in the country, 
obviously, with the shortage that we are looking at, something 
like 90,000 specialists and primary care physicians by 2020.
    For us in the WWAMI region--Washington, Wyoming, Alaska, 
Montana, and Idaho--we are even below the national average now, 
so that is why we care so much about this issue.
    When it comes to figuring out the impact, he mentioned 
Children's Hospital, which I could say probably the same about 
Seattle's Children's Hospital. But the issue is also trauma 
centers or burn centers like Harbor View Hospital. So, when you 
look at this reduction in indirect medical education, it 
impacts that workforce. They have residents there whom they are 
not reimbursed for under the Medicare model.
    So how do we look at this issue when there is specialized 
training that goes on at these trauma centers, and they want to 
get their graduate medical education? How do we look at this 
and make sure that these facilities can keep running and 
operating during this time period?
    Secretary Sebelius. Well, again, Senator, I think certainly 
the training of new doctors is of critical importance. We know 
what an important role graduate medical education funding 
through Medicare plays in that training, which is why I would 
say, even in these very difficult budget times, there was an 
attempt to make sure that we were funding the direct costs, as 
well as doing some additional looking at where there were real 
gaps in services.
    A lot of the workforce analysis looking forward indicates 
that it is in primary care providers, gerontologists, others 
where we often have significant gaps. So we have not only tried 
to have a budget that supports the direct cost of graduate 
training, but also shifts some of the unused GME slots from 
areas that may have been more focused on specialty care into 
areas specializing in primary care, pediatric care, gerontology 
care, hoping that the effort to address people's preventive 
care needs at the front end will be met by a health care 
provider.
    So we would be interested in working with you and hearing 
from you about the impact of this on a critical center like the 
burn center and the trauma centers that you have in your area.
    Senator Cantwell. Thank you. We will get you some 
information on that.
    Secretary Sebelius. Sure.
    Senator Cantwell. I do not know that that is the intended 
consequence, but I think people are concerned that that will be 
the unintended consequence, because those costs are not 
covered.
    Secretary Sebelius. You bet.
    Senator Cantwell. So maybe there is something we can do 
there.
    If you could comment, too--at the University of Washington, 
we train so many primary care physicians. I think we are 
number-one in the Nation. But we are also very high on the 
list, in the top five, of institutions with NIH funding. So 
this NIH budget issue is a very big issue. We understand what 
you have done.
    Obviously, for these institutions we are hoping to get 
closer to $32 billion than $31.5 billion. And you think, that 
is close, what is the difference? Why does that matter? Well, 
for us, the total economic impact for research is 8,800 jobs 
and $470 million in wages, so this will be a big impact to us. 
In fact, one of our professors was quoted in the Wall Street 
Journal as saying, ``People are asking me whether they should 
leave science.''
    So, given what is already in the budget, what is being 
discussed as far as sequestration, are we having a chilling 
effect on this investment in science? What can we do to help 
mitigate the sequestration's impact on NIH funding?
    Secretary Sebelius. Well, I think that the President has 
proposed a budget going forward and a way to have a sustained 
and balanced approach to both reducing the deficit, but making 
some of the critical investments that we need to make. 
Actually, the budget anticipates removing sequestration.
    Senator Cantwell. I should just add--sorry to interrupt--we 
are all cheers about the magnificent contribution for brain 
research. Thank you.
    Secretary Sebelius. Well, I think that is an example of the 
President's belief that we cannot cut our way to prosperity in 
the future, that we must invest. Certainly scientific research 
is one of the most critical investments to keep the innovation 
and research at the front end.
    So he very much supports outlining the mapping strategy, 
which could have a huge impact not only on cures of the future, 
but when you think about health costs related to everything 
from autism to Alzheimer's. If we want to really get our arms 
around what is happening to health costs in the future, this 
kind of brain mapping has an enormous impact.
    As you say, I think Dr. Collins estimates that there is 
about a 7:1 return, that every dollar in research grants 
generates about $7 in economic activity in the community where 
those research grants end up, in terms of jobs and scientists. 
So this is clearly a win-win investment that the President very 
strongly believes in and supports.
    Senator Cantwell. Well I hope, as we continue to talk about 
and see the impacts of sequestration, the administration will 
speak out on this, because it is a very short-sighted approach, 
particularly when it comes to the NIH budget.
    I hope that we can get organizations and institutions, 
whether it is the Institute of Medicine or others, to put 
pencil to paper and really measure this, as you just did with 
that 7:1 ratio. We may be saving a few dollars now, but it will 
cost us millions, if not billions, more if we do not continue 
the investment in research. So, I hope we can make that point 
to our colleagues here. Thank you.
    I think, Senator Portman, you are next.
    Senator Portman. Thank you, Senator Cantwell. I think I am 
last and only, as well as next. [Laughter.]
    Senator Cantwell. You never know who might come back.
    Senator Portman. Exactly. Well, thanks very much.
    Madam Secretary, thank you for being here. We just had an 
interesting exchange about the need for us to do more research. 
I would just make the obvious point that that part of our 
budget is being squeezed more and more and more by the reality 
that the mandatory spending part of the budget--which is now 65 
percent of the budget, which is the part that is on auto-pilot, 
that is not appropriated every year--is the fastest-growing and 
now obviously biggest part of the budget and one reason the 
research dollars are tough to find, and one reason children's 
hospitals are concerned as they see the squeeze, including our 
great Children's Hospital in Cincinnati. On the mandatory side 
of the budget, of course, the number-one cost driver is health 
care, by far.
    The Congressional Budget Office, which is a nonpartisan 
group here in Congress, has just given us another report. This 
one is looking forward to the next 10 years, what is going to 
happen in terms of our budgets. They say there will be a 110-
percent increase over the next decade, from $800 billion to 
about $1.65 trillion--a 110-percent increase in health spending 
on the mandatory side.
    They also make the point that if we do not address this 
problem, obviously it continues to grow. Then, over the next 3 
decades, they say that the health spending in essence bankrupts 
the country, because you cannot raise income taxes, at least 
not high enough, to catch that level of spending. It just 
cannot be done.
    I think it is indisputable that that is our number-one 
problem in terms of the budget. Since we are here today talking 
about the budget, I just wanted to get your thoughts on that.
    The White House has proposals in the budget that, as I read 
it, would reduce that growth from about 110 percent over the 
next 10 years to about 100 percent, but it is actually 104 
percent because it also assumes a permanent Medicare doctor 
fix, and that estimate also does not include the $90 billion in 
the canceled sequestration cuts to Medicare which would further 
decrease health savings. So it is somewhat more than a 104-
percent increase in spending rather than 110 percent. No 
structural reforms.
    The question is, with the trustees having told us the 
Medicare trust fund is insolvent in 2024, and again, with 
everyone who has looked at this saying our number-one driver in 
all this is Medicare, and once again the Medicare funding 
trigger having been ignored--so no proposal from the 
administration, even though it is required by law--my question 
is, what do you suggest in terms of dealing with this problem 
which everyone now acknowledges? How are we going to close 
these tens of trillions of dollars in unfunded liabilities that 
the trustees have estimated? Where is the administration's plan 
to bring long-term solvency to our Medicare program?
    Secretary Sebelius. Well, Senator, I think that there is no 
question the President is eager to work with Congress to have a 
long-term strategy that both ensures that we keep the 
commitments that we made to seniors and others in the mid-1960s 
around benefits in their senior years, as well as looking at 
the viability of funding and support for Medicare and Medicaid 
into the future.
    I think, in the last 3 years, there is an enormously 
positive story to tell, a very different story than we have 
seen really over the history of the Medicare program. Last year 
alone the per-beneficiary cost rose at the smallest level that 
it has ever done in history. It is a four-tenths of 1 percent 
increase per beneficiary.
    As you know, part of the growth right now deals with 
demographics, not health costs. I think that effort is very 
much under way to really re-think and re-look at how we pay for 
health care, shifting from a volume payment to a value payment, 
testing models for the first time ever that could lead to 
significantly better care at lower cost. Those efforts are very 
much under way.
    Medicaid spending is down 2 percent from 2011 to 2012, 
again, a decrease in year-over-year spending. Again, that has 
not been seen before. So I think, structurally, the CBO has 
revised its estimates recently based on that cost trend. We 
know that the Affordable Care Act added about 8 years to the 
life of the trust fund.
    The budget on the table adds another 4 years. But if this 
cost trend continues, I am optimistic that we can revise that 
even further. We would be eager to look at a longer-term 
strategy around how we make sure that the commitments to 
seniors and the most disabled Americans are fulfilled and not 
shifting the costs onto them by destroying Medicare as we know 
it, but also looking at the longer-term funding challenges.
    Senator Portman. Well, with all due respect, no one is 
talking about destroying Medicare as we know it. People are 
looking at sensible ways to reform the program so it is strong 
and can be there in future generations. And by the way, the 
Congressional Budget Office's report is from a few weeks ago, 
so it does include that data. Your own data indicates the same 
thing, which is, these costs are unsustainable by any measure. 
So I hope you will look at some reform that is more structural.
    I know that you support in the budget some means-testing, 
for instance, but I would ask you also to look at Medicare Part 
D. Marilyn Tavenner, whom you know is your nominee for CMS, 
came before this committee and told us the actual costs for 
Part D are 40 percent less than the original estimates. CBO has 
now reduced its 10-year cost projections by over $100 billion 
in each of the last 3 years.
    Your Deputy Administrator has said that Part D costs have 
remained flat for years and are expected to decline in 2014. 
You have also reported that, over the past 3 years, the average 
monthly benefit premium has stayed essentially flat, right at 
about 30 bucks a month.
    So I believe this indicates that there is something going 
on in Part D, which is frankly that the private sector has to 
compete for the business of tens of millions of seniors. That 
is one reason that those costs have been less than projected.
    So I encourage you to learn from and not undermine Part D. 
I notice in your budget you target Part D again, particularly 
the Medicare Advantage programs, which as you know, given your 
Ohio roots, is critically important in our State: over a third 
of seniors enjoy it. So I would just ask for you to take a look 
at that Part D success rate. In my view, I think that is where 
some of the structural reforms can and should be made. I thank 
you for your time today and for your service.
    Secretary Sebelius. Thank you, Senator.
    The Chairman. Thank you, Senator.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Madam Secretary, thank you for coming. There is a lot to 
applaud in the budget, certainly the $100-million investment to 
advance research education and outreach for Alzheimer's 
Disease, something that took my mother's life; the funding for 
community health centers is incredibly important; the quality 
primary care in communities throughout the Nation. Those are 
all great things.
    There are still tough decisions to make, and savings to be 
had. I think we did a lot of that in the Affordable Care Act. I 
have long held that real long-term savings can and should be 
found by encouraging the efficient delivery of health care 
through measures such as increasing the use of electronic 
medical records--we are on our way there--promoting the 
efficient and well-managed delivery of medication, and 
improving coordination between acute and post-acute providers 
to ensure the appropriate care setting. Do you share those 
views as they relate to how we save money in those areas?
    Secretary Sebelius. Yes, Senator. I think all of those are 
an enormously important shift in the way health care is 
delivered as opposed to just paying for volume, really looking 
at value proposals.
    Senator Menendez. Yes. So, with that having been said, I am 
a little dismayed at some of the so-called savings that are 
identified in the Medicare program that, in my mind, are 
nothing more than another set of cuts.
    I look at that, and I say to myself--following on on 
Senator Portman's question as it relates to Part D--is it not 
true that the Part D program currently costs about 40 percent 
less than the original estimates and that the CBO has reduced 
cost projections by more than $100 million a year for each of 
the last 3 years?
    Secretary Sebelius. Yes, sir, that is accurate. I think 
that some of the negotiating authority that you actually 
directed to CMS as part of the Affordable Care Act had a 
beneficial effect on some of those Part D negotiated----
    Senator Menendez. Is it not further true that under the 
Affordable Care Act, that with the donut-hole rebates and other 
cost-
containment provisions, that beneficiaries have not only saved 
about $6 billion in drug costs since the law was signed, but 
that their premiums have been essentially flat?
    Secretary Sebelius. Yes, sir.
    Senator Menendez. And so, given that the program is proving 
to be successful in providing seniors access to the drugs they 
need at costs that continue to be below estimates, could you 
ensure that the imposition of Medicaid-style rebates in the 
Part D program will not ultimately lead to restricted 
formularies, increased premiums, and higher out-of-pocket costs 
for beneficiaries?
    Secretary Sebelius. Well, Senator, we are confident that 
the kind of drug strategies that provide available drugs for 
dual-
eligibles are similar to what can be in place for those same 
individuals, as Senator Nelson said, when they are 64, and it 
should not change when they are 65. So we are confident that 
this will not only be a savings to the government, but actually 
make sure that beneficiaries have access to the critical drugs 
they need.
    Senator Menendez. So you do not believe that such a move 
will create restricted formularies?
    Secretary Sebelius. No, sir.
    Senator Menendez. You do not believe that it will create 
increased premiums?
    Secretary Sebelius. I think that there is no question that 
there may be some formularies that are in place, but, as you 
know, a 
dual-eligible does not lose any of his or her Medicare 
benefits, so they must have the same benefit package going 
forward.
    Senator Menendez. So how do we ensure that the research and 
development that makes us the leader in the world and that 
makes us globally competitive, and, maybe even more important 
than that, creates life-saving, life-enhancing drugs, does not 
get diminished?
    Secretary Sebelius. Well, I share those concerns, Senator, 
but I feel that Medicare Part D, in spite of the fact that it 
has come in under the original estimates when the benefit was 
first created, is still paying at a much more substantial rate 
than the Veterans Administration, than Medicaid programs, than 
a variety of other programs, so we are still paying premium 
dollars for a number of those drugs.
    For these 9 million individuals, the budget assumes that, 
on balance, this is an appropriate way to both save some 
dollars going forward, but also make sure that those 
beneficiaries receive the critical medications that they need.
    Senator Menendez. I just do not think we will have the 
research and development dollars. If I may have another minute, 
Mr. Chairman?
    The Chairman. Sure.
    Senator Menendez. With reference to hospitals, one question 
I had raised with you is, the imputed floor issue at CMS is 
pending. It is something that was part of the Affordable Care 
Act. It is a critical issue to New Jersey hospitals, and we are 
awaiting a response. I just want to bring it up again, because 
it is probably life or death for a whole host of New Jersey 
hospitals.
    In line with hospitals--the Medicare cuts to hospitals--the 
President's budget calls for about $11 billion in cuts to 
graduate medical education and a $177-million cut for 
children's graduate medical education programs. Both of these 
are critical to train the next generation of doctors.
    One of the things we heard about as we were in this 
committee debating the Affordable Care Act, which I was proud 
to support, is, how do we have the health care workforce to 
deal with millions more whom we obviously aspire to cover, 
looking at the age of many doctors, particularly in certain 
parts of our country?
    So how is cutting back on the programs specifically 
designed to train new physicians going to provide for the 
needed increase in the workforce that we recognize we need?
    Secretary Sebelius. Well, Senator, I understand the 
concerns about the reduction in graduate medical education. The 
budget is based on a design that would provide to hospitals and 
children's hospitals the direct cost for those residency 
training programs. It does not provide the overhead and 
administrative costs.
    We feel that having the direct costs continuing to be paid 
should not diminish the number of residents who can be trained 
in those programs, but, again, it would not be a budget choice 
in a different budget time. It is a time of very scarce 
resources, and we are trying to make sure that we can fulfill 
all of our obligations.
    Senator Menendez. Well, I appreciate that.
    Mr. Chairman, this is a concern. At the end of the day, 
after all the effort we exerted to provide coverage that was 
affordable--which was a big goal of the committee, to make sure 
we tried to control costs and at the same time amplify the 
universe of which Americans would be further covered who 
presently are not and stop having people going to the emergency 
room--it creates the necessity for a cadre of physicians in our 
country, and cutting in this particular field, while I 
understand the challenges and the trade-offs, is just 
undermining the very essence of some of the goals that we 
intended under the Affordable Care Act. So, I hope we will be 
able to visit it as we move forward in our deliberations in the 
days ahead.
    Thank you, Madam Secretary.
    Secretary Sebelius. Thank you, Senator.
    The Chairman. Thank you, Senator.
    Madam Secretary, I know you are busy. I would just like to 
ask a bit more about the concept of 1-stop shopping, one 
resource center, someplace for businesses to go to so they do 
not have to deal with so many different agencies with respect 
to the implementation of the Affordable Care Act. Does that 
make any sense?
    Secretary Sebelius. Well, Senator, there will be a 1-stop 
shop with the Shop Exchange up and running in January 2014, so 
business owners will be able to enter the marketplace through a 
1-stop area, get the information about what is available, have 
a choice of plans. If the business owner qualifies for the 
employer tax credit based on the number of employees and the 
wages of those employees, that will automatically be part of 
the program.
    So there will be a 1-stop shop available to small business 
owners who, as you know right now, often pay 18 to 20 percent 
more in the market than their large competitors, and we are 
very confident that they will have better choices, better 
prices, with the new marketplace that will be up and running.
    The Chairman. The real concern here is from the business 
perspective more than consumers, individuals. I think I heard 
you say that the shop--I have forgotten what it is exactly 
called--will be delayed.
    Secretary Sebelius. No, sir. That is not accurate. The shop 
will be up and running in every market in the country. For the 
States where the Federal Government will be operating the 
marketplace, we are delaying one portion of the shop plan, 
which is that employers, if they choose to do so, could offer a 
wide variety of plans to their employees.
    Year 1 for the Federal marketplaces, employers will have a 
choice of coverage for their employees, but that choice will 
then be passed along. Year 2 and beyond for the Federal 
marketplaces, the employer, if he or she chooses, can then turn 
to the employees and say, you can choose among 15 different 
plans.
    For State-based marketplaces, that employee choice could be 
available from Day 1. But we will have two steps. So, in 2014, 
all employers will have a choice. They will have a choice of 
plans to offer their employees. They just will not be able to 
say to that employee, should they choose to do so, you can 
choose any plan in the shop market.
    The Chairman. All right. Well, as I said, I will be 
watching it.
    Secretary Sebelius. Yes, sir.
    The Chairman. We will be doing all we can. Let us know what 
help you need too. It is a 2-way street.
    Secretary Sebelius. I will be happy to do that.
    The Chairman. All right.
    Secretary Sebelius. Yes, sir.
    The Chairman. Thank you.
    Secretary Sebelius. Yes.
    The Chairman. Good luck.
    Secretary Sebelius. Thank you.
    The Chairman. The hearing is adjourned.
    [Whereupon, at 11:44 a.m., the hearing was concluded.]



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