COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison Giles, Chief of Staff Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisories announcing the hearing

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

U.S. General Accounting Office, Hon. David M. Walker, Comptroller General

AARP, William D. Novelli

Biotechnology Industry Organization, and ImmunoGen, Inc., Mitchel Sayare

General Motors Corporation, Bruce E. Bradley 

Merck & Co., Inc., Raymond V. Gilmartin

National Community Pharmacists Association, John M. Rector

SUBMISSIONS FOR THE RECORD

American College of Physicians - American Society of Internal Medicine, statement

INTEGRATING PRESCRIPTION DRUGS INTO MEDICARE

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

The Committee met, pursuant to call, at 10:46 a.m., in room 1100 Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding.

[The advisory and revised advisory announcing the hearing follows:]

Chairman THOMAS. I want to thank you all for coming. As we consider ways to modernize Medicare, it is important that we not lose sight of how Medicare has improved the lives of millions of our Nation's seniors. Yet, obviously, to carry Medicare's promise to its fulfillment, we simply can't sit on Medicare as we know it. One of the biggest issues we face is prescription drugs, and we know that, just as important to health care today as when Medicare started, is the examination of hospital and physician services.

The typical senior now takes more than 20 prescriptions a year, and we are told by the year 2005 we will spend more than $2,400 on prescription drugs. Unfortunately, seniors are, to a very great extent, the last bastion of retail drug purchasers. They pay high prices. They lack negotiating power.

Medicare has not kept pace with changes in the medicine marketplace, and, frankly, the lack of a comprehensive prescription drug benefit epitomizes just one very important way in which today's Medicare falls short.

This Congress and this Committee has held 16 different hearings examining areas where Medicare can be strengthened and improved. We have covered an awful lot of ground. We have looked at reducing Medicare's regulatory burdens, improving rural health care, securing Medicare's solvency in the long term, reforming antiquated cost sharing and Medigap programs, integrating disease management, reducing medical errors, rationalizing payments to physicians, and looking at the Medicare+Choice program.

While integrating prescription drugs is the most high-profile topic Congress faces, a comprehensive bill to strengthen Medicare and modernize it should at least address all of the issues that I just mentioned. And when we begin focusing on a prescription drug benefit, I do want to thank the Chairwoman of the Health Subcommittee, Mrs. Johnson, and the Health Subcommittee for working on guidelines as we move forward.

Clearly, the specifics of the program are important, but the structure by which you examine options is equally important. For example, we believe strongly that you can't simply add a new prescription drug benefit to Medicare. The issues identified in those 16 hearings that I outlined, while perhaps not as politically headline-grabbing as prescription drugs, are serious, cannot be left for later, and need to be done.

Secondly, we really should rely on the private sector innovation in delivering the drug benefits. A strong government guarantee to all Medicare beneficiaries is absolutely essential, but what we found interesting was that the Congressional Budget Office (CBO) has certified that the private sector approach on controlling drug prices really delivers the most savings per prescription. We do have to remember that taxpayers finance the structure by which the seniors primarily receive their medicine. There is a modest amount of money out-of-pocket, but most of it is taxpayer-financed.

Third, beneficiaries really should have a choice. Competing prescription drug plans ought to be able to select actuarially equivalent coverage. A government-run, one-size-fits-some program is just not workable.

We also believe strongly that all low-income beneficiaries deserve extra help. And, frankly, it ought to be a uniform national health that low-income seniors receive. When Congress embarked on the Medicare program, it was for seniors, not high-income seniors or moderate-income seniors. Seniors ought to be seniors first and low-income second. The program ought to be a national one and not rely on the various States and their willingness or ability to respond to low-income needs of seniors.

Fifth, the benefit should be affordable both to the seniors but also to the taxpayers. In the last Congress, the House passed a comprehensive prescription drug benefit. Unfortunately, the Senate failed to act. Last month, the House passed a budget resolution which provided, we believe, reasonable resources, some $350 billion over 10 years, to modernize Medicare and add a prescription drug benefit. We have the opportunity this spring to pass legislation to strengthen Medicare and integrate a prescription drug program.

The Speaker has asked us to have a bill on the floor before Memorial Day so that we can move it to the Senate with sufficient time for the Senate to respond. Today, this hearing is going to hear from the Bush Administration, the U.S. General Accounting Office (GAO), and a panel composed of industry groups, AARP and others, about what they believe should be done in integrating prescription drugs.

It is a pleasure to hear these people. We are all interested in the same result. Perhaps the manner by which we get there may differ. If we can keep that in mind, that providing seniors with a responsible prescription drug program is the goal, those differences ought to be able to be overcome. And prior to welcoming the Secretary to the Committee, I would recognize the gentleman from New York, the Ranking Member, Mr. Rangel, for any comments he may wish to make.

[The opening statement of Chairman Thomas follows:]

Mr. RANGEL. Thank you, Mr. Chairman. Let me join in welcoming the Secretary once again to this Committee. Your visits are not just important because of who you are and what you do in shaping national policy, but once we see you, we don't think we have got to see hardly anyone else as it relates to health policy or welfare policy, because it is not surprising that these bills end up on the suspension calendar and this will be our only opportunity at least to have you to share the Administration's views.

I say that because you were so persuasive as a Governor in believing that the States should have the opportunity to formulate their own policies within a national framework. And, of course, I differed with that, but I had to admit that, as Governor and as it relates to welfare, you had done a remarkable job in your State. And other Governors have proven that they could handle it probably much better than the Federal Government.

Having said that, it just surprised me to see that the Congress would start putting restrictions on Governors and having the Governors to believe that we are now mandating that they do things, which was exactly what you said you didn't want. Well, that is welfare, and we won't be able to talk with anyone else except the Governors, who now oppose the new bill.

Now, here we are with Medicare, and my friends on the other side are going to say that this is political or that we are motivated on issues concerning the election. I don't see how it cannot be political when you are dealing with old folks that can't afford to pay for their prescriptions, and we all are looking for a solution to the problem.

Now, the Chairman has indicated that this is so important that it can't be considered a loan. Well, I know he will get back and explain why it can't, but he has got to give us a package sooner or later that is going to be very, very politically difficult to oppose. He wants to have Medicare modernization. I think he means vouchers and credits, but, you know, who knows? He wants to include provider givebacks, which means hospitals are not going to get nearly back what they have been promised, but what a good time to stick it to them in an omnibus bill. And he wants to involve other potential expenses in a package.

Well, thank God the Republicans are as honest as they are, because while my Chairman wants to do all of these things for the future, this week they are going to want to make permanent the tax cuts that they have had a couple of years ago. Which means what? It means that the fact that they never made it permanent in the budget--was for what reason, Governor/Secretary? It was because it didn't fit within the budget.

Now, you are here testifying not about how we are going to take care of senior citizens tomorrow or next month or next year. You are concerned about your legacy and what will the policies be as established by your Secretaryship after you are gone and after I am gone.

Now, you just tell me how it is going to work out that we are going to have expanded prescription benefits, Medicare modernization, provide for the givebacks, and have Americans believe that we are concerned about them, and at the same time, even though it is not in the budget, we are saying that we want to make permanent the exciting tax cuts that the President has suggested, which is, of course, the $4 trillion in the next decade, at the same time your constituents--assuming Medicare is something that you are concerned about in the future--and Social Security beneficiaries are going to be coming into massive dependency because of the Baby Boomers.

To me, it is a political shell game and that we are going through the motions here, and we had some witnesses to kind of share our view. But the new method is that the Democrat minority, we cannot have witnesses unless they are approved by the Chair. I just got back from Cuba, so I am beginning to understand that a lot better than before.

And we had a witness that was checked out by the Chair, and it found out that this lady is not only a Democrat, pardon the expression, but a candidate for the U.S. Senate. So, therefore, she was denied the opportunity to express herself on this sensitive subject.

I don't mean to make life awkward for you, but these are the people you are working with, and I just want you to know that your office has been far more cooperative with us on this and every other subject that you have jurisdiction of in terms of sharing ideas than the majority ever has. And I want to thank you for that. I hope something can come out of it, but I thank you for keeping that door open.

I yield to Mr. Stark.

[The opening statements of Messrs. Rangel, Ramstad, Nussle, and Foley follow:]

Mr. STARK. I thank the gentleman for yielding, and I just wanted to follow up because there have been women throughout history who have been silenced because people in power didn't want them to be heard.

Ida Wells, an African American writer in the 1800s, wrote articles decrying lynching. She so intimidated those in town that they threatened to kill her and run her out of town.

Not so long ago, Karen Silkwood rallied against the chemical safety problems in her plant. Her campaign for safety was cut short by a tragic accident.

Today, our Chairman decided to silence the voice of another prominent woman because he doesn't want her message to reach the public. Chellie Pingree, a nationally renowned expert, an advocate for a Medicare prescription drug benefit, was denied at the very last minute the opportunity to testify today. Her work in the State of Maine for a prescription drug benefit could provide us with insight into such a program. But the Republicans apparently are afraid to hear alternatives. The Portland Press Herald News today calls Ms. Pingree's work on the Maine drug benefit "ground breaking." And she challenges us, Mr. Secretary, to say we need Federal legislation that will do one of two things: either provide a drug benefit understand Medicare, passing on negotiated discounts to seniors, or free up the States to use innovative programs like the Maine prescription drug benefit.

This is as political as her testimony--which I would ask unanimous consent to put in the record in printed form. It says nothing about any campaign, or I don't even think it mentions her political affiliation. But it is a sad day when we can't work with our Republican colleagues to fashion a bill. It is even sadder when they are so afraid of hearing opinions that they will deny us the chance to have one witness on the grounds that they were a political candidate.

I yield back.

Chairman THOMAS. The gentleman's time has expired.

Mr. MCDERMOTT. Mr. Chairman, a point of information?

Chairman THOMAS. The gentleman from Washington is recognized.

Mr. MCDERMOTT. In the light of the decision on Ms. Pingree, if somebody has a poll in the field in their home State about the candidacy for Governor, would that preclude them from witnessing before this organization?

Chairman THOMAS. The Chair was going to respond to the statements because some people perhaps didn't fully understand what has transpired, and the Chair was going to outline a policy that I believe has been fairly longstanding, and clearly, as long as this Chairman remains Chairman, we are going to attempt to follow; and, that is, the witness was not denied the right to speak because she was a female. That is absurd on its face.

What we found out was, of all of the people in the United States who the Democrats could have chosen to be a responsible witness on a factual panel on prescription drugs, Friday at 5:00 p.m., we were told that the one that the Democrats chose just happens to be the winner of the Democratic primary in the State of Maine for the U.S. Senate.

Just as the gentleman from New York indicated that some of these activities are liable to be political, the Chair, to the best of his ability, will not allow hearings in front of this Committee to be used for political purposes.

The way in which this witness was not going to be political was couched in the most political terminology you could get. The Chair will not allow candidates for political office to be factual witnesses, whether they be Democrats, Republicans, men, women, Libertarians, Green, or others.

It may be that you are somewhat circumscribed in terms of the choices of witnesses available to us, but I believe that is a reasonable and appropriate rule, and it ought to govern. It is as difficult as it is in the current context to reach agreement. We ought to minimize the opportunity for continuing to bite at each other from a political perspective. And the Chair would briefly recognize the Chairwoman of the Health Subcommittee, the gentlewoman from Connecticut, Mrs. Johnson.

Mr. MCDERMOTT. Mr. Chairman, you didn't answer my question, though. That was: At what point is someone a candidate or using the podium for a political purpose? Do they have to be a declared candidate, or can they be exploring through a poll? Or--

Mr. RANGEL. If the gentleman would yield, the Chairman answered that. It is when--

Chairman THOMAS. Based upon--

Mr. RANGEL. He feels that it is a candidate. He answered it clearly.

Chairman THOMAS. Based upon the denial of this candidate, it is fairly clear that when the individual is on the ballot as a qualified candidate, having won the primary, that that is a clear rule. If the gentleman wishes to pursue how far back it can go, we can carry on a reasonable discussion, or the minority can continue to try to get witnesses on with more or less a shade of political leaning.

Mr. LEWIS OF GEORGIA. Mr. Chairman?

Chairman THOMAS. And we will try to make those decisions in a real-time basis.

Mr. LEWIS OF GEORGIA. Mr. Chairman?

Chairman THOMAS. And the Chair is open to either of those options.

Mr. LEWIS OF GEORGIA. Mr. Chairman, a point of information.

Chairman THOMAS. The gentleman from Georgia.

Mr. LEWIS OF GEORGIA. Would that include sitting Members of Congress?

Chairman THOMAS. Obviously not.

Mr. LEWIS OF GEORGIA. Well, we are--

Mrs. JOHNSON OF CONNECTICUT. Mr. Chairman?

Mr. LEWIS OF KENTUCKY. When we are--there's primaries and we are qualified, we--

Chairman THOMAS. I understand that.

Mr. LEWIS OF KENTUCKY. Are filing to run--

Chairman THOMAS. But you have already won, and you are participating as an incumbent, not as a challenger. And we allow Members to come up and discuss their positions, but we don't normally include Members as part of a multi-Member factual panel in discussions.

The gentlewoman from Connecticut is recognized.

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Chairman. And I applaud you for your policy in regard to our hearings. The factual information that is out there, the number of experts whose opinions and whose experience we can call on are really so numerous that we cannot reach them all.

The issues confronting us in providing prescription drugs to seniors are very complicated and important issues, and through seminars, through our individual readings, through working with the Administration, through working with Professors, and others throughout the Nation, we are bringing a lot of that information to the table. To imagine that there wasn't an expert that could have been called to the table on the other party's side and made points of interest to them is simply ludicrous.

And then, secondly, I would say--and every one of us knows this to be true--no matter how much of an expert you are at the State level, making national policy is a very different challenge. And I would much prefer that the Democrats would have brought someone to the table that had national experience in policymaking, and particularly in the complexity of the structural delivery issues that are going to be so important to our succeeding in actually delivering to every senior across America in every little city and town a prescription drug subsidy in the years to come.

So I believe that their calling someone who is now an affirmed candidate, having won a primary, but who also is clearly not as well prepared as many other people they could have called is very concerning to me. The challenge of writing a prescription drug bill that can actually implement a policy that is sustainable, affordable and effective for our seniors is a tremendous challenge that crosses party lines, that crosses disciplines, and we all need to be extremely serious about that challenge.

So I welcome this hearing and the quality of the experts that will testify today, and it is a special pleasure to welcome the Honorable Tommy Thompson, who has been a real leader in bringing his agency to the table with practical, factual, substantive material, but also trying to reform the bureaucracy so it, too, can be more effective, practical, intelligible to the provider community and a better servant in the goal of providing a strong Medicare program to the seniors across America.

Thank you, Mr. Chairman.

Chairman THOMAS. I thank the gentlewoman.

The Chair wants to clarify that the decision the Chair made was one based upon objective information, not a subjective one based upon the direction of the testimony. And the Chair would not exercise a subjective decision. The individual that the Democrats wished to offer would be able to present their position as how they wanted to, but that the decision was made upon the very objective criteria of an active candidate.

And, with that, it is my pleasure to welcome once again to the Committee on Ways and Means, as Mr. Rangel said, the Governor/Secretary. Mr. Thompson, your testimony will be made a part of the record that is written, and you can address us in any way you see fit in the time you have.

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

Mr. THOMPSON. Thank you very much, Mr. Chairman. I appreciate the opportunity to come once again in front of the Ways and Means Committee.

Chairman THOMAS. Mr. Secretary, is our microphone on?

Mr. THOMPSON. Yes, it is.

Chairman THOMAS. Then you need to get close to it. It is very unidirectional, unfortunately.

Mr. THOMPSON. Thank you, Mr. Chairman. Chairman Thomas, Representative Rangel, distinguished Committee Members, thank you for inviting me to discuss our proposal for strengthening and improving Medicare. Medicare has provided security to millions of American seniors since 1965. But at the dawn of the 21st century, its promise is threatened by outdated and inadequate benefits, limited protection against rising medical costs, and a traditional government plan that often fails to deliver responsive services to recipients or ensure high quality care.

President Bush and my Department are committed to modernizing the Medicare program and strengthening it for all seniors. At the hearing of this plan is a belief that we must provide better and more efficient delivery of services and evaluate Medicare in a deliberate and thorough manner.

Medicare is in fiscal trouble, which will only deepen in coming decades unless we act now. While we all want to provide a drug benefit for seniors, it cannot be done in a vacuum. It must be accompanied by fundamental reforms that keep those benefits secure.

The framework for bipartisan legislation that the President and I have proposed includes several important principles:

First, all seniors should have the option of a subsidized prescription drug benefit as part of a modernized Medicare. Everyone benefits from new drugs that are being developed through the miracles of science. And Medicare beneficiaries should and must have greater access to life-saving therapies. But it is also clear that if we add a drug benefit without comprehensive modernization of the system we will only deepen the financial crisis Medicare faces in the coming years.

Second, modernized Medicare could provide better coverage for preventive care and serious illnesses. By preventing disease and illness to begin with, we not only save substantial financial resources, but we also save and improve the quality of lives.

Third, today's beneficiaries and those approaching retirement should have the option of keeping the traditional plan with no changes.

Fourth, Medicare should provide greater insurance options, like those available to all Federal employees.

And there are several other important principles, including strengthening the program's long-term financial security; improving the management of the government Medicare plan; updating and streamlining Medicare's regulations and administrative procedures; and encouraging high-quality health care for all seniors.

These principles are vital to quality care, and should be available to everyone in Medicare. Period. In a Nation as prosperous and as compassionate as ours, it is the least that we can do.

The lack of drug coverage among America's seniors is among Medicare's most pressing challenges. Ten million Medicare beneficiaries have no prescription drug coverage at all. In fact, Medicare beneficiaries and the uninsured are really the only individuals in America today that commonly pay full price for prescription drugs. That is simply unacceptable. It must change.

The President is also committed to a Medicare subsidized drug benefit that protects seniors against high catastrophic drug expenses. And we must also support the continuation of affordable prescription drug coverage now available to many seniors through retiree plans and private health insurance plans.

Our budget also provides $8 billion through the year 2006 to expand drug coverage to low-income Medicare recipients. This proposal is fully integrated with the President's Medicare modernization proposal, and will enable States to take advantage of existing structures so that seniors will be able to get help quickly. We have debated this issue long enough.

Mr. Chairman, I want to work with you and all Members of this Committee in designing this vital drug assistance program. It is so important. And I look forward to your ideas and thoughts on better serving America's neediest seniors.

We must also act now to stabilize the Medicare+Choice system, to ensure that current benefits and choices remain available to Medicare beneficiaries. We should not eliminate by inaction a program that millions of seniors enjoy.

We must come together now to take the sound, the careful and deliberate steps needed to improve the Medicare program for today's seniors, as well as tomorrow's. And we must start this process now. These issues have been debated on and off for years, and now it is time for action. I am here today to tell you that we stand ready and willing to work with you and the other Members of the Committee and all Members of Congress, to make that happen.

I understand that the Administration and the House have sometimes differed in their numbers. While we feel that we can provide this benefit for less than the $350 billion which was proposed in the budget by this house, let me make it clear that we are committed as an Administration to the principle of a prescription drug benefit, rather than to a specific figure.

Three decades from now, the promise of a financially secure retirement should continue to be a reality for America's seniors. As we join together, we can make sure that it will happen. So thank you, Mr. Chairman, Congressman Rangel, and all Members of the Committee, for this opportunity to discuss this very important topic with you today. Now I look forward to answering your questions.

[The prepared statement of Secretary Thompson follows:]

Chairman THOMAS. Thank you, Mr. Secretary. I know a number of Members wish to inquire. And we always have a limited time, so the Chair will not conduct any questions, in deference to other Members. And I would urge the more senior Members, if they do not feel strongly compelled, that we allow others to participate in the questioning.

And with that, I would recognize the gentleman from Illinois for questions.

Mr. CRANE. Thank you, Mr. Chairman. Mr. Secretary, some lawmakers believe the Medicare trustees' projection of an additional year of Medicare solvency--namely, to go from 2029 to 2030--is a sign that we should not address fundamental reforms to the Medicare program. They would rather focus on adding additional benefits to the existing program, like a prescription drug benefit.

In your opinion, if the Congress were to simply add on a drug benefit to the existing program, how would that change the solvency outlook of Medicare?

Mr. THOMPSON. It depends, really, on how that program is structured. It depends upon the total amount of the cost. If you used the $750 billion figure, then if you take $400 billion out of Part A, you would reduce the solvency from 2030 to 2016. If you used it basically on payment of income taxes, at the present dollars, that would be a $2,100 tax per individual in America. So that is a comparison.

If you take it out of the General Fund, the $190 billion, that the President has done, which has been reduced in other budgets, it will not in any way affect the solvency. So it depends upon how it is structured, and it depends upon how the dollars are used and where those dollars come from, Congressman.

Mr. CRANE. Let me ask you a question relating to drug therapies that Medicare does cover. I think it is safe to say that all Members of Congress, as well as the Bush Administration, want to ensure that we in Washington spend the taxpayers' dollars as prudently as possible. That is why, particularly in health care, we revisit our payment policies every year: to ensure that people have access to needed drugs and other therapies, but that we are not overpaying for services.

I have been particularly involved in working on kidney disease related issues. And your report on developing a new composite rate index for renal dialysis services will be very helpful, as it will require legislative language. When can we expect to receive that report?

Mr. THOMPSON. Congressman, I know that you are interested in this subject, and I compliment you first on your passion on it. It is a very important subject, and I appreciate your leadership.

The Congress has requested that this report be given to Congress by July of this particular year. And I can advise you today, and all Members of the Committee, that report is in the process of being compiled, and will be ready on time to you and other Members of the Committee in July of this year, as ordered by Congress.

Mr. CRANE. Thank you. Is it an accurate assumption that you envision Epogen being folded into the composite rate? And if not, does the Administration recommend that we reduce payment consistent with the Office of the Inspector General's recommendations?

Mr. THOMPSON. I didn't hear the first part of your question, Congressman.

Mr. CRANE. Is it an accurate assumption that you envision Epogen being folded into the composite rate? And if not, does the Administration recommend that we reduce payment consistent with the Office of the Inspector General's recommendation?

Mr. THOMPSON. Congressman, all of those things that you have just mentioned are going to be details that are going to be outlined in the report that will be given in July.

Mr. CRANE. Very good. Thank you so much, Mr. Secretary.

Mr. THOMPSON. Thank you.

Mr. CRANE. I yield back the balance of my time.

Chairman THOMAS. Thank the gentleman. Does the gentleman from New York wish to inquire?

Mr. RANGEL. Yes. Mr. Secretary, you are not under oath, but are you now or ever have you been a candidate for higher office?

Mr. THOMPSON. I consider Governor a higher office, Congressman, and I have been a candidate in the past, candidate for Governor. I am currently not a candidate for Governor. I am very pleased to be Secretary of Health and Human Services, one of the largest Departments of the Federal Government, supporting President Bush.

Mr. RANGEL. And you participated in no activities that will allow us to believe that you could be considered a candidate?

Mr. THOMPSON. I don't know what you are driving at, but if you think that somebody put out a poll in Wisconsin a week ago to see if I would come back, that poll was not commissioned by me, paid by me, and I didn't know anything about it until I read about it in the newspapers, the same way that you read about it and other people read about it.

I am not a candidate for Governor; do not intend to be a candidate for Governor. I intend to finish my term as Secretary of this Department, Congressman.

Mr. RANGEL. Well, I didn't know about the poll but, like the Chairman, I make this up as I go along.

Mr. MCDERMOTT. Mr. Rangel, did he say he would not run for Governor?

Mr. RANGEL. Yes.

Mr. THOMPSON. I know that is going to please a lot of Democrats in Wisconsin. I wanted to make sure that you get that on the record. Is that correct, Congressman McDermott? Because it indicates I still could win.

[Laughter.]

Mr. RANGEL. Well, thank you, Mr. Chairman, for opening up this new opportunity for us to explore our political agenda.

You had indicated more than once that you are concerned about the long-term fiscal concern of the 40 million people that have Medicare. And you are aware that in 2030 the Baby Boomers will become eligible. Do you have any idea what impact this will have on the 40 million, or what number we expect will become eligible as a result of the Baby Boomers?

Mr. THOMPSON. Congressman Rangel, our actuaries have put that into the report. I do not have that number at the tip of my fingers.

Mr. RANGEL. Some say 78 million, or double, close to 80 million.

Mr. THOMPSON. It could be. I know we included it in the report, Congressman.

Mr. RANGEL. Okay. Now, I don't know why in the budget for Medicare we did not include that area in our budget as it relates to the Tax Bill. It seems to me that the reason that we had the sunsetting of the Tax Bill was to make certain it fit within the budget. Now we understand that this week it is going to be recommended by the majority, as did the President, that we make the tax cuts that have been enacted permanent.

Now, our people tell us that that will cost us $500 billion in this decade, and some $4 trillion in the next decade. I don't think these figures are being challenged. Have you considered this, as you project the Medicare obligations at 2030? Or is that beyond your pay level?

Mr. THOMPSON. I have not, Congressman. I do have the figure at 2030. There will be $70 million, that was the figure that was used. In regards to the tax policy, I have not considered that in our analysis of Medicare. We have based that upon the empirical data that we have within the Department and the Administration, but we have not factored in any of the tax policies. That is not in my Department, and we have not factored it in.

Mr. RANGEL. That is very helpful. So to restate your position, it is that as it relates to the future of Medicare, tax policy has not been a consideration of yours?

Mr. THOMPSON. It has not.

Mr. RANGEL. Thank you.

Chairman THOMAS. I thank the gentleman. Just so everyone understands the circumstances in terms of the tax provisions, the House last year voted on a number of tax measures. Every time the House passed a tax measure, it was permanent. The only time the tax measures were not permanent was when the House voted on the conference report, including the Senate, because of the Senate's reconciliation rules. So the only reason we don't have permanent tax structures today is because of the rules of the Senate; not because of any decision that was made in the House.

The Chair would recognize for inquiry the gentleman from Florida.

Mr. SHAW. Thank you, Mr. Chairman. I will be brief, in carrying forth your stated policy of trying to get to the junior Members before Mr. Thompson has to leave.

Mr. Secretary, in reading your written testimony, I was struck by a comment that you attributed to President Johnson, in which you said, and I quote, "No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime."

That is, I think, something that all of us should try to keep in mind. That is why we are here. That is why we are considering prescription drugs and how to modernize the Medicare program.

You then go on to say that 36 years later President Bush believes it is time for our Nation to come together and renew that commitment. I think that coming together is something that has been too rare these days. And we have seen so much of politicking, that it is "my way, or the highway." And I think at this time that we in this Committee, and we in this Congress, come together, and we as two bodies of the Legislature come together. And I am hopeful that whatever product we will eventually come out with in this Congress, I hope that this time the Senate will move forward on our plan, or their plan, and get us into conference. Because it is the seniors who are losing ground.

Over the last 36 years, since President Johnson made that comment, medical treatment has changed immensely. Seniors are living longer. Their quality of life is better. And much of that is due to the miracle of modern medicine and medication.

I was at Eckert Drugs in south Florida the other day, in Fort Lauderdale. And I was waiting to pick up a prescription that I had dropped off, and saw this elderly woman in front of me gathering together her prescriptions, and then having to give half of them back to the druggist because she simply could not afford it. That is not acceptable. We can do a better job, as you very aptly set forth in your comments.

I have no questions for you. I believe that your statement is comprehensive. It is complete. And I hope that all of the Members will carefully examine it, and try to govern ourselves in accordance with the framework that you set forth.

I am delighted to have you where you are. I know the good work and commitment that you have had in every field that you have been in. Whereas I can feel that you are not running in Wisconsin is Wisconsin's loss; but it is certainly this country's gain to keep you exactly where you are during the period of time that we are in now, in going back and reauthorizing welfare reform, as well as these other very, very important programs for today's seniors. Thank you, Mr. Secretary.

Mr. THOMPSON. Thank you, Mr. Shaw, for your comments. I appreciate them very much. And thank you for your leadership on welfare reform, as well as on this subject.

Chairman THOMAS. Does the gentlewoman from Connecticut, Chairman of the Health Subcommittee, wish to inquire?

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Chairman.

I also want to applaud your testimony, not only because it looks at modernizing Medicare by adding prescription drugs, but because it looks at better coverage of preventive health care, and will prepare the system to deal with the growing dramatic need for better ability to manage chronic illness. You are modernizing. Through your proposals, we have the opportunity to modernize Medicare as a health program, in addition to making it a far more efficient and cost effective program. I appreciate your testimony. I appreciate your work with us on making it a more errors-free program, so that there will be both less human suffering and less public cost for medical errors.

I want to ask you just one question. One of the many issues we are working on is a response to the Inspector General's and the General Accounting Office's findings that we are paying much more for Part B drugs and biologicals than we should. We are currently reimbursing them at 95 percent of the average wholesale price, and these prices are much higher than the price manufacturers charge other providers.

As we look at how to fix this, we on this Committee are looking at a competitive bidding model. There are some other models out there. What is your opinion on the competitive bidding approach, versus other mechanisms to set prices in the Part B area?

Mr. THOMPSON. Well, first, let me thank you for your leadership on preventive health. This is absolutely a passion of mine. I think the way we deliver health care needs to be strengthened and improved. And one of the ways is certainly in preventative health. We wait until people get sick, and then we spend lots of dollars to get them well. And we could save a lot of money by getting people healthy, and keeping them healthy, at the beginning. So I applaud you for that.

Competitive bidding is something that we support. We are somewhat concerned about if we have the sole responsibility of negotiating prescription drug prices with the drug companies, because Medicare uses up 50 percent of the drugs, and we would be the 900-pound gorilla in the market, and we would distort the market if we did that. But competitive bidding is absolutely vital. I fully and enthusiastically support it.

Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Chairman, I yield back my time.

Chairman THOMAS. Thank you. Does the gentleman from California, the Ranking Member on the Health Subcommittee, wish to inquire?

Mr. STARK. Thank you, Mr. Chairman. And I would just like to correct the mistaken impression that the gentlewoman from Connecticut would have left when she said that State-level experts don't have experience to testify on national issues. In this particular issue, Ms. Chellie Pingree, who was first accepted by the minority and then just yesterday turned down, has testified before State legislatures in Texas, New York, Minnesota, Washington, and Arizona. She has testified before the American Association of Family Practitioners, the American Public Health Association, the American Medical Association, the AARP, the New England Regional Conference on Prescription Drugs, the Conference on Affordable Health Care, and the International Association of Machinists, if that is too political.

None of the witnesses on the schedule today, with the possible exception of the Honorable Secretary, have had any experience in running a drug program. None of the Members of this Committee have any experience running a drug program. The one witness that we went to find who wrote a drug program for a State and saw it enacted was denied.

Had the Republicans not been afraid of hearing some new ideas, they would have found that the Maine program establishes a program in which the State serves as the pharmaceutical benefits manager (PBM) for 325,000 Maine residents who don't have a prescription drug benefit.

They would have heard that Ms. Pingree's program, which she wrote when she was in the Maine State Senate, prevents profiteering and prevents the pharmaceutical companies from hindering the sale of prescription drugs in Maine. It authorizes interstate cooperation for bulk purchasing and cost saving. It provided for emergency prescription drug prices if the negotiations don't produce prices comparable to the lowest prices paid in Maine. And the Maine legislation is comprehensive. It serves as a model for more than 20 other States across the country who have a program.

And as I say, to put one's head in the sand and submit that people with this kind of expertise should not be heard before this Committee, is to prejudge in the worst kind of way what we will do to help the American public.

Now, we have the Secretary here. And I want to commend him, because recently, Mr. Secretary, you were successful in negotiating lower prices for the drug Cipro. It was needed for a national emergency, and you were able to get the government a good deal.

Would you support proposals to provide you with the power to negotiate with the pharmaceutical industry on behalf of Medicare beneficiaries to get them a better deal, given a free hand?

Mr. THOMPSON. Congressman, I am not opposed to it, in regards to negotiating that. I want to caution, however, that the problem is that Medicare is such a huge purchaser of drugs--about 50 percent--that we would more than likely, if we did that, distort the market. But if Congress gives me the authority to do that, and passes the legislation, I certainly would do it.

Mr. STARK. I, for one, Mr. Secretary, would feel very comfortable with you having that authority. You certainly wouldn't raise the drug prices and, used judiciously, it might help.

Another specific concern that many of us have--and I wonder if you or the Administration have any policy on this--but it has been suggested that the tremendous amount of consumer advertising for specific prescription drugs, one, is driving up the utilization; it is driving up the costs. And there have been several proposals to address this concern, in either making more facts available, or limiting somehow the amount of advertising that is going out to the public for classified drugs and prescription drugs.

Do you have any specific proposals or any specific concerns about this huge amount of consumer advertising for prescription drugs?

Mr. THOMPSON. As you know, Congressman Stark, we have just negotiated a new Prescription Drug User Fee Act (PDUFA) bill. That is a prescription drug utilization proposal that is going through Congress, that does require the Food and Drug Administration (FDA) to supervise and to regulate some of the advertising put out by the pharmaceutical companies. That is the first step in that arena, and it has been agreed to by the FDA and by my Department and the negotiators for the pharmaceutical industry.

Mr. STARK. Well, you are to be congratulated. And I look forward to seeing that, because I share a concern, that I am sure you had; and that is that we were just sending people off to their doctors to get pills because the pictures in four colors look pretty good. And thank you very much.

Mr. THOMPSON. Thank you, Congressman.

Mr. STARK. Thank you, Mr. Chairman.

Chairman THOMAS. Thank the gentleman. Does the gentleman from New York wish to inquire?

Mr. HOUGHTON. Thank you, Mr. Chairman.

Mr. Secretary, good to have you here. I would like to get back to this competitive bidding issue. I basically believe in competitive bidding. I think it is the right thing. It is sort of endemic to our country. We work that way. However, there are certain areas that are not particularly good for competitive bidding. And I know that, in terms of various products such as oxygen and things like that, you have had some test cases and pilot programs; one of them being in Florida.

And the question is, have you found out anything from those projects which makes competitive bidding better, or worse? Or what is your feeling on this?

Mr. THOMPSON. We have always felt, Congressman Houghton, as you did in your business career, that competitive bids is the proper and best way to get the proper price, and you have the opportunity then to look at whether or not, not only price, but conditions, utilization, durability, all of these other things, are taken into consideration when you do that.

In the area of oxygen, I know that you and some of your constituents have some concerns. I wish I would know about those specific concerns. I will follow up on them, and find out. But as a general policy, as the Congresswoman from Connecticut pointed out, we think competitive bidding is the proper way to go.

[The information follows:]

U.S. Department of Health and Human Services
Washington, DC 20201

Q:   Representative Houghton: What have you found from the competitive bidding projects?

A:  Competitive bidding is a useful tool for improving and strengthening Medicare by using market forces, rather than government fee schedules, to establish payment levels.  We have found that competitive bidding has been successful in reducing costs for the Medicare program, while still ensuring beneficiaries have access to needed services.  Competitive bidding saves money for both the program and for our beneficiaries, who save money in their copayments.

The Balanced Budget Act of 1997 gave CMS the authority to conduct bidding demonstrations for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), which we implemented in Polk County, Florida, and San Antonio, Texas.  These sites are good test sites since they have a reasonably large size, relatively large numbers of suppliers, and high average spending for durable medical equipment, prosthetics, orthotics, and supplies.  Savings differed by demonstration site, but the savings averaged 20 percent in the latest bids at both sites.

We also took several steps in order to meet our goal of maintaining high quality in the Medicare program.

• We chose multiple suppliers in each category so that competition is an incentive for high quality;

• We developed specific quality standards for the demonstration that the suppliers must meet including a bid package with ten pages of quality standards for the product categories;
• We required winners of the bidding competition to pass site inspections and reviews by an expert panel; and,
• We hired an ombudsman for each site to solve any problems, including quality issues.

We also took steps to ensure that small businesses could compete on a level playing field with the large suppliers.  A large portion of the durable medical equipment industry is made up of small businesses.  By choosing multiple winners for each product category, we were able to choose many small suppliers rather than only the largest suppliers.  For example, in San Antonio, the suppliers were not required to service the entire area, but could choose to bid only for one county.  As a result, approximately 90 percent of the winning suppliers were small businesses.

Mr. HOUGHTON. Very good. Thanks.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Pennsylvania wish to inquire?

Mr. COYNE. Thank you, Mr. Chairman.

Welcome, Mr. Secretary. I wonder if you could explain why the President budgeted the same amount for Medicare this year as he did last year, and including the new benefit that he is proposing? It just seems to me that every year that we wait to adopt a drug prescription program, the costs get higher, and you can't make ends meet when you budget the same amount as you did last year.

Mr. THOMPSON. Congressman, first off, I think the President should be applauded by putting in this year after year, because he believes so passionately and strongly about refining and strengthening Medicare. That is point number one.

The second point is, we base this upon what the actuarial individuals from the Centers for Medicare and Medicaid Services (CMS) gave the Department and Office of Management and Budget (OMB). It was based upon their assumptions that we put that amount in.

And the third thing, in my testimony I also pointed out that the Administration is certainly willing to work with this Congress. We know Congress has put in the figure of $350 billion. I have communicated that personally to the Chairman, as I have to the Committee this morning, to work with that figure. If that is the figure that Congress wants, I think we can develop a bipartisan package around that figure.

Mr. COYNE. Well, by budgeting the same amount as last year, what you are saying is that doesn't mean that seniors can expect any less in the way of benefits; even though we are going to have the same budget as last year?

Mr. THOMPSON. Congressman Coyne, we attempted to look at what the actuarial study gave us. We have put that information into the budget, and that was at $190 billion. Last year, we had $155 billion; raised to $190, but we started out at $155 billion.

Mr. COYNE. Thank you.

Chairman THOMAS. Thank the gentleman. Does the gentleman from California, Mr. Herger, wish to inquire?

Mr. HERGER. Thank you, Mr. Chairman.

And thank you, Mr. Secretary, for being here to testify on this very important issue. The district that I represent in far northeastern California is very rural, heavy agriculture, 11 national forests. And we have a larger than normal percentage of seniors who live in our area. And of course, you know we even have added challenges, being in a rural area, having to do with health care.

In this area of prescription drugs, more than two-thirds of seniors have prescription drug coverage. For the other one-third with no coverage, seniors may face difficult choices between buying the prescriptions and other life essentials. One of the greatest challenges to these seniors is the high cost of these prescription drugs. And because seniors without coverage pay the highest price for drugs at the retail pharmacy, Congress has been examining ways to lower the costs of these pharmaceuticals.

In this regard, Mr. Secretary, could you tell me, what does the Administration support to reduce the costs faced by these seniors?

Mr. THOMPSON. Absolutely, Congressman, and I thank you for the question. There are several things this Administration is doing. The first thing, we put in the budget is a proposal of $77 billion for transitional prescription drug coverage for low income beneficiaries. We figure that costs will be about $8 billion in the first 3 years. We expect that a fully-integrated Medicare benefit will be adopted and implemented and effective after that time. This proposal would allow States, like California, which is close to 100 percent of poverty, to be able to use their Federal match under the Medicaid law, up to 100 percent. And then beyond 100 percent, up to 150 percent of poverty, the Federal Government would come in with 90 percent.

It is not a Medicaid, nor is it a Medicare program. It would allow complete discretion. As Congressman Rangel has indicated, I am a big advocate of that, to give the States complete discretion to set up that program, how many drugs to be covered, and so on. That is an immediate step that, if Congress passes it, I am fairly comfortable and confident that Governors would enthusiastically endorse it and set up their programs.

The second thing, my Department has set up a "waiver," called "Prescription Plus." And this is a waiver that would allow States to set up a program up to 200 percent of poverty. A lot of States are looking at it. The State of Illinois has already adopted it. It is budget neutral. And it would allow for preventative care. And it will allow for States to have that waiver.

We have got a copy of that waiver right here that, hopefully, you would take into consideration and give to your California Governor, and maybe he would apply for it, as well.

The third thing is, we have a prescription card, that the courts have stopped. But now that we have entered a new proposed rule, we think that that is going to receive more favorable approval from the pharmacists, as well as the pharmaceutical industry. And, hopefully, we can get that passed.

So those three immediate steps; and then the final step, which is the most important one, is strengthening Medicare with a prescription drug benefit.

Mr. HERGER. Well, I thank you very much. That does sound like that would be very helpful.

Mr. THOMPSON. Thank you, Congressman.

Mr. HERGER. And Mr. Chairman, I yield back the remainder of my time.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Michigan wish to inquire?

Mr. LEVIN. Thank you very much. And welcome, Mr. Secretary. I just want to say, very briefly, how uncomfortable I am with the Chairman's decision about witnesses. I think really it is an unfortunate misuse of power. And I think it is indeed a slippery slope, as evidenced by Nancy Johnson's comments. I don't think we should be pre-censoring witnesses to come before this Committee.

Secondly, I just want to point out what I think, Mr. Secretary, is a deep inconsistency. There is a claim there is money in this budget for a substantial prescription drug benefit. But when you make permanent the tax cuts, I think a good portion of that money is otherwise used. And you have in the Administration proposal, or it has, a provision that the Balanced Budget Act budget cuts would go into effect, hospitals and others, home health care, etcetera. Those provisions are not realistic. And we are going to have to find the money. So that $350 billion is really more imaginary than anything else.

And I just wanted to say to you, we like working with you. The problem is, Mr. Secretary, that that isn't the pattern that has been followed in this Committee. There has really been no bipartisan effort on welfare reform, and I guess there isn't going to be on this. There will be an effort to push through a proposal; send it to the Senate. Essentially, that withdraws from you your statement that you want to work with Members of the Committee.

Let me say, fourthly, where the gentleman from California says two-thirds of the people have prescription drug benefits, as you know, at least half of that two-thirds have very inadequate coverage. So the picture is much more dire.

So let me ask you, why not place prescription drugs within Medicare cleanly, like is true for hospital reimbursement and physician and other provider reimbursement? Why not just place it in there?

Mr. THOMPSON. The problem, Congressman, is I don't think we would ever have a chance then to strengthen Medicare. I think that this Congress, if they pass the prescription drug coverage solely--there would be very little appetite to go back then and try and redo, try to fix, try to strengthen, try to make competitive, try to add a casualty loss benefit.

I don't see that happening. I may be wrong, but I don't see it happening. And that is why the President and my Department and myself, personally, feel that we have this one opportunity, with the momentum for prescription drug coverage, to do something about really improving and strengthening Medicare. And I don't think we should lose that opportunity.

In regards to bipartisan, I hope that we can work together on a bipartisan basis. I have mentioned that, Congressman, and I have mentioned that many times to you when we have discussed this.

Mr. LEVIN. No, and we appreciate that, and we are willing to do it. The problem is that people on your side in the House won't do that.

And let me just say, on your statement about prescription drugs and Medicare, essentially that means, first of all, I think it indicates a lack of trust in this Committee. And secondly, it holds prescription drugs hostage. If the reason not to place it in Medicare in a clean way is that you are afraid it takes the heat off other changes, you are holding it hostage. And this has been going on for years. And it sells us short. I mean, we have worked on all kinds of reforms of Medicare. We don't need to hold prescription drugs hostage. And let me just ask you quickly--

Mr. THOMPSON. Could I respond to that, Congressman?

Mr. LEVIN. Sure.

Mr. THOMPSON. I don't think we are holding it hostage. You know, that is your terminology, and not mine. What I see this is as a golden opportunity. Being a trustee of Medicare, I see the future as being very bleak. In 2016, which is not that far in the future, we are going to see a leveling off and a decline of the surpluses. And by 2030, it is going to be broke. And I think it is time for us to address this. Every year that we wait, it is going to be more difficult to fix that particular problem.

Mr. LEVIN. All right.

Mr. THOMPSON. And you have good faith. And I appreciate that. I just think we should do it now, sir.

Mr. LEVIN. The trouble is, this has been going on year after year after year. And so in essence, prescription drugs so badly needed are held hostage because of the failure to do something else. And that isn't a good excuse, when you look in the eye seniors who can't afford prescription drugs.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Iowa, Chairman of the Budget Committee, wish to inquire?

Mr. NUSSLE. Thank you, Mr. Chairman.

First, I guess, a couple of quick observations. The budget that everybody keeps referring to is the President's budget, and the budget that the House wrote and passed. I am glad everyone is referring to it, and appears willing to enforce it.

I guess my further observation would be that we still have no budget from either the Democrats or the Senate. We have no Medicare plan from the Democrats or the Senate. We have no prescription drug plan from the Democrats or the Senate. But the House did pass a budget.

Just for your information, Mr. Secretary, you had said earlier, and I just want to clarify this, if there was some confusion. It was not my intention when I wrote the budget, nor was it the House's intention when we passed the budget, to indicate that we wanted to out-bid you with regard to a prescription drug benefit.

And I worked closely with the Chairman of the Committee on Ways and Means in crafting this budget proposal with regard to Medicare. Our intention was very clear. We did not feel that prescription drugs were the only issue that we needed to address. It is a vital issue. As the gentleman from Florida indicated, Mr. Shaw, we have all had that experience, where we have been in the drug store in our district, and we have watched it firsthand; or we have had constituents come to our meetings and talk about the choices that they are having to make.

But let me just, if I could, amplify the choices that we are making in Iowa. We are eighth in the quality of health care delivery and health care services, eighth in quality. And yet, Mr. Secretary, we are 50th in reimbursement. If I bring a prescription drug benefit back to the constituents of Iowa, what will happen, if that is all I bring back, is that they will have this great new prescription drug benefit under Medicare. But my doctor will have to leave, because reimbursements are down. And we are already experiencing that. Doctors are leaving rural areas in Iowa. It is difficult to retain or to recruit new providers to our area.

So what will happen is, the doctor leaves. And of course, if the doctor leaves, and the health care provider is not providing those services in the hospital, and the hospital can't pay its bills because their reimbursement system is broken, the hospital closes. Well, now all of a sudden, all of your health care professionals leave town: a little town like mine of Manchester, 5,000, with a small little hospital that has been thriving but is now struggling. All of those folks leave town, because the Medicare system is not providing the services that they need to for seniors.

And so what happens? Now my seniors, that we have provided this prescription drug benefit to, have probably nowhere to go on Main Street to fill their prescriptions, because the pharmacist left town. Now they have to drive 50 miles down to Cedar Rapids to fill their prescription--assuming that Cedar Rapids has a hospital that is open and prescription drug benefits that can be utilized.

What I am getting at here is that we need help in rural areas. I know I am singing to the choir, because of your experience in Wisconsin. I believe you are 48, which is not too far behind Iowa. What is the Administration prepared to do to eliminate the rural/urban disparities? That is my question.

Mr. THOMPSON. Well, first off, Congressman, you made a statement at the beginning that I disagreed with you in regards to your figures. I do not disagree with you. In fact, I heartily endorse and agree with what you did in the budget. I think you did an excellent job, and I applaud you and commend you for that.

In regards to rural reimbursements, you are talking to the choir. As Governor, I fought this fight many times out here, indicating to Congress that they have to change it. The truth of the matter is that the reimbursement formula is based upon a statutory formula. And we implement the statutory formula. And the only ones that can change it are, of course, Congress. And so we are looking for you to change it. And I wish that you would, and hope that you would.

You have to take into consideration that 73 percent of the reimbursement formula is based upon wages, and that is how the reimbursement formula was set up. And so if you are going to change the formula, you have got to address the wage issue. Because the wages in New York are higher than they are in Cedar Rapids, Iowa, and higher than they are in Elroy, Wisconsin. But that comprises 73 percent of how the formula is structured.

So if we are going to reimburse differently, we are going to have to change the formula and take in factors like the rural health incidence, like the declining populations, like the fact that health care providers are leaving rural areas--rural Iowa and rural Wisconsin. Those kinds of factors should be built into a reimbursement formula to make it more equitable.

And that is something that the Chairman, Chairman Thomas, is working on; on the provider payments. But the only way you are going to change it is to change the reimbursement formula, and that requires congressional action, not administrative action.

Mr. NUSSLE. And will the Administration support action similar to that? I know you haven't seen the proposal yet, but you would be willing to support it?

Mr. THOMPSON. I haven't seen the proposal, but it is something that I, personally, have been involved in for a long time. And I can't imagine that I could, in good faith, not support it.

Mr. NUSSLE. Thank you.

Mr. Chairman, just for the good of the order, there have been some comments, too, about somehow making tax cuts permanent not fitting within the budget. We have a budget. The CBO has scored the provisions to fit within the budget, and it does so.

There was a gentleman who made a statement, something about, "I think it makes it more difficult." Well, that is fine, but CBO and OMB have scored it, suggesting it does fit. So whether you think it fits or not, we have our score keepers telling us that in fact it does. Thank you, Mr. Chairman.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Maryland wish to inquire?

Mr. CARDIN. Thank you, Mr. Chairman, Mr. Secretary.

Mr. THOMPSON. Thank you, sir.

Mr. CARDIN. I would hope that, in regards to reimbursement for needed preventive health care services and benefits, that we would not delay action because of other objectives that we are trying to achieve.

I remember very well Chairman Thomas' help when he was Chairman of the Health Subcommittee, when we expanded Medicare to include a whole host of new preventive health care services. That was the right decision we made, when we included those services, and we didn't wait until everything could be done in everyone's definition of "reform." And to me, prescription drugs falls into the same category.

You and I both know that seniors need to take their medicines in order to stay healthy; that if they don't take their prescription medicines, they are more likely to have a stroke, or more likely to need an amputation, or more likely to be disabled and not even able to get around. And that is just going to add to health care costs. We shouldn't say, well, this is the sugar for making some of the other changes in Medicare that are needed. I would just hope that our inability to agree on an overhaul of Medicare does not prevent us from adding a benefit within the Medicare system that is desperately needed by our seniors and our disabled population.

We should debate how to implement a prescription drug benefit. It is costly. It does cost the system money, certainly in the short term. But I must tell you, the actuaries have said that the Medicare trust fund is in its best shape since we have been making these projections. And the actuary actually said that he thinks that these figures are more reliable this year than they have been in any previous year. So I think we do have some elbow room to work with within the current Medicare system.

Let me just point out four factors I hope we could agree on, and I would like to get your reaction to them: That a prescription drug plan, first, should be voluntary, because there are some seniors who have good health care benefits today that include prescription medicines, and they shouldn't be required to sign up for a program they don't need.

Secondly, that it should be a benefit available to all seniors. It shouldn't be means-tested. It should be available to all of our seniors. And I think the leadership on both sides of the aisle are committed to that point.

Third, that the benefit needs to be a guaranteed amount. As Mr. Levin said, there shouldn't be any difference between a prescription drug benefit and the benefit for physicians services. Seniors should know that it is going to be covered. Now, if you get a better plan out in the private sector or in Medicare+Choice, fine. But at least you know that there is a guaranteed benefit level, by statute, that every senior is going to be able to receive.

And then fourth, we have to put enough subsidy into the program that we don't have adverse risk selection. And I know the current Chairman of the Health Subcommittee has been very strong about that point.

I would hope that, at least as a starting point, we could agree on those four principles. And I would appreciate your response.

Mr. THOMPSON. Well, first, let me respond to your basic premise about the need to strengthen Medicare. I have been a trustee now for a little over a year. And all of the actuaries and all of the studies indicate that Medicare is going to go broke. Last year it was 2029, and it is extended this year to 2030. But they still look at the underlying assumption that by the year 2016 the amount of money is going to be going down.

Mr. CARDIN. But Medicare has always been projected, ever since we have done these projections, to be going broke. So this is nothing new. We have never made a commitment to long-term solvency.

Mr. THOMPSON. But when you add a benefit like prescription drugs, which is going to be expensive, depending upon how you pay for it, it is going to more than likely be a drag on the longevity of that particular plan. Therefore, it seems prudent to look at the overall strengthening of Medicare now, when you put in the prescription drug benefit. That is what the President feels. That is what I feel. And that is what the Department feels.

And we have this opportunity. And I am not questioning your good intentions. I am not questioning anybody's intentions. I am just looking at the overall opportunity to strengthen Medicare. I think it is now with prescription drugs. And I don't see that opportunity availing itself in the future. That is why I think we should do it now.

In regards to the four principles, I have no difficulties with your four principles. But I also want you to know that you are going to have to look into the dollar amount--the dollar amount--that you come up with for prescription drugs, and how you pay for it. You have got about five indicators that you can ratchet up or down to meet that. And so you can't get locked in with a dollar amount at this particular point in time, but the principles are solid.

Mr. CARDIN. Let me just in conclusion point out that we wouldn't have colorectal screenings, or prostate cancer screenings, or osteoporosis bone density screenings today, if we would have required those improvements to wait until we got everything done. I hear your point, but these are important preventive health care services. You have been a leader on this. We have got to get it done. Thank you, Mr. Chairman.

Mr. THOMPSON. Thank you, Congressman Cardin. Thank you for your leadership on welfare, as well.

Chairman THOMAS. I thank the gentleman, although perhaps our memories are becoming more selective the farther we are getting away from that period. Because I recall that the cooperative attempt between the gentleman and myself was called H.R. 15, which was clearly the nucleus, or the core, around which a number of significant changes to the Medicare program were made which finally became the Medicare Reform Act in 1997. So there were a number of other items that were attached to it, as well. They didn't travel the lonely journey by themselves.

Mr. CARDIN. Just very quickly, Mr. Chairman, I agree with you. So we have already fixed the system. Now we can put the prescription drugs in.

Chairman THOMAS. The problem was, the fixes were forced under an Administration that was hostile to the competitive ideas. This Administration is receptive of the competitive ideas. And we are going to continue to build on the future successes the gentleman from Maryland has participated in. And I look forward to his enthusiastic participation in the latest round.

Does the gentlewoman from Washington wish to inquire?

Ms. DUNN. Thank you very much, Mr. Chairman.

It is good to see you, Mr. Secretary. Thanks for coming before us this morning. I enjoyed your interchange with Mr. Nussle on the topic of the problems we have in rural America, because I have some of that type of territory in my home State of Washington. And it is terribly important for us to get some of these problems ironed out. Part of the thinking behind one of my proposed pieces of legislation has to do with making accessibility easier for people in rural areas.

I wanted to make a brief statement, and then ask you a couple of quick questions. You are currently drafting a policy that will address the issue of Medicare coverage of drugs that are usually administered by a physician. My legislation, as you know, provides coverage for self-injected biologics that people can provide to themselves, in Medicare Part B, so that patients can have equal access to these drugs; as well as to assist in encouraging choice and competition between infused and self-injected drugs.

So two questions: When do you plan to make a decision on the self-Administration policy, and how expansive, in terms of the drugs covered, will your policy be? I would like to know the answer to that.

And secondly, I would like to get your thought on giving seniors access to self-injected biologics that would be covered under Medicare.

Mr. THOMPSON. I am sorry, could you just mention the last question again?

Ms. DUNN. The second question was, I would like to get your perspective, what your thoughts are, on Medicare's coverage of self-injected biologics.

Mr. THOMPSON. First off, I thank you for your comments on rural Washington. It affects rural Iowa, rural Michigan, the rural Dakotas, and rural Wisconsin.

In regards to the self-injection, as you know, my office has been in communication with you, Congresswoman. And that report is coming out relatively quickly. You will be receiving it. I will be talking to you about that in the future.

In regards to the details, I am not at liberty to discuss those details right now. Those details will be coming forth to me. I will be briefed on it, I believe, week after next. And those details are still being worked on, so I cannot go into the finite details at this point in time.

With the third thing, it depends upon the cost; it depends upon the drugs; it depends upon the equipment. All of these things have to be taken into consideration. But overall, my basic principle is to support you and the kind of legislation you have introduced.

Chairman THOMAS. Does the gentleman from Georgia wish to inquire?

Mr. COLLINS. Thank you, Mr. Chairman.

Thank you, Mr. Secretary. I appreciate the fact that you are here offering some proposals for the modernization of Medicare. I enjoy traveling throughout the Third District of Georgia, and I ask many times for the opportunity to speak with senior groups. I also like to inform them that there is a lot of rhetoric that comes out of Washington when it pertains to their health insurance. And it is in my opinion--and I ask if it is in yours--that Medicare is a health insurance program for seniors and disabled. It is an entitlement program that is incorporated in provisions of law. Is that not true?

Mr. THOMPSON. That is correct. You are absolutely correct, Congressman.

Mr. COLLINS. And Mr. Secretary, that health insurance program is funded with particular provisions of law that are non-discretionary to the Congress. Is that not true?

Mr. THOMPSON. That is correct.

Mr. COLLINS. So therefore, when you discuss any other provisions of law that bring revenue into the Federal Treasury, you are actually not directly referring to the health insurance for seniors and disabled, because there are specific provisions of law that require that those health insurance provisions and coverage be paid. Is that not true?

Mr. THOMPSON. Yes.

Mr. COLLINS. So what you are proposing actually is changes to policy that will directly affect the benefit structure of that health insurance.

Mr. THOMPSON. Yes.

Mr. COLLINS. You are not making any proposals that will directly or indirectly affect, or have an effect, on changes of tax policy.

Mr. THOMPSON. That is correct.

Mr. COLLINS. Because by law, it has to be paid, whatever policies that Congress accepts--

Mr. THOMPSON. That is correct.

Mr. COLLINS. And the President will sign. In your comments--and I hear it oftentimes--that the cash flow of Medicare, or a portion of that cash flow, is referred to as "surplus." But in essence, in your comments on the second page, you refer to it as I do.

Mr. THOMPSON. As what?

Mr. COLLINS. As I refer to it. And that is as a cash flow. Truthfully, there is no surplus.

Mr. THOMPSON. There is no surplus.

Mr. COLLINS. Because a surplus is when you have funds beyond your liability. In the long-term liability of this program, based on the policy, there is no surplus.

Mr. THOMPSON. That is correct.

Mr. COLLINS. It is all cash flow. Now, in consideration by the Congress of funding these non-discretionary provisions, we are the ones that will have to take into consideration at some point in time the policy that governs that cash flow, so that we effectively can have the funds available to pay for those provisions that are by law to cover the health insurance.

Mr. THOMPSON. That is correct, and that certainly is something that the trustees are concerned about.

Mr. COLLINS. So therefore, any consideration that we give to changes in policy with future liabilities, we must not only consider those who are being affected by that policy as far as a direct benefit, but as a Congress and as the Administration, the portion of the Administration who deals with tax policy, we must consider how it will affect those who actually are responsible for paying the tax--and that is the working people of this country--to cover that benefit structure; based on the fact that we are a pay-as-you-go system. Is that not true?

Mr. THOMPSON. Yes.

Mr. COLLINS. So I commend you for coming forth with, I think, reasonable ideas that you offer to the Congress that we can do and we can take into consideration and actually adopt, that will help the coverage for those who do need coverage.

And as we move forward with accepting those proposals, I urge my colleagues to take into consideration those who actually will be paying for the benefit; and that is working America.

It kind of reminds me of a song I heard the other day, you know, that there are certain people who get to dance, but it's always the working man who pays for the band. And that is what we are discussing here today. We are discussing those who actually will benefit from the program. But as a Congress, we must consider those who are actually paying for the benefit.

Thank you for your consideration, your common sense approach, the fact that you are sticking with the proposals that deal with the policy and you will leave the long-term policies to the Congress that actually will effect the payment of those non-discretionary portions of law. Thank you, Mr. Secretary.

Mr. THOMPSON. Thank you, Congressman Collins, for your questions, and thank you for your positions.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Wisconsin wish to inquire?

Mr. KLECZKA. Yes, Mr. Chairman. Thank you very much.

I think my colleague, Pete Stark, resolved one of my dilemmas this morning, when he referred to the witness as "Governor/Secretary," because I always have a problem figuring out what to call you, Tommy. So I think we will use "Governor/Secretary."

Looking at your testimony today, you indicate to the Committee that there are five points that we should be, as a Congress and as the Administration, talking about when we address the Medicare program. And the first, you start out with giving seniors the option of a subsidized prescription drug benefit. I think we for the most part agree with that. We have tried to do that in the past, and we haven't succeeded. Hopefully, with your help we can succeed this time.

Second, you talk about better preventive care. Over the last few years, we have added one or two or three benefits to accomplish that goal. Clearly, there is more to be done. And so I agree with that second point, also.

The third, you talk about providing that the beneficiaries have the option of keeping the traditional Medicare plan. None of the colleagues on my side of the aisle have any proposals that would change that, so I am sort of scratching my head as to why that is here. The Medicare program, as it is incepted, is available to all seniors 65 or older, and so that one I have a little question about.

Fourth, you talk about providing better health care options, similar to what is available for Federal employees. And this has come up time and time again, and it makes for a pretty good 30-second commercial. But I just don't really know if it is appropriate for what we are talking about, and that is a Medicare program for the seniors.

If, in fact, we provide a guaranteed benefit of a health insurance program for the seniors, they don't need a potpourri of 20 plans to choose from. If it is a decent, affordable, comprehensive plan, like I think the Medicare program has the structure to do, then they don't need 20 more choices. Okay?

And then, the last option you talk about is the legislation should strengthen the program's long-term security. And that, we all agree to.

Okay, with that being said, Mr. Secretary, what do you envision as far as a subsidized drug benefit, given the limited dollars that we have set aside for this expansion? Do you view that this additional benefit should be part of the Medicare program, like physicians' care and hospital care currently are?

Mr. THOMPSON. Yes, I do. I would like to respond to items three and four in my statement.

Mr. KLECZKA. Sure.

Mr. THOMPSON. Three and four actually go together. Your position is that you do not believe there should be competition, that there should not be the opportunity for a senior to be able to pick and choose which program is the best.

Mr. KLECZKA. Well, I make that statement because what we did a couple of years prior to you becoming Secretary, we tried this thing, which I will term an "experiment," called "Medicare Choice."

Mr. THOMPSON. That's right.

Mr. KLECZKA. And I think it has been a total failure, especially in the State that I happen to come from and the people that I have to represent. You indicated that millions of people have opted to take Choice. But the other side of the coin is, millions of people have already cancelled it. All right? They have got out of it. Because once many benefits were proposed, the actual companies offering the policies cancelled those benefits. And in fact, the recent situation in Milwaukee, Wisconsin and in southeastern Wisconsin was one of the Medicare Choice plans which initiated their coverage at a zero deductible for hospital stays announced this year that it is going from $0 to $365 a day. Okay? And so my seniors don't need those types of bad choices.

And the basic fee-for-service program works. Let's just make that better, instead of searching around for ways to complicate the lives of senior citizens who, like many other individuals in the country, are not very informed on life insurance, they are not very informed on health insurance and things of that nature. So let's make it simple, but make it good.

Mr. THOMPSON. Let me respond, if I might, Congressman. Because I know full well of the Milwaukee case, because you contacted me. And you also contacted CMS, and we were able to reduce it.

Mr. KLECZKA. And through your intervention, that increase was somewhat decreased. And we thank you for that. Right.

Mr. THOMPSON. Somewhat decreased, and they still pulled out. And that is a problem. The reimbursement formula for Medicare+Choice has been such that the companies have not been able to make a profit. They have pulled out. And a lot of people have been left without their coverage.

But we also have done a survey, through CMS, Congressman Kleczka. And those individuals that still have Medicare+Choice like it, and would like to be able to maintain it and continue it. And that is why the President has put in an additional 6½ percent increase for reimbursement, to stabilize Medicare+Choice.

We also feel as an Administration that a senior--and we believe seniors are very intelligent, very good shoppers--would be able to choose, pick and choose the best program. And that is why we think the Federal health insurance program is a proper model to look at, and go back to that.

We also in the Administration--and that is point number three of my statement--indicated that seniors should have the opportunity, if they so desire, to pick a new plan, or remain in the fee-for-service program that you are advocating; that every senior should have that right. And that was the principle number three.

Chairman THOMAS. The gentleman's time has expired.

Mr. KLECZKA. I would love to, but I don't have the time.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Ohio wish to inquire?

Mr. PORTMAN. Thank you, Mr. Chairman.

A prescription benefit under Medicare is long overdue and, Mr. Secretary, we appreciate your personal commitment to this issue, and also your practical approach to actually getting it done. And even in a political year, an election year like this one, we hope we can move forward on a bipartisan basis to get that done.

I have got a couple of questions for you. I think they are related. But the first one is with regard to costs of prescription drug coverage. Because of increased utilization, because of new market entries, because of just the cost of prescription drugs alone, we are told by the National Institute for Health Care Management that there was a 17-percent increase last year in prescription drug costs. The CBO I think is projecting double-digit inflation, sort of as far as the eye can see.

My question would be to you, in your opinion, what impact can Medicare modernization and a prescription drug policy in Medicare have on these cost increases?

Mr. THOMPSON. Congressman, we think several things. Number one, we think the competitive bidding that Congresswoman Johnson indicated is certainly going to lower and stabilize prescription prices.

Second, we think the competitive opportunity--that individuals would be able to choose their plan and have the difference between just a Medicare fee-for-service or a more competitive kind of plan like the Federal employees have--is going to be the biggest one single factor in holding down the costs of prescription drugs in the future.

And those two things are reasons, I believe, that this Congress should go ahead, streamline, strengthen Medicare, and put in a prescription drug benefit. I think we could do it on a competitive basis, and I think the free enterprise system would work to the advantage of the seniors, as well as to the taxpayers.

Mr. PORTMAN. Thank you. I assume you also believe that your prescription drug discount card would be effective; just the volume discount of that would result, and in how competition would work, in lower costs?

Mr. THOMPSON. Those are the three immediate things we talked about earlier and that I answered to the previous question. One, we have the prescription drug card that we think is going to be beneficial to hold down prices.

The second one is allowing States to set up their own individual prescription drug program, using the Federal match from Medicaid up to 100 percent, and then a 90/10 match from the Federal Government up to 150 percent of poverty. That is immediate. We think that would be very helpful.

And the third one, of course, is the waiver that we are allowing through the Department of Health and Human Services, Prescription Plus. Several States are interested. The State of Illinois has already been the first State to set it up.

Those three things are immediate, and they would also hold down on the costs of drugs across America.

Mr. PORTMAN. It is the responsible thing to do, as we offer this benefit, which we should have done a long time ago: to be sure that we are also addressing the cost issue. And I agree with you. I think we will.

Another issue that is out there in the real world is the sort of abuse of prescription drugs, or complications that arise because of misuse of prescription drugs. Many seniors don't comply with the directions from their doctor, or the directions from a pharmacist, on how to use them. They sometimes forget to take a dosage. Sometimes they mix drugs. Sometimes they stockpile drugs, and then share them with friends and family, when it has expired or an inappropriate drug.

I don't know what the costs are of this, but there are estimates out there that it is a huge cost driver; maybe $150 to $200 billion a year. Certainly, by improving that compliance with prescription drugs and medication in general, we would be able to improve people's health; but we would also be able to get at some of the cost drivers.

What steps do you think we can or should take to ensure that seniors are encouraged or incentivized to use prescription drugs more effectively? How can we incorporate best practices under the Medicare reforms?

Mr. THOMPSON. I think through the information. I think CMS has got a program right now that we are advertising. We are going to have a $35 million program explaining in more details about Medicare. We are also putting out a very good prevention agenda by the Department, advising people on the proper use of drugs, and why they should be used properly.

The third thing is that we are setting up ways in which we are communicating better, through CMS, to doctors, to hospitals, across America, advising them not only of this particular subject, but many other subjects about quality of health.

We have also got the Agency for Healthcare Research and Quality, which is the research component of the Department of Health and Human Services, that is really looking at quality, issues on prescription drug uses, how to use it, and proper usage. FDA also has got a program set up in regards to this.

All of these things coming together hopefully will be of some assistance in making sure that seniors use the proper dosage, and use the correct amount.

Mr. PORTMAN. I appreciate that, Mr. Secretary. I think that is extremely important. And as to compliance packaging, other more innovative ways to kind of let seniors see in very simple terms what the right dosage is, when they are supposed to take it, and so on, I think that would go a long way. And I hope we can address that issue as well as the cost issue while we provide this important benefit. Thank you, Mr. Chairman.

Mr. THOMPSON. Thank you so very much for your questions and your comments, Congressman. You are always right on target.

Mr. PORTMAN. Thank you, sir.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Washington wish to inquire?

Mr. MCDERMOTT. Thank you, Mr. Chairman.

I was pleased to hear, Mr. Secretary, that you are going to be with us for the foreseeable future.

Mr. THOMPSON. Thank you, Congressman, for your endorsement, my friend.

Mr. MCDERMOTT. I don't want you to leave us just here in the lurch, because we're in problems.

I hear you talking about strengthening Medicare, and doing a Medicare benefit for prescription drugs. And I keep wondering where the money comes from. Because even somebody like Gail Wilensky, who used to run what then was called "HCFA," doesn't think there is an adequate amount of money available to give a real prescription benefit, which is probably going to be somewhere around $350 billion, and do what people call strengthening Medicare. There is an implied savings in this strengthening of Medicare. That is what it sounds like to me you are saying when you say we are going to strengthen Medicare.

What I should hear is, we are going to save money by doing some kind of changes. Am I hearing wrongly, or do you have some other source of money beyond the $350 billion that was in the budget resolution which should go for an adequate drug benefit? Or do you think the drug benefit shouldn't be that much?

Mr. THOMPSON. Well, as you know, Congressman, the Administration put in our budget $190 billion. Congress has seen fit to raise that to $350 billion. And I came here today to indicate to you that the Administration wants to work with that latter number, in order to come up with a comprehensive prescription drug coverage.

Secondly, we also are looking into strengthening it, putting in a casualty loss for seniors that we think is important.

We also think a preventive benefit is important, in order to hold down the costs. As you well know, Congressman--you and I have discussed this--we need to do more in the area of prevention. We think that that is going to be a cost saver. We think that we can save money if an individual goes in for a mammography, a colorectal examination, or any other kind of preventive health; that might save in the future more expensive health care. And we think that is important.

Fourth, we think that the spend-down on prescription drugs--a lot of people are spending down their assets in order to get on Medicaid, in order to get the prescription drug coverage--we think if we have some preventive areas in here to strengthen it, that will prevent that.

We think that the Medigap insurance, to allow for three new policies to add just prescription drugs and not first-dollar coverage, will allow that to take place.

Mr. MCDERMOTT. All those could be done with--

Mr. THOMPSON. And finally, we think competition--

Mr. MCDERMOTT. No additional money?

Mr. THOMPSON. We think that those things are cost savers, Congressman.

Mr. MCDERMOTT. Okay.

Mr. THOMPSON. And we think that the competition--If you as a senior have the opportunity to be able to choose between one fee-for-service plan versus 10 other plans, like a Federal employee is able to, we think that is going to be much more productive, much more cost-efficient.

And finally, we think having the competitive bidding process put in, that we will hold down on the purchase price of drugs, like we did for Cipro; that we would be able to save some dollars.

These are the cost savings that we think will be able to strengthen Medicare, improve Medicare, and at the same time allow for prescription drug coverage, Congressman.

Mr. MCDERMOTT. So if I understand--And we are holding our breath, waiting for your plan to be rolled out up here. I remember when Mrs. Clinton was coming with her plan, and there was a lot of bated breath. Well, we have got bated breath up here for your plan.

But we were not allowed to hear a witness who has a proposal in Maine, which I would like to hear you comment on. Because the Federal Government negotiates, the Veterans Administration negotiates with the drug companies, and this State Senator, Ms. Pingree, said, "Why don't we have the State of Maine negotiate with the pharmaceutical companies to get good prices?" That is her proposal.

Now, would you be opposed to a program where Medicare, using its enormous financial power, would negotiate with the pharmaceutical companies for better prices? I mean, if the Veterans Administration can do it, and the State of Maine can do it, why would it not be a good idea for us to use the 30 million people who are in Medicare as a buying power to drive down the price?

Mr. THOMPSON. Congressman, three things: Number one, the State of Maine case is in litigation right now. The district court ruled one way; the court of appeals has ruled another way. It is now being petitioned for certiorari in front of the U.S. Supreme Court. Whether or not they are going to take jurisdiction, I can't tell you. But that case is being questioned in the legal system.

In regards to that, we set up a model waiver, Congressman, called "Pharmacy Plus." And I have got a copy of that waiver here. And Maine is interested in this particular program, as are approximately 13 to 15 other States. Illinois has already enacted this particular waiver, and we have approved that, to give them up to 200 percent of poverty, based upon their prescription drug coverage. It allows those States to negotiate directly with the particular pharmaceutical companies.

That is in the model waiver. And we think the model waiver may be superior to the State of Maine. And this is a waiver that came up out of the Department of Health and Human Services, that we developed, that we would like to have you take a look at.

Mr. MCDERMOTT. I don't know if everybody has a copy of it.

Mr. THOMPSON. I just brought it, and it is there. A lot of States are doing it. And we think it is superior to the State of Maine. And I just would like to point out, it came from the Department, sir.

And finally, in regards to negotiating, the only problem with Medicare is that we are such a huge purchaser of the thing in the market that we would more than likely distort the market if we negotiated directly with a pharmaceutical company on the purchase of drugs.

Therefore, we think--and I mentioned that to Congressman Stark--that if Congress gives me the authority, I will do it. But I think a better approach is competitive bidding, which will accomplish pretty much the same thing, as well as the model waiver. And I think that is a better approach than having a way to distort the market, Congressman.

Chairman THOMAS. The gentleman's time has expired. However, the Chair would like to sympathize with the gentleman from Washington on the preventive care, as he well knows. Something as useful as the early detection, education, and treatment of diabetes, which would significantly reduce end-stage renal disease, was listed when we wanted to offer it as a program as a "coster," rather than a money saver. And if the Department would help us in collecting statistics about early detection and prevention programs that we put in place, to show that they actually save money, we could do even more of that, by offering other programs out of the savings of the preventive programs that we have.

But under our current budgetary structure and rules--which the Chair thinks are rather absurd--those wind up as "costers" because we look at 5-year windows for cost, rather than over a 10- or a 20-year period in which we fundamentally are able to alter behavior. That is one of the problems that we live with, with the artificial budgeting structure that we have, including comments about tax cuts or any other provisions in the artificial world in which we live.

Does the gentleman from Pennsylvania wish to inquire?

Mr. ENGLISH. I certainly do, Mr. Chairman. And for what it is worth, I will stick to 5 minutes.

Mr. Secretary, I want to thank you for coming here and testifying today. And on behalf of those of us who think $350 billion is serious money--perhaps naively--I want to congratulate you for also exploring ways of delivering the same package of Medicare services more efficiently, in a more modern way. And if that generates cost savings, I don't think you would need to apologize for it.

My sense is that one of the most important things you have touched on in your testimony is the need for seniors to have a flexible package of benefits under whatever we do. And I wonder if you could elaborate, very briefly, on your testimony. The notion of flexibility has been characterized here, strangely, as complicating seniors' lives. Yet for many seniors, in very different circumstances, a different package of benefits would mean different things.

And I wonder if you could elaborate on the importance to seniors of giving them at least a variety of options for how they might take a subsidy in supporting their prescription plans.

Mr. THOMPSON. I think, first off, let me thank you for your pointing out the efficiencies. And I would like to thank you and the Committee for passing our contracting reforms. I know the House has passed it, and it is over in the Senate. Hopefully, the U.S. Senate will pass it. Because the contracting reforms are going to allow us to build in quality, efficiencies, and save money, and deliver a better product. And that is what you want, and it is what the taxpayers want. And we are hopeful that the Senate will pass it, so we can do that.

In regards to choice, as we know, seniors like Medicare+Choice, because it gives them the opportunity to look at something else besides just fee-for-service. We think also of the Medigap plans; there is "A" through "J." This Administration is asking for three more, three that do not require first-dollar coverage, and one that will allow only for prescription coverage. So that seniors will be able to pick and choose from Medigap programs to decide which one is the best suited for their particular needs.

The third thing, and the most important one, is if we go with the change of strengthening it, allowing Medicare recipients to have the same choices as Federal employees, we are fairly confident that the seniors will embrace that enthusiastically and will be able to pick and choose which plan best suits them and their insurance needs.

And that is why we think it will be a cost saver, because you will have competition; you will hold down on expenses; and you will allow seniors to have the same choices that you and I have when we pick our health insurance program. And we think that is good public policy.

Mr. ENGLISH. And I know you know from your experience as Governor that Wisconsin has not been the only source of policy innovation at the State level. And I know you are aware that Pennsylvania has a Program of All-Inclusive Care for the Elderly (PACE)--

Mr. THOMPSON. That is correct.

Mr. ENGLISH. That has been in place for many years. It is perhaps the most comprehensive of the State programs available--perhaps of less interest at this hearing, because PACE doesn't afford one of the factions in Congress an opportunity to highlight one of their candidates. But it is certainly one of the most successful programs.

In Pennsylvania seniors currently have access to a limited prescription plan under PACE. We would like to see a program that would fit into that existing benefit, if anything could be wrapped around it. Do you feel that that is an important priority, and that we should encourage the States that are doing things already in prescriptions to be able to continue to offer those benefits; and not, as the minority plan from the last Congress did, require seniors to choose one or the other?

Mr. THOMPSON. Thank you, Congressman English, and thank you for your comments about our innovation in Wisconsin. And I appreciate that. I am not going to get into an argument with Governor Ridge which one of us was the most innovative, because Governor Engler would also like to have a dog in that hunt. But I thank you so very much. And I compliment the Governor and the legislature in Pennsylvania for coming up with the PACE program.

And that is why the President came in with his immediate program to allow for States like Pennsylvania that have taken a lead to be able to use this new program, up to 100 percent of poverty, to get their Federal match, and then up to 150 percent of poverty, to get a 90/10 match. That would help Pennsylvania, probably more than any other program. And we are hoping that you will support that.

In regards to that innovation of States, this is something that I believe very passionately about. That is why we set up this model waiver for States to use. And it is called "Pharmacy Plus," and allows States to take a look at this opportunity for themselves to set up their own individual drug program, one in which the States and the Federal Government would be in partnership. And we are hoping that States like Pennsylvania take the lead and do that.

Mr. ENGLISH. Thank you.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Illinois wish to inquire?

Mr. WELLER. Thank you, Mr. Chairman. 

And Mr. Secretary, it is good to have you here again.

Mr. THOMPSON. It is always a pleasure, Mr. Weller.

Mr. WELLER. Particularly, someone from the neighboring State of Wisconsin.

Mr. THOMPSON. Yes. And we love people from Illinois coming to visit Wisconsin.

Mr. WELLER. I know. A lot of my neighbors do. And again, I appreciate your time and your leadership, and particularly your leadership on modernizing Medicare for the 21st century with prescription drugs.

And I also want to commend the President on his leadership in the war-time balanced budget he has offered the Congress, which was mirrored in what we passed out of the U.S. House of Representatives, that includes prescription drug coverage for seniors as part of Medicare.

One thing I would note, in the House-passed war-time balanced budget we provide about $350 billion for the purpose of modernizing Medicare, including prescription drug coverage. And my hope is it will be legislation similar to what this House passed 2 years ago, which was voluntary and affordable for all seniors who qualify under Medicare. And thanks to the leadership of Chairman Thomas and Nancy Johnson and others, this House led. And unfortunately, the Senate failed to act. And we could have had prescription drug coverage for seniors today, had the Senate acted, rather than doing nothing.

The question I have, Mr. Secretary, is, in your testimony you note that there are about 9 million Medicare beneficiaries that have no prescription drug coverage today. About one-third of those have incomes of $18,000 or less, lower-income seniors. And of course, they are the ones who struggle the most in meeting the cost of providing prescription drug coverage.

There are two questions I have. One is that I find as I travel throughout the district that I represent, the south side of Chicago and the south suburbs, towns like Joliet and Park Forest and that, many seniors already have prescription drug coverage, about two-thirds do.

Mr. THOMPSON. Seventy-three percent.

Mr. WELLER. Seventy-three percent. And I find across the board there is support for including prescription drug coverage. And they appreciate what the House majority has done, the leadership that has come out of the House.

One concern they have, though, is they are concerned that if we provide prescription drug coverage under Medicare that it may jeopardize the coverage they already have, that as part of their retirement benefits they are provided what they feel is a pretty good program covering prescription drugs. And they have a fear that if the government were to provide it through Medicare that they would lose it as part of their retirement benefits.

And I was wondering, Mr. Secretary, if you can just share your concerns, as we move the legislation through this Committee, on how we can best ensure that prescription drug coverage will not only be affordable, but voluntary. If you have better coverage available from another source that you prefer to have, there is no reason to jeopardize it.

Mr. THOMPSON. I really think that we can take care of that in the overall proposal that this Committee will be marking up. I think that there is no question that 73 percent of seniors have their own prescription drug coverage. Some of it is not as adequate as it should be, and they will be certainly benefiting from a prescription drug coverage in Medicare.

We think overall that the prescription drug coverage benefit for seniors under Medicare is important. But we do not want to crowd out. And that is something that some individuals are fearful of, some of your constituents, that if we put prescription drug coverages, employers say, "Well, you've got it. As a senior you don't need it in the employer's proposal." And that is a big block, of those individuals that are covered by employer-owned policies.

And so therefore, we want to make sure that we take that into consideration. But we think that it can be handled quite nicely.

Mr. WELLER. Yes. And building on that, the proposal that we passed out of the U.S. House of Representatives in the last Congress was a public-private partnership, and enlisted the private sector in helping provide Medicare prescription drug coverage, and legislation that obtained bipartisan support.

My hope is that the legislation we move through this Committee will have bipartisan support as well, because both parties claim they are for prescription drug coverage. And we no longer want it to be a political issue. We actually want to provide a solution and get the job done.

And I was wondering, from your perspective, there are kind of two schools of thought. One is that there should be no private sector involvement in providing Medicare prescription drug coverage; and the other is that we should enlist the private sector. And fundamentally, can you argue the merits of what the President has discussed, which is enlisting the private sector?

Mr. THOMPSON. The President feels strongly that the seniors should have options. If they want to retain the current Medicare fee-for-service program, they should have that opportunity, and nobody should abrogate that opportunity.

But at the same time, like we have for Medicare+Choice, like Medigap, there are many different programs out there that seniors like to be able to pick and choose. We think that is good public policy, for several reasons. It gives the senior a better opportunity to devise his or her best insurance coverage; whether it be prescription drug coverage, whether it be first-dollar coverage, whether it be a casualty loss coverage, whether it be preventative health. Allow the senior, with consultation with family members, with their doctors, to pick the best health insurance program.

That is why we think a mix is good, with the understanding that that senior should be able to pick or choose, if he or she wants to; but at the same time, if they want to maintain their existing plan, they should have that right, as well.

Mr. WELLER. Thank you. Thank you, Mr. Secretary.

Chairman THOMAS. Thank the gentleman. Does the gentleman from Georgia wish to inquire?

Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. Welcome, Mr. Secretary. Mr. Chairman, I won't take my 5 minutes, but I do want to say from the outset this reminds me of another period in our history about 40 years ago, in 1964, when another person was denied, an attempt was to deny a person for testifying. But this particular woman, by the name of Fannie Lou Hamer, was able to testify. And in testifying, she educated and sensitized the Nation; not about health care, but about voting rights. And she said, in that classic statement, "I am sick and tired of being sick and tired."

Since I am a candidate for reelection to Congress, and since our witness was denied the right to testify, I don't think I should inquire, Mr. Secretary. So I want to thank you for being here.

Mr. THOMPSON. Do you want me to comment on that?

Mr. LEWIS OF GEORGIA. If the spirit moves you to talk.

Chairman THOMAS. The Chair would observe we are well within the 5-minute period.

Mr. THOMPSON. I don't know how I could comment.

Mr. LEWIS OF GEORGIA. Well, you don't have to, Mr. Secretary. I just wanted to make a statement for the record, sir.

Mr. THOMPSON. Thank you, Congressman Lewis.

Chairman THOMAS. Thank the gentleman very much. Does the gentleman from Florida wish to inquire?

Mr. FOLEY. Thank you very much, Mr. Chairman. Let me just commend you on the rules of engagement on bringing witnesses forward. And we may disagree, but I could think of a number of reasons why I would like Elizabeth Dole here to talk about the Red Cross, or Mayor Norm Coleman to talk about some issue. But I think it is important that we talk to people who have direct-line experience and are here today.

Let me also comment for the record that I found the Democratic response to the savings possible under the retail pharmaceutical cards, if you will, 11.4 percent discounts, to be paltry, to be not worth the time and effort that we are endeavoring to create this legislation.

So it begs the question of why Wal-Mart is the most popular consumer stop in America, why people spend $25, $35 to join Costco or Price Club, and why so many millions of Americans enjoy the benefits of an AARP card. Largely because they provide a discount in some form or fashion.

Now, Chuck Hagel, Senator Hagel, and I have been working for quite some time on the discount card that has been enunciated by the President. And let me commend first the President for taking the leadership. And let me also suggest, during the prior testimony people were asking you specifically where we would find the money to initiate prescription drugs and a discount card mechanism.

Let me underscore, yesterday in this very hearing room the Honorable Reuben King-Shaw, formerly of Florida, now a member of your Administration, was speaking specifically about areas that you have articulated and are talking about. Wellness models: Sander Levin and I are working on the wellness model, which in the long term will actually reduce costs to Medicare and allow us to transition a healthier society into providing the benefits for those most needed.

My question is, Mr. Secretary, obviously, it is because of a lawsuit requiring Congress to act and give statutory authority to implement the prescription drug card program. How quickly do you believe you can get it up and running, if we can provide you, if you will, with the legislative authority?

Mr. THOMPSON. Thirty to sixty days.

Mr. FOLEY. In 30 to 60 days the seniors who live in Palm Beach County of the 16th Congressional District can actually access the kind of savings, potentially upwards of 11, maybe more, depending on the competition? But what we are saying today, right here, is that within 60 days seniors could have benefits of actual cash savings, rather than political rhetoric.

Mr. THOMPSON. We have done a lot of the preliminary work already, Congressman. So we can move very rapidly.

Mr. FOLEY. And isn't it correct that the Administration is not willing just to have a discount card; that they actually have an enunciated policy on providing pharmaceutical drugs to seniors 65 and over?

Mr. THOMPSON. That is correct. You are absolutely correct.

Mr. FOLEY. Let me also caution those that see Medicare as being the primary, if you will, place to have the pharmaceutical drug program, having had experience as a State legislator, I caution those that expect miracles out of an agency to be the one-size-fits-all, that when we tried to do that in Florida we actually had to create a formulary list. We had to deny a number of drugs, because of the cost of those drugs. That is why I applaud what you are doing. It is to provide, if you will, an opportunity to provide prescription drugs, but to keep a free market concept and principle in place.

Mr. THOMPSON. We think it would be very effective. We think seniors, who are very intelligent, would be able to pick and choose the best insurance program for themselves, as well as prescription drug coverage for themselves and their families.

And that is why we think it would be cost-effective, good public policy, and be able to be more efficient. And just like the Federal employees' insurance is right now, you have that option, I have that option. And I think we should allow the seniors to have the same option to develop their own insurance program.

Mr. FOLEY. Your work in your home State is legendary. As Governor, you were able to squeeze savings out of programs by implementing, if you will, preventative care, whether it was in truancy, whether it was in juvenile detention. So you see that same opportunity federally now, as we are talking about Medicare and wellness, to do the same kind of cost savings through implementations of health models, if you will?

Mr. THOMPSON. Absolutely. And that is why we think this "Pharmacy Plus" waiver is a giant step forward, to allow States to set up their own innovative plans in partnership with the Federal Government.

We also think the $8 billion that the President has put in his budget to allow States to develop their own insurance program, their own pharmaceutical plan, as well as with Federal tax credits to develop their own health insurance program using the pooling process, is going to save a lot of dollars and allow a lot of uninsured individuals to be covered. We expect 6 to 8 million people could be covered by just the Federal tax credit program, if Congress passes it.

Mr. FOLEY. Thank you. I yield back.

Chairman THOMAS. Thank you. Does the gentleman from California, Mr. Becerra, wish to inquire?

Mr. BECERRA. Thank you, Mr. Chairman.

Mr. Secretary, thank you very much again for coming before us and providing testimony.

Mr. THOMPSON. Good to see you, Congressman.

Mr. BECERRA. Good to see you, as well. I am a little disturbed by the fact that the President did not increase funding for his prescription drug plan and Medicare overall from his previous budget of last year; especially when you take into account that the Medicare prescription drug bill that was presented to this House by Chairman Thomas and the Republican majority in this House a year ago or so was projected by the Congressional Budget Office, or the non-partisan Accounting Office--it was budgeted to cost about $154 billion over 10 years. That was an estimate last year.

Today, the same CBO is telling us that that same bill--same bill, no changes--today is going to cost about $41 billion more, or about 25 percent more than their previous projection of last year for that same 10-year window.

So given that we all know--and seniors know this better than we do--that the cost of health care, including prescription drugs, continues to rise, I am somewhat disturbed--in fact, very disturbed--that the President didn't include more money there. And I hope that, as some of my colleagues have mentioned previously, you will take that back to the President; that if we really want to do this in the right way, we can't do it on the cheap.

Mr. THOMPSON. Could I respond, Congressman?

Mr. BECERRA. Certainly.

Mr. THOMPSON. Okay. Thank you very much. First off, point number one is that the President did increase the budget, from $153 billion to $190 billion. That is point number one.

Point number two is that we have our own actuaries out at the Department of Health and Human Services and Division of Centers for Medicare Services. They came up with the figures for OMB. The OMB put those figures and plugged them in.

Third, in my testimony this morning, as well as in answer to several questions, I indicated that we are willing to work with the $350 billion figure that Congressman Thomas has indicated is necessary, and also which Congressman Nussle has put in the budget which was approved by the U.S. House of Representatives.

Mr. BECERRA. Secretary, thank you for that. And actually, before I turn to my next question, I do want to make sure that it is clear. The OMB is the President's arm that does its budget numbers, which has always been a little less accurate than the Congressional Budget Office.

And secondly, the President may have increased the numbers he put in there for Medicare, but that does not take into account the fact that the prescription drug bill by itself would have increased by $41 billion. Your plan, the President's plan for Medicare talks about all sorts of things, not just prescription drugs.

Mr. THOMPSON. That is correct.

Mr. BECERRA. So let's be sure we are talking apples and apples, and not apples and oranges, and not let seniors believe that because the President increased the entire amount, that it will be taken care of.

Mr. THOMPSON. But I am also--

Mr. BECERRA. But he doesn't try to leave out the fact that just for prescription drugs it would be a lot more. Let me ask a question--

Mr. THOMPSON. But I also understand, Congressman, that $350 billion that is in the budget bill also is looking at streamlining and strengthening Medicare, as well.

Mr. BECERRA. Right.

Mr. THOMPSON. So those are apples and apples.

Mr. BECERRA. Absolutely. And that is good. Let's just hope that the streamlining doesn't mean reduced benefits for seniors in the process.

Mr. THOMPSON. Well, let's hope that we can come up with a very good, comprehensive, bipartisan plan. And I want to work with you to accomplish that, Congressman.

Mr. BECERRA. I am glad you are willing to work with us on a bipartisan plan, because the leadership in the House on the Republican side has not taken any time to sit down with us to talk about a bipartisan plan. So perhaps, working together, we can get the Republican majority to do that with us, as well.

The point I wanted to make with regard to funding--

Mr. THOMPSON. Yes, sir.

Mr. BECERRA. You mentioned in your testimony, and I will quote you, "We have a moral obligation to fulfill Medicare's promise of health care security for American seniors and people with disabilities." I can't agree with you more.

And to me, that means that, to fulfill that promise, you have got to have the money in hand, ensuring that the government dollars that we are collecting from those who are working, in their Medicare contributions, is available to them. It seems to me that the more we see an Administration proposed budget that not only spends money not in Medicare but in other areas, and specifically with regard to tax cuts that are going to benefit mostly the well-to-do in this country along with corporations, not Medicare beneficiaries. It seems to me that we are spending those Medicare trust fund dollars not on Medicare over the next 10 years, but on things that are unrelated to Medicare.

And I know the General Accounting Office will present its testimony in just a moment, but there is a chart that the GAO provided us. And again, the General Accounting Office is the non-partisan watchdog for the Federal Government. And what they are telling us is that by the year 2050, the last bar, you can see the costs we will have.

Spending, non-Medicare; Medicaid spending; and non-Social Security spending are the green portion of the bar. The red is Medicare-Medicaid; which, as you can see, has grown over the years, because we know the Baby Boomers will be retiring and using Medicare.

Mr. THOMPSON. Sure.

Mr. BECERRA. And the cost of medicine is going up. Social Security in yellow. And then Net Interest in blue. The portion of the bar that has grown the most is the portion in blue, which means that the cost of paying the debt--just the interest on the debt, not the principle, just the interest on the national debt--is growing fastest.

If we were to save the monies that we have from the Medicare trust fund for Medicare by paying down the national debt, we could reduce the size of that blue portion of that bar so that we can, hopefully, in some point in the future not just meet the needs of our seniors with Medicare, but also try to meet the needs of all Americans, including our kids, to educate and to do the right thing.

So I just fear that in having a budget from the President that spends all of the Medicare trust fund on things other than Medicare, that that is sending us down the wrong path. I thank you for being here.

Mr. THOMPSON. Thank you, Congressman, for your questions and your comments. I appreciate that.

Chairman THOMAS. The gentleman's time has expired. Does the gentleman from Texas wish to inquire?

Mr. BRADY. Yes, Mr. Chairman.

Thank you, Mr. Secretary, for your testimony today. I appreciate the increase the President has proposed for health care all across the board, and would note that only in Washington are major increases in spending often described as cuts, drastic cuts. The fact is, more money helps. We appreciate your and the President's support doing that.

Listening to your testimony, I am thinking that there is one woman in Kingwood, Texas, who would be thrilled to hear your goal to make all seniors have access to affordable prescription drugs. I was at a town hall meeting the other day at the Rosemont Assisted Living Center in Kingwood. This woman--she called herself not a senior citizen, but an "experienced citizen"--has a monthly drug for one medicine, $1,204 a month for one prescription. She tried generic drugs. It didn't work. The pain returned. Thankfully, she has a husband who is able to go back to work, and she is able to afford it. But there are a lot of people like that in the country.

And I think the fact of the matter, that you are working so hard to try to help the sickest and the poorest among us first, is really the responsible approach. As I see it, you have taken the approach: Let's create a short-term drug plan this year to help the sickest and the poorest of our seniors. And then, as we work together to modernize Medicare once and for all, then create a broader plan that is affordable and voluntary, and is paid for. And I think that is really key. Because I think in the past Washington has got itself in trouble by over-promising--

Mr. THOMPSON. That's right.

Mr. BRADY. And under-delivering; passing on the financial burden of programs; doing it for an election year, and then passing it down to future generations. Your plan rejects that type of old-fashioned thinking, thank goodness.

And I think you are exactly right when you say the plan should strengthen the solvency of Medicare, rather than accelerate its bankruptcy. Putting in a huge plan we can't pay for right now would be like going on a spending spree when your credit cards are all maxed out. And fixing Medicare once and for all is really key.

I guess my point to you is that I think the biggest challenge to modernizing Medicare isn't the numbers. I think it is partisan politics. It seems to me that the only way we are going to be able to get all this done is if both parties to work together. If we just put aside the interests of our election year ambitions, and put our seniors first.

Mr. THOMPSON. That's right.

Mr. BRADY. It seems to me that we all have a real stake in helping our seniors. And I would just like you to comment on that as being a major obstacle.

Mr. THOMPSON. Congressman Brady, I couldn't agree with you more. I think that is one of the most intelligent statements that I've heard, in regards to making sure that we take care of our seniors first.

We have an opportunity this year on a bipartisan basis to strengthen Medicare, improve it, and at the same time add a prescription drug coverage, a casualty loss coverage, as well as more preventive care, which is a passion of mine. I think it is absolutely necessary to take a look at how we deliver medical services in the United States, and try and find ways in which we will be able to hold down on future costs by allowing seniors as well as other Americans to take care of their health up front, and use the money more propitiously in regards to that.

In regards to your statements on a bipartisan basis, I hope that we can. I think it is the right time. And people say it is an election year, therefore it can't be done. I think it is just the opposite. I think the election year is going to drive a decision to be made on prescription drug coverage, therefore, we have an opportunity.

I believe--and I am cautiously optimistic of that--that we can get a reformed, strengthened, and improved Medicare plan passed with prescription drugs this year through both Houses, signed by the President.

Mr. BRADY. Right. Thank you, Mr. Secretary and Mr. Chairman.

Chairman THOMAS. Thank the gentleman. Does the gentlewoman from Florida wish to inquire?

Mrs. THURMAN. Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for being here. First of all, just a couple of comments on the question that Mr. Crane asked. As it has been noted in this hearing, it sounds like we may be moving our date up until Memorial Day. And if we could get any of that information, particularly on the bundling and the composite rate, before we go into this markup, that would be most appreciated. Because it doesn't do us any good after the bill has already gone.

Mr. THOMPSON. I will see what I can do to expedite it, Congresswoman Thurman. And I think your point is well taken.

Mrs. THURMAN. Secondly, I just want to say, I know that Mr. Shaw is not here, but in his conversation about the woman, all of us see that in Florida all of the time. But I might add one of the things that concerns me and why some of us who would like to work in a bipartisan way do believe that all seniors should be included.

Because in Florida, as you well know, we already have a medically-needy program under Medicaid. So if what you say in your statement is that it gives seniors with limited means, I am not sure that we would be adding any more for the woman that Mr. Shaw was talking about. But I do want to go to something that--

Mr. THOMPSON. No, no, I think you are misreading my statement.

Mrs. THURMAN. No, not yours.

Mr. THOMPSON. Okay.

Mrs. THURMAN. Yours says, "Medicare subsidized drug benefits should protect seniors against high drug expenses, and should give seniors with limited means the additional assistance they need." And so I was just pointing out that we do have a medically-needy program, so I am not sure that this woman would still be taken care of. But let me go to a couple of other issues--

Mr. THOMPSON. But I want to point out, I want it to cover all seniors.

Mrs. THURMAN. Okay.

Mr. THOMPSON. But I think that we have to subsidize in certain cases low-income Americans, make sure that they get the adequate coverage.

Mrs. THURMAN. Well, I appreciate that clarification. The other issue, though, that does concern me--and I know you may not have had the opportunity to look at the AARP testimony--

Mr. THOMPSON. No, I have not.

Mrs. THURMAN. But I do want to bring up some things. In your last statement, under the fourth, "Medicare should provide better health insurance options, like those available to all Federal employees and retirees," it says the last is, "Private plans have been a critical source of drug coverage and other innovative benefits for seniors, and should remain so."

However, if you go and look at the AARP report, what they are showing is that there are choices; that they have been doing this, that the principal sources of coverage that offer prescription drug benefits--employer-based retiree coverage, private supplemental coverage, or Medicare health maintenance organizations (HMOs)--they are finding that they have been inadequate, they are limited, they are expensive and, more importantly I think, unstable, which is what we have found throughout the country, particularly with the Medicare HMOs.

But let me go on to say that it also says that a study was released that reported that nearly 42 percent of the beneficiaries lacked drug coverage at some point in 1998. And a new study published by Health Affairs reports that nearly 40 percent of Medicare beneficiaries had no drug coverage in the fall of 1999.

So what they did is, they laid out and they illustrated for some middle-income people the difficulty that they are having in obtaining affordable and dependable drug coverage. And I am just going to read these very quickly:

A retired couple has significantly saved for retirement, and has an income of $40,000 a year. Both take prescription drugs for heart disease and high cholesterol. The wife also needs medication for breast cancer and osteoporosis. They do not have access to retiree health benefits from a former employer. There are no Medicare+Choice plans available in their area. And a Medigap plan offering some drug coverage would cost each of them $260 a month. There is a private option for them. They can't afford it.

A retired couple has an income of $30,000 a year, significantly above the threshold for Medicaid and most State and private pharmacy assistance programs. They have prescription drug coverage through a Medicare HMO. This year they have learned, however, that the HMO plans to terminate its contract with Medicare, effective December 31st. There are no other Medicare HMOs in the area. And while they can afford supplemental insurance and are guaranteed access to certain Medigap plans, "A," "B," "C," and "F," none of these plans would include their drug coverage.

And then the last one is about a 75-year-old widow who is enrolled in a Medicare HMO that offers drug coverage. She currently has prescriptions for cholesterol-lowering medication, at $97.51 a month, and an allergy medication of $46.94 a month. While initially her drug coverage was quite generous--and we are finding this over and over--this year her drug benefit is capped at $300 a year. As a result, she basically will have no drug coverage for three-quarters of the year.

So I know we don't have a lot of time to discuss this right now, but I would like to, one, have the opportunity to discuss some of these issues with you; but secondly, because of the lack of time that we have sometimes in this Committee, if we could get your staff to kind of respond to us as to how you think these private plans that are already in place--how you think you can better them through the modernization that you are talking about.

Mr. THOMPSON. Thank you very much, Congresswoman. We will be more than happy to work with you on that particular subject, more than happy to get back to you with our staff.

My only quick rejoinder is that the Federal system works very well. We have 10 plans, 10 to 12 plans, that Federal employees can pick and choose from. We think the same advantage could be given to seniors. They could maintain their current plan, if they so desire. But having the opportunity to pick and choose from other just as good, or sometimes better, plans would be better.

In regards to Medigap, that is why we are adding three more plans. Because none of them really deal with prescription drug coverage very well, so we are adding three more. Hopefully, Congress will approve them, and get away with the first-dollar coverage which is a problem and an impediment for giving an expansive prescription drug coverage.

So with three new Medigap plans, with 10 different Federal plans that seniors could pick and choose from, we think seniors would be better served. And that is why we believe it is good public policy.

Chairman THOMAS. Thank the gentlewoman. And also, the Chair will say that, in terms of the honest request to work in a bipartisan way, the Chair has a clear record of working with Members in a bipartisan way: the gentleman from Maryland, in health care and pension areas, the gentleman from Tennessee, the gentleman from Louisiana, and a number of others.

To the degree the work product is approached in an atmosphere of accommodation and compromise, the Chair has no problem. To the degree "bipartisan" is defined as making non-negotiable demands, and failure to succumb to those non-negotiable demands, the Chair doesn't believe that is bipartisan. So the Chair will respond in the way in which the Members wish to enter into a working relationship.

Does the gentleman from Texas, Mr. Doggett, wish to inquire?

Mr. DOGGETT. Thank you, Mr. Chairman.

Secretary Thompson, you have indicated that you are opposed to greater use of government to--

Mr. THOMPSON. I am sorry, I didn't hear that.

Mr. DOGGETT. You have indicated that you are opposed, as I understand it in response to two queries today, to greater use of government bargaining power to lower prices for Medicare recipients, because you say it will distort the market. Is that correct?

Mr. THOMPSON. No, that is not what I said.

Mr. DOGGETT. All right, then what--

Mr. THOMPSON. I said that if Congress approved--

Mr. DOGGETT. You would implement it. But you think that it is not--

Mr. THOMPSON. But I cautioned you--

Mr. DOGGETT. Yes.

Mr. THOMPSON. About the possibility of distorting the market when you are such a huge purchaser of 50 percent of the drugs.

Mr. DOGGETT. And so that is why I said you are opposed to the idea, because you think it will distort the market.

Mr. THOMPSON. No, I cautioned you about that particular problem. I said I think a far superior one is competitive bidding, which I think would accomplish your objective, as well as not distort the market.

Mr. DOGGETT. I guess some of the people that are faced with these soaring drug prices down in my neck of the woods think the market is already pretty distorted for them.

You have also cited this model waiver agreement, which I hope you are going to leave with us today. The model waiver agreement does not add any new money to the States; does it?

Mr. THOMPSON. No, it does not.

Mr. DOGGETT. So if you have a State that cannot provide an adequate level of prescription drugs through its Medicaid program at present to those people that are serving it, the waiver is really worthless. If they can't cover the people they are covering now, it doesn't give them the resources to cover any additional people on their prescription drugs.

Mr. THOMPSON. That is not true.

Mr. DOGGETT. Why not?

Mr. THOMPSON. Because it allows for the States, under the waiver, as long as they are budget-neutral, to use their Federal match to be able to set up this prescription drug coverage, which is a tremendous help to States.

Mr. DOGGETT. Well, if they are using all of their Federal match, if a State is theoretically using all of its Federal match at present, and not able to meet the needs that it is currently covering, then getting a waiver to do more is not going to assure anyone any additional prescription drugs, is it?

Mr. THOMPSON. Well, the truth of the matter is that States can use their Federal match in different ways, and become very innovative, and can allow this to be able to be used for prescription drug coverage. And that is why so many States are applying for it, looking at it, and seeing whether or not they could use it in their particular States. And I will be more than happy to leave a copy--

Mr. DOGGETT. I appreciate it.

Mr. THOMPSON. With any Member of the Committee.

Mr. DOGGETT. I would like to get a copy. This model waiver agreement does not contemplate States negotiating with pharmaceutical manufacturers in any way similar to what Maine has done?

Mr. THOMPSON. It certainly allows them to do that.

Mr. DOGGETT. It doesn't prevent them, but it doesn't authorize them to do that in any way, or encourage them to do it, does it?

Mr. THOMPSON. Well, there are certain States that are doing that right now, Congressman.

Mr. DOGGETT. Right. And with reference to the States--

Mr. THOMPSON. And there is nothing to prevent them. And States should be doing that.

Mr. DOGGETT. Oh, I am glad to hear you say that, because I wanted to get a clarification on that. You are certainly correct that the Maine program is in litigation. The pharmaceutical manufacturers have done everything they could to prevent it from being implemented, and I am sure they will continue to do so until it reaches its final appeal. Does the Administration support programs like that that Maine has initiated?

Mr. THOMPSON. That is why we set up the model waiver, that is why I instructed that it be adopted and implemented, because it gives States some guidance. We think it meets the guidelines and will not end up in litigation. We think it is something that States can do. And we think it is probably superior to Maine, in regards to the fact that it will not cause litigation.

Mr. DOGGETT. But you are supportive of the kind of effort that Maine has made?

Mr. THOMPSON. Absolutely. That is why I put forth the model waiver, Congressman.

Mr. DOGGETT. With reference to the legislation that is contemplated that you are here today on, as well as the welfare reauthorization legislation that you made a quick appearance here on in the subcommittee last week, does the Administration support imposing any unfunded mandates on the States?

Mr. THOMPSON. Say that again?

Mr. DOGGETT. With reference to either--the legislation you are here on today, or the welfare reauthorization--does the Administration support imposing any new, unfunded mandates on the States?

Mr. THOMPSON. Well, Congressman, I have testified on both the welfare reform proposal many times in many different committees of this Congress, as well as on Medicare.

Mr. DOGGETT. Right.

Mr. THOMPSON. And we believe very strongly that this is a partnership between the Federal and State governments, on welfare reform, as well as on Medicare.

Mr. DOGGETT. Yes, sir. I understand that. So are you opposed?

Mr. THOMPSON. I mean as far as welfare. Medicare is a Federal program.

Mr. DOGGETT. On both of these, you are opposed to any new unfunded mandates on the State, are you not?

Mr. THOMPSON. It depends upon how you describe them, Congressman, because in certain things--

Mr. DOGGETT. Well, we have got a law on it.

Mr. THOMPSON. We set guidelines, we set certain goals which States have to meet as far as welfare reform. We think that's good public policy. I negotiated, when I was Governor and Chairman of the National Governors Organization in 1995 and 1996, the first welfare bill with Congress. And I said at that time, "You set the goals high; just give us the flexibility under those goals to meet those obligations." And we did it, across America. Governors did it, Republicans and Democrats.

We feel the same thing, and the next welfare reform proposal will accomplish the same thing, by setting the goals high, but giving States the flexibility underneath there to do so. Now, if you want to say that those goals are unfunded mandates, then I will have a difference of terminology with you. But overall, we have given States extreme flexibility as far as welfare reform is concerned.

Mr. DOGGETT. Thank you.

Chairman THOMAS. The gentleman's time has expired. Does the gentleman from Wisconsin wish to inquire?

Mr. RYAN. I do.

Governor, it is nice to see you again.

Mr. THOMPSON. Thank you, Congressman.

Mr. RYAN. Great to have you back. When we talk about improving and strengthening Medicare, which has been often questioned here, what we mean is right now Medicare isn't adequate to give seniors comprehensive benefits along the lines of the year 2000 medicine. And the hope is that 10 years from now we are not scratching our heads, thinking, "Gosh, all the seniors get is year 2002 medicine, and we need to get them the year 2012 medicine." So we have to make sure that the law is modernized and that it is allowed to evolve with the changes in health care.

And when we talk about strengthening Medicare, that means making it solvent for the Baby Boomer generation, so the promise of benefits can be met when this next new wave of retirees occurs.

So in that vein, I, too, represent southeastern Wisconsin, which you know very well. And it has been said that, "Fee-for-service is working fine. Why add an alternative? Why give seniors other private-sector alternatives?" In my experience, when we did have workable Medicare+ Choice, people loved it. In 1997 and 1998, when we had Primecare Gold and all of those other ones, it worked very well. People enjoyed it. They flooded to it.

The problem that we experience--and you know this all too well--is the adjusted average per capita cost, AAPCC, reimbursement rate structure for Medicare+Choice was an abysmal failure. It didn't work well. And the last Administration did not do a good job of implementing Medicare+ Choice.

And in the new version of this, or in reforming this program, is it your intention to switch from that kind of reimbursement system to a bid structure reimbursement system like what we have with the premium support Federal employee health benefit plan?

Mr. THOMPSON. That is what we want to do, because we think, Congressman, that it gives seniors the opportunity to pick the best program. And you are absolutely correct. When Medicare+Choice is in a particular area, seniors flock to it.

Mr. RYAN. Yes.

Mr. THOMPSON. But the reimbursement formula has got to be there so that the companies can make a profit, in order to stay in there and offer the services. We think, with competition with the Federal health employers system, that there are going to be many plans out there that seniors are going to be able to pick and choose. Some will want to stay with the current fee-for-service, and rightly so. And they should have that right. But others will want to be able to pick and choose, like you do, like every one of us around this table does. Seniors should have the same opportunity.

Mr. RYAN. I think that is right. Seniors who have employer-sponsored Medigap plans are pretty satisfied, because their employers, by virtue of their past employment, provide that. But most seniors in our area don't have Plus Choice, don't have employer-sponsored Medigap, and are stuck with the bill. So when we hear these comparisons between fee-for-service and Plus Choice, when it works what you see left out in this debate is that Plus Choice gives you comprehensive benefits. You don't have to go out and buy a supplemental when you have a comprehensive Plus Choice plan. That is the benefit of moving to a choice-based system, which I think is lost here.

One other thing that I think is being lost in this debate, that will be really helpful from your Administration, is the demonstration of the cost saving that occurs when competition occurs. The CMS and CBO have historically and repeatedly scored savings in the Medicare system when premium support is put into place. When competition and choice occur, quality goes up, costs go down, people are happier. And what ends up happening is, over the long run, the system saves money--

Mr. THOMPSON. Radical ideas. Radical ideas.

Mr. RYAN. These are radical ideas?

Mr. THOMPSON. Costs go down, quality goes up.

Mr. RYAN. And that is how we get to the issue of not just improving Medicare by giving people a comprehensive list of benefits so they don't have to go purchase these large supplementals, but we get to that issue of saving money in the long run in the system so that we can restore solvency to the system so that that promise of benefits, of evolved modern benefits, can be there for the next generation. And I think it would be helpful to have CMS share with us how those cost savings are achieved.

One last quick question. The waiver: Did Wisconsin apply for the waiver or not, under your new waiver?

Mr. THOMPSON. Wisconsin has applied.

Mr. RYAN. Okay. Thanks.

Mr. THOMPSON. And first, let me just congratulate you and thank you for doing such a great job for Wisconsin, Congressman Ryan.

Mr. RYAN. Thanks, Governor.

Chairman THOMAS. Mr. Secretary, I want to thank you very much. I know you have been overly generous, and you have had a helicopter waiting for you. But the Members are interested, and do want to inquire. And we appreciate your willingness to provide the time for full inquiry. It is difficult to do. We will try not to over-burden you.

But we want to thank you very much for your presence, for your testimony, but most importantly, for your leadership, as we move forward in trying to make changes in this most sensitive but important area.

Mr. THOMPSON. Thank you, Congressman Thomas. And let me congratulate you on your leadership of this Committee. And hopefully, we can come up with a proposal that is going to pass both Houses and be signed into law. It is badly needed, as you know. And I thank you for your leadership in this area.

Chairman THOMAS. Thank you. That is our goal, and I hope we succeed.

Mr. THOMPSON. Thank you.

Chairman THOMAS. And to the other witnesses, we do want to thank you for your patience. It is kind of like that little sign in the store which says, "If you are waiting, understand that when it is your turn we will provide you with the same opportunities."

It is now my pleasure to welcome once again to the Committee only the seventh Comptroller General of the United States. Mr. David Walker assumed the position in 1998. And it is one of those jobs that are absolutely critical because the General Accounting Office, for more than three-quarters of a century, has provided the kind of accountability, based upon requests and their own initiation, that allows us to do the kinds of things to make sure that the taxpayers are getting a return on their investment. It isn't always pleasant, but it is always necessary.

And so, thank you once again for appearing before us. Your written testimony will be made a part of the record, and you can address us in any way you see fit.

Mr. WALKER. Thank you, Mr. Chairman, Members of the Committee. Thank you for entering my statement into the record, and I will move now to summarize it.

I am pleased to be here today to discuss options for increasing Medicare beneficiaries' access to prescription drugs. There are growing concerns about gaps in the Medicare program, most notably the lack of outpatient prescription drug coverage, which may leave Medicare's most vulnerable beneficiaries with high out-of-pocket costs.

At the same time, however, the short-term and long-term cost pressures facing the existing Medicare program are considerable. Many of these same pressures are being experienced by other government and private sector employers. For example, earlier this week, CalPERS, the second largest purchaser in the Nation of health insurance behind the Federal Government, announced a record 25-percent increase in health insurance premiums for the year. This increase was fueled in large part by increased costs associated with prescription drugs.

As I have noted previously, substantive financing and programmatic reforms are necessary in order to put Medicare on a sustainable fiscal footing for the future. In fact, Madam Chair, it was 10 years ago this year, when I was a trustee of Medicare, and along with Stan Ross, who was the other public trustee at the time, that we said publicly for the first time that the current Medicare program is unsustainable in its present form, and that has been repeated by every set of trustees since that point in time.

Thus, any proposals to help seniors with the cost of prescription drugs should be carefully crafted to avoid further erosion of the current projected financial condition, which is already precarious for Medicare and it is already unsustainable in its present form. We are going to have a very difficult time delivering on promises that have already been made.

We must also be mindful that fiscal pressures created by the retirement of the Baby Boom generation and rising health care costs are just over the horizon. As the first chart shows, Madam Chair, our Nation's fiscal flexibility has already decreased as spending for Social Security, Medicare, and Medicaid have absorbed an increasingly large share of the Federal budget. Reductions in defense spending have helped accommodate the growth in these entitlement programs. However, reductions in defense spending can no longer be used as a means to help fund other claims on the budget. Indeed, spending on defense and homeland security will grow as we seek to combat threats to our Nation.

As you can see, between 1982 and 2002, the percentage of the Federal budget spent on Medicare and Medicaid doubled and those percentages are only going to go one way under our current system, even without prescription drug costs, and that is up.

In recent years, Medicare's trustees have reinforced what Stan Ross and I said 10 years ago, that the Medicare program is already unsustainable in its present form. The GAO's long-term budget simulations, which were referred to previously, show that the aging of the Baby Boom generation and rising per capita health care spending will, absent meaningful reform, lead to massive fiscal challenges in future years.

Assuming, for example, that last year's tax reductions were made permanent and discretionary spending keeps pace with the economy, by mid-century, spending for the current Medicare program without an addition of a drug benefit is projected to account for more than one-quarter of all Federal spending. In addition, absent fundamental reform of entitlement programs, the Nation is likely to face an unprecedented degree of tough fiscal choices in the years ahead, and this is the chart, Madam Chair, that was shown previously.

The huge budgetary pressures that we are sure to face in the coming years require that we set priorities so that benefit expansions are in line with available resources. In this regard, the application of basic insurance principles to any proposed benefit could help moderate the cost for both beneficiaries as well as taxpayers. Under these principles, beneficiaries receive protections against the risk of catastrophic medical expenses while remaining conscious of the cost of care. At the same time, it is important that the benefit expansion proposals include targeting mechanisms to assure that Federal support is directed at the beneficiaries with the greatest financial need.

Nevertheless, as I have said previously, no matter how well designed the new benefit may be, adding benefits without fundamentally reforming the existing program may merely hasten the exhaustion of Medicare's HI trust fund, hospital insurance trust fund and the further draining of Federal revenues associated with the supplemental medical insurance (SMI) program. As a result, any benefit expansion will also serve to make our long-range fiscal challenge even greater. Ideally, Medicare reforms should be designed to improve our long-range fiscal situation. At a minimum, it should be designed to not make our long-range fiscal situation worse.

Madam Chair, I will be more than happy to answer any questions that you or other Members of the Ways and Means Committee may have. Thank you.

[The prepared statement of Mr. Walker follows:]

Mrs. JOHNSON OF CONNECTICUT. [Presiding.] Thank you very much, Mr. Walker.

I am going to turn first to Mr. McCrery, and we will get through as many questioners as possible before we have to go vote.

Mr. MCCRERY. Thank you, Madam Chair.

Mr. Walker, I thought your testimony was excellent, and it attempts to ring the bell that we need to pay attention. I have said several times in this Committee room that I think Congress is fiddling while the budget is burning. You try to underscore that in your testimony and I appreciate that.

One thing you say, though, that I think may leave with some the wrong impression, you say that assuming the 2001 tax cut is made permanent, then by 2050, Medicare, Medicaid, Social Security, and interest on the debt will consume all Federal revenues. One might hear that and think, gee, this tax cut, if made permanent, will reduce revenue so much that we will not have enough to pay for everything, and in fact, if you look at the chart that you have up right now, there is a thin black line that is hard to see for the Members, but if they look closely, they can see a thin black line that goes across the chart and it is entitled, "Revenues," and it is expressed as a percent of the gross domestic product (GDP). If you look closely, you can see that even if the tax cut is made permanent, that revenues as a percent of our national income remain steady. I cannot tell exactly, but it looks like it is somewhere around 18 to 19 percent of GDP, is that correct?

Mr. WALKER. About 19 percent, roughly, of GDP, that is correct.

Mr. MCCRERY. And historically, Mr. Walker, what have revenues to the Federal Government been as a percent of GDP?

Mr. WALKER. The highest that it has ever been, I believe, Mr. McCrery, was just under 21 percent of GDP, and I think your point is excellent, and that is no matter what happens with regard to the tax system, whether or not the current tax changes are made permanent or not, our imbalance is so huge that we need to begin to reform the base. We need to not only look at entitlement programs. We also have to look at discretionary spending to find out what is working and what is not working because the numbers just do not add up and we are not going to be able to deliver on our promises unless we make some fundamental changes.

Mr. MCCRERY. Exactly, but I wanted to underscore that your assuming the 2001 tax cut is made permanent is not a criticism of making the tax cut permanent and your conclusion is not that revenues will dip as a result of that. You are just trying to paint a scenario that you think is a realistic one, because most of those tax cuts eventually will be made permanent, we think, most people think.

Mr. WALKER. I did it this way for several reasons. One, I know that is how the House passed the bill.

Mr. MCCRERY. Right.

Mr. WALKER. And secondly, by showing it this way, you can see that even if the tax cut is not extended, we still have a huge problem. So by doing it this way, you can see both ways, because otherwise what you would do, Mr. McCrery, as you properly pointed out, you would just extend that black line all the way across. It would not dip as it does between 2000 and 2015. It would not dip. In any event it is still way out of balance.

Mr. MCCRERY. Right. Twelve or thirteen years ago when I was on the Budget Committee, I asked Chairman Greenspan, who was appearing before the Budget Committee, if he was concerned that as we raised revenues to meet these obligations and we started to take in 23, 24 percent of GDP or higher for revenues, did that disturb him as an economist in terms of the nature of our economy, the nature of our society, and he responded yes, that it did. If we allow the Federal Government to take in too high a percent of what we produce as a country, that it could very well change the nature of our society.

And I am concerned about that, too, but I think we have to start talking about these kinds of choices in an honest, straightforward way, and we have not done that, so I appreciate very much your pointing these things out.

Mrs. JOHNSON OF CONNECTICUT. Mr. Walker, if I may, we only have 5 minutes before we must actually leave to vote. I am going to forego my questions, and I am very pleased that my colleagues here are going to try to fit their time in so that then you can leave, and we can convene the last panel as soon as the next three votes are over.

Mr. Becerra?

Mr. BECERRA. I thank the gentlelady for yielding the time, and I will try to be brief in my remarks and hope my two colleagues have an opportunity, as well, to question.

Mr. Walker, first, thank you very much for being here. I want to make sure we are clear on something here. As much as some people might want to portray this as a "sky is falling" situation for Medicare, in fact, Medicare has never found itself in a better position when it comes to surviving over the next several years, is that not correct?

Mr. WALKER. Yes, but I think we have to be very careful. Medicare has never been in a good financial condition.

Mr. BECERRA. We have never been at a point where we can say that we can see it extending for 75 years, but--

Mr. WALKER. Right.

Mr. BECERRA. Today, the projection is that we can see it at least going for the next 28 years, and we have never, over the history of Medicare, been able to say that we have been able to project that it would be able to survive 28 years with things as they are. I am not trying to imply that that is good. I am just trying to make sure it is clear that it is better than it has been before and we now have to address the fact that with the Baby Boom generation and the high cost of medical care, we do need to do something.

Let me ask a question, because I know I want to be brief and give my colleagues some time. That chart, I think, is very telling that you provide to us, and over the next 40 to 50 years, we can see, assuming these projections are correct, where we will be spending our Federal dollars. According to your chart, the biggest expenditure we are going to have within that bar, the four blocks that you show, Social Security, Medicare, Medicaid, and other domestic programs and interest on national debt, the largest is the interest on the national debt, in essence, monies that will never benefit any particular person, will do nothing to improve a program, because it is just going to pay a debt, and not even the principal on that national debt but just the interest we owe on that debt.

Now, in a previous chart, you show in the last 10 years, we have actually decreased the interest payments that we have been making on the national debt and that is because of the prosperity that we saw over the last 8 to 10 years before we hit this recession within the last couple of years. But let me ask you this. If I were to give you $400 billion right now and say, over the next 10 years, I can give you $400 billion and let us spend it on reducing the interest payments on the national debt, would the size of that blue block within that final bar for 2050 be as big?

Mr. WALKER. Well, it would go down, obviously. If you end up paying down debt held by the public, then obviously you are going to pay less interest, and over time, the power of compounding is very significant.

Mr. BECERRA. So if we could take the $400 billion that it is estimated we are going to take in within the Medicare trust fund in surplus money, in other words, money that the Medicare system does not need to use to pay out for benefits, if we were to take that surplus money in the Medicare trust fund and put it into paying down the national debt as opposed to what the President has proposed in his budget over the next 10 years, of spending it on things, including another tax cut, would we not be able to reduce the size of the national payment on interest?

Mr. WALKER. Well, you would, but you would have to cut the other spending that the money is associated with.

Mr. BECERRA. Absolutely. You would have to make some hard choices. Let me stop there and yield the remainder of my time.

Mrs. JOHNSON OF CONNECTICUT. Let me recognize Congresswoman Thurman from Florida.

Mrs. THURMAN. Just very quickly, and probably to that point, because I think it was a very big concern for some of us when Secretary Thompson told us that the Federal tax policy is not taken into consideration when the Administration considers the Medicare prescription drug benefit, so I would ask you as the Comptroller General, is that wise fiscal policy, for us to ignore the financial impact of tax policy when planning for other Federal spending like Medicare?

Mr. WALKER. We look at the bottom line, and the bottom line is basically the difference between the revenues and the expenditures. What I am trying to do here is to not get in the debate about whether or not to extend the tax cut--

Mrs. THURMAN. But your bottom line would be based on spending?

Mr. WALKER. It would be a--

Mrs. JOHNSON OF CONNECTICUT. If I may, we only have 2½ minutes left. Mr. Doggett, would you--

Mr. DOGGETT. Thank you. Thank you for your service, particularly when some last year wanted to give a blank check to the airlines. I appreciate the role that your office played in looking at that problem.

With reference to the predicament that you described here today and in trying to look toward the best policy answers, the one that has been discussed here today perhaps the most is Medicare+Choice. Has GAO not done some studies of Medicare+Choice that suggest that it is not a panacea?

Mr. WALKER. It is not a panacea, but part of the issue is the way Medicare+Choice was designed, the reimbursement rate was such that, in fact, it turned out not saving the Federal Government very much money. What ended up happening is that the providers wanted, in order to be able to attract individuals to their plans, to provide additional benefits as an incentive for them to be able to come into the plans, which they did. They also wanted to be able to make a profit margin, which is appropriate. But the problem is that the numbers did not add up. There is no question that choice can help to control cost and to improve quality, but it has to be designed carefully.

Mr. DOGGETT. One of those GAO studies, for example, showed that the payment increases that we approved here in Congress have not led to increased benefits or availability for seniors, did it not?

Mr. WALKER. I would have to look at the detailed study.

Mr. DOGGETT. And did not another one--

Mrs. JOHNSON OF CONNECTICUT. Mr. Doggett, if I may, we have about 30 seconds left to vote.

Mr. DOGGETT. Last question.

Mrs. JOHNSON OF CONNECTICUT. They are going to hold it open a couple of minutes.

Mr. DOGGETT. Did the GAO not also find that Medicare+Choice plans are generally overpaid compared to traditional Medicare?

Mr. WALKER. In some cases, yes, we did, and--

Mrs. JOHNSON OF CONNECTICUT. I would just like to add on the record that the Medicare+Choice plans did not receive anywhere near the increases that the fee-for-service plan received, and also that these rosy estimates of how healthy Medicare is are based on incredibly faulty assumptions. They assume that we can cut physicians 5 percent several more years, an absolutely unsustainable assumption. We will have no doctors in the program if we do that.

So we are talking big picture issues. I think the issues that have been raised here have been very legitimate, but do not for a minute think that there is anything rosy about the financial circumstances of Medicare, particularly as we face the need for prescription drugs amongst our seniors and better ability to manage chronic illness.

Thank you very much, Mr. Walker.

Mr. WALKER. Thank you.

Mrs. JOHNSON OF CONNECTICUT. We will return in about 15 minutes for the last panel.

Mr. WALKER. Thank you, Madam Chair.

[Recess.]

Mrs. JOHNSON OF CONNECTICUT. If the panel will seat itself. Mr. Bruce Bradley, Director of Health Plan Strategy and Public Policy of General Motors; Ray Gilmartin, President and Chief Executive Officer of Merck; William Novelli, the Executive Director and Chief Executive Officer of AARP; John Rector, the Vice President of Government Affairs and General Counsel for the National Community Pharmacists Association; and Mitchel Sayare, President and Chief Executive Officer of ImmunoGen.

Thank you for your patience today. My apologies for your having to wait so long to testify, but we do welcome you to this hearing and consider this a very important part of educating ourselves to write the quality policy that we need to provide prescription drugs to seniors.

Mr. Bradley, if you will start, and we will move right across the panel.

STATEMENT OF BRUCE E. BRADLEY, DIRECTOR, HEALTH PLAN STRATEGY AND PUBLIC POLICY, GENERAL MOTORS CORPORATION, DETROIT, MICHIGAN

Mr. BRADLEY. Madam Chairwoman. I am Bruce Bradley, Director of Health Plan Strategy and Public Policy at General Motors (GM). It is a real honor for me to testify before this historic Committee as you work to design and to pass a Medicare prescription drug benefit.

As we have heard, there are few issues more important to seniors and other Medicare beneficiaries than filling the coverage gap represented by the absence of a Medicare drug benefit. But the enactment of a meaningful Medicare drug benefit is just as critical to employers, both public and private, who are struggling to provide retiree health coverage while facing double-digit increases in health insurance premiums and particularly pharmaceutical costs.

We at GM commend the Ways and Means Committee for addressing this issue. My testimony will focus on the challenge GM faces in the delivery of our pharmaceutical benefit, how we manage it, and what our priorities would be for a Medicare drug benefit.

The GM provides coverage to over 1.2 million workers, retirees, and their families. We are the largest private provider of health care coverage in the country. The GM spends over $1.3 billion a year on prescription drugs for these beneficiaries. Despite our aggressive management, the current 15 to 20 percent annual growth rate is still more than quadruple the general inflation rate. Although GM's Medicare-eligible population represents a third of our covered population, it accounts for nearly half of our drug costs, or $508 million a year.

The current financing challenges posed by our Medicare-eligible population will only grow worse as the Baby Boom generation starts to retire. Prescription drug costs literally threaten the ability of many U.S. companies to compete in a global marketplace.

The GM's response to the multi-faceted challenge of rising drug costs is comprehensive, with a focus on assuring the best medical outcomes and value. We have a great deal of experience in administering a drug benefit and believe that our management techniques have made a positive difference in the quality and value of the benefit we offer.

First, we have a full-time doctorate-level clinical pharmacist on our staff who oversees our team and the Pharmaceutical Benefits Manager, or PBM. We have utilized PBMs to help effectively purchase medications and have ensured that our beneficiaries and that the company receive the benefits of their negotiations through very explicit performance standards.

Our contracts with the PBMs encourage medically appropriate and cost effective prescribing and dispensing practices. This includes consumer and health care professional education programs, incentives to utilize high quality, cost effective generic drugs, appropriate dosing, physician profiling, severe drug-to-drug interaction avoidance, and other safety processes. We are also engaged in many community-based prescription drug initiatives.

Notwithstanding our concerns about drug costs, we believe that all Medicare beneficiaries should have access to an affordable, meaningful drug benefit. It is quite clear that in many cases, prescription drugs are the most clinically appropriate and cost effective treatment. We, therefore, believe that any Medicare drug benefit should include the following four components.

First, the Medicare drug benefit should be universal in nature. All beneficiaries should have the choice of an affordable drug benefit. Virtually every private insurer for the under-65 population recognizes that this is an essential element to have a drug benefit for quality medical care today. Moreover, the distribution of seniors without prescription drug coverage is not limited to low-income populations. In fact, about half of those seniors without coverage have incomes of over 200 percent of the poverty level.

Second, the drug benefit should be affordable to beneficiaries and taxpayers yet provide significant coverage. This will require a significant investment of Federal dollars. We well recognize, however, that Congress has to achieve a bipartisan consensus around what level of Federal dollars are available for such an investment, and clearly, resources are not infinite. These limited financial resources underscore the importance of a well managed, cost effective prescription drug benefit.

Third, the design of the Medicare drug benefit must be oriented to achieve positive medical outcomes and value. To that end, the benefit should be designed to encourage appropriate use of high quality, cost effective generic medications, require cost sharing that guards against excessive and inappropriate utilization, and integrate state-of-the-art pharmacy management techniques.

Finally, a drug benefit should provide incentives for employers who are already financing prescription drug coverage for Medicare-eligible individuals to continue to do so. We recognize that the Congress may not be able to afford the same level of benefits that many leading corporations now provide, but Medicare should offer a much-needed floor of protection. As such, it should ensure that employers and health plans currently providing drug coverage can design benefits to wrap around Medicare, or alternatively, Medicare should provide these entities with direct financial subsidies that are equivalent to the value of the underlying Medicare benefit. Such policies avoid penalizing employers who have voluntarily provided such coverage and slow the trend of companies withdrawing benefits for the Medicare population.

In conclusion, GM well recognizes your design, financing, and other challenges. We hope that our experience as well as our support can help you develop and pass a long-overdue Medicare drug benefit. We look forward to working with you in the days and months to come. Thank you.

[The prepared statement of Mr. Bradley follows:]

Mrs. JOHNSON OF CONNECTICUT. Thank you very much, Mr. Bradley. Mr. Gilmartin, it is a pleasure to see you.

STATEMENT OF RAYMOND V. GILMARTIN, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, MERCK & CO., INC., WHITEHOUSE STATION, NEW JERSEY

Mr. GILMARTIN. Thank you, Madam Chairwoman and Members of the Committee. I am pleased to have this chance to appear today to discuss Medicare prescription drug coverage.

At Merck, we believe it is not enough to just discover medicines, we have to make sure these medicines get to those who need them. Medicines change lives and increase life spans. Medicines can now control common illnesses in later life that once meant certain death, such as diabetes and heart disease. Work in Merck laboratories today holds great promise for creating tomorrow's medicines, and these are medicines we need to prevent and treat Alzheimer's disease, HIV/AIDS, cancers, depression, and other illnesses that can rob us of our independence and prematurely take our loved ones from us.

Sadly, for those seniors and disabled persons without good drug coverage who cannot afford the medicines they need, the promise of medicines is unfulfilled. These people also lack the coordination of care that comes with good coverage. Consequently, they may take medicines in dangerous combinations or dosages that actually jeopardize their health and quality of life.

Our seniors deserve better, and that is why Merck is so strongly committed and supports action this year to add prescription drug coverage to Medicare, along with other changes to the Medicare program to improve its administration and competitiveness, as well as better coordinate care around the patient.

All Medicare beneficiaries should have a choice of private sector comprehensive health plans that include drug coverage. Those choosing to remain in the traditional Medicare program should be able to get drug coverage through competing private sector prescription drug plans.

We understand that a critical question facing this Committee is how best to deliver a quality prescription drug benefit while containing its costs. As a pharmaceutical company, we hear the concerns of employers, governments, and ordinary citizens about the cost of medicine. As a provider of pharmaceutical benefits to more than 65 million Americans, including more than 8 million seniors through our subsidiary Merck-Medco, we also understand the challenges of cost containment.

We believe that the answer to cost containment and that question has profound implications, not only for taxpayers and Medicare beneficiaries, but also for the future health of patients and America's research-based pharmaceutical industry.

Merck supports allowing providers of Medicare prescription drug benefits to use a full range of clinically appropriate cost containment strategies. Specifically, Merck supports giving competing private prescription drug plans the ability to engage in tough price negotiations with pharmaceutical companies. Plans must have the ability to encourage the use of the most cost effective, appropriate medicine, whether that medicine is a brand or a generic.

We also believe that prescription drug benefit providers who serve Medicare beneficiaries should have financial incentives that ensure that they fully use these cost containment strategies. The best way to accomplish this, first, is to have prescription plans compete with each other to enroll beneficiaries based on quality and premium cost, and second, to put these plans at some financial risk to contain costs. These strategies will subject our medicines to tough scrutiny and ensure that their price reflects their value in treating disease and improving health.

We are encouraged that the major proposals under consideration for providing prescription drug coverage to Medicare beneficiaries have rejected the alternative path for cost containment, government price controls. Having government officials determine which medicines will be available and at what price through price setting, reference pricing, mandatory rebates, or other bureaucratic tools is a sure path to impeding pharmaceutical research. Throughout the world, price controls have proven ineffective in controlling overall costs or improving patient health.

Madam Chairwoman, we hope that the Committee will look to the work of the bipartisan Medicare Commission as the best guide to needed Medicare modernization. We also support the ideas contained within the Breaux-Frist plan, this Committee's own H.R. 4680, and President Bush's Medicare proposals. These are strong building blocks for action.

At Merck, we believe it is possible to craft a Medicare prescription drug benefit that meets the needs of our Nation's seniors and persons with disabilities while maintaining an environment that rewards success in new drug discovery. Such an environment will allow Merck and others to continue to lead the world in discovering the medicines that improve and save lives.

Thank you again for this opportunity to present our views and I look forward to your questions.

[The prepared statement of Mr. Gilmartin follows:]

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Gilmartin. Mr. Novelli?

STATEMENT OF WILLIAM D. NOVELLI, EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER, AARP

Mr. NOVELLI. Thank you, and thank you for inviting AARP to address the need for a Medicare prescription drug benefit.

Comprehensive prescription drug coverage in Medicare this year is an urgent priority for our 35 million members and for virtually all Americans. Prescription drug coverage options are increasingly limited, expensive, unstable, or unavailable. Our members and their families need a meaningful Medicare benefit that is affordable and available to all beneficiaries. Many beneficiaries must pay for all or some of their prescription drugs out of pocket, and those without coverage must pay top dollar for their drugs.

The challenge of crafting a voluntary Medicare drug benefit is considerable. To succeed, it must be a workable program, and that is it needs to attract enough enrollees to spread risk and to be viable. It needs to ensure adequate protection for those with high drug costs, include assistance for low-income seniors and the disabled, and provide strong cost containment measures to help keep the program affordable and sustainable over time.

We clearly recognize the budget constraints, and they are greater than last year, but a comprehensive drug benefit will require a major funding commitment. People are not looking for a free ride. They know they will have to pay their share. But a realistic drug benefit must be adequately funded. A program with meager benefits and high premiums will not succeed because not enough beneficiaries will voluntarily enroll. At this point, it is not clear what an affordable benefit will ultimately cost, but we do know that the proposals offered last year were not embraced by the public.

As you are aware, it will be difficult to develop a workable package that fits within the House budget allocation, but we intend to look at what this Committee proposes as well as other proposals with an open mind. We will bring these proposed programs to our members to get their reactions and responses. We will continue to listen carefully to their expectations. We will inform our members about what seems to be realistic and possible, and we will share their views with you.

There are two additional components to our prescription drug position. First, we recognize that cost containment is an important part of Medicare drug coverage. For a benefit to be affordable and sustainable over time, there must be mechanisms in place to control the rapidly rising costs of prescription drugs.

In order to contribute to cost containment, we are launching this week a national education program through our own publications, the general media, and at the community level, aimed at our members and the public. This program will stress the wise and safe use of medications with an emphasis on generic drugs.

I would like to call your attention to that print ad on the easel over there. I am sure you cannot read it from where you are sitting, but it says, "Before you take your medicine, take this advice," and then as you go down, the top one says, "Important, take exactly as directed, but first, call around and compare drug prices." The one underneath that, "Avoid paying too much for your prescriptions. Generics may work as well as brand names." And then, "Tell your physician and pharmacist everything you are taking. Some medicines do not interact well." And finally, "Do not let advertising sell you on drugs you do not need. Check up on your prescriptions."

In addition, we intend to become actively involved in litigation that can make lower-price generics more available and that can assist in other ways to contain costs.

Our final point is that we are not in favor of funding for a provider giveback package before agreement is reached on a Medicare prescription drug benefit. We believe that providers should be paid fairly, but it is not appropriate to increase provider payments without first ensuring that older Americans get the drug coverage they need.

We stand ready, and we pledge to provide assistance in every possible way that we can. We recognize that congressional support is needed from both sides of the aisle and from the Administration to achieve a meaningful Medicare drug benefit for all beneficiaries. The needs of older and disabled Americans who lack adequate drug coverage can no longer go unmet. We are asking Congress to act now. Thank you very much.

[The prepared statement of Mr. Novelli follows:]

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Novelli. Mr. Rector?

Mr. RECTOR. We certainly appreciate the opportunity to present our views on comprehensive Medicare reform this morning, now this afternoon. We represent 25,000 independent pharmacies, not the publicly-held pharmacies, we provide about half the Nation's prescriptions.

We hope that the benefit will include, in addition to coverage of the product, coverage of pharmacists' professional services. I would like to emphasize that only when the drugs are used properly do they have the value that has already been noted by several witnesses this morning.

I would like to touch on several very specific aspects of the recent legislation you considered 2 years ago. First, we consider our businesses to be highly efficient. They have less than a 30-percent gross margin, less than a pre-tax 2-percent net profit, and we need to remind the Committee and others that we are also private sector.

I know the debate that developed has substituted choice of plan for choice of provider, and, of course, that is the kind of approach that concerns the small businesses that we represent. We think the Committee should allow seniors to select the pharmacy of their choice and not allow the insurance industry or their PBMs to substitute your constituents' choice of pharmacy. I note that 24 Members of the Committee are in States that have laws that guarantee choice of pharmacy to consumers, including seniors, and we certainly urge that you not preempt those State statutes.

Relatedly, so often in the dialogue in the last several years we have seen reference to the fact that PBMs, insurance companies, and others negotiate with pharmacies. The literature is replete with this. I know testimony after testimony before the Committee stresses the value of maintaining the PBMs' ability to negotiate with pharmacies. I am here today to stress as emphatically as possible, that we do not have the ability to negotiate with these PBMs. That is a fiction. We are given "take it or leave it" contracts with no choice whatsoever regarding the terms of those contracts.

So, naturally, one of the things we would like the Committee to seriously consider is to include the ability, as several bills that have been introduced, at least in the Senate, have, to allow the pharmacies to actually negotiate their deal on behalf of themselves and their consumers with the PBMs and not just have us accept whatever it is that these intermediaries decide is best for our bottom line. It is usually best for their bottom line and not at all good for our bottom line.

We would like the Committee to seriously consider not penalizing seniors when they want to continue to go to their local pharmacy and decline to utilize the mail order option. We have seen so frequently provisions that incentivize our competitors: the mail order pharmacists and pharmacies. If they have something to offer, fine, but we do not see a need to tilt the equation in favor of their businesses.

Interestingly enough, those are very highly profitable businesses. Because of rebating and other factors, the PBMs make substantially more profit on the mail order prescriptions that they fill, usually through their own companies, or with other companies under contracts. They make more money on the mail order prescriptions they fill than they do in the insured prescriptions that are filled in a local pharmacy.

We would urge the Committee to carefully assess precisely what it is that the PBMs do to provide the alleged savings that the debate so often has raised. We are fairly skeptical about the savings. We see them taking dollars from our pocket and putting it into theirs and do not necessarily see the employers or government, for that matter, benefiting from their activities.

We think you should investigate the extent to which these entities are regulated under State law. Very likely, they are not. Georgia just this week was the first State to specifically regulate the PBMs.

Lastly, we urge that you review very carefully the growing amount of litigation being brought by employers, by patients, by health plans, and by pharmacists against these PBMs for violations of their fiduciary responsibilities to each of those respective categories.

In closing, I noted in the Secretary Thompson's testimony that he said that they had little experience with PBMs. Frankly, our members would like to guarantee that continues to be the case. Thank you.

[The prepared statement of Mr. Rector follows:]

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Rector. Dr. Sayare?

Dr. SAYARE. Thank you, Madam Chairman and Members of the Committee. I am here today representing the Biotechnology Industry Organization (BIO). This Committee has been the driving force for Medicare drug coverage for many years. I am particularly honored to be here to describe BIO's views on Medicare drug coverage issues.

ImmunoGen, the company I work for, is a publicly-traded biotech company established in 1981 that has several anti-cancer drugs in various stages of clinical development, for colorectal cancer, small cell lung cancer, and other forms of solid tumors. We do not have any products currently in the market.

The BIO represents over 1,000 biotech companies, academic institutions, State biotech centers, and related organizations in all 50 States. Ninety percent of our companies are involved in health care product development, and 90 percent of those companies do not have a single product on the market. Many of the others have only one product. Clearly, the vast majority of BIO's members do not have an array of health care products to absorb the costs of the research and development tax credit (R&D).

Additionally, many biotech drugs are for small populations. Forty-five percent of FDA-approved biotech products have orphan drug status.

Finally, existing tax incentives for research, the R&D tax credit and the deductibility of net operating loss carry-forwards do not benefit these pre-profitable biotech companies.

For many of BIO's members, the levels of investment in innovation is far from an academic concern, really more of a question of survival. Most BIO members are not members of the Fortune 500. Rather, they are small companies funded by venture capital, companies that may, in fact, hold the key to potentially important therapies in the future. Anything that could upset this delicate balance that we live in could deprive patients of these breakthroughs in the future, because if investment by venture capitalists is reduced, most of the companies in this area are not going to survive. We urge you to take care when designing a Medicare drug coverage plan not to upset this delicate balance.

The issue of Medicare modernization and the proposal to add prescription drug coverage to the program is of high interest to members of BIO and to the patients that we serve. Many biotech drugs in the pipeline target diseases that predominately affect seniors. We strongly believe that outpatient drug coverage should be established in the context of overall market-based reform of the Medicare program to do the following: Rely on the private market and competition, not price controls that deter innovation; include stop-loss protection and protection of those most in need first; expand beneficiary choices among private plans; improve patient care through innovations in biotechnology; maintain Medicare solvency; and do no harm to current coverage and reimbursement.

Today, most biotech drugs are, in fact, covered by Medicare because they are administered in a hospital setting or in a physician's office. At the top of our current coverage concerns is the recent imposition of cuts to hospital outpatient pass-through payments. As you recall, the Balanced Budget Refinement Act of 1999 created this new transitional payment system to provide an incentive to hospital outpatient departments to use new technologies during the time that a prospective payment system was created. This payment system is truly a mess.

Last year, before Congress finished its work, Chairman Thomas and Mr. Rangel, along with the chairmen and ranking Members of the Senate Finance Committee and House Energy and Commerce Committee, sent a letter to CMS urging a delay in the implementation of the pass-through payments for 2002 as well as recommending that the agency increase to an average of no less than 75 percent of the imputed values used to calculate reimbursement for sole source, multi-source, and generic drugs. Only half of your recommendations were executed by CMS, that is, the delay.

Of course, creating an outpatient drug coverage program in Medicare is of critical importance, but the situation with current coverage will impact beneficiary access to the latest technologies, such as biotech drugs, today. I am requesting that the Committee revisit this issue soon. Specific recommendations relating to BIO's current coverage concerns were outlined in my written proposal.

In closing, Madam Chairman, I would urge this Committee to continue to move expeditiously to pass drug coverage legislation this year. I want to commend you for holding this very important hearing and for your leadership on drug coverage and stop-loss coverage issues. I will be happy to attempt to answer any questions you have. Thanks.

[The prepared statement of Dr. Sayare follows:]

Mrs. JOHNSON OF CONNECTICUT. Thank you. Just for your information, Dr. Sayare, we are in constant communication with the Administration on this issue of outpatient reimbursements and the coverage of drugs and hope to improve that situation in the near term.

I am going to just put my concerns in the record. For each of us to have an opportunity means that we will each only have 2 minutes, and that also means that your answers will have to be short. But if we can get through everybody, at least you will have a sense of the concerns of the Members and can get back to us.

My concerns are twofold. I need to know what you think is the best way to manage costs. This morning, someone touted the Maine plan. The Maine plan manages costs by forcing the DoD plan on everyone. That is one alternative in every category, no way around it, and the pharmacist can substitute a generic for the prescription without even talking to the physician. This is not a plan that I would vote for for our seniors and not one I think they would tolerate. So this issue of how far you go down the formulary management tool track is very important.

Secondly, how do we get the manufacturers' discount down to the pharmacists? That has to be better specified, although in our bill, by requiring bricks-and-mortar convenient access as defined by the government, not the PBM, we think that we will be at least at 95 percent of all pharmacists being in the program. So those are the kinds of concerns I have.

I would say, Mr. Novelli, I am extremely, extremely disappointed in AARP's stand on a couple of things. First of all, if we do nothing about physician reimbursements and we let them fall another 5 percent and another 5 percent the year after that, what makes you think there will be any doctors out there that will take new Medicare patients? We already have overwhelming evidence of difficulty in our seniors finding a doctor. So I have seniors coming to me now and saying, listen, I have got a little drug coverage. I do want the doctor of my choice.

So your adherence to $750 billion as workable after the kind of testimony we have had here today troubles me, and I am glad to hear that you will consider all proposals, and also your opposition to dealing with provider payments before we deal with prescription drugs. Frankly, both are equally important.

I now would like to recognize Mr. McCrery.

Mr. MCCRERY. Thank you, Madam Chair.

Mr. Bradley, I was interested in your testimony for a number of reasons, not the least of which was you went through a number of steps that GM has taken to control costs and you named those. And then later in your testimony, you said any Medicare drug proposal ought to contain, and then you named essentially the same kinds of cost controls. But is it not true that GM's drug costs are rising at double-digit rates every year?

Mr. BRADLEY. The answer is, yes, our costs are going up, but without all the initiatives that we have in place, the benefit design initiatives, the negotiations, to answer Congresswoman Johnson's questions, all those techniques that we are using to educate and so forth, without them, our drug costs would be much higher, seriously, and that is the--

Mr. MCCRERY. I can believe that, but my point is, how can we in good conscience as policy makers create for the Medicare system a drug plan that is going to have 15 to 20 percent increases per year? That is unsustainable. You just cannot do it.

So I guess my question to everybody is, how can we do this? How can we create a drug proposal that is affordable to the taxpayers, at least under the current system? And I do not want you to answer that, I want you to think about it and help us with that.

Another thing that I want to ask about GM is how do you think we can create a program that will not replace the private dollars that you all and your beneficiaries are spending already?

Mr. BRADLEY. I think it is important for Medicare to create the universal program, and then--

Mrs. JOHNSON OF CONNECTICUT. The gentleman is out of time, so if you could delay your answer, weave it into something else, and let me recognize Mr. Cardin.

Mr. CARDIN. I would be glad to give you a moment of my time to respond to Mr. McCrery.

Mr. BRADLEY. The idea would be for Medicare to create the underlying comprehensive universal program and that the private purchaser and the public purchaser that is already offering the additional benefit would offer it as a wrap-around above and beyond that, not unlike what we already have today with the current Medicare program.

Mr. CARDIN. And also, in response to Mr. McCrery, I think that the cost containment you can put into a plan will give you initial savings, but the annual increases are going to be somewhat comparable to the overall health care increases for prescription drugs. I think it is unrealistic to expect that your plan will beat the market on the percentage increase, but you might be able to lower the base costs.

Mr. BRADLEY. Yes.

Mr. CARDIN. Mr. Gilmartin, I want to talk a little bit about getting the cost down for seniors. It is very frustrating to hear seniors in my district say, look, we are paying the highest costs of any group prescription drugs because we do not have any insurance to cover them. We have no negotiating power, and we are not getting the discounts that others can because we have to work on our own.

If the government comes in and provides reimbursement, however it is done, through a private company or however it is done, it seems to me that the government then is representing a large market share of your product, and the way the free market operates, as I understand it, the larger the market share, the better one is going to be able to do as far as price. Is that not basically correct? So if we come in with a comprehensive prescription drug plan within Medicare, will that not give the government the opportunity to bring down the actual cost that seniors are incurring on prescription drugs?

Mr. GILMARTIN. If Medicare is modernized to add a prescription drug benefit in a way that uses private sector health plans, comprehensive health plans as a way to accomplish that, our experience in the private sector is that these health plans are very tough negotiators. They drive a hard bargain on price. They demand value. Those benefits are passed along to companies such as General Motors and prices do come down.

So one of the benefits to seniors of not only having prescription drug coverage through a modernized Medicare plan, particularly through competing health care plans, is that they will not only be able to gain access to the medicines that they are not utilizing sufficiently right now, but they will be at lower prices. So they will benefit from those discounts.

Mr. CARDIN. Thank you.

Mrs. JOHNSON OF CONNECTICUT. Mr. McDermott?

Mr. MCDERMOTT. Thank you, Madam Chair.

To just follow up, Mr. Gilmartin, this morning, I do not know if you were here, but Secretary Thompson was here and we talked about negotiating prices, whether the U.S. Government on the behalf of 40 million Medicare patients could negotiate with pharmaceutical companies. He said, well, that would distort the market because we have such a big market share.

And then I was thinking about the fact that in my health care plan, I actually am part of Merck-Medco, and so I know that Merck-Medco, which I think is a part of your operation--

Mr. GILMARTIN. Right.

Mr. MCDERMOTT. Negotiates on behalf of 65 million beneficiaries. Now, does that distort the market? I am not an economist, so I am here to have you explain to me how the government negotiating for 40 million seniors would distort the market if when Merck-Medco negotiates for 65 million you do not do the same thing.

Mr. GILMARTIN. Well, first of all, in terms of the, I think it is important to note that controlling or having cost containment for a particular drug spend goes far beyond getting a lower price. That can help initially. But the key to really controlling drug spend is to have a high quality pharmacy care delivered in a cost effective way, so that the quality features that are built in that were outlined by Mr. Bradley have to do with ensuring that the drug is utilized properly, that the drugs are--basically, there is no overlapping uses of drugs, that there are no dangerous drug interactions, and a whole series of quality measures that are built in to ensure that there is no waste and that there is no serious health consequences.

The cost effective way has to do with the price negotiations, and we compete with Merck-Medco against other plans that are also negotiating with manufacturers and it is very much of a private market mechanism that does not lead to the kind of market distortions you would have where basically the government would not be negotiating but simply setting a price. So I do not think that they are comparable situations.

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Gilmartin.

Mr. MCDERMOTT. Your feeling is that there would not be negotiations, that just the government would set the price?

Mr. GILMARTIN. That is right. I mean, I think that is the experience. The government, it is not really negotiation. The government sets the price.

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Gilmartin. Mr. Houghton?

Mr. HOUGHTON. Thank you very much.

Mr. Gilmartin, I am going to pick on you again. One of the concerns that comes up in a rural area, and I live in a rural area, is if we create a drug benefit that promotes competition among the companies and employs so-called Pharmacy Benefit Managers to control costs, what is this going to do to access in the rural areas? Is it going to help or hinder some of the smaller communities?

Mr. GILMARTIN. Well, PBMs such as Merck-Medco and the other PBMs in the industry operate really in all areas of the country, so that they are available in rural areas as well as in urban areas. Because they really have pharmacy networks, retail pharmacies, independents as well as chain drug stores, they are able to supply a high quality pharmacy benefit even in remote regions of the country. So we are already there, in effect.

Mr. HOUGHTON. Okay. So you do not worry about it?

Mr. GILMARTIN. No. That is not a constraint.

Mr. HOUGHTON. Thank you.

Mrs. JOHNSON OF CONNECTICUT. Mrs. Thurman?

Mrs. THURMAN. Thank you, Madam Chairman.

Mr. Bradley, you have been kind of sitting over here and you said you put all these things in order. You have done the utilization. You have done all these safeguards that you think. Your prices are still going up, right? They are going up, $509 million is what you are going to pay for how many people?

Mr. BRADLEY. Yes, about 400,000.

Mrs. THURMAN. Mr. Gilmartin, in yours you say that you want to give us tough price negotiation with pharmaceutical companies. Well, if they are doing that and they are going at it and they are negotiating, prices are still going up. Something has got to give here.

The fact of the matter is, we are not fooled anymore. I mean, we are looking at what is happening in Mexico. We look at what is happening in Canada. We look at what is happening in the United Kingdom. We are looking all over the place and everybody is getting their cost of their medicines differently.

We are talking about a benefit through some discount card, and quite frankly, if medicines have gone up 17 to 30, 40, 50 percent, and everybody I am hearing from, that is how much they are going up, I do not know what to do, and it is not because we do not have the negotiation tools. I mean, companies have. We are pushing them out of the ability to give their employees, our Medicare patients, our Medicaid patients the ability to get to those drugs that you say are so important to us. You have got to give us something better than just, oh, let us go negotiate, because it is not working.

Mr. GILMARTIN. Well, I think that it is fair to say that the utilization of drugs is going up very significantly--

Mrs. THURMAN. And that is because we are seeing advertising on the TV.

Mr. GILMARTIN. And the utilization of drugs is going up because they have become a much more valuable, important component of our health system. Our clients, if you will, plan sponsors for Merck-Medco basically want to make sure that their plan members, their employees have access to these valuable medicines, and so, therefore, their benefit designs are really geared toward getting their money's worth, which means getting the right price to the right patient and used in the right way.

So experiences across health benefit plans vary all the way from single-digit increases to double-digit increases, but it really is an approach to get the value for those pharmaceuticals and make sure they are used properly, not to deny access to them.

Mrs. THURMAN. Madam Chairman, all I can say is I hope we have another hearing with these folks before us and others to talk about this issue because this is the most important issue to health care in this country and rising costs.

Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Becerra?

Mr. BECERRA. Thank you, Madam Chairperson, and to all of you gentlemen, thank you very much for your testimony. I would love to ask lots of questions, but no time, so let me just ask two questions of Mr. Novelli.

First, if we had to make a decision on how we were going to spend some of our dollars from the Medicare and Social Security trust funds, would AARP take a position on whether those monies should be spent on tax cuts or on Medicare and Social Security?

Mr. NOVELLI. We are not taking a position on tax cuts. We are not taking a position on raising revenues. What we are taking a position on is the fact that, as I think you agree, everyone agrees, older people need pharmaceutical drugs in Medicare.

Mr. BECERRA. But if you saw that Congress were going to spend the trust fund monies going in for Medicare and Social Security, including those that are currently in surplus that we are not using to pay out benefits today for Social Security or Medicare, and if you saw that for the next 10 years we are going to spend those surplus dollars that are coming in, would you want them spent on Medicare and Social Security or would you mind if they were spent on tax cuts?

Mr. NOVELLI. We tried to come up with a recommendation so that we could give Congress some flexibility, and I would like to say and to clarify with respect to what Congresswoman Johnson asked, we did not come in here with a $750 billion plan. We came in here and said it is going to be very difficult with the budget resolution that you have to do a drug program that people are going to enroll in. I think the challenge is going to be to try to deal with that and to do it in such a way that you are going to have a viable program.

Mr. BECERRA. One last question, if I may.

Mr. NOVELLI. I am not taking a position on income tax cuts.

Mr. BECERRA. If I could just get to one last question, let me ask you one last question with regard to the survey that you make note of in your testimony where you say that 67 percent of seniors have said that if they were faced with a plan that provided them with a drug benefit that would cost them $35 a month as a premium with a $200 deductible and which paid for 50 percent of the cost of prescriptions and that had an out-of-pocket cost over the year of about $4,000, that they would not voluntarily purchase that.

We have a plan, the only plan we have before us that we can refer to is the Thomas bill that was here before us 2 years ago that would have greater costs involved per senior to participate in that plan. Do you believe that the Thomas plan would be something that seniors, given your survey, would want to adopt?

Mr. NOVELLI. We did not test the elements of the Thomas plan. We tested the plan that you just talked about.

Mr. BECERRA. Right, and the elements of the Thomas plan are even more severe in terms of costs on seniors than what you surveyed.

Mr. NOVELLI. Precisely my point. It is going to be very difficult to come up with a plan that is going to be adequate, that is going to be viable, and as I said before, we are willing to look at anything. We are willing to help. We are willing to test any element, but you have a very tough job on your hands.

Mr. BECERRA. Thank you very much. Thank you, Mr. Chairman.

Chairman THOMAS. [Presiding.] I thank my colleagues. I apologize to the panel. Oftentimes, this place is a three-ring circus, and I was in the second and third rings for a little while.

I do understand the line of questioning. However, I have found that at some point, people have to bump up against reality, and if, in fact, we pass a major prescription drug bill with modernizations in the $350 billion range, I think you will find that there will be a significant difference between what seniors ask as their druthers and what they are willing to do if, in fact, it is in front of them as a real, viable program. My assumption is the real, viable program would be adopted.

However, because of all the other changes that we need to deal with, there are ways in which we can show them in a relative way that the dollar expended by the senior can be better spent tomorrow than it is today, and Mr. Novelli, in that regard, I know that you are involved in terms of the various activities of AARP in providing seniors with Medigap products. Do you have any rough idea of the percentage of your income that comes from the Medigap products?

Mr. NOVELLI. It represents probably about 20 percent of our income.

Chairman THOMAS. So one-fifth of your income comes from Medigap programs, in which only the last dollar on some of the most expensive options go toward prescription drugs. The first dollar of every Medigap plan goes toward immunizing individuals against the cost effectiveness of various copays and other payment structures.

Do you believe that if we could engage in a constructive dialogue, we might be able to come up with a higher and better use of those precious dollars that seniors now spend on what is called Medigap insurance?

Mr. NOVELLI. As you know, Mr. Chairman, we have talked about this before and my answer to that question is, yes, we should have such a dialogue. Those Medigap programs are prescribed by law. If they should change, we will be happy to change with them. We also have a pharmaceutical service. What we want to do is do the best job we can for our members. We are perfectly happy to talk about these things and to make changes.

Chairman THOMAS. And oftentimes when we discuss out-of-pocket costs, and it is difficult to do in a questionnaire, we do not remind the seniors how much they are currently paying out of pocket for what is, frankly, in many people's opinion, a kind of a lousy insurance product, and that if those dollars were redirected or combined in a more meaningful way, you could clearly get more bang for your buck.

That is one of the areas that we will be exploring because it is not just additional government dollars that I think we should be dealing with. There are people who are paying out of pocket now and not receiving maximum value if we were to restructure the way in which Medicare and other programs interact.

Second question, and I do appreciate your testimony, Mr. Novelli, because I read it carefully and I noticed differences from the first communication from AARP under the new leadership. One of the points that I really want to stress that I mentioned earlier, and I will repeat myself over and over again, in the Chairman's opinion, what we did when we created Medicare was to create a seniors', basically, acute care health program. We did not say it was just for wealthy seniors or those who joined a particular group or who had a sufficient corporate retirement plan to blend with Medicare. We did it for all seniors.

The failure of previous Congresses to deal reasonably with the low-income issue does not negate that basic fact, in the Chair's opinion, and that our responsibility on Medicare is to all seniors to provide a uniform national program, and that if, in fact, we are going to assist low-income seniors as low-income first and seniors second, we are not really doing what I thought Congress committed itself to do and that is provide a health care program for all seniors.

Unfortunately, that is the way it has evolved, and if you are a senior but find yourself in the unfortunate position of being low-income, you are shuttled to a State structure under a Medicaid arrangement in which two seniors in different States find themselves treated significantly differently and the benefits available to them are significantly different and that is not, I do not think, what was intended when we talked about a seniors' acute health care program.

I know there have been some statements by your organization and others. Just because we focus on low income as a needed assistance in a larger new program does not mean that that low-income senior assistance has to come through what I consider to be the flawed traditional structures, and I hope we can continue a dialogue in that area because my goal will be to create a program in which we have a modernized Medicare with prescription drugs available to all seniors wherever they may choose to live and not have a significant portion of it augmented by the State they happen to live in. I hope you would share that goal.

Mr. NOVELLI. I think we are on the same page. We obviously agree with you that we do not want to means test Medicare. We also agree that there can be ways to work within Medicare on ability to pay and we would be very happy to have that dialogue.

Chairman THOMAS. I would only tell you, do not assume I do not want to means test Medicare. I just do not believe that there is a practical way to do it in a real-time way, and I am still working on that, because at the same time we provided affordable health care for all seniors. I do not think it was in anyone's mind that what we wanted to do was to not provide for those in need because it would cost too much on an even-handed way in which we were required to provide resources for those who were not in need, and that needs to be a discussion that we will save for a future day.

Mr. NOVELLI. We appreciate the fact that you see the need for prescription drug coverage that is universal. I think it has been discussed this morning, certainly, but I would like to reiterate that this is a problem for the middle class of elderly people and not just for low-income people.

Chairman THOMAS. There is no question that that is the case and that what we are trying to do is create a structure in which everyone, regardless of their circumstances, has some reason to join because there is an advantage over the current structure. Fortunately, the current structure is so poor that we ought not to have that much difficulty in creating a better arrangement as far as prescription drugs are concerned.

I would just briefly ask if any member of the panel wants to respond. My questions were directly to Mr. Novelli, but obviously in terms of low-income and a broad-based program and the willingness of seniors to adopt them, that is a kind of a broad-based question.

[No response.]

Chairman THOMAS. With that, I want to thank you very much. Your testimony has been made a part of the record, has been read, and will be pondered over as we move forward. This is not the end of the process, it is, in essence, the official kicking off. We will be back working with you and with others as we try to build an affordable prescription drug program into a modernized Medicare structure.

I would like to include in the record the statement submitted by Chellie Pingree.

[The statement of Ms. Pingree follows:]

Statement of the Hon. Chellie Pingree, Portland, Maine

Chairman Thomas, members of the House Ways and Means Committee, thank you for the opportunity to testify here today.  The high cost of prescription drugs in this country is a travesty and Maine is no different.  I am here today to tell you about Maine’s innovative approaches to securing affordable prescription drugs.  I will focus on the landmark legislation that I sponsored in 2000, An Act to Establish Fairer Pricing for Prescription Drugs, more commonly known as “Maine Rx.” I also want to share the story of Maine’s ongoing struggle for fair prescription drug prices and what we learned from our experiences. 

The story of Maine’s most recent fight for affordable prescription drugs begins with seniors who were fed up with paying higher and higher prices and who knew that they could buy their prescriptions at nearly half the cost if they just crossed the border to Canada.  In 2000, Maine people, led by seniors, came to me looking for affordable prescription drugs that they could purchase at their local pharmacy.  This is not a new problem, and in Maine we’ve had prescription drug subsidy programs to help low-income seniors and families since 1975.  We had already made substantial changes to these programs over the years, but there was great reluctance to further expand them. By the mid 1990s, prescription drug costs were growing so significantly that they put our seniors’ health at risk. Hardworking Mainers were forced to choose between food and the drugs they needed to stay alive, and even during a time of economic prosperity in Maine the number of uninsured was growing and an increasing number of seniors were coming forward with very painful stories.  By this point, most lawmakers knew another subsidy was not the answer when drug costs were rising faster than a runaway train.  Maine could not keep bearing the costs for drug company executives whose profits seemed more important than people.  I came to the conclusion that we needed to look at the problem differently. Every industrialized nation in the world negotiated with drug companies for lower costs EXCEPT the United States.  I decided that Maine needed to have unified voice with which it could negotiate for lower prices on behalf of its citizens, and so I wrote the Maine Rx bill.

As passed, the Maine Rx Program does the following: 

• establishes the Maine Rx program in which the State serves as a pharmaceutical benefits manager (PBM) for the estimated 325,000 Maine residents who have no prescription drug benefit;
• prevents profiteering and hindering the sale of prescription drugs in Maine by drug manufacturers;
• authorizes interstate cooperation for bulk purchasing and cost saving;
• provides for emergency prescription drug prices if the negotiations do not produce prices comparable to the lowest prices paid in Maine; and
• creates a Prescription Drug Advisory Commission charged with reviewing access to prescription drugs in Maine, advising the Commissioner of Human Services and reporting to the Legislature and Governor.  The commission is made up of a diverse group of community members representing the medical community, pharmacists and seniors. 

The Maine legislation is comprehensive and serves as model for more than twenty other states across the country. 

Currently, Maine has three prescription drug programs for its residents, and we are battling lawsuits against two of the programs, Healthy Maine Prescriptions and Maine Rx.  In 2000, we were at the forefront with Vermont in securing a Federal Medicaid wavier to extend Medicaid prescription drug benefits to the uninsured, and since 1975, we have steadily increased both the individuals and the prescriptions covered in our subsidy program, the Low Cost Drug Program for the Elderly and Disabled.

Through letters, public testimony and local community forums on prescription drugs, I learned that Maine people want to be able to purchase safe, high-quality prescription drugs at affordable prices at their local pharmacies.  They want a system in which consumers, pharmacies, manufacturers and the State get a fair deal.  They do not want prescription drugs to consume millions of dollars in State funds, and this is why in Maine we decided to negotiate for lower prices.  It is equally important for the federal government to negotiate a lower price for Medicare and then offer a comprehensive benefit to seniors.  We cannot pay retail for prescription drugs – we should negotiate our price, just like every other industrialized nation in the world, and just like we do with the prescriptions supplied to Veterans through the Veterans’ Administration.

In Maine, seniors have been traveling to Canada to buy affordable prescription drugs for years.  On the most recent trip in March of this year, sponsored by the Alliance for Retired Americans, 24 people saved $11,000 on their prescription drugs.  Many of the folks on this trip had never purchased prescription drugs from Canada before, and several said they had been searching for the bus and ways to buy affordable prescription drugs for some time.  Many felt like going to Canada and saving that $500 or $1500 was really changing their lives.  These are people with serious health problems, seventy-five year old women traveling alone on a bus to Canada to buy affordable prescriptions and couples traveling nervously, not really believing the position in which they’ve found themselves.  Many of the Maine seniors I know are determined to go to Canada and save as much money as possible.  However, most are acutely aware that they are leaving their country to take better care of themselves and as unfortunate as this is, that they are lucky to be able to travel to Canada.

As this debate moves forward, I want to impress upon you the great need for Congressional action.  State budgets can be very fragile, and for a state like Maine to spend the millions it does on prescription drugs is very difficult.  Our state constitution demands a balanced budget, and the pressures of paying the ever-rising cost of prescription drugs stresses the entire state system.  We need federal legislation that will do one of two things: either provide a prescription drug benefit under Medicare, passing on negotiated discounts to seniors, or free up the states to use innovative programs like Maine Rx while the debate in Congress continues.

Chairman THOMAS. Thank you all for being here. Thank you for your patience.

Mr. MCDERMOTT. Mr. Chairman, could you give us sort of an outline of--you said this was the beginning of the process. I kind of would appreciate it if you would give us some kind of outline of how we are going to get to the period before Memorial Day. What is your outline or your feeling about--

Chairman THOMAS. I am looking for the Chairwoman of the Health Subcommittee. What has been occurring, both at the subcommittee level and on an inter-subcommittee level between Ways and Means and Commerce are ongoing discussions of options, what they might look like. We need to shift into a more rigorous structure in which we begin to build packages and do spend-out arrangements, and again, doing it on both a subcommittee Ways and Means basis and then interacting with the Commerce Committee, since we have to work together. Our goal will be over the next 2 to 3 weeks to move fairly quickly in putting options together and then have the subcommittees begin to vote and move on those options.

Mr. MCDERMOTT. Will there be hearing time for those options when they are put out?

Chairman THOMAS. It is the Chair's intention now to try to put together a package, get responses to the pieces of the package, pull it together, get responses to the package, and move it forward. As to whether that gets done completely at the subcommittee level and then moving up to the full Committee is not yet determined. In part, it will depend upon the ongoing, positive working relationship with Commerce.

If the gentleman will recall, when he was a Member of the Health Subcommittee and I was the Chair of it, it was a slightly different environment than is currently the case. It is this Chair's opinion that the recent changes in chairs create an opportunity between committees to create a much more cooperative working atmosphere between the committees and the Chair hopes to capitalize on that.

Mr. MCDERMOTT. When you say you are going to get responses, do you mean put it out to the parties involved or are you going to put it out in front of us and let us discuss and ask questions of witnesses and so forth?

Chairman THOMAS. All of the above, including any other ideas that we can come up with.

Mr. MCDERMOTT. Thank you.

Chairman THOMAS. With that, the hearing stands adjourned. Thank you very much.

[Whereupon, at 3:10 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

American College of Physicians - American Society of Internal Medicine, statement