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June 14, 2000, Wednesday

SECTION: CAPITOL HILL HEARING

LENGTH: 49841 words

HEADLINE: HEARING OF THE HEALTH AND ENVIRONMENT SUBCOMMITTEE OF THE HOUSE COMMERCE COMMITTEE

SUBJECT: MEDICARE AND PRESCRIPTION DRUGS

CHAIRED BY: REPRESENTATIVE MICHAEL BILIRAKIS (R-FL)

WITNESSES:

NANCY-ANN MIN DEPARLE, ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION;

KAREN IGNAGNI, PRESIDENT AND CEO, AMERICAN ASSOCIATION OF HEALTH PLANS;

CRAIG L. FULLER, PRESIDENT AND CEO, NATIONAL ASSOCIATION OF DRUG STORES;

CHARLES N. KAHN III, PRESIDENT, HEALTH INSURANCE ASSOCIATION OF AMERICA;

PATRICK B. DONOHO, VICE PRESIDENT OF GOVERNMENT AFFAIRS AND PUBLIC POLICY, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION;

NANCY DAVENPORT-ENNIS, FOUNDING EXECUTIVE DIRECTOR, PATIENT ADVOCATE FOUNDATION;

JUDY FEDER, DEAN OF PUBLIC POLICY STUDIES, GEORGETOWN UNIVERSITY;

RON POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA;

LOCATION: 2322 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 10:00 AM. EDT DATE: WEDNESDAY, JUNE 14, 2000

BODY:
REP. MICHAEL BILIRAKIS (R-FL): The hearing will come to order. The topic of today's hearing is Prescription Drugs: Modernizing Medicine for the 21st Century. I believe that this title is especially appropriate because we must examine broader reforms to preserve Medicare for the future as we consider adding a prescription drug benefit to this already financially troubled program. In three prior hearings, we discussed prescription drug plans which had been introduced to date or concepts talked about. Today we will hear more about the specific details of different coverage options.

As most of you know, our committee colleagues, Congressmen Bliley, Burr, and Hall, yesterday announced a bipartisan plan called Medicare RX and Modernization 2000, a plan to help senior citizens by expanding access to prescription drugs in a context of Medicare modernization. As our panelists and members of this subcommittee are aware, in any effort to add a prescription drug benefit to Medicare, the devil truly is in the details.

The plan to a sensible, salient plan is riddled with potential landmines, and we must tread carefully and cautiously. Among the issues we will discuss today, this hearing will shed light on the possibilities for disease management services, the role of pharmacies, and the fate of Medicare plus choice. As July the first approaches, we are beginning to hear about more Medicare plus choice plans withdrawing from the program. An important part of the Medicare RX and modernization plan 2000 would put the administration of the Medicare plus choice program under the purview of the Medicare Benefits Administration, the same new agency that would administer the new prescription drug benefit. I look forward to hearing the views of the insurance industry represented by our witnesses, Karen Ignagni and Chip Kahn about how this proposal could help stabilize the Medicare plus choice program.

As I have continued to examine the issue of prescription drug coverage under Medicare, the role of pharmacies and pharmacists is an issue we all have carefully considered. What is the appropriate role and function for pharmacists and organized pharmacies, and how can they help in the administration of prescription drug benefits. I hope that Craig Fuller from the National Association of Chain Drugstores can shed some light on these questions.

Today's hearing will again underscore the need for prescription drug coverage for Medicare beneficiaries. I am hopeful that it will also help us better understand all aspects of a new prescription drug benefit, including administration, pricing, choice, and cost.

I would also like to welcome all of our panelists. Our first witness is Nancy-Ann Min-DeParle the administrator of the Health Care Financing Administration. It has been some time since you last appeared before the subcommittee, and I know that my colleagues join me in extending in our congratulations on the birth of her child. I look forward to hearing from all of our witnesses, and I would like to thank them for their time and effort in joining us today.

In the interests of time, after the opening statement of the ranking member, Mr. Brown, I would encourage my fellow subcommittee members to limit their opening statements to three minutes. I know that we all want to hear what our witnesses have to say and still have ample time for questions. Thank you, and the chair now yields to Mr. Brown.

REP. SHERROD BROWN (D-OH): Thank you, Mr. Chairman. I would first ask unanimous consent to enter into the record Mr. Dingell's statements and the statements of any other member.

REP. BILIRAKIS: Without objection, the statement of Mr. Dingell and all members of this subcommittee will be made part of the record.

REP. BROWN: Thank you, Mr. Chairman. I'd like to thank Nancy Ann and other distinguished witnesses for joining us today. So, Chairman, I'm glad we have been given the opportunity to discuss the need for Medicare prescription drug coverage today. I am concerned, however, that the Republican proposal that prompted this hearing is being taken seriously when, frankly, it shouldn't be.

How can you try to convince seniors that you are helping them when the only thing you have promised to them is a low income subsidy? You are not helping seniors above 150 percent of poverty by subsidizing insurers. You are helping the insurers. Your plan guarantees nothing other than some assistance for the lowest income seniors.

In my district, prescription drugs are not just a low income problem. Seniors who thought they were financially secure are watching their savings go straight into the pockets of drug makers. And you're trying to tell seniors that there will be a choice of reliable, affordable, private prescription drug insurance plans available to them. Based on what? Certainly not history.

Even the insurance industry is balking at this idea. It should tell us all something, that insurers don't sell prescription drug coverage on a stand-alone basis today even to young and healthy individuals. That is because it simply doesn't make sense. Medicare is reliable; it is a large enough insurance program to accommodate the risk associated with prescription drug coverage. Individual, stand- alone prescription drug policies are not.

You are actually trying to convince seniors who stand firmly behind the Medicare program that expanding the current benefit package is less efficient, more onerous than manufacturing a new bureaucracy and conjuring up a new insurance market.

Seniors are too smart for that. I don't want to ask seniors in my district and across the country to rely on a market that doesn't want the business to provide a benefit not suited to stand-alone coverage to a population that, let's face it, has never been well served by the private insurance market.

I don't want seniors in my district and across the country to be coerced into managed care plans in order to avoid dealing with three different insurance plans, Medicare, Medigap, the individual prescription drug coverage. And I don't want seniors in my district or across the country to receive a letter from their employers telling them their retiree prescription drug coverage has been terminated on the premise that, "The government is offering private insurance now."

I don't want to forsake volume discounts and economies of scale by segmenting the largest purchasing pool in this country and then waste trust fund dollars on insurance company margins and insurance company marketing expenses. And I don't think the individual health insurance market is a reasonable model for Medicare prescription drug benefits.

In fact, as anyone who has had to purchase or sell coverage in that market will tell you, the individual health insurance market isn't even a good model for individual health insurance. It is the poster child for selection problems, for rate spirals, and for insurance scams. The very fact that the drug industry-backed Citizens for a Better Medicare supports the private plan approach is a giant strike against it. The drug industry and their puppet organization clearly feel that undercutting seniors' collective purchasing power, relegating seniors to private stand-alone, you're on your own prescription drug plans is the key to preserving discriminatory, outrageously high prices.

My office has been deluged by faxes and post cards, as we all have, from Citizens for a Better Medicare warning us, "not to force seniors into a federal, government run, one size fits all prescription drug plan." But Medicare itself can be characterized as a federal, government run, one size fits all insurance program. It is also the most popular and successful public program in our nation's history.

Medicare came into being because half of all seniors were uninsured, not by their choice. Medicare, a nationwide plan with a risk pool over 30 million strong, is a stable, reliable way of insuring coverage for seniors. Medicare works because it guarantees the same basic benefits to all beneficiaries, regardless of where they live, regardless of their income, regardless of their health status. Simply put, it is equitable.

The Republic proposal, leaving seniors to search for private coverage, means varying premiums in varying levels of restrictiveness on access to prescription drugs.

One other thing, Mr. Chairman. The subsidy to insurers means completely unpredictable liability for the federal government. The single most important objective we can fulfill this year is to secure a meaningful prescription drug benefit for Medicare beneficiaries. Let's not make a mockery of that objective by focusing on an option that is neither responsible nor realistic. I thank the chairman.

REP. BILIRAKIS: Thank you, gentleman. Mr. Deal for an opening statement.

REP. NATHAN DEAL (R-GA): Mr. Chairman, I'll yield my time in an effort to expedite the testimony of the witnesses.

REP. BILIRAKIS: I appreciate that.

Mr. Waxman, an opening statement.

REP. HENRY A. WAXMAN (D-CA): Thank you very much, Mr. Chairman. I welcome this hearing. I think a drug benefit for seniors under Medicare is long overdue. But I'm disturbed by the evident intention of this subcommittee to use this hearing to justify our committee and to the House floor in pushing a Republican bill that has not yet been made available to the public, that our witnesses haven't even seen, that has been explained only in vague and contradictory terms, and that apparently fails to meet critical conditions for effective, available, and affordable prescription drug coverage.

In my view, we can only meet our obligations to Medicare beneficiaries if we make coverage of prescription drugs a benefit that all Medicare recipients are entitled to, a benefit that covers all medically necessary drugs, a benefit that is available in every part of this country, a benefit that is accessible and affordable for seniors, in fee for service Medicare as well as Medicare plus choice plans, and a benefit that assures Medicare beneficiaries will no longer face the discrimination in drug prices which has resulted in their paying the highest prices out of their own pockets.

But that is not the approach of the Republican bill. It tells seniors that they can purchase a private insurance drug policy patterned on Medigap policies, which already fail to deliver an affordable drug benefit. That is a cruel hoax. Except for the poor, the Republican bill doesn't help seniors pay their premiums. It subsidizes the private insurance companies and tries to claim that that will help seniors.

What that really does is mislead and confuse people about the help that is available. And the Republican bill shifts the responsibility to insurers to try to provide a benefit when they know there is going to be an adverse selection almost certainly to make their product unaffordable and unavailable. That is not a responsible choice. The drug companies might like it. It will pay what the drug companies want to continue to be paid. But seniors will not like this plan.

I know that the Republicans have a public relations consultant, and we have a document that came out of their consultant's distribution to their Republican members. And they suggested for the Republicans that they tell the American people that I care. It is easier to say I care. And then the consultant told Republican members it is more important to communicate that you have a plan as it is to communicate what is in the plan.

Well, that approach tells seniors they can purchase this policy, and it is not going to really be available to them. The Republican bill doesn't help seniors pay their premiums. It subsidizes private insurance companies, and then tries to claim that seniors will have a benefit.

The drug companies might like this bill. It is rhetoric, but it is not reality. And I think the cynicism is breathtaking. Seniors don't need us playing politics with their health care. Seniors need real coverage for prescription drugs. They can't afford the high price of drugs. They can't afford to pay twice what the big buyers pay. And they don't need another Medigap. They need a Medicare drug benefit.

Let's join together in a bipartisan way, in a responsible way, to do exactly that. I yield back the balance of my time.

REP. BILIRAKIS: Dr. Norwood for an opening statement, three minutes, please, for members other than the chairman and the ranking member.

REP. CHARLIE NORWOOD (R-GA): Thank you, Mr. Chairman. I want to begin by thanking you very much for holding this hearing. As we move forward on this issue, it is important to express our gratitude to you for the series of hearings for which you have held which I believe make us far better equipped to address a drug benefit for seniors.

Now from my perspective, I believe there are many critical issues that we must address in any bill we consider, but I'll mention just two. If there is one thing we can be absolutely of, it is that a three-week stay in the hospital typically is far more expensive than taking medications that have been prescribed for you. And when seniors are forced to ration drugs or stop taking drugs because of their expense, they incur the likelihood that they will end up in the hospital, which in the long run draws down on the Medicare trust fund.

Any drug benefit proposal we consider must be targeted to help those seniors who can least afford expensive medications. Ultimately, we know those seniors are most at risk to face the consequences of not taking their medication.

As I have discussed this issue with seniors in my district, I have heard again and again that seniors are most concerned about the seemingly endless cost of prescription drugs. The one thing we can do to help all seniors most, I believe, is to provide a drug benefit that gives them some peace of mind, that makes clear that there is only so much a senior will have to pay out of pocket.

Providing seniors with stop loss coverage for their prescription drugs will frankly ease that concern. And, Mr. Chairman, I am very pleased to read that my colleagues have addressed these two key issues in Medicare treatment 2000. I am actually looking forward to reading the bill. It would certainly make a real difference in the concerns experienced by my constituents. And I appreciate the attendance today, Mr. Chairman, of our witnesses, and look forward to their testimony.

REP. BILIRAKIS: I thank the gentleman.

Mr. Pallone, for a three minute opening statement.

REP. FRANK PALLONE, JR. (D-NJ): Thank you, Mr. Chairman. Mr. Chairman, I can't help but express my frustration this morning over the fact that the Republicans apparently have put together some sort of proposal on prescription drugs, which we have not really had a copy of, which is not in legislative form, but the points have been put out there. And frankly, from what I can see, this Republican proposal is just an imaginary drug benefit that does nothing for seniors, and it is just political cover and empty promises.

Mr. Waxman has pointed out that the House Republican Conference put out a presentation by Glenn Bolger (ph) on June 8th that basically talks about this from a communications point of view. And I have to say that that is all this is. There is nothing here. It is just an effort to try to pretend that they are doing something which will never pass, will never go anyplace, but will be used to try to show that somehow they are trying to address this issue for the next campaign in November.

From what I can see, the Republican proposal is not a defined benefit. It is a premium support bill. It gives people whatever the insurance companies can provide. You know, we don't know what the insurance companies will give them, and they leave it up to the insurance companies to decide what kind of benefit it is going to be.

It is very cumbersome. It is ineffective. It is almost nutty, I would say. And what this should be, and Democrats have proposed, is this should be a benefit plan. I don't understand the whole concept of saying that somehow we are going to have drug insurance only policies because we know that insurance is risk oriented. This is something that everybody is going to take advantage of. Everybody is going to need prescription drugs at some point. So it shouldn't be used in the insurance model. It should be a benefit program under Medicare. It shouldn't vary from state to state or from region. It should be defined.

Also, from what I can see about the Republican proposal, it does nothing to put any pressure on price, and price discrimination is the main thing that most of the seniors talk about today.

Now rather than proposing a prescription drug benefit that is part of the Medicare program itself, the Republicans want to force the insurance industry to offer prescription drug only policies outside of Medicare's umbrella that the industry itself says will not get the job done. Indeed, just yesterday, Chip Kahn, the head of the Health Insurance Association of America, told the Ways and Means Committee that the likelihood that the people most likely to purchase this coverage will be the people anticipating the highest drug claims would make drug only coverage virtually impossible for insurers to offer to seniors at an affordable premium.

The insurance industry's opposition to a Republican plan that proposes to pump billions of federal dollars into its coffers is very telling. This is, in my view, a clear reason why the majority once again seems poised to offer a proposal on a pressing health issue that it knows has no chance of going anywhere. And, Mr. Chairman, I have to say it is just like the Patient's Bill of Rights. We know the conference got bogged down. The Republicans have no intention of passing a Patient's Bill of Rights or addressing HMO reform, just like they have no intention today or anytime between now and the end of the year of addressing Medicare prescription drugs.

REP. BILIRAKIS: The time has expired.

REP. PALLONE: Thank you, Mr. Chairman.

REP. BILIRAKIS: Thank you.

Mr. Whitfield, opening statement.

REP. ED WHITFIELD (R-KY): Mr. Chairman, thank you very much. I'm glad we're having this hearing. I find it interesting that our friends on the other side complained about not seeing the bill and then yet are very specific in their criticism of the bill. Most of us on this side have not seen it either, but the importance of this hearing is simply to start addressing this issue. It is complex, and we look forward to hearing the testimony of our witnesses as we work to fashion an effective prescription drug benefit plan.

REP. BILIRAKIS: Mr. Towns for an opening statement.

REP. EDOLPHUS TOWNS (D-NY): Thank you very much, Mr. Chairman. Let me say that I think this is a very serious matter, and we should not be playing games with it. I think that we have a third of our seniors out there during a period of the year without coverage of any sort. And I think that we owe them more, that I think they need to have coverage. And I think that this is an opportunity to do it. But to move forward with this kind of a legislation and these kind of ideas and have everybody in the dark to me just does not make a lot of sense if we are serious about doing what is right on behalf of our seniors.

Our seniors in many instances, of course, have paid a tremendous debt. And, of course, to come to this in time in their life and have to worry about whether or not they will be able to pay for their medication to me does not make a lot of sense. So I'm hoping that we get very serious here and begin to look at this because when I look at New York City -- New York state, I should say -- New York has 2.3 million seniors who rely on Medicare.

By 2025, that number will rise approximately to 3.3 million. Only 24 percent of New York firms offer retirees health insurance. And the monthly premium for Medigap, including prescription drugs, average $159, which is out of reach for many seniors in New York. And Medicare enrollment in New York in the coming years is increasing, while at the same time access by retired health insurance and Medicare managed care is decreasing or inadequate.

This situation is not unique to New York. Other states also fall into this same pattern. The economy is doing well. With our budgetary surpluses, it is time we start addressing our seniors' concerns about affordable prescription drug coverage. I think we should do it. We should do it now. And, Mr. Chairman, on that note, I yield back. And I say to you that I think that we need to make certain that information is shared among all members because this is a very serious issue. And I'm hoping that this is not being used for any kind of political maneuver. I yield back.

REP. BILIRAKIS: I thank the gentleman.

Mr. Ganske for an opening statement.

REP. GREG GANSKE (R-IA): I thank Mr. Chairman and thank you for having this hearing.

I certainly think some seniors in particular need help with their pharmaceuticals. There is a group that do not qualify for Medicaid if they are in the QMB or SLMB (ph) groups, the groups that are just above the requirement for Medicaid, then they get help with their premiums, and in some cases with their deductibles, but not -- they cannot get into the Title 19, the Medicaid drug programs. And they definitely have a problem.

I also think that all Americans are concerned about the high cost of the drug prices. I hear this from employers who are having to deal with 18 percent increases, annual increases, in their prescription drug costs, and from individual citizens.

I hear from seniors that they are concerned, and from others that they are concerned about the cost differential in drugs between Canada, Mexico, Europe, and the United States, and they don't think that it is fair.

So I want to say that I do have a plan, and I do have some ideas on how we can accomplish this. I sat through eight hours yesterday of the Ways and Means testimony, and I took copious notes on this. Why did I have to do that? Why did I have to listen to questions to Chairman Thomas yesterday? It is because I haven't seen a bill.

I am told that there is a bill in Speaker Hastert's office. I am told that ledge (sp) counsel has a bill. And I am told that CBO has a bill. I won't gainsay some of the members who have worked hard on this. But, you know, this is way, way too important an issue to be making a decision on the biggest benefits expansion in Medicare history without fully vetting this process. I want to plea in. This is an issue that should go through regular order, hearings, more than one, a subcommittee markup, a full committee markup, both in the Commerce Committee and in Ways and Means. Why? Not for the benefit of the members of this committee, but for the benefit of our colleagues so that this issue is fully vetted so that they understand fully what they are going to be voting on.

It would be a tragedy to put a bill on the floor that most members don't understand what the implications would be. I just can't support a bill that goes through that kind of process.

What did I learn from the chairman, Chairman Thomas, yesterday? I learned that there will be a sop made to rural members with some increase, some modest increase in the AAPPC to try to buy their vote. It will never be enough to get HMOs into those rural districts like mine, which are composed of elderly citizens that the HMOs don't want to cover that have medical problems.

I heard yesterday that there will be a whole new separate bureaucracy set up in the GOP plan. I don't think -- you know, we need to think about that. But what is the big problem?

REP. BILIRAKIS: The gentleman's time is expired.

REP. GANSKE: Mr. Speaker, could I ask unanimous consent for one additional minute?

REP. BILIRAKIS: Well, now, if we start that, Greg, we are never going to get to the hearing.

REP. GANSKE: I understand that, Mr. Chairman. But how big an issue are we going to face?

REP. BILIRAKIS: Well, this is a big issue, and we spent a lot of time on it. We are going to continue spending an awful lot of time on it. I'd appreciate it --

REP. GANSKE: All right.

REP. BILIRAKIS: -- if the gentleman would withdraw his request.

REP. GANSKE: I can take up further comments later.

REP. BILIRAKIS: Ms. Eshoo for an opening statement.

REP. ANNA G. ESHOO (D-CA): Good morning, Mr. Chairman, and all of the members of the committee, and certainly to the distinguished individuals that are going to testify at this important hearing today. I have, of course, a fuller statement for the record, but let me just try to summarize in a brief period of time. There are time limits around this. I know that that is important. We want to hear from the witnesses. But as the gentleman just stated, this is an issue that is not just large; it is a giant issue. And we really have to be devoted to giving the kind of time to the scrutiny of the ideas and plans that are being placed before us here in the Congress.

We know what the problem is. It is not an issue of whether we should do something about it, but rather how to. I'm very proud to have introduced legislation that really builds upon the president's plan, but it moves beyond it because it really incorporates competition to bring down pricing, and seniors are paying too much for their prescription drugs. But I think that we also have to reduce the inefficiencies that could be there relative to the administration of a new program of a benefit.

This legislation, the Medicare Prescription Drug Act of 2000, H.R. 4607, I'm very proud to be originally cosponsored by many Democrats on this committee. Suffice it to say that at least in my view, and I think in many members' views, that this is a benefit that needs to be consistent for seniors. I don't believe that insurance companies hold a great deal of credibility today with seniors. They didn't a couple of years ago with HMOs. Now it seems to me that there is a move to HMO/insurance prescription drug benefits.

The insurance industry says that they don't want to insure this or that they can't. And today, in my district, and I think districts around the country, insurance companies are pulling out of the market. If there is anything that my mother wants is some consistency in her life, you know. I mean, she has gone through the peaks and valleys of life, and there are some things that she and her peers really want to be able to rely upon.

So I think that the Congress really needs to move in the direction to make this benefit a benefit that can be counted on in Medicare, a full benefit. And if someone has this benefit through their previous employer as a retiree, so be it. If they want to count on it as a Medicare benefit, it should be there. But we shouldn't be back-dooring it through some kind of insurance plan.

I, too, spent a great deal of time yesterday, along with my Republican colleague and many others at the Ways and Means Committee, to testify on my bill.

REP. BILIRAKIS: The gentlelady's time has expired. Please finish up.

REP. ESHOO: I think that the direction at least that Mr. Thomas is taking is really not the most prudent one for seniors. So I look forward to hearing from our witnesses today, and I thank you, Mr. Chairman, for holding this hearing.

REP. BILIRAKIS: Mr. Bryant for an opening statement.

REP. ED BRYANT (R-TN): Thank you, Mr. Chairman. I, too, want to add my appreciation to both you for calling this hearing and the panel, the very distinguished panel we will have today. I think when I came to Washington about six years, I was an optimist, and I felt like we can come up here and work in the system, and both sides wanted to get a solution that would help everybody. And over a period of time, that somewhat eroded, as I have seen partisanship not just on one side, but certainly on both sides. And, you know, we have a problem in this country of seniors having access to affordable prescription drugs, and we all want to solve it, I think.

And then I come in today, and I hear something about we have got a public relations guy helping us. And, gosh, that is a shock up here in Washington (laughing). Then I hear this term Republican bill and Republican bill, rather than a bipartisan bill. And there are some Democrats on this. And it kind of makes me believe what I read in one of the papers up here the other day that on the Senate side, the Democrat senator who is cosponsoring one of the Republican bills is facing sanctions over there, punishment for doing that because he is not playing politics because everybody up here knows -- maybe it is unspoken today -- that some people want this to be the issue in the election, rather than trying to get down to business and solve the problem.

I think we can do that. I think both sides, when you really look at it, aren't that far apart, particularly on dollars. I know our plan, we have worked very hard on it. It is a universal plan. It is a voluntary plan. It is a force out there to the citizens. It helps those in financial need. It helps on the high end to prevent people from having to sell their homes or use up their savings account if they have a catastrophic drug bill each year. It is a good bill. I guess I would like to reach down and bring back up some of that optimism and hope that we can work together and not have this as a campaign issue but work together to get a bill that will help, truly help, our senior citizens. And I will yield back my remaining time.

REP. BILIRAKIS: I thank the gentleman.

Mr. Stupak for an opening statement.

REP. BART STUPAK (D-MI): Thank you, Mr. Chairman.

REP. BILIRAKIS: And, Bart, our sincere sympathy, publicly.

REP. STUPAK: Thank you, Mr. Chairman. Mr. Chairman, we have really not seen the bill, but the talking points we have seen reminds me of the old golden rule that seems to be following this bill. Do not hurt the pharmaceutical profits, increase the insurance company profits, and make coverage as complex as possible.

The GOP bill says trust private insurers, trust the pharmaceutical companies whose profits are $20 billion, whose net operating profit is 28.7 -- after all of the research, after all of the advertising, it is 28.7 percent on pharmaceuticals when the rate of inflation is less than 3 percent. It is price gouging.

This is a study for my district in October of 1998. Take any drug you want, Zolcor (ph) for cholesterol. If you are the federal government, you pay $42.95. If you are a major wholesaler, you pay $85.47. The average price is $106.84. If you are chain market, it is $101.29; independent pharmaceutical companies or stores pay $99.38. The average retail price is $100.33; price differential, 134 percent. That is in my district in northern Michigan. That is price gouging. That is price discrimination. Those who can least afford it, who do not have the insurance coverage, pay 134 percent more.

The GOP plan has more bureaucracy. There are no real protections. The GOP plan really says to the American people, look, each senior, you go out and negotiate whatever you want with the private insurance companies, with the big HMO plans. We are not going to help you. You negotiate. We will then give you some money, not to the American people, but to the insurance companies and to the HMO. Your pharmaceutical company will reap the benefits. Government will give you nothing, nothing. This is the same GOP plan. Remember, they are ones who want to privatize social security. Now they want to privatize your prescription drug coverage. And that is the same group that want to let social security wither on the vine.

If you take a look at it, we privatized Medicare -- excuse me, Medicaid in Michigan two years ago. Two years ago, the state of Michigan ran it. $28 million was the administrative cost. Two years later, after it was privatized, the administrative cost is $141 million in two years, $141 million. It is unbelievable what you can do when you can privatize systems like we did in Michigan.

Medicaid, Medicaid, unbelievable -- look at those administrative costs, 28 million to 141 million. That is exactly what is going to happen to our prescription drug plans.

Look, the Democrats for two years had the Allen bill out there. We had the Stark bill. We had the president's plan. Give us some hearings on it. Universal coverage, that is what we need. Stop and think. We need universal coverage where all seniors are covered. Stop the price gouging. If you don't, the profits will remain at 28.7 percent. No problem with profits. But if you are going to continue to price gouge, we are all in trouble. Most Americans --

REP. BILIRAKIS: The gentleman's time has expired.

REP. STUPAK: -- after this over will not be able to afford any type of drug coverage.

REP. BILIRAKIS: Ms. Cubin for an opening statement.

REP. BARBARA CUBIN (R-WY): Thank you, Mr. Chairman. I would like to begin by associating myself with the remarks of several of my colleagues, Mr. Brent and Mr. Towns, stating that this issue is far too important to politicize. And what we need to look out for are the best interests of our senior citizens.

I don't think anyone here at all underestimates the value and the importance of drafting a prescription drug proposal program for our seniors. We all want the lifesaving drugs to be available, and no one should go without food to get them. Our intentions are good, and our expectations are very high. And that makes crafting a drug plan all that much harder.

Seniors are looking to us to help make a difference in the quality of their life. They are not looking to us to politically attack one another and to try to find grounds to do that.

Today we are going to be considering some very pointed aspects of the issue. How do we administer a prescription plan, should it be voluntary, should it be market based, or should it be government run? What kind of benefits are to be offered? How much should the government subsidize? How does it affect Medicaid?

I agree that all of these questions have to be adequately addressed for any plan to be successful. But I think there is one critical component that is not getting the attention that it deserves, and that is how does any plan affect rural America. As most of you know, I represent the state of Wyoming, which is the most rural state in the country. And while you may be able to identify Jackson Hole and Yellowstone National Park with Wyoming, I don't think that it is easy for some people to be aware and grasp the concept of the state's true size and the amount of vast, open spaces.

With approximately 480,000 people covering almost 100,000 square miles, we sometimes have to drive hundreds of miles just to access medical care. Oftentimes that means going to another state. We have to rely almost exclusively on fee for service in Wyoming. And because of that, seniors in Wyoming have less access to drug coverage than seniors would in California, for example, where there are many Medicare HMOs.

Programs within the present Medicare system, such as Medicare plus choice, have not been beneficial to rural areas as originally envisioned due to a lack of customer base in these areas. So as a result, options for rural populations of our country are often very limited or many times nonexistent.

Having said that, I worry that a similar problem may occur in any prescription drug plan benefit that does not adequately address the needs of rural Americans. I urge all of my colleagues on the committee to keep that in my mind because there are a lot of people who live in rural America that could be very adversely affected by any program that doesn't take these elements into consideration. Thank you, Mr. Chairman.

REP. BILIRAKIS: Mr. Green for an opening statement.

REP. : Mr. Chairman, I thought Mr. Strickland was here earlier.

REP. BILIRAKIS: Well, I don't know. I'm taking you by order of seniority, those who are here.

REP. : Oh, I'm very generous.

REP. BILIRAKIS: Go right ahead.

REP. GREEN: Okay. Thank you, Mr. Chairman.

REP. BILIRAKIS: That's unusual. (Laughter)

REP. GENE GREEN (R-TX): I'll be glad to take my time from my colleague from Ohio. But, Mr. Chairman, I want to thank you for calling this hearing today. I appreciate the number of hearings we have had on prescription drug initiative, and hopefully we will actually have legislation to look at to actually mark up. Sadly, it appears that what I see in the press, the effort is not as bipartisan as I would like it to be. What we see is a press release that gives some ideas but not actually legislation.

Hopefully, by our committee working together -- it is the tradition of the Commerce Committee that we can come up with a plan that the majority of the Americans will support, a plan that actually puts money into the pockets of seniors for prescriptions and not necessarily insurance carriers. Working together, we can put together a plan. Unfortunately, what I have seen up until this point, we haven't been able to. And I hope our subcommittee can do that. And again, all we are working from today is a press release, so that's where I'll base my remarks on.

Medicare was created in 1965 because private sector insurance could not provide coverage for senior citizens. Everyone was a claimant.

Everybody had a claim. So you couldn't -- profit and loss wouldn't work. We're having the same example today with prescriptions. Every senior citizen has prescriptions, in fact, sometimes half a dozen of them. And that's why the private sector can't work except in this press release we are using shows that that is what it will do.

The proposal is a new drug benefit only policy that the experts say will be ineffective and expensive. A drug only benefit will have adverse selection for seniors. And even worse, it allows the insurance companies to select what drugs they will cover and how much they will charge. There is no guaranteed standard benefit. Allowing insurance companies to set the benefit and price is like letting the wolf guard the chick house, and any savings would not go to those seniors.

And some in the insurance industry will be able to set the prices. I wonder how instead of using taxpayer dollars wisely, the proposal we have is it will create a new bureaucracy, Medicare Benefits Administration, an MBA, which duplicates what HCFA and our committees already do. So we are going to take money straight out of the Medicare Trust Fund to pay for this new bureaucracy. Medicare is the most efficient administration. It is less than 1 percent. And I think that can be comparable to any other insurance plan.

America's senior need prescription drug. They are sick and tired of the Medigap policies, the Medigap policies we have now. The costs are going up so substantially. And this would add just another Medigap policy to senior who are already having to pay upwards from 200 to 300 a month in some cases.

So, Mr. Chairman, I hope we will see a bill. And hopefully the press release that I have seen and the guidelines is not what our committee is going to be looking at. Thank you.

REP. BILIRAKIS: I thank the gentleman.

Mr. Bilbray, opening statement.

REP. BRIAN P. BILBRAY (R-CA): Thank you, Mr. Chairman. Mr. Chairman, I would really like to echo the words of my colleague from New York, Mr. Towns, and also my dear friend from Wyoming.

The partisanship sounds great in Washington. And the bickering between Republicans and Democrats may play well to the afternoon news. But I think the American people are sophisticated enough to see that not only is this issue important enough to be able to ignore partisan lines, but they are sophisticated enough to know when people are trying to manipulate issues for political reasons on both sides. And I think they will hold us both accountable if we approach this issue from a partisan point of view. And I would just ask my colleagues to understand that as we snipe across the aisle, we don't make the other person look bad, we make ourselves look bad.

I would just ask us to consider the fact that there is a lot of common ground that we have here, not just political differences. We have parents that need to live healthy. We have children that need not to be taxed to death to support their grandparents' health care. We have the challenge of how we are going to administer the next level of service to our seniors in this country.

Now there has been some sniping about the creation or the alternative way of administering this new benefit. The fact is Democrats and Republicans agree in many instances that HCFA is not the agency to administer this program. And I want to commend my colleagues on the other side of the aisle, who have been brave enough to say we not only can do better than HCFA, we have to do better from the HCFA.

Now we may disagree with the president. And I think Democrats and Republicans can convert the president over to our way of thinking that there needs to be a better way than the traditional HCFA way. And I want to thank my colleagues on the Democratic side for being brave enough to say that.

I just ask us to really let's listen to the facts, let's not find reasons to find -- to snipe. Let's look at these issues where we have common ground. We can build on this common ground and build a foundation that not only makes us look good in the eyes of the voters, but also is going to provide the services that will make us look good in the pages of history of the future.

I just ask you to consider the fact that we are going to be making decisions that are not only going to affect us, they are going to affect our parents, and they are going to affect our children and our grandchildren. And I think that come November, we are going to be judged by how well we worked together, not how quickly we found excuses to fight. I yield back, Mr. Chairman.

REP. BILIRAKIS: The chair thanks the gentleman.

Mr. Strickland.

REP. TED STRICKLAND (D-OH): Thank you, Mr. Chairman. My colleague from Tennessee said a few moments ago that some would like for this to be an election issue. I don't know if that is true. But I do know that it is true that it is going to be an election issue, and it is going to be an election issue because this issue is important to the American people. They are paying attention. And when I hear my friend Dr. Ganske talk, I realize that it is not a totally Democrat/Republican controversy, but it involves political philosophy, and it involves each member deciding who it is that we were sent here to represent. And I think we will be held accountable, district by district, member by member.

This bill, as we have read about it, does nothing that I can see on the cost side. In my district, just as in Rep. Stupak's district, my senior citizens are paying twice as much for these life saving medications as are large HMOs or large insurance companies or the federal government. As far as I can tell, this bill does nothing about that problem.

The American people are rightly outraged, outraged that American tax dollars are used to develop medications that are being sold in Canada, in Mexico, and everywhere else around the world, or one-third to one-half for what the American senior citizen has to pay for that very same medication. They are outraged. They are not going to tolerate it any more. We have got to do something about that.

For one, I am just tired of going to my district and seeing senior citizens stand in these public meetings with trembling voices, quivering hands, and talking about their problems. We are representatives. Our response to this issue will decide who it is that we represent. Yesterday, in the House of Representatives, there was a vote. It was fairly simple. It said that if tax dollars are used by pharmaceutical companies to develop drugs, those drugs should be then sold to the American consumer at a reasonable rate. And it failed to pass.

I think that says something about why we sometimes talk about this issue in partisan terms. It is not totally Democrat/Republican. But as I said before, Mr. Chairman, it does reflect our political philosophies and our value systems. I yield back my time.

REP. BILIRAKIS: Ms. Capps for an opening statement.

REP. LOIS CAPPS (D-CA): Good morning, Mr. Chairman, and thank you for holding this hearing on one of the most pressing health care issues facing our country today, which is prescription drug coverage.

The creation of Medicare in 1965 found seniors more likely to undergo surgery for major health problems than to use prescription drugs. Today it is the opposite. Prescription drugs are often the only method of treatment for many illnesses and diseases. In fact, 77 percent of all seniors take a prescription drug on a regular basis, and yet nearly 15 million Medicare beneficiaries have no insurance coverage at all for prescription drugs. Most of us today would agree that Medicare's most glaring problem is the lack of drug coverage.

Clearly, no one would design a health insurance program for seniors today that doesn't include a drug benefit. I don't think anyone here would voluntarily choose a plan for their family that didn't cover this. And Medigap policies, which were designed to fill this need are too often expensive and inadequate.

We hear again and again about seniors on modest, fixed incomes choosing between food on the table and lifesaving medication.

At this time of prosperity and strength, we can and should do better than that for older Americans. This problem is getting worse. According to Families USA, the price of prescription drugs most often used by seniors has risen at double the rate of inflation for six years in a row. Congress can no longer sit idly by.

As we consider different plans to tackle this problem, I believe that any worthy proposal would provide certain key elements. A strong plan would be universal, voluntary, affordable, accessible to all, based on competition. It must also address the issue of catastrophic coverage. Many worthy legislative proposals have been raised, for example, the Allen bill, the Stark-Dingell bill, the Pallone bill. Most recently, I have cosponsored H.R. 4607, Medicare Prescription Drug Act of 2000, introduced by our colleague, Anna Eshoo.

Like the president's proposal, the Eshoo bill creates a new voluntary Part D prescription drug benefit in Medicare that is optional and available to all beneficiaries regardless of income. It includes a defined stop loss benefit to prevent any individual beneficiary from being bankrupted by a single catastrophic event that causes unusually high costs, and it uses proven market based approaches to promote competition, drive down prices. The Office of Personnel Management would administer the plan in coordination with HCFA.

Mr. Chairman, Democrats have offered many different approaches to this problem. But I am disappointed that we do not yet have a finalized bill from the majority. It would be my hope that we could work together in a bipartisan fashion as we craft the best possible legislation for older Americans.

As I think about the countless seniors in the district I represent on the central coast of California that have shared their personal stories with me about crushingly high drug prices, I know in my heart that prescription coverage is not a political issue. It is simply the right thing to do as we seek to honor our seniors and care for them as they move into their golden years.

And so I thank you, Mr. Chairman, for holding this hearing. I hope we can move legislation as soon as possible on this most pressing issue for our country.

REP. BILIRAKIS: I thank the gentlelady.

Mr. Shadegg for an opening statement.

REP. JOHN B. SHADEGG (R-AZ): Thank you, Mr. Chairman. I'll be brief. With your consent, I'll insert my entire opening statement in the record.

REP. BILIRAKIS: Without objection.

REP. SHADEGG: I simply want to thank you, Mr. Chairman, for holding a hearing on this very, very important subject. I agree with much of the comments that my colleagues have made. Clearly, no one in our society and certainly not a member of Congress representing a state like Arizona with many senior citizens can not be concerned about the cost of prescription drugs for our seniors today. And so I think it is important, and indeed essential, that this Congress look at the issue and address it and do so in a thoughtful and bipartisan fashion.

I think it is clear, however, that as we proceed that we make sure that we do not do more harm than good. And I think that is one of the injunctions that we have to be aware of. Our efforts have to make sure that we do not unduly burden the current Medicare system, that we do not create for it a financial obligation that it cannot fulfill and burden its ability to do the other tasks that it has to pay for the other parts of health care. This is indeed I think one of the toughest challenges we face in this Congress.

I think it is also important in focusing specifically on the drug issue that in what we do we do not cause the cost of drugs to go up. And I compliment you, Mr. Chairman, and the other members of this Congress on both this committee and others that are looking at the reasons behind the dramatic increase in drug prices and examining whether or not the drug industry is in fact abusing the American marketplace in some fashion and that there are not other things that we need to be doing to ensure that drug prices are not going up in this country in an unfair fashion.

So I think we have to keep those issues before us. I think we have to act thoughtfully. I think it is appropriate that we hold this hearing, and I'm anxiously awaiting seeing the full proposal that will be before us, I guess, early next week if not sooner. And again, Mr. Chairman, I compliment you for holding this hearing. I look forward to working with you. And I do urge all of my colleagues that we look at whatever costs we incur and whatever obligation we place on future generations in what we do to this legislation. Thank you.

REP. BILIRAKIS: I thank the gentleman.

Mr. Barrett.

REP. THOMAS M. BARRETT (D-WI): Thank you very much, Mr. Chairman, and thank you for holding this hearing. I appreciate the work that you have done on this issue.

I sense from the comments of some of my colleagues on the other side of the aisle that there is a frustration or a feeling that this has become a partisan issue. I would simply ask them and those who are listening to re-examine this and understand the frustration that is felt by the members on this side of the aisle because for over two years now, sometimes as long as four years, we have been talking about this issue, introducing bills, trying to get hearings, trying to get this Congress and this Republican Party to focus on this issue. And we have met time and time again with nothing but roadblocks.

I am extremely pleased that finally this logjam has broken and we're able to move forward. I do think -- and I think probably most of us recognize -- part of the reason for that is every single person at this panel knows that this issue is literally off the charts when it comes to seniors in this country. This is a real world issue. And I would bet anybody on this panel who has held a town hall meeting in the last six months has heard about how serious a problem this is for real people in our districts. And it is democracy working at its best when we respond to it.

So I'm delighted to have the conversion, the pre-Fourth of July recess conversion that we are seeing here that is allowing us to at least consider the merits of a bill. I think having said that, we can move to the next level, and the next level is where do we go. And here I think we can have a legitimate debate over what the best course of action is.

I don't buy into the notion that somehow we are going to create a new insurance industry for prescription drugs. I think that if there were a market for prescription drugs that could be handled by the insurance companies, that would have occurred long ago. I compared it coming from Wisconsin to saying, well, let's create a market for snow insurance. Anybody who doesn't want to get snowed upon can buy snow insurance. Well, nobody wants to get snowed on, but everybody is going to get snowed on. And in the same vein, nobody wants to buy prescription drugs, but everybody needs prescription drugs, especially when you are elderly.

So no one in Wisconsin is going to sell snow insurance. And my guess is no insurance company voluntarily is going to come and say, oh, sure, we'll start selling prescription drugs, knowing every single person who buys this policy is going to make a claim. It is just not realistic.

So we have to focus on the benefit. And I think that the plan that the Democrats have developed is one that rightfully recognizes that this is a benefit program. And of course we are going to pay for it. Of course we have to pay for it. But to somehow suggest that the laws of economics, which for decades have prevented a creation of this industry will somehow be translated shortly before an election because we pass a piece of legislation, I think defies economic logic. It is just not going to happen. And I think we're trying to sell people a pig in a poke if we are telling them that is what they are going to do.

So again, I look forward to the debate on the merits. I think the American people deserve this benefit. I think the American people need this benefit. And I think it is our obligation to provide it to them. And I would yield back the balance of my time.

REP. BILIRAKIS: I thank the gentleman.

Mr. Deutsch, opening statement.

REP. PETER DEUTSCH (D-FL): Thank you, Mr. Chairman. I think Congressman Barrett made some points that I think are really worthy of a follow-up. I believe most of us have probably had town meetings within the last six months. And for any of my colleagues who haven't, they should because this is an issue if you are having a town meeting and you are opening up the floor, people are going to talk about it. If you are in your office and you are looking at your mail, it is things you are going to hear about.

We did a town meeting, an electronic town meeting, where we sent follow-up letters where we had 9,000 people in my district send specific -- propose specific incidences of problems that they have had in terms of Medicare coverage with prescription drug. And that is off the charts in terms of any response that we have had on any other issue. We had another electronic town meeting recently with the same type of overwhelming real -- we have had physical town meetings with people. And the stories that you hear are what our job is about, the personal suffering, the personal tragedies, the things that are disheartening because each of us on this committee know that we can do something about it. And we can do something about it within a policy context with only doing good.

I mean, the trade-offs that exist are really not there. It is a question of the political will to make this happen.

Several colleagues, and my colleague, Ms. Capps, pointed this out. And I think this is also something that we need to really focus on. If we were sitting here in 1965 and creating Medicare, there is no chance we would not have included a prescription drug coverage like we as Democrats and the president is proposing.

The whole concept of Medicare as a national insurance program for seniors is illogical in a sense without prescription drug coverage. And that is what we are proposing. I think it is important to understand that there is a fundamental distinction between at least the drafts and the press accounts of what the Republicans are proposing. The Republicans, at least by press accounts, are in fact proposing a fundamental change in the concept of Medicare.

One of the reasons why Medicare has existed so well -- and I think sometimes we need to pinch ourselves to remind ourselves that at one point in time Medicare didn't exist. And it doesn't exist by an act of God. It exists because of an act of people in the united States Congress and passed in legislation, but that the --

REP. BILIRAKIS: The gentleman's time has expired. Please finish up.

REP. DEUTSCH: Thank you, Mr. Chairman. And I'll just close that the Republicans, at least the proposals that we have been able to read about, are changing the fundamental concept of universality within the Medicare concept. It is an attempt to really change Medicare in an incredibly, I think, in a long term negative way.

REP. BILIRAKIS: The gentleman's time is expired.

REP. DEUTSCH: I urge the debate to continue so ultimately we'll vote on the floor on a proposal that --

REP. BILIRAKIS: Dr. Coburn, opening statement.

REP. TOM A. COBURN (R-OK): Yes, thank you. Mr. Chairman, I find myself in the peculiar position of being opposed to any Medicare benefit for drug benefit, simply because we are fixing the wrong problem. We have this tremendous rise in drug prices, and we need to ask ourselves why that price rise is there. And I honestly believe that it is there because there is a lack of competition in the drug industry, and I plan on demonstrating that on prices that have been surveyed throughout this country on competing drugs that have been introduced in the last years. And if there is no competition, there certainly is collusion among the drug industry as they introduce new products.

So I find it ironic that no matter whose program we put forward, the Republicans or the Democrats, we are putting forward a program that is going to spend too much for existing drugs because there is way too much collusion within the industry. And I hope in the next six weeks to prove that to the American people.

I think the other thing is that Medicare is actuarily unsound, and there has never been a time where this government has correctly estimated the costs of any new benefit to Medicare. As a matter of fact, the closest they have come that my staff can find is they missed it 700 percent. So if you take the conservative estimates of both the Democrats and the Republicans, you are talking about $280 billion over five years added to Medicare. That is something that will sink within about six years. And we must not forget that once we add a benefit, we are not going to be taking it away, as what we saw in the late 1989, 1990.

The other thing that is important is the distribution by MedPAC of the total prescription drug expenditures in this country. Six percent of the Medicare patients spend over $3,000, 14, 1,500 to 29.99. Fourteen percent don't spend any money on drugs. So whatever plan we devise, what we have to do is to make sure that the price that is paid for the drug is based on a competitive model that most properly allocates the scarce resource in this country. And it is my contention that that does not exist in this time. And no matter what we do in terms of Medicare benefit, we are not doing a good job for the public until we have assured ourselves that there is in fact competition in the drug industry.

And with that, I yield back.

REP. BILIRAKIS: REP. BURR, opening statement.

REP. RICHARD BURR (R-NC): Thank you, Mr. Chairman. It is difficult to listen to just the opening statements of members of this subcommittee, and probably members from the House of Representatives at large, and not get a feel for how difficult this task is. This is the most difficult thing I have ever worked on since I came to this institution.

Mr. Deutsch hit on a very good thing. We ought to look at people that have looked at the entire situation and look at the advice they gave us, not as it relates to Medicare. I think it is the Medicare Commission who spent over a year looking at every aspect and said not only should there be drugs. There should be comprehensive modernization of the Medicare system.

Our seniors deserve the best. Well, politically we all know that the reality is we can't do it. In the absence of that, we try an approach that addresses the most severe need of 38 million seniors and disabled who qualify for Medicare to make sure that a benefit, a benefit designed within the limits of the financial tools that we have got available, exists.

Now we have a fundamental difference between those on the left side of this dais and the right side. It is the argument over whether government controls this new benefit or whether in fact we use the competition of the private sector to monitor and to hopefully make it successful and cost effective. That is a huge difference. It is a huge difference, and it may in the end defeat this effort.

But I am confident that if we can put words aside like nutty, cruel hoaxes, we can take consultants out of it at a time that we're out purchasing $25 million worth of TV ads for the fall to hit on this issue, that we can take politics out of the debate on the Medicare drug benefit, that we can work with Democrats, insurance companies, PBMs, that Mr. Pallone's impression of insurance companies will be the same as the day he introduced his bill, which was insurance based, and not the day where insurance companies are bad.

But we have got to get passed this. Now, Mr. Chairman, I am hopeful that we will get on the words accessible, affordable, voluntary, but that also every member will get in their vocabulary security, that without a stop loss, we have done nothing for seniors.

Without the ability to say to a senior here is a dollar amount that you will not be responsible for one penny after that point, that we have fallen short of the predictability they need to plan in a time of their life where their incomes are limited. We can help to make their futures predictable.

I am hopeful that this hearing today, which is not about our bill, Ms. Eshoo's bill, Mr. Pallone's bill, Mr. Allen's bill, or the president's bill -- it is here to educate us as to what should be part of a bill for seniors and disabled in America.

I hope that we can move forward, not only today, but before the end of this session of Congress.

And I yield back.

REP. BILIRAKIS: I thank the gentleman. Well, waiting patiently is our first panelist, the Honorable Nancy Ann Min DeParle, administrator of the Health Care Financing Administration. Madame Administrator, welcome. As per usual, we will set the clock to ten minutes for you, and you of course take whatever time you feel you might need. Obviously, your written statement is a part of the record.

MS. NANCY -ANN MIN DePARLE: Thank you, Mr. Chairman.

REP. BILIRAKIS: If we can have order before the administrator starts.

MS. DePARLE: Thank you very much, Chairman Bilirakis and Congressman Brown and other distinguished subcommittee members. I appreciate the opportunity to be here today to discuss prescription drug coverage for 39 million Medicare beneficiaries who need it. I'm glad to be with you, and, Mr. Chairman, I appreciate your kind words.

Your subcommittee has been very interested in the topic of Medicare prescription drugs. I sit here and look at many members who have themselves introduced bills to try to deal with this subject. The administration welcomes this opportunity to further our bipartisan dialogue. As you indicated, I have submitted written testimony for the record that goes into much more detail about the president's proposal and why we hope this committee will view it favorably.

But I want to say this morning that we are encouraged by the growing commitment embodied in the new proposal announced yesterday by Congressman Burr, Congressman Thomas, Congressman Peterson and others to address this issue. We want to continue working with you to enact legislation that meets the key principals that President Clinton has laid out for a Medicare drug benefit. The drug benefit should be voluntary, and it should be accessible to all beneficiaries. It must be affordable to beneficiaries and to the Medicare program. It should be competitive, and it should have efficient and effective administration. It should ensure access to needed medications and encourage high quality care. And it should be consistent with broader reform.

We have said many times that we are flexible on the details of how Medicare drug benefit is provided, as long as the design ensures that we meet these key principles. The plan that was announced yesterday appears to mark some important progress towards those principles. But as you pointed out in beginning the hearing, Mr. Chairman, the devil is truly in the details. We need to see the details and then engage in a serious discussion and dialogue about our differences, as well as the places where there are similarities.

Unfortunately, from what little we know about it so far, the plan does not appear to meet the president's test of a meaningful prescription drug benefit that is affordable and accessible for all beneficiaries, and I want to talk about why.

Key among our concerns is the plan's heavy reliance on participation by private insurers, who have made clear that stand- alone drug policies are not feasible. Our concern is that even if some insurers do offer coverage, they would likely come in and out of the market. They would be likely to move to more profitable areas, and they would be likely to significantly modify benefit design from year to year based on the prior year's experience.

We have seen this before, and it is not a good thing for beneficiaries. We are concerned that it would result -- this kind of structure would result in the same instability and the same pullouts and uncertainty that we see in managed care today. The new proposal's suggestion of a fallback mechanism whereby the government -- and here I am speculating, but presumably the traditional Medicare program would step in -- seems to acknowledge the difficulties inherent in trying to guarantee access through a drug only program.

The fallback mechanism also raises, I think from a health policy perspective, serious risk selection issues. These are very, very difficult issues, and we need to have a serious discussion once we have seen the details. We continue to believe that the new prescription drug benefit must be integrated into the Medicare program and that Medicare should provide drug coverage the same way that virtually all private insurers do, by contracting directly with pharmacy benefit managers in each region of the country, and that is what our proposal does. And Mrs. Eshoo also has a proposal that is slightly different but also relies on pharmacy benefit managers.

This will ensure that all beneficiaries have access and that Medicare gets the best prices through the pharmacy benefit managers, who will negotiate the best prices on behalf of beneficiaries.

Another critical concern that we have with what we have seen so far about the new plan that was announced yesterday is that it does not appear to provide direct premium subsidies to individuals with incomes above $12,600 a year. Instead, it relies on indirect subsidies to the private insurance plans to lower premiums. And I heard one person today refer to this as a sort of a form of premium support, and I thought that was interesting because I think it is sort of analogous to that.

It is unclear whether that amount of subsidy would ensure that affordable coverage is available to all and would be equally affordable in all regions of the country. But I can tell you that we looked at this very closely, this idea of what level of subsidy is necessary. And I believe it would need to be substantially more than 25 or 30 percent to avoid risk selection problems.

We have additional questions that are outlined in my written testimony, and we look forward to discussing them with you. And I want to say that I think that Congressman Burr is right. This is a terribly difficult issue, and it is important that we see the details. I don't want to be speculating about what is in their plan because it, I believe, has changed from the first version I saw, and I want to provide you with the best answers I can about what we are talking about here.

But I do think the most critical question of all -- and I heard many of you raise this question, but it bears repeating -- is how does this plan, the one that was announced yesterday, the president's plan, whatever the plan is, how does it really meet the needs of Medicare beneficiaries, the 39 million Americans who are depending on us to try to do something here.

Is the plan really a defined benefit that is guaranteed? Can Medicare beneficiaries depend on it being affordable and accessible? Will the new plan really result in more efficient and effective administration of Medicare? These are important questions. They are difficult questions.

While all of these critical concerns remain, I do think the good news is that we appear to have broad consensus that a Medicare drug benefit is needed. It is now time to get into the all-important, deeper, and very, very tough details of how to make sure the benefit can succeed, that it can succeed for the Medicare beneficiaries and that it can succeed for the Medicare program.

We look forward to getting the details of this new plan because it is obvious that a great deal of work remains, and it is time to sit down and get it done. I look forward to continuing to work with you as we enter the next phase on this critical issue. Thank you, Mr. Chairman.

REP. BILIRAKIS: Thank you, Madame Administrator. You're, of course, correct. The legislation in terms of its specificity is still not out there. But one thing that seems to be relative specific is the establishment of the new entity to manage the program. And, of course, you state in your testimony that establishing a new entity to manage a drug benefit program would simply be, and using your words, adding a new layer of bureaucracy. And I'm not sure that anybody would disagree with that, that yes, it does add that.

But clearly, the bipartisan Medicare 2000 Act plan is not the only proposal, as you know, which suggests that the management of the drug benefit be administered by a separate entity outside of HCFA. Ms. Eshoo's plan proposes that OPM manage the benefit, as I understand it. Mr. Pallone's plan establishes a board outside of HCFA, as does the Breau-Frist bipartisan proposal in the Senate.

So maybe can you -- I would ask you the question do you believe that all of these bills seek to establish redundant beneficiaries, but more importantly, why don't you just respond to the fact that so many plans feel it should be managed outside of HCFA.

MS. DePARLE: Well, I think the one thing I believe I have heard this morning is we all agree that a new prescription drug benefit, if it is added to Medicare, should be administered in an effective and efficient way. And I think over the past two years that I have been at HCFA, I have probably talked to every single member on this committee about concerns you have about Medicare's administration. Some of them are very specific about providers in your districts.

Certainly we can do better. And I would like to have the opportunity at some point to show you all of the things we have done to improve the way we administering Medicare. One of the members -- I think it was Mr. Green -- pointed out that we are very efficient in our administration, and that's true. Our administrative costs run -- hover around 1-1/2 percent. I don't think there is any insurance company in the country that would attempt to run a program as complicated and as important as the one we are running with as many beneficiaries and more than $200 billion of taxpayer dollars with that kind of administrative expenses.

In my view, sometimes we are a little too efficient. And I want to thank the committee because I have made this point with many of you, and you have helped us in the past with our budget to make sure that we got the resources we need to do a better job.

But I think we have to go back to the question that Dr. Coburn posed, which is we have to think carefully about what is the problem we are trying to fix here. And I think what you want is an efficient and effective administration. I think it is possible to do that the way the president's plan proposes, using private pharmacy benefit managers like private insurers do and having us contract with them. And what I would say to you is we are eager to get into that discussion with you. If you give us the authority and the resources to do that job, I can promise you that we will do a good job of it.

REP. BILIRAKIS: Well, I expect there probably will be others who will explore the area that you mentioned about the private drug benefit managers and how its usage is intended under the president's plan. But I would go to an area that I think practically everybody's opening statements refer to, and that is the need to help those with the real high drug costs, stop loss, the catastrophic, if you will, a word that we don't like to use up here for obvious reasons.

The president's plan did not provide for that. Afterwards, of course, sometime afterwards, he decided to set aside funds for patients with high out-of-pocket costs to begin in 2006, not to begin now or even close to now, but 2006. So I guess I would ask you, and I think we all wonder because we haven't seen anything in that regard, how would you propose those funds be sent. Has HCFA, has the president come up with a plan that would use those funds in order to help those people with a very, very high out-of-pocket costs?

MS. DePARLE: Well, Mr. Chairman, we did not propose the stop loss benefit, the catastrophic coverage, in our original proposal two years ago. The president did propose it in this year's budget, but he said we would set aside $35 billion to start in 2006, and we wanted to sit down and work with the Congress to talk about the details of that.

We have been looking at various benefit designs. There are a number of proposals up here already looking at various benefit designs, and we are ready to sit down with the Congress whenever you all ready to talk about how best to design such a program.

REP. BILIRAKIS: All right. My time is about to expire, so I am just going to go ahead and yield to Mr. Brown at this point.

REP. BROWN: Thank you, Mr. Chairman. In light of your comments about the devil being in the details, and Administrator DeParle's echoing the same thing, and going through a very dispassionate, well thought through analysis of some of the strengths and weaknesses of this legislation, of the proposals, and Dr. Ganske's point of how serious a matter this is and how we don't have the legislation yet and need to learn more, I was shown a letter to Chairman Bliley from Speaker Hastert saying it is his intention to have legislation addressing prescription drugs on the House floor the week of June 19th.

I would just hope that we would be able to -- I would hope we could go through the process of this subcommittee and this full committee with markup both places prior to that date, if possible, so we really do have a better understanding of this issue. And we haven't seen the bill yet, and members on this side certainly have opinions and have seen outlines and have seen -- we have heard rumors and everything else. We know about the bill, or we think we know about the bill. But I think it is important that we have that opportunity, the subcommittee, on an issue that is enormously complex as this and is so important for so many people in this country.

I'd like to talk about the PBMs that the chairman mentioned, Administrator DeParle. The president's plan proposes using these private entities for pharmaceutical benefit managers to provide the benefit to seniors. How do you ensure that these private sector entities are actually providing the care that they promise?

MS. DePARLE: Well, we would have quality standards. It wouldn't just be competitive bidding based on price, Congressman. And we would do a competitive bidding in various areas of the country. We met with pharmacy benefit managers who currently provide this kind of service to other private insurers, and I believe they would be able to do a good job of doing it with Medicare. We would have to be very specific with them about what we wanted. We might want them to do some disease management. We might want them to do utilization review and provide us with data about that kind of thing. We would just have to be very specific in contracting with them and telling them what we expect, and then we would have to make sure they got it done.

REP. BROWN: The Republican plan relies on the private sector to administer the Medicare drug benefit. In this proposal, private insurance companies are being charged with running the program. How does that plan assure that these private sector plans are providing the care that they promise to seniors?

MS. DePARLE: Well, I suppose the new Medicare benefits administration that is referred to in the document that I saw yesterday would be in charge of contracting with private insurers. It sounds to me almost like a Medigap model, although yesterday I did attend a hearing in Ways and Means, and I heard some of the sponsors of the bill say that it is not supposed to be that. But it sounds like a Medigap model.

In that model, our oversight is quite limited. It is not clear how much ability the Medicare benefits administration would have to oversee the provision of prescription drugs by these plans.

I would add another thing, too, which is there is a real tension here between what I heard yesterday from the sponsors, who talk about wanting to provide seniors with as many different choices as possible. And that is a philosophical view, and it is something I have talked to Congressman Burr and others about, that they would like to see lots of different kinds of plans out there, I think.

There is a tension between that and the thing that Mrs. Eshoo talked about earlier and that I hear when I talk to seniors, which is their desire to have a reliable, guaranteed benefit and to know what their costs are going to be from year to year. And that is something that is going to, I think, be a very difficult issue for this committee and for your colleagues to grapple with. How much do you go in the direction of choice, and what does that do in terms of risk selection?

It enables plans then to cherry pick the healthier seniors. What sort of oversight would you need to have over that kind of thing, and what are the results of that? And one of the results would much higher premiums for everyone if the seniors are cherry picked into certain private plans. And that what happens in the areas where these plans don't go in?

There are a lot of questions here, and it is unclear to me how we would ensure that the private insurers, if they exist and if they come into the market, are providing what they are supposed to be providing.

There isn't a defined benefit, as I understand it, in this plan.

REP. BROWN: You mentioned Medigap. And one of the major criticisms of Medigap is that it is simply not affordable to a large number of people. In a private plan model such as the Republicans have suggested, talk about the affordability for seniors there. Would they be affordable for most seniors?

MS. DePARLE: Well, again we have to see the details. As I understood it yesterday from Mr. Thomas, there would be an indirect premium subsidy to the plans, so that would indirectly subsidize individuals who chose those plans if they were available. There are a lot of ifs here. My concern is the level of the subsidy as he described it at around 25 or 30 percent. From my discussions with the independent actuaries who work for the Medicare program and the Medicare trustees, as well as with private insurance company executives, what they have suggested is that that level of subsidy won't be enough to attract most senior to join. So then you would end up with the same problem Medigap has, which is the problem, I guess, that Congressman Barrett described, where they are trying to provide health insurance for the sickest people or drug insurance coverage for the sickest people who are going to use the most drugs.

It starts a spiral that our actuaries call a death spiral in terms of the premium getting higher and higher, fewer people being able to afford it. This is a complicated issue that we really would have to spend time analyzing.

REP. BROWN: Thank you, Mr. Chairman.

REP. BILIRAKIS: I thank the gentleman. REP. BURR, to inquire.

REP. BURR: Let me say welcome.

MS. DePARLE: Thank you.

REP. BURR: It is a long, difficult process. But the one thing that we can feel confident is that at some point we will get to the end of it. And the question today is will we get it right.

Let me ask you, from the plans that you have read or read about, is there anybody that is not aspiring to the belief that every plan has to be voluntary?

MS. DePARLE: No.

REP. BURR: So we can take one of those four things that we talked about and say everybody agrees that voluntary is an absolute necessity.

MS. DePARLE: Yes. But if I can --

REP. BURR: Sure.

MS. DePARLE: The first principle is it should be a voluntary benefit accessible to all beneficiaries. The voluntary part, yes, sir. Accessible I'm not so sure about, yes.

REP. BURR: You mentioned yesterday in the Ways and Means hearing that it had to be voluntary, but we had to guarantee. Could you distinguish between the two? What do you mean?

MS. DePARLE: When I talk about guarantee, I mean that just like a Medicare beneficiary today knows they have physician coverage, they have coverage if they need to go to their doctor, and just like they know they have coverage if they need to go to the hospital, they need to know they really have drug coverage. I don't think it can be something that is contingent on whether a private insurance plan comes into their area.

REP. BURR: So as long as there is a provision in a bill that one would see in the absence of everything that could exist, nothing exists, here is the answer -- as long as that exists, then the guarantee exists for all eligible.

MS. DePARLE: Well, I would have to see the language. But I believe as I understood yesterday from the description, there has been a change and that, yes, the plan that I heard described is attempting to say that there will be something provided for everyone, that a drug benefit will be available if there is not a private insurance plan. That is what I heard.

REP. BURR: Given the approach that you are familiar with to a large degree, to have more than option, more than one choice for seniors in a given market, whether it is a benefit manager or whether it is an insurance product or whether it is a new entity that we haven't even discovered yet, is it beneficial to the eligible beneficiaries out there?

MS. DePARLE: Well, you know, I would like to give you a yes or no answer, but I really can't. It can be beneficial. The problem is it also -- every time you segment the market more, you introduce more likelihood of risk selection.

REP. BURR: Why doesn't OPM only allow a small number of health plans for federal employees then? Why is the list in North Carolina some 30 people that I have to pick from? Does that not help them to negotiate?

MS. DePARLE: I assume because the law -- well, I think you would have to ask them. I think -- so your contention is it helps them to negotiate better prices somehow? The problem is it may help you some on the negotiating side, but it also hurts you some in that you segment the market. You introduce risk selection so plans can --

REP. BURR: We spread the risk out.

MS. DePARLE: -- varying -- not as much as you do if you have only a couple of plans. If you had just -- the president's plan, for example, has you can go to an HMO and we would reimburse them directly for providing prescription drugs, which we don't today because it would be a Medicare guaranteed benefit. And then you could also be in the fee for service plan.

When you go beyond that, you start introducing in more and more risk selection by segmenting the market, and you get -- plans will be smart enough to design benefit packages that could end up excluding some people and picking out the healthiest people.

Now if your desire is to provide as much choice as possible, you may see that as an advantage. My concern is it raises the premium costs for beneficiaries. It can result in the people being left in a plan that is more expensive. And then, as I said, you start this sort of death spiral with the premiums.

REP. BURR: If I understand you correctly, the more people who might join a plan, the cheaper the premium gets because of volume.

MS. DePARLE: In general, that is what -- yes, yes, sir. In general, that is what insurance is. You spread the risk over as many people as possible because then you lower the chances that you are going to get just sick people who are going to need to really heavily use the benefit. So you have to weigh that against your desire to have choice. And as I said, you and I have discussed this, and I know why you like that.

The other thing, though, I would raise is what Mrs. Eshoo raised about her mother and what she wanted. And when I talk to seniors -- maybe we talk to different ones -- some of them may like choice. But the main thing I hear is I need to know what my costs are going to be. I need to know.

REP. BURR: It needs to be predictable, doesn't it?

MS. DePARLE: Yes, sir, it does.

REP. BURR: And that is an important aspect. Let me just --

REP. BILIRAKIS: The gentleman's time is expired.

REP. BURR: I thank the chairman.

REP. BILIRAKIS: Mr. Waxman.

REP. WAXMAN: Thank you, Mr. Chairman. What is so frustrating to me about this hearing is that we don't have a bill before us. We have some concepts on a piece of paper, really just a couple of pages, and we are asking very specific questions which you can't answer because you don't see -- you can't see the proposal.

And we're being told this proposal may be on the House floor next week. So you wonder what a committee is supposed to do and why we have witnesses here if we can't get testimony about a specific proposal.

But we have a communications document that the Republicans have put out. And I want to ask you about what you understand that proposal and that document to mean. Is it correct to say that there is no defined benefit in the Republican plan? In other words, you don't know what you are actually going to get if you are in Medicare if you are able to buy an insurance policy for prescription drugs. And do we know any way from their communications, how much are people going to have to pay out of their pockets for these pharmaceuticals, or even for their premiums?

MS. DePARLE: Well, I don't know it from the paper I saw yesterday. I did hear discussion at the Ways and Means Committee of I think the sponsors are still in active negotiations and deliberations with the Congressional Budget Office, trying to get the premium numbers down. But I did not see a defined benefit in what I looked at yesterday.

Now I will say the president's bill has been up here since March. We spent a lot of time drafting it. So I would be happy to discuss that. And, of course, when the other bill does come out, if we can provide any technical assistance, we will.

REP. WAXMAN: Well, could it mean that if you are on Medicare and you need certain kinds of drugs, you may not have an insurance policy that will provide those drugs that you need?

MS. DePARLE: It could mean that if there is not a defined benefit.

REP. WAXMAN: And if all they are saying is you have a chance to buy some insurance, could it mean that there is no insurance really available for you to buy or affordable for you to buy? Could it mean that you can only have a chance to get some drugs covered if you sign up in a managed care plan, and that's it, maybe have a choice of two managed care plans?

MS. DePARLE: If there is no defined benefit, there could be lots of variation about what is provided. And it would be very important for people to know, I believe, what is in the plan, how much they are going to be expected to pay. And that cuts against some of the arguments about having lots of choices.

REP. WAXMAN: But choices are great if everybody wants you to choose them. But when you are a real sick elderly person who is going to represent a huge cost to an insurance company, they are not anxious to have you sign up with them. They would like you to choose someone else. And when we adopted the Medicare program, we said no matter how sick you are, no matter how wealthy or poor you might be, you are going to be guaranteed coverage for your doctor bills when it is medically necessary or hospital bills when it is medically necessary, and a lot of other services. Shouldn't we say that you are going to be guaranteed coverage for prescription drugs? Isn't that what this is all about? Isn't that what the American people really want?

MS. DePARLE: Well, I believe that is what we should do. I believe that that is consistent with Medicare's principles. And I do believe it is different from the way the federal employees health benefits program has been structured under the law. There there are choices, and it is more a defined contribution program. Medicare has been a defined benefit. And there is a discussion in the materials I saw yesterday about an actuarial equivalence in dollar terms. But it is not, as I understand it, a defined benefit, as Medicare has traditionally had.

REP. WAXMAN: The most peculiar thing to me about this proposal is we don't give anybody anything. We just tell them we are going to give you a chance to buy private insurance. But since private insurance companies don't now have affordable plans for drug coverage, we are going to give the money to the insurance companies, not to the beneficiaries, in hopes that they will lower their prices and make a plan available, and maybe some people can afford it.

Is there any beef there? Where is the beef in all of this? If a senior is watching this hearing, can they feel that if this plan is adopted, they will know that drugs are going to be covered and they are going to be able to buy any policy wherever they may live in this country?

MS. DePARLE: Well, I don't know that yet. I think that, as I said, we have questions based on what we have seen about the affordability and accessibility of the plan that we are discussing today. We are eager to see the details. We heard from the sponsors that they intend to provide a fallback mechanism so that there will be something available. But we need to see the details on that.

REP. WAXMAN: Well, I think you're right. We have to see the details. But this may be the only hearing this committee, which has jurisdiction over these issues, will ever have on this proposal so that when that details come out, we may just see them, whether it is already on the House floor, and we are told you vote yes or no. And if you vote no, there is nothing there. But if we vote yes, we may not have anything that is really worth it when all is said and done. Thank you.

REP. BILIRAKIS: The gentleman's time has expired.

Mr. Whitfield.

REP. WHITFIELD: Thank you, Mr. Chairman. REP. BURR was focusing on the importance of choice and using the federal insurance plan for federal employees as an example. Of course, philosophically, one of the reasons that many of us advocate choice is we feel like the competition can keep prices in line. And as Dr. Coburn mentioned earlier, we know that in the long term, there are some real financial difficulties facing the Medicare program, its solvency. And do you agree that choice is a way to promote competition, and in doing that can maybe keep the costs down of a prescription drug benefit?

MS. DePARLE: Well, choice can be a way to promote competition. But what we have seen in the past is that the past is that the competition has really not been on price in the same way that you would expect.

You refer to the federal employees health benefits program. In our discussions with the Office of Personnel Management -- and they actually testified with me in front of the Senate Finance Committee -- they made the point that you have to take into consideration that the two programs and the populations they serve are really very different in that Medicare serves an elderly population with much more intense and predictable health care needs than the federal employees program does.

And again, when OPM negotiates with plans, under the statute it is pretty much open to any plan that meets a certain requirement.

(NOTE: Hearing room audio systems flickers on and off for a few minutes.)

REP. PALLONE: Thank you, Mr. Chairman. I wanted to go back to what Mr. (Inaudible). The way I understand the president's proposal, you have access to medically necessary drugs. That's a part of the language. And that to me means by your physician, pharmacist, whatever, about what's medically necessary, and that's a defined benefit. On the other hand, under the Republican proposal we're getting language, and, again, I'm looking at apparently what Congress describes that says that the benefits have to equal an actuarial value of $740, the actuarial equivalent of a certain dollar amount.

I think my concern is that the way I see the Congress proposal, it is essentially a voucher linked to a certain dollar amount because of the language about actuarial equivalent. On the other hand, the president says medically necessary drugs. Would you just comment on the discretionary matter? I know you've sort of gotten into this, but I think there is a big difference here. One links to a dollar amount.

The other one links to a specific description about what's medically necessary.

MS. DePARLE: Well, as I understand (inaudible), Medicare (inaudible) it allows insurers to offer (inaudible) their talk about actuarial equivalence (inaudible) refers to (inaudible). But if I understand it, only the (inaudible) amount is really specified. So I'm sure that (inaudible) really make seniors want and need all of these different choices and whether that kind of structure guarantees good selection and then difficulties with unaffordable premiums and access.

I do want to add, though, that it mentioned something about covering major, therapeutic classes of drugs, and we're not sure how that is defined. It is different.

The language is different than saying all necessary medications because we don't know whether that is intended to signify that dangerous sub-terminal marginal or whether it's just (inaudible). I guess (inaudible) I don't know at this point (inaudible) covered in terms of drugs.

REP. PALLONE: I think the fear is that even if you signed up for a particular plan and you had some general notion about what it was (inaudible) (inaudible) day-to-day and year to year. Theoretically there might be some selection to the (inaudible) that we have. But on the other hand, what is to stop them from (inaudible) In both cases it's the formulary -- is that not correct? -- that there is a formulary in the president's plan and in the Republican plan, and caps in each plan?

MS. DePARLE: (Inaudible.)

REP. PALLONE: I'm glad you raised that, because my understanding is you don't have the formulary.

MS. DePARLE: Well, I don't think I'm clear --

REP. PALLONE: PBMs would establish formularies in both instances.

MS. DePARLE: They are permitted to --

REP. BILIRAKIS: Your time is up.

REP. PALLONE: Thank you, Mr. Chairman.

REP. BILIRAKIS: Dr. Ganske?

REP. GANSKE: Thank you, Mr. Chairman. I hope that our electrical problems this morning are not indicative of how the grid will work after electric deregulation.

Well, Ms. DeParle, I want to first start out with a comment that is a follow-up to a question that Chairman Archer asked you yesterday, and you have already alluded to it in some of your answers. I will be bipartisanally critical of both plans as I've seen them so far.

I would point out that when we're talking about bipartisanship on these bills, it will take more than two or three members of the other side of the aisle, as much as I love Ralph Hall, to make a bipartisan bill and be able to move a big issue like this. But this is what I see as the big problem with both the president's proposal and what I'm seeing coming out of the Republican plan.

And it relates back to 1988, when Congress passed a catastrophic bill that had prescription drugs in it. That applied to all senior citizens, and it involved a premium increase. And I want to read what Chairman Rostenkowski said recently about that experience. He said, "We adopted a principle universally accepted in the private-insurance industry. That is that people pay premiums today for benefits they receive tomorrow. Apparently, the voters did not agree with those market principles."

So, what has been the lesson in Washington on that experience? The lesson has been, well, by George, we had better make this voluntary. This has to be a voluntary benefit. But this is the problem, and we were able to get some of this information from the hearing yesterday. Chairman Thomas, when he testified, pointed out that the Republican bill will cost somewhere between $450 to $500 a year in premiums plus a 50 percent co-pay, and we know that the president's plan, I think, originally cost about something like $25 per month, but that you are willing to talk about stop loss or it would be higher than that.

Congressman Burr in a previous hearing aptly pointed out that under the president's plan, for this to be a cost-effective maneuver by a Medicare beneficiary, they are going to have to have out-of- pocket expenses of somewhere around $1,200. It will probably be somewhat similar to that with the GOP plan, and this is the problem.

If you look at the data from MedPAC, they show that if current Medicare beneficiaries -- this is 1999 data -- 14 percent of Medicare beneficiaries today spend nothing on prescription drugs. Thirty-six percent spend from $1 to $500. So you've got 50 percent of Medicare beneficiaries today with less than $500 out-of-pocket expenses.

Now, if you're a senior citizen and you are looking at having to have expenses of greater than a thousands bucks for either the GOP plan or the Democratic plan, to make signing up for this voluntary program cost effective for you, why on earth would you do that? Why on earth would 50 percent of people do that? The answer is they won't. They won't, and so that gets into the adverse-risk selection of those who will. These are going to be the seniors, that six percent or 14 percent who have expenses more than $1,500.

What do we know happens from the current program under that scenario? Well, we know what happens, because there already are Medicare supplemental programs that provide that drug benefit, and the only people who sign up for them are those who have a lot of expenses, and what happens? The premiums are very high for those programs.

So unless we take a huge amount of extra dollars from the general fund to cushion that shock for those who will sign up for it, I think we are looking at significantly higher expenses. This is what I think the solution should be, and I think that's the fundamental problem with both.

I happen to agree with Mr. Kahn on this. Here is what he said. He represents insurance. I'm happy to say this because not always do I agree with the insurance industry. I've got Karen Ignagni here, too. He said private-drug-only coverage to clear insurmountable financial, regulatory, and administrative hurdles simply to get to the market. Assuming that it did, the pressures of ever-increasing drug costs, the predictability of drug expenses, and the likelihood that the people most likely to purchase this coverage will be the people anticipating the highest drug claims would make drug-only coverage virtually impossible for insurers to offer to seniors at an affordable premium.

REP. BILIRAKIS: The gentleman's time has expired.

REP. GANSKE: So I would just finish by saying, you know, we have a big, adverse-risk problem in both of the plans that have been presented, and I look forward to additional time. Thank you.

REP. BILIRAKIS: Well, let's see here.

Mr. Stupak.

REP. STUPAK: Thank you, Mr. Chairman. You asked some questions by REP. BURR and Mr. Whitfield on choice and risk. In the Federal Employees Health Benefit Package that basically reflects people like ourselves, where prescription-drug risk you're talking about would be people who are 65 and older, is it not?

MS. DePARLE: I think that in talking to the people at OPM who run and manage the FEHP program, they do believe that the two populations are very different, and --

REP. STUPAK: -- and the risks are very different.

MS. DePARLE: (In progress) -- the risks are very different for an insurer facing those populations. And I think the insurance companies would tell you the same thing.

REP. STUPAK: Okay. I understand that yesterday the president released a report prepared at the request of Senator Max Baucus that showed rural elderly are 60 percent more likely to fail to get needed prescription drugs because of the cost. Could you please discuss some of the conclusions of that, since I have a large rural district myself?

MS. DePARLE: Yes, and I've been to your district.

REP. STUPAK: Yes, you have.

MS. DePARLE: I do know that. It is the cost as well as the fact that if you look at the Medicare population, the people who are fortunate enough to have prescription-drug coverage have it primarily because they worked for large employers which are less likely to be in rural areas, so as retirees they got that coverage from their former employer.

They are less likely to have that. As well, they are less likely to have access to a Medicare HMO.

REP. STUPAK: We don't have any up there.

MS. DePARLE: You don't have any up in the upper peninsula. And in the past, in some areas of the country where those are available beneficiaries go to a Medicare HMO to get prescription-drug coverage. So those two things, combined with some of the factors that you raised in your opening statement about price discrimination and the fact that it's harder to negotiate on behalf of large numbers of beneficiaries in a rural area mean that they have less access.

REP. STUPAK: Well, how would the president's plan, then, address prescription-drug coverage in rural areas like mine?

MS. DePARLE: Well, under our plan we would have pharmacy-benefit managers in different areas of the country that would cover a region and would negotiate on behalf of those beneficiaries who lived in that region to get the best drug prices possible for them under this defined benefit, and then when the beneficiary had gotten up to the cap they would still get the benefit of those negotiated lower prices if they needed to go further than that.

REP. STUPAK: From what we know of the Republican plan, and I understand you were at the hearing yesterday, what does the Republican plan do to help elderly in rural areas like mine?

MS. DePARLE: Well, what I know about that is what I heard discussed by the members of Congress who were talking about that plan, and Mr. Peterson, who is from Minnesota, --

REP. STUPAK: That's a rural area.

MS. DePARLE: (In progress) -- said he believed it would help rural areas in, I guess, two ways. One is that he believes that there will be a fallback mechanism whereby the government would step in where plans aren't available and provide prescription-drug benefits. As I said, we have a lot of questions about whether that would really be affordable and accessible and what the premiums would be, but that is what he said would be there for rural beneficiaries. And also I believe the plan includes some additional payments for Medicare HMOs in rural areas, and he thinks that will entice them to come into some rural areas and provide Medicare HMO coverage, which they have not in the past.

REP. STUPAK: Okay. So if we don't have an HMO, like up in my district, or no HMOs in my area, then the government would be the fallback here and negotiate those prices. Is that your understanding?

MS. DePARLE: That's my understanding of what he said.

REP. STUPAK: Well, what would stop, then, the government being a fallback, whether in a rural area or an urban area, as insurance companies cherry pick only the healthy seniors to put in their plan?

MS. DePARLE: That's my concern, is that the more you segment the market like that, the more it results in adverse selection and then higher premiums for the people who don't have other choices and subsidies for people who do have other choices, and I'm not sure that's the right direction to go in.

REP. STUPAK: There has been some talk about Medigap policies and the administrative costs. In fact, I brought up the Medicaid situation in Michigan where the state ran it for $28 million. Now they have turned it over to these private companies, including private HMOs, and now the administrative cost is $141 million in Michigan per year. The Medigap; is that the administrative cost to run the plan and market it to individuals? Is that high, the Medigap policy? Is it low? For example, Medicare, you said you run it at about one and a half, --

MS. DePARLE: Yes.

MR. STUPAK: (In progress) -- two percent. You have zero overhead. Medigap plans; do you know what their administrative costs are?

MS. DePARLE: Well, on average, their administrative costs are around 10 times higher than Medicare's, according to National Association of Insurance Commissioners' statistics.

REP. STUPAK: So 20 percent is their administrative cost?

MS. DePARLE: Well, no. I guess it would be 10 or 11 percent, if ours is one and a half percent.

REP. STUPAK: All right. Okay.

REP. BILIRAKIS: Mr. Norwood. I beg your pardon.

Are you finished?

REP. STUPAK: Just one more. If the administrative costs are higher than the 20, the 15 percent, then the money that the seniors would be paying would not go necessarily for a drug benefit, but more money would go for the administrative costs. Right?

MS. DePARLE: Well, both the seniors and the federal government, because this is a 50/50 proposition in the president's plan, but I assume that some of this would be paid by the federal government in their plan as well. It's not clear. But, yes, we would be paying for higher administrative costs.

MR. BILIRAKIS: It's your time now, Dr. Norwood, to inquire.

REP. NORWOOD: Thank you, Mr. Chairman. Nancy, how many people are on Medicare?

MS. DePARLE: Thirty-nine-million-plus, sir.

REP. NORWOOD: Could we examine your first sentence in your statement? You said that 39 million people need drug benefits. Are you saying that everybody on Medicare needs a government-run, drug- benefit plan?

MS. DePARLE: No, sir. I'm not saying that. Because in our plan

REP. NORWOOD: So it's not 39 million that need drug benefits?

MS. DePARLE: If I can finish, in our plan we have proposed to include some subsidies to encourage employers who are currently providing coverage to continue providing it and hope they will.

REP. NORWOOD: Let's get to the answer. Do 39 million people need drug benefits, or don't they?

MS. DePARLE: I believe they need a guaranteed, Medicare prescription-drug benefit. They don't have that now.

REP. NORWOOD: All 39 million?

MS. DePARLE: Yes, sir, because they don't have security right now that they have a drug benefit. Some of them happen to have it.

REP. NORWOOD: Even the 50 percent that Dr. Ganske referred to that is very happy with their supplemental drug plans paying zero or very little; they need it, too?

MS. DePARLE: What I find when I talk to seniors -- maybe the ones in your district are different, but when I talk to them they are concerned about the rising costs of drugs and the fact that they don't have coverage. Some of them have retiree coverage, but they are not sure it's still going to be there. So what I'm talking about here --

REP. NORWOOD: They are not sure Medicare is going to be there either, the way we act. But the point is, you couldn't make the statement that 39 million Americans need or even want a government- run, prescription-drug plan. That is not a true statement.

MS. DePARLE: I don't want to argue with you, Mr. Norwood, but what I'm trying to say is --

REP. NORWOOD: You can't argue with them. I know them in my district who don't want it, so don't tell me everybody out there on Medicare wants the government to take over their medications. They don't. I just want you to be honest before this committee.

MS. DePARLE: I am being honest, sir.

REP. NORWOOD: You said that all 39 --

REP. GANSKE: Mr. Chairman.

REP. NORWOOD: You may not interrupt, sir. You said all 39 million Americans can't wait for a government-run, prescription-drug plan.

MS. DePARLE: That's not fair. That isn't what I said.

REP. NORWOOD: That is what you said, 39 million people need a drug-benefit.

REP. BILIRAKIS: The witness will respond as best as she can, and then let's go on.

MS. DePARLE: We obviously have a philosophical difference here.

REP. NORWOOD: No. I'm just trying to find out if you actually believe that every American wants to have a government-run, medication plan. That's all. You obviously believe they do. I know they don't.

Now, let me go to the next question because my time will run out. (Laughter.) It seems to me that presently when you're 65 years' old you have to go into the government-run health care known as Medicare. You don't have any choice about that. If you are a patient over 65 years' old and you wish to seek treatment from a physician, for example, who maybe doesn't take Medicare or wish to seek, for example, a treatment that Medicare doesn't cover, we today, as a Congress and as a government, say, you go to that physician and if that physician treats you, we're going to give that physician a great deal of pain, whether it's putting them in jail or fining them or whatever. Now, that's presently what we do in Medicare.

If the president's plan were to be put into Medicare, would that then mean the same thing for seniors in terms of their prescription medication? Would that mean they would have no other choices but then to use the two options in the president's plan?

MS. DePARLE: Well, no, sir, and I don't agree with your characterization of what happens now. If beneficiaries need or want treatments that are not covered by Medicare, that would not be the case.

REP. NORWOOD: It is not the case that they can leave, then, and go to the physician of their choice, and the physician of their choice treats them, and the federal government comes down on that physician to take their license or put them in jail or fine them. That's not true.

MS. DePARLE: That's not the case. No, sir.

REP. GANSKE: Will the gentleman yield here?

REP. NORWOOD: I will yield.

REP. GANSKE: Can I referee here a little bit? The physician, if he gets a disclaimer notifying the Medicare patient that this is not a covered benefit, the government can't touch him. The problem is if your nurse fails to get a disclaimer.

REP. NORWOOD: Or if it's a benefit that happens to be covered where you wish to go to a physician who doesn't take Medicare. That is what happens, whether you say it is or isn't. That is what we do.

I'm asking you, if we put this president's plan into Medicare, does that mean, then, the senior citizens, half of them who presently have supplemental plans that they seem to enjoy and like, would no longer be able to use them but would have to simply use those two offered by the president's plan?

MS. DePARLE: No, sir. It does not mean that.

REP. NORWOOD: I'll yield back or yield to REP. BURR.

REP. BILIRAKIS: You only have seven seconds left to yield. (Laughter.)

REP. NORWOOD: Clearly us Southners can't ask you to do that. (Laughter.)

REP. BILIRAKIS: Amen to that. (Laughter.)

MS. DePARLE: Nor can I answer that. (Laughter.)

REP. BILIRAKIS: Mr. Strickland, you have already? Yes, Mr. Strickland.

REP. STRICKLAND: Thank you, Mr. Chairman. Mr. Chairman, I would like to correct the record on something I said in my opening statement. Although the amendment I referenced, Mr. Sanders'

amendment, did pass the House, it was opposed by well over 100 members.

I would like to give you a chance to explain, if you can, to my colleague what it is that you mean by that sentence that apparently is in question. I think you are an honest person, and I don't think you are trying to mislead us, and so I would like to give you a chance to explain the difference of opinion that apparently exists between Dr. Norwood and yourself on that particular statement.

As I read it, it says it includes a voluntary, affordable, accessible, competitive, efficient, quality, drug benefit that will be available to all beneficiaries. I don't interpret that as you saying that every Medicare-eligible person would choose, and the fact that it's voluntary is in there seems to me to be rather clear that it's not something you are wanting to impose upon all Medicare beneficiaries.

MS. DePARLE: That's right, and, in fact, the president's plan, as I was trying to explain, includes some subsidies so that people who are fortunate enough to have coverage through their employer now as retirees would continue that coverage, that the employers would find it to be in their interest financially to continue providing coverage.

I think the philosophical difference I have with Dr. Norwood, and I actually agree with him on a lot of things, but I think on this what I'm saying is that I believe that beneficiaries need the same kind of assurance that they are going to have their physician visits covered and that they are going to have their hospital visits covered about prescription drugs, and right now, today, they don't have that.

Some of them are fortunate enough to have prescription-drug coverage. That's great, and we want to that to continue, but unfortunately there are many seniors who have unreliable coverage, who are losing coverage, who might have it one month and not another, whose Medicare HMO has left, and so what we're talking about here partly is a philosophical issue about whether they need that security and insurance or whether they don't.

REP. STRICKLAND: Thank you for that clarification.

I have a document that is supposed to be an analysis of the Republican plan, and on the covered drug section it says: "The proposal will cover all outpatient prescription drugs, excluding those already covered by Medicare Part B." And then it says: "Individual plans may establish formularies, however, that may limit beneficiary access to certain drugs." And then it goes ahead to say that if your physician feels like you need a drug that's not a part of the formulary, there can be an appeal process.

Now, one of the reasons many of us want a patients' bill of rights is that we think decisions are made than what a physician would choose.

And then it says: "Individual plans may establish formularies, however, that may limit beneficiary access to certain drugs." And then it goes ahead to say that if your physician feels like you need a drug that's not a part of the formulary, there can be an appeal process.

Now, one of the reasons many of us want a patients' bill of rights is that we think decisions are made that are different than what a physician would choose.

Do you see a problem with setting up a system where the physicians may have to once again advocate for something that they think is in the best interest of the patients when we are finding it very difficult to develop an appeals process, even under a patient's bill of rights? Is this a problem, in your judgment, in terms of drugs that would be available?

MS. DePARLE: I think it's a problem any time we are not clear about what's covered and what's not covered, and I think that in working together to design this, both of us should try to do everything we can to make sure that physicians' medical judgment about that is allowed to govern.

REP. STRICKLAND: And lastly, I'm troubled that under the president's plan the stop-gap measure kicks in in 2006. That's a long way away. And could you briefly compare what it is you know about the Republican plan stop-gap measures versus the Democratic plan, because, quite frankly, I think the president's plan is very troublesome to me?

MS. DePARLE: Well, as I said, the president's plan, really the only detail that he specified was that we had reserved $35 billion, set aside that to work with the Congress to design a stop-gap plan and his does start in 2006, and, frankly, that's a question of the availability of the dollars that we think will be necessary to design such a benefit.

The House Democrats announced the outlines of a plan a few weeks ago that has a stop loss that begins at $3,000 of out-of-pocket spending for a beneficiary, and I believe it would start right away, or 2002, earlier than the president's plan had talked about. And the plan, the Medicare RX-2000 plan, looking here, again, I believe that it starts at the same time the plan does. Maybe I should ask Congressman Burr, and I think it starts at $6,000. Is that right? So there are two or three ideas on the table. It's not clear. I think they said their premiums were going to be $35 to $40, and I guess that includes the catastrophic or stop-loss protection. That's what we know so far.

REP. BILIRAKIS: The gentleman's time has expired.

REP. STRICKLAND: Thank you.

REP. BILIRAKIS: Mr. Bryant is back, so Mr. Bryant.

REP. BRYANT: Thank you, Mr. Chairman. Welcome, and I apologize for having to step out to attend a conflicting meeting here, and I missed -- I did hear your statements and missed most of your examination. As I hear bells ringing, we may be leaving to have to go vote.

But I wanted to pick up on my friend from Ohio's questions because they are important. And I think one of the key things that makes our proposal attractive, because many of the bills that are offered today that are out there do rely on private-sector insurance companies and management of those outside of HCFA. So this is not an idea unique to a particular bill that the Republicans have been talking about.

But one of the things that makes that bill particularly attractive is the stop-loss provision. And like, I assume, so many of us that buy regular health insurance that are healthy, we buy that insurance to help us against that catastrophic -- apparently we don't like that word around here, I don't know, but those bad things that can happen to you. And we would envision the same concept at the level of prescription drugs and senior citizens in this bill. Not every senior citizen uses prescription drugs, and obviously some use more than others, but it's that concept that's very important.

And that's why I want to go back to Mr. Strickland's questions about the president's plan taking to 2006, and even then, in reviewing the language, and I hope I'm not quibbling over semantics here, but as I read that particular language, he does reserve that $35 billion from our surplus for either debt reduction or in the event that the president, he and Congress agree, whoever the president may be, a policy that provides for protection against catastrophic-drug costs for Medicare beneficiaries or policies that otherwise strengthen the Medicare program.

So I think there is some probably flexibility his proposal that that $35 billion is not specifically dedicated to the stop-loss-type program. And, again, I think that's one of the things -- ours is. It's dedicated for that. It's a guarantee, as much as we can guarantee anything.

So I would hope that as the administration looks at that very important piece of this modernization, that there is more of a lock-in and more of a guarantee to that rather than leaving it up to the administration and the Congress at that time. Do you follow that?

MS. DePARLE: I do, and as I said to Chairman Bilirakis, we clearly need to sit down with all of you and discuss what the contours of a catastrophic or stop-loss protection should be. I think the good news is that everyone here agrees that that needs to be a component only, with the possible exception -- I did listen carefully to what Dr. Ganske said about some of the documents in designing this, but I think we ought to sit down and talk about it.

REP. BRYANT: Well, you know, we have, I think, a very good benefit on this committee of having some doctors who really have first-hand experience and add so much to the committee in discussions like this. And, I think, many of us, if I understand, on the other side now agree that it is a very important issue that we have to begin to sort of set that partisan politics aside and continue to work towards solving this problem together.

But I think that any bill that comes up with the underlying principles that it's going to be universal, it's voluntary for people to be in or stay in, a very good program they might be in already as far as drug costs, and they are going to have choices within that, and you have got this stop-loss provision. So I think as long as we all maintain those concepts, that, again, I'm becoming perhaps more of an optimist that we can work this out and solve a very important problem. Do you have any comments on that?

MS. DePARLE: Well, I'm optimistic, too. Thank you.

REP. BRYANT: I yield back.

REP. BILIRAKIS: Ms. Eshoo to inquire? Anna?

MS. ESHOO: Yes. Thank you. Mr. Chairman, I'm sorry I had to step out of this all-important hearing, but there was an all-important bill on the floor on digital signature. So while that may not seem so related to everything that's going on here, we've gone past pen and quill and ink, and all of that, even wax imprints, and now in a new century we are going to be able to transact things in cyberspace. So that's being done on the floor.

Thank you, Madam Administrator, for your opening statement. Let me just try to get some socks on this octopus. And as I said in my opening statement, it's no longer a question of whether we should or shouldn't do this. The reason why this hearing is so important is because we're trying to flesh out how to do this. And it seems to me that at the heart of this debate of how to is the benefit package. And I know that you touched on that in your opening statement.

I haven't had the benefit of some of the questions and your responses, but could you for the record just for a moment, because I want to come back in on the coverage part of this, why, in your view, is it so important for beneficiaries to have a defined, Medicare drug benefit?

MS. DePARLE: Well, for several reasons, and first and foremost, really is the one that you mentioned in your opening statement, which is that the seniors I talked to want to know what they have, how much they have to expect in terms of their costs. They want it to be predictable, and they want to know what's covered. And that is one of the, I think, very positive things about Medicare today, is they know that they are covered to go to the doctor, they know they are covered to go to the hospital, and they need to have that same level of assurance about their prescription- drug coverage.

I also think that if we don't have a defined benefit, that we introduce a really scary element of additional risk selection into this. And several of the members on this committee have talked about that, and I can tell that everyone is trying to grapple with it. And that is if you allow plans to design lots of different benefit packages, that promotes choice, which is a value that some members want to promote, but you have to be very careful not to introduce cherry picking of the healthiest seniors and risk selection. And then also, Mr. Whitfield raised the question of confusion for beneficiaries and the fact that it would be very difficult for them to navigate among the plans. All of those things are things that we are really going to have to look at carefully.

MS. ESHOO: Because there are warning signals in terms of how we should design this.

Let me just cover two other points, and they both have placement and direct attention in the legislation that I introduced. And there are different ideas out there on this, and that's what we're talking about today, ideas: the idea of how stop loss, catastrophic insurance, and how that is designed and how it kicks in.

Now, there are different ideas about it. In the bill that I introduced, the out-of-pocket expense of the beneficiary is $2,500, the government, Medicare, picking up the other half. So once you reach the ceiling of $5,000, then the stop-loss kicks in.

There are other plans out there that don't work that way. There is a gap between what's covered, what the beneficiary pays out of pocket, and how long they have to wait until stop loss kicks in. And I put this out more as kind of a red flag because members are going to have to consider this because their constituents will face it. The reason why I think it's important to have stop loss is very obvious, that I don't know how many of us would be able to afford some of these drugs, even with our salaries, and the insurance coverage that we have, once it goes past the out of pocket. So I say this to this subcommittee that's going to have something to do with that.

The other thing is the administration of this. With great curiosity, yesterday I listened to Mr. Thomas talk about the bureaucracy that he is designing, which I think, I'm assuming, is going to be in my Republican colleague's bill. I'm issuing a warning on that. I really don't think we need to do that. Right now, in the bill that I've introduced, and 10 Democrats on the Commerce Committee have cosponsored, original cosponsors of it, I do not have, as you know, Madam Administrator, your agency administering the program. Rather, I put it into OPM.

Now, I'm if first to admit that many of the problems that HCFA has are congressionally inspired, but there are problems. I think that you are --

REP. BILIRAKIS: The gentlelady's time has expired.

MS. ESHOO: Can I take just 30 seconds so that she can answer this?

REP. BILIRAKIS: Well, not 30 seconds, but a very brief answer.

MS. ESHOO: Okay. I think that you are understaffed and overburdened. Do you have a problem with OPM administering this, or do you feel strongly that HCFA must administer it? Maybe you could just answer that. I think it's a tough question, but nonetheless I want to ask it.

MS. DePARLE: I feel very strongly that this benefit needs to be integrated into the Medicare program, and I believe that HCFA can administer it the most efficiently and effectively, and I would like a chance to convince you of that.

REP. BILIRAKIS: Ms. Cubin to inquire?

MS. ESHOO: Thank you. Thank you, Mr. Chairman.

MS. CUBIN: Mr. Chairman, I yield to Dr. Ganske.

REP. GANSKE: I thank the gentlelady. I will get to a question. I think we need to look at will either the Republican plan or the president's plan work; how much will it really cost? I've already expressed some reservations about the first. I don't think we really know the second. I think we need to think about making sure that we continue drug research.

Drug-research companies or the drug companies have had basically a flat line in R&D. They have increased their marketing a lot, but we've got a lot of antibiotic-resistant bacteria out there that could cause some very, very significant problems to everyone who flies in an airplane and is worried about antibiotic-resistant tuberculosis, for instance. We need some real dollars going into that, so I don't want to hurt that.

I don't think it's fair for me to criticize plans without offering a solution, so my question at the end of this is going to be will the administration think about this if this is the only way that we can get something done this year, and this is what I think a partial solution to this could be. I sat on the bipartisan Medicare Commission for a while. In the context of comprehensive care we were looking at expanding basically the prescription-drug benefit because there is some prescription-drug benefit for dual eligibles, i.e., Medicare beneficiaries who are so poor they qualify for Medicaid.

There are two groups in Medicare that have enough assets that they aren't quite in Medicaid, but they get some assistance on their premiums and some assistance on their co-payments and deductibles. They are called qualified Medicare beneficiaries, QMBs and SLMBs (ph), and it is that group, the poor widow, who is existing on her social security, who has to make that choice between her rent, her food, and her prescription drugs, who isn't quite so poor that she is in Medicaid, that I think we need to significantly look at helping and sooner rather than later.

So when we looked at this in the bipartisan Medicare Commission, we thought we can expand the Medicaid prescription-drug benefit to those people, and the cost would be about $61 billion over 10 years. And furthermore, to prevent a notch, you could create a spend-down group, so that if those people, Medicare benefits, who have some additional expenses, higher expenses, they could deduct that from their income, and then they could get into that qualifying group. That helps the neediest.

But we also have 40 million people in this country who have no insurance at all, and I think we need to look at how do we cover them, and we also have to think about the fact that in a few years we know that the Medicare program is not going to have sufficient funds for any of the benefits that it's offering.

So my solution would be this. Do the QMB/SLMB with a spend-down, address the issue of cost in some way for all Americans, whether you are looking at something like proposed modification or something proposed by Tom Allen or Gil Gutknecht, or simply saying to the FDA and Customs, you can warn people who order their drugs from Geneva, Switzerland, but you can't intercept an individual's drugs. So it's buyer beware.

There are many ways that we could look at trying to get some competition into that market for everyone, not just looking at a senior citizen.

My question to you, Ms. DeParle, is this. If it looks like this is just going to be a simply straight-line, Democratic vote on a Democratic bill, the president's bill that will go down, or a straight-line, partisan vote on a Republican bill that the president will veto, is the administration interested at looking at any compromise type of legislation?

MS. DePARLE: Well, Dr. Ganske, you know that your suggestions are always thoughtful, and you know that I will listen to them. I'm from Tennessee like Congressman Bryant. I'm an optimist here, so I think we can work together to get something done.

I would say, I hear you on the low-income benefit, and I'm concerned about those people, too, but when I look at our numbers, as you have done, I see that 60, 70 percent of our beneficiaries have less than $16,000 a year, something in that range. So while I hear you about the very, very low income, my concern is if we have an opportunity here to do something that assures security on prescription drugs for all beneficiaries, I would like to do that. I don't want to give up on that.

REP. GANSKE: But we shouldn't forget --

MR. BILIRAKIS: The gentlelady's time has expired.

REP. GANSKE: Thirty additional seconds.

MR. BILIRAKIS: Well, the gentlelady has the time, and it has long expired.

REP. GANSKE: I'll ask next round, Mr. Chairman. Thanks.

REP. BILIRAKIS: Ms. Capps.

REP. CAPPS: Thank you, and if you would like, Dr. Ganske, you can have 30 seconds of my time.

REP. GANSKE: I thank the gentlelady. I think it's fair to point out that there are a significant number of Medicare beneficiaries who do have a drug benefit. They have it from their employers, and that helps keep their out-of-pocket expenses down. We have a significant number of Medicare beneficiaries who have a pretty low out-of-pocket expense. As I said, forMedPAC, 50 percent have less than a $500 out- of-pocket expense.

So if we're looking at trying to balance, you know, providing some health-care assistance to those who don't even have anything, much less a prescription-drug benefit, wouldn't it be advisable to take a little bit more global approach to where we are heading than to try to piecemeal this and have some unintended consequences for the later fiscal solvency of the program or, for that matter, not being able to have sufficient funds to handle those who don't have any insurance at all?

MS. DePARLE: Well, if I understand your question, by a global approach you're referring to what you talked about covering the uninsuranced, I would love to sit down with you and talk to you about that, and I'm listening to what you have to say.

REP. GANSKE: Thank you.

REP. CAPPS: Thank you. And I'm going to be brief. I'm going to ask you about two different things, and, Administrator DeParle, I thank you for enlightening us and for being willing to go through this conversation. It's very helpful to me.

I'm sitting here as we've been discussing this, thinking about me, all of us on this subcommittee, being a part of arguably one of the best benefit packages of any employee of the federal government, and there is a lot of comparison between the federal government benefit plan and Medicare.

And maybe you could articulate, and I know it's repetitive a little bit, so that we're clear, we're a very different kind of pool across this country of employees, working people, hopefully fairly healthy, compared with the population that Medicare serves. And this issue of the importance that some would say to giving seniors choices of their plan, I would like you to contrast that with what I hear frequently, seniors saying, I need to take this particular heart medicine to keep me alive, and my HMO won't cover it.

MS. DePARLE: Well, you've raised some issues that we have been grappling with this morning. On the differences between Medicare and the FEHBP program, I think you're exactly right. In speaking with the people who run FEHBP at OPM, they say the populations are very different, that the insurance companies who come in to participate in the FEHBP program say the populations are different, and that the risks that you are assuming is quite different among the two populations. Medicare beneficiaries tend to be poorer, sicker. They are not active employees. There are a lot of factors that lead to higher expenditures.

REP. CAPPS: Now, could I raise one caution also about, as we are entertaining these various plans? I represent a rural district about a hundred miles north of Los Angeles where there is a great reimbursement rate from HCFA. Ours is about half of that. Our cost of living is about half of that in Los Angeles. This disparity that impacts service, whether through hospitals or providers, is so pervasive. There are no HMOs in a large part of my congressional district. Seniors have no choice there.

And any kind of plan that's going to come in in discussion in my district is going to meet a jaundiced ear, both about HMOs and people's disenchantment with that form of service for medicine and also with the comparing of that with delivery of a vital part of seniors' health care, which is prescription drugs. That's an enormous hurdle I believe that we have to get through in this discussion.

MS. DePARLE: I agree that it's a hurdle, and as you know, the amount that we pay the managed-care plans is based on historical costs under Medicare for fee for service. One of our doctors left, but Dr. Ganske is still here, who can talk about why is it that it's so different in different areas of the country. But that's what's payments rates are based on. And let me say, too, that we are not reimbursing managed-care plans right now to provide prescription drugs, --

REP. CAPPS: I know.

MS. DePARLE: (In progress) -- which they tell us they need to offer to seniors in order to get them to join.

So one of the things we need to do is to reimburse HMOs to provide prescription drugs, and that's one of the things we want to do.

REP. CAPPS: I turn back the rest of my time. Thank you.

REP. COBURN (presiding): Thank you. I'm sitting for Chairman Bilirakis, and I believe I'm the next in order, so I'll recognize myself for five minutes. I believe that's accurate.

I wanted to ask you the most important question today, is, how is your baby?

MS. DePARLE: He's great.

REP. COBURN: Great.

MS. DePARLE: Thank you for asking.

REP. COBURN: You know, I made some statements, some sentences and statements, in my opening statement about the best way to allocate a scarce resource is vigorous competition. And I don't know if you're familiar with some of the FTC actions of late against several drug companies and four others that are pending on inclusion that have cost American citizens a ton of money, several hundred million dollars in the last year. And I just wondered if you had a comment about that, because no matter what we do, and I'm sure we're going to do something despite my "no" vote, whatever we do is going to cost more if we're not sure that there is competition there, and I just wondered what your thought was about that.

MS. DePARLE: Well, I think you're right. There does need to be competition. The way we go about it -- there are different ways of doing it -- the way we go about it is have pharmacy-benefit managers to negotiate to get the best prices, but it is a very difficult problem, and I am somewhat familiar with, just from what I read in the newspapers, with what's going on over at the FTC, and it's a difficult problem to get your arms around.

REP. COBURN: Does it surprise you that retail pharmaceutical prices, not including new drugs, rose eight percent last year, when the cost increases were about two percent?

MS. DePARLE: No, and I've talked to a lot of employers and managed-care-plan executives who tell me their costs, their spending, is going up 17 and 18 percent.

REP. COBURN: Does the administration have a position as to allowing the decision made in 1997 for direct-television advertising for prescription drugs?

MS. DePARLE: I don't know, Mr. Chairman. I'm aware of the decision, but I don't know about any position that we have on that.

REP. COBURN: Just for the record, there was $1.9 billion this last year, and that goes straight to the bottom. And I think Dr. Ganske made note of the fact that expenditures on R&D -- I think he was in error -- the expenditures in R&D in the pharmaceutical industry are rising. They are not flat lined, but the expenditures for advertising and promotion direct to the consumer have gone up significantly.

Have you calculated from inside HCFA the increased utilization rate of Medicare based on television advertising in the pharmaceuticals?

MS. DePARLE: You know, we haven't, but our actuaries have been looking at the kind of data that you and Dr. Ganske have been discussing and assessing what the cost of this would be, and I know CBO has been looking at it as well. I don't think we've looked at whether it's increased any mode-care utilization.

I guess you would be suggesting physician visits and things like that.

REP. COBURN: I'm suggesting that because of promotional advertising, demand pull-through advertising by the drug companies, what we're seeing is increased -- I'm seeing it in my practice. More people are coming in because the drug company told them they had to because they couldn't get well without this wonderful drug. I would like unanimous consent to introduce into the record the FTC cite listing the consent decrees with those two large pharmaceutical companies and make that a part of the record.

MR. : No objection.

REP. COBURN: No objection. There was some discussion made about the efficiency of HCFA in terms of its cost. I think it's important for the record for people to know that one of the reasons HCFA is efficient is the vast majority of the work has been transferred to the provider in terms of the paper work and the clearance and everything else, and so it's important, although the same amount of work is being done, a large amount of that work now is done in the providers' hospitals and physicians' offices across the country. And it is true. I believe you are very efficient for what you are asked to do. I don't like the system very well, but I think you do a great job.

If we were to start all over, and this is the last question, and you could tell us, how can we go take care of those people who really are making a choice between necessities of life and their medicine in this now- politicized, kind of who is-going-to-win-the-next-election environment, would you have any advice for us to solve this problem to really meet the needs of people without ruining the drug industry, without ruining pharmacy-benefit providers? Because I see the same thing happening on pharmacy-benefit providers that have the clinical labs.

That's what's going to happen. We're going to have three or four major pharmacy-benefit providers, and that's it. And so I just wondered, is there any advice that you could give us if we were to start over on this, that would take it out of the political to where we really went to solve the problems?

MS. DePARLE: You always ask the easy questions. You know, Medicare is going to be 35 years' old next month, so I actually just was watching recently the video of the signing of Medicare and the speeches that were given, and there is no question that there have been difficulties and challenges that Medicare has faced and continues to face, but I think it was a great thing to do.

I think if you were looking at it today, you would put prescription-drug coverage into Medicare, and I think we should figure out a way to do it, and I do believe it should be something that is universal and voluntary. It's going to be very tough, and I already heard you say that you think the problem is so tough and the challenges that Medicare faces are so great already, that you would not go there. But I hope that we can have some conversations, and I can convince you that for our generation and the generation to follow that it is the right thing to do, because I believe it is.

REP. COBURN: Thank you. I just wanted to make one comment before I recognize Mr. Greenwood -- is Mr. Deutsch next? -- is that we are adding a cost to a program that is technically bankrupt from an actuarial standpoint, and it's important that the American people know that. They may want us to do that, but there is no actuarial that would go out there and say you should add another cost to this program based on what the numbers look like today. Mr. Deutsch, I yield.

REP. DEUTSCH: Thank you, Mr. Chairman. I want to give you a chance, at least, to respond because I think to leave a statement like that open ended would be a mistake, that the system is not bankrupt. That is an actuarial system that in the eight years that I've been in Congress we've made changes which have increased the actuarial stability of the Medicare system, and a lot of the actuarial problems are high-class problems, high-class problems, in that part of the average life expectancy of Americans has gone up dramatically, and one of the incredible statistics, in 1965, when Medicare was created, the average life expectancy of Americans was, in fact, 65, and now we're talking about over 75.

So as a person who administers Medicare, I want to give you the opportunity to respond a little bit to the chairman's comments about the system being bankrupt.

MS. DePARLE: Well, and you also highlighted the reasons why I say Medicare was a great thing and why -- I can remember what it was like when my grandmother didn't have Medicare coverage and then when it came into effect, and I know what a difference it's made in the lives of not just senior citizens, but, frankly, our generation, that we haven't had to worry as much about providing for them and that we have been able, therefore, to concentrate on our educations and other things. So I do think it's been a great thing.

I think what the chairman is talking about is the fact that while we have made some very tough decisions together up here which have been extremely difficult for all of you and things that providers in your districts have been very unhappy about, that has extended the life of the trust fund through 2025. I think that was the right thing to do. I also think it was a very, very difficult to do, and, frankly, I think it's one of the reasons why HCFA isn't the most popular agency in town these days.

He is right, though, that we face a huge demographic challenge, as all of us in the next 20 years come into Medicare.

REP. DEUTSCH: Can I, again, just interject and highlight something you just said? There's two separate issues. You just talked -- Medicare is an insurance plan where there is an obligation for it to be actuarially sound. So what you've just stated, I think, is saying something people need to hear.

Until the Year 2025, under the present projections, we are actuarially okay out to 2025, which is 25 years from now -- not to say that we shouldn't do something about that actuarial basis today, but I think it really is somewhat disingenuous to say the system is bankrupt today. It's not bankrupt today. There is the baby-boom issue, the demographic issue, that we are going to have to deal with.

But a reason not to do a complete Medicare prescription-drug plan under the premise that the system is bankrupt is just not -- it's not credible. The system is fundamentally sound until 2025. I wish we did it this year. Hopefully, we'll do it this year. I doubt we're going to do it this year. We can do it next year, in terms of dealing with the baby-boom issue, which we can do. But that is not a reason not to do prescription drugs under a universal Medicare program today, which is really the essence of the follow-up question, which is something also that you've talked about.

And I mentioned in my opening statement as well, the fundamental difference between what the Republicans are proposing and what we are proposing is really that issue. I think what we are saying and what the president is saying that we ought to suspend Medicare to include prescription drugs, and what they are saying is, hey, you can't do that. You ought to do it maybe just for people 135 percent to poverty or at poverty or a limitation.

And I think if you can elaborate a little bit more about that fundamental difference and what type of impact that would have on Medicare in general or, for that matter, I think, the whole, the stability since Medicare has existed. I strongly believe that one of the successes of Medicare is that it has been a universal system, that if it was funded at 135 percent of poverty when it was created, it probably wouldn't exist today because the political will to push the testimony, to make the hard choices that you talked about, to change the actuarial dates that we've done in the last eight years, I don't think you would have had the political will to do that if it was a system that only provided for coverage 135 percent of poverty.

MS. DePARLE: I agree with you, Congressman. I think that one of the great strengths of Medicare is that it has been a program that is available for everyone. Everyone pays into it. Everyone participates in it, and I think that's been one of its strengths. And as I said, I believe there's a way to provide the prescription-drug benefit for all beneficiaries, and I think that's the right way to do it.

REP. DEUTSCH: And I guess, just because I think it really is the essence of the difference, if we're talking about the Republican proposal, even if it's 135 percent of poverty, we're really talking about prescription drugs from a welfare context.

And I think just as a Congress, which collectively and with the president we've eliminated welfare as we know it, which was a positive thing, that's really what they are proposing effectively. And I just see -- we've just gone through the process of eliminating welfare as we know it, to come back and sort of create welfare for Medicare beneficiaries is almost --

REP. COBURN: The gentleman's time has expired. The gentleman from Pennsylvania.

REP. GREENWOOD: Good afternoon. You indicated earlier that you are optimistic that we can get this job done, and I am optimistic, too, and I think there are reasons for us to be optimistic. The president clearly wants to do this. I think he wants this to be part of his legacy, that he leaves office having accomplished a Medicare prescription-drug benefit.

Clearly, Republicans in the House and the Senate want to get this done. The Democrats in the House and the Senate want to get this done. We all want to do it this year, and whether it's the third of the Medicare beneficiaries that have no coverage, they certainly want us to do it, and whether it's the half that maybe have either no or inadequate coverage, they certainly want to do it. So there is a huge national consensus, I think, to get this thing done.

The only thing that would make me pessimistic is the extent to which partisanship creeps in, because obviously you have a Republican Congress and a Democratic president, and if everyone gets partisan about it, the job not will get done. The president is not going to sign a bill he doesn't like, and we're not going to send him a bill that we don't like, so it has to be bipartisan.

It seems to me that there's two ways that partisanship creeps into this debate. The first one is, and we've heard it here in the course of this hearing already today, the first is the what-took-you- so-long argument or what's taking you so long. You don't have a bill yet. Get on the mark and get this done.

The reality is, and I don't want sound partisan in this, but the fact of the matter is that the democrats controlled the Congress for 40 years since the birth of Medicare and didn't come up with a prescription-drug benefit. The president has been in office for seven and a half years, and it took him that long to get one on the table, and it's taking us a little while, too, because it's hard.

But the fact is that the reason it wasn't done sooner is because we were in deficit spending for most of that time, and now because of a lot of things that have gone on in this town in the last several years, we have a balanced budget, we have a surplus, we have taken social security off the budget, and now we have the ability fiscally to do this, and I think that we can do it.

The other way that partisanship creeps in is we accentuate the differences between the bills. We spend all of our time saying, well, the president's bill does this, and yours doesn't, or ours does this, and the president's doesn't, and that's what the people hate about what happens in this town because we accentuate our differences instead of looking at how we can find commonalties. But there are more commonalities, it seems to me, than there are differences if you look at the two plans.

The fact is that both plans are based on the reality that we have finite resources. We would all love to just say everybody go get free drugs, and Uncle Sam will pay for it, whatever it is for, however much money you have, but we don't have the resources to do that. We have limited resources, and that's why both of us are looking at premiums, both of us are looking at co-pays, both are looking at deductibles, both are looking at the some kind of limitation or a cap on the benefit. And that's because reality dictates that both the president and the Republicans, a bipartisan bill actually that we will be introducing later this week, both want to make sure that we don't disincentivize or create disincentives to the private sector continuing to produce the benefit. You're for that; we're for that. That's good.

Neither of us wants adverse selection. We have to have a process that makes sure we don't have that problem. Both of us see the value of the private sector being involved, whether it's PBMs or whether it's insurers or both. The private sector has to be involved, it seems to me, because the pace of change in the prescription-drug world is so fast that it would be impossible for a bureaucracy to keep adding this drug to the benefit and that drug to the benefit. You have to have the private sector out there being able to move at a much quicker pace so that the seniors can benefit from these changes.

Both of us see the need for a stop loss. You have indicated today repeatedly that that's something that's not in the president's plan, but you see the value of it. It's in our plan, and we need to get there. Both of us agree that it needs to be voluntary.

So my question is, if you were to sit down with Republican leaders who have been most familiar with this issue tomorrow, and you said, let's get this compromise done, let's get a hybrid bill here between what the president has put on the table and what Republicans and some Democrats who have joined with us have put on the table, what would be the areas, maybe two, three, four areas, where you think we would have to work the hardest? Where are the differences that we need to compromise in order to get to plan that we can all happily feel good about?

MS. DePARLE: Well, I would start with whether or not there is a defined benefit package, and we've had a lot of discussion about that today, and I think that's very important.

REP. GREENWOOD: And I would say I think that's very malleable to that kind of work. I think we're pretty much on the same page there, that we want medically necessary drugs to be available.

MS. DePARLE: And then I would also want to look at whether the plan, as I've heard it described, that Congressman Burr and others are working on, right now, I still think relies, too heavily on private insurance plans. I believe this needs to be a guaranteed benefit, an entitlement. There's lots of views about that up here, too, but that's what I believe.

So I would be looking to see is this thing really affordable, is it really accessible, and the question I have there, and, frankly, I think it's partly -- it may be malleable, but it's partly governed by what's in the budgeted resolution. I'm not sure that the subsidy and the way it's provided, the indirect subsidy, is enough to provide a benefit package that's attractive enough to attract most beneficiaries and, therefore, guarantee access and affordability. So I would want to spend a lot of time working with you on those issues.

REP. GREENWOOD: Thank you, Mr. Chairman.

REP. COBURN: Mr. Barrett?

REP. BARRETT: Thank you, Mr. Chairman. I want to talk about the merits of the plan that's being proposed, but first I have to just address for a moment the comments of the previous speaker, who I think implied that somehow the Democrats, because we controlled the Congress for 40 years, didn't address this problem.

As you said in your statement, this was not an issue when Medicare was created. It was not an issue in 1965. And the reason it's become an issue in the last five years is because the price of prescription drugs has gone totally through the ceiling, and that's why people are mad about it, and that's why it's been an issue for the last three or four years, and why we have had Democrats in Congress who have tried desperately to try to move this issue as a national issue.

I thought perhaps one of the most telling indicators was just the vote we had yesterday, the vote that was the tripartisan amendment, with Bertie Sanders and Republicans and Democrats, that called for some cooperation with pharmaceutical companies, if they have benefited a greatly from NIH grants. And when we had a vote on that four years ago it garnered 180 votes. When we had the vote on it yesterday there were over 300 votes in favor of the same amendment.

You don't need a weather man to tell which way the wind is blowing, and it's clear that the American people are sending a message through their elected representatives that this is a problem now, and it's a much more serious problem now than it was even four year ago.

REP. GANSKE: Would the gentleman yield?

REP. BARRETT: I would be happy to yield briefly.

REP. GANSKE: I agree with the gentleman that because the price, the cost, of drugs has gone up a lot and the volume, the usage, has gone up a lot, that it's on the radar screen, but I think it's also fair to say that, you know, if you look at the record, 1965, pharmaceutical benefit was discussed, and it's been discussed many times over the last 30 years. The predominant problem as has always been, as Chairman Rostenkowski has said, where is the money coming from for that.

REP. BARRETT: Well, I agree, and I reclaim my time. I want to get to that point now. In terms of the plan that's being proposed, and specifically, as I understand the plan, and we haven't seen the plan, is that this would rely primarily on private insurance companies.

My question for you is, is there a market out there right now, is there a number of private insurance companies that are offering prescription-drug-only plans? Are companies interested in doing that? Where is this supply going to come from?

MS. DePARLE: Well, the closest, I guess, experience that we have is with Medigap. There are some Medigap plans that are primarily there because they offer prescription- drug benefits. And the experience there hasn't been great, partly because I think the benefit design isn't rich enough to attract a lot of seniors to join it, and, therefore, the premiums are very high, and you don't get much for what you pay.

So I do think, as I've said several times today, that there are some real difficulties inherent in trying to do a plan that relies so heavily on private insurance plans. Now, should there be Medicare HMOs offering a prescription- drug benefit? Yes, and we intend under our plan to reimburse them for doing it, but a drug-only plan, I think the industry suggested, isn't an attractive risk for them to assume.

REP. BARRETTE: In your plan one of the problems that some of us have is the Medicare reimbursement rate, and there are wide, geographic disparities in this. How do you address that?

MS. DePARLE: Do you mean the Medicare-plus-choice plan?

REP. BARRETTE: My good friend from Florida, Mr. Deutsch, who just left, represents what those of us in other parts of the country call the poster child of Medicare reimbursement rates, where the Medicare reimbursement rates are much higher than they are in Florida than they are in Minnesota or Wisconsin.

REP. COBURN: Not in all of Florida, by the way, Tom, only South Florida.

MS. DePARLE: That's true. It's not in Mr. Bilirakis' area. There is only -- you know, I guess I was talking about Medicare turning 35 next month, and it's appropriate, therefore, to look at the history. The history of this is that the from the beginning Medicare reimbursement rates were supposed to be tied to what physicians were charging or hospitals were charging in a particular area. That's a heavy part of it. And, therefore, the volume and intensity of what's provided by doctors and hospitals is reflected in the cost, and that is what Medicare HMO payments under the statute are tied to, is to those payments. So that's why you have such dramatically differences around the country in what the capitation payments are.

REP. BARRETT: And I do think that at some point if the parties are interested in working something out, that there will be some sort of compromise, but I think that what we're seeing is in some parts of the country you can have a generous prescription-drug benefit, and in others you can't.

MS. DePARLE: Right, and that's what I don't think is fair. I think this is a national program, and all beneficiaries should have access to an affordable drug benefit.

REP. BARRETT: Thank you. I would yield back.

MR. BILIRAKIS (presiding): Thank you, Tom. Well, Madam, Administrator, thanks so very much for your patience and for being here. You've been very helpful. I don't know what the future holds, but obviously -- I honestly feel that we all want a prescription-drug plan, and hopefully if we all work together and put the partisanship aside, we'll get it done. But we always say that, and then it never really happens, does it? We'll do our best. Thank you very much.

MS. DePARLE: Well, I'm optimistic, and I want to thank the committee for your serious commitment to helping beneficiaries.

MR. BILIRAKIS: Thank you. The second panel that will come forward, please, consists of Ms. Karen Ignagni, president and chief executive officer of the American Association of Health Plans; Mr. Craig Fuller, president and chief executive officer of the National Association of Chain Drug Stores; Mr. Charles N. Kahn, president of the Health Insurance Association of America; Ms. Judy Feder, dean of public policy studies, Georgetown University; Mr. Patrick B. Donoho, vice president of government affairs and public policy with the Pharmaceutical Care Management Association; Mr. Ron Pollack, executive director of Families USA; and Ms. Nancy Davenport, founding executive director, Patient Advocate Foundation of Newport News, Virginia.

Ladies and gentlemen, your written statement as per usual, is a part of the record, and we'll set the clock at five minutes, and ask you to sort of supplement, if you will, supplement your written statement. We'll start off with Ms. Ignagni.

MS. IGNAGNI: Thank you, Mr. Chairman and members of the committee. I would like to make four points in speaking with you this afternoon.

First, our members support creating a drug benefit for Medicare beneficiaries. It's a long-overdue matter that this Congress can and should confront, in our view. Making prescription-drug coverage available is an essential part of the effort to bring the 1965 program in synch with the benefits programs of today.

In fact, a linchpin of effective disease-management strategies is actually the presence of prescription drugs, and many physicians report around the country that they have barriers to prescribing the right and most appropriate procedures for beneficiaries because of the absence of prescription drugs in this population.

Number two: In our view, an essential part of ensuring that seniors have access to affordable prescription will be to build on what works. To that end, we have been encouraged, both this morning and in the Ways and Means Committee discussions yesterday, and, indeed, in the public dialogue, that choice is a key principle within so many proposals.

And, second, there is a growing recognition about the need to preserve what exists as a building block for taking the next step.

Number three: Medicare-plus-choice providing drug coverage to millions of beneficiaries who otherwise wouldn't have access. However, in little over three weeks our plans face a deadline to let HCFA know whether they are going to be able to continue to participate in the Medicare-plus- choice program. We have seen pullouts. We have seen plans being forced out because of the unintended consequences of the Balanced Budget Act, which this committee has spent a great deal of time on, as well as the sheer number of regulations and instability and unpredictability.

REP. BILIRAKIS: Ms. Ignagni?

MS. IGNAGNI: Thank you, Mr. Chairman and members of the committee. I'd like to make four points in speaking with you this afternoon.

First, our member support creating a direct benefit for Medicare beneficiaries, it's a long overdue matter, that this Congress can and should confront, in our view. Making prescription drug coverage available is an essential part of the effort to bring the 1965 program in synch with the benefit's programs of today. In fact, the lynchpin of effective disease management strategies is actually the presence of prescription drugs and many physicians report around the country that they have barriers to prescribing the right and most appropriate procedures for beneficiaries, because of the absence of prescription drugs in this population.

Number two, in our view, an essential part of ensuring that seniors have access to affordable prescription will be to build on what works.

To that end, we have been encouraged, both this morning and the Ways and Means Committee discussions yesterday and, indeed, in the public dialogue that choice is a key principle within so many proposals. And second, there's a growing recognition about the need to preserve what exists, as a building block for taking the next step.

Number three, Medicare Plus Choice is already providing drug coverage to millions of beneficiaries, who otherwise wouldn't have access. However, in little over three weeks, our plans face a deadline to HCFA know whether they are going to be able to continue to participate in the Medicare Plus Choice program. We've seen pullouts. We've seen plans being forced out, because of the unattended consequences of the Balanced Budget Act, which this committee has spent a great deal of time on, as well as the sheer number of regulations and instability and unpredictability within the regulatory environment. Now, to her credit, the administrator DeParle has recognized many of these problems, as well, and has already embarked on a strategy designed to deal with some of the unpredictability, but more needs to be done.

You have it in your power to stabilize this program and we urge you to act now to preserve the program that has, in fact, served so many low and moderate income beneficiaries, who have nowhere else to turn for protection from high, out-of-pocket costs and the traditional Medicare benefit, catastrophic benefits and prescription drugs. Also, I'd like to comment, Mr. Chairman, there's been some discussion this morning about rural areas and whether managed care is interested in being in rural areas, and I would suggest to the committee and happy to talk about it, that planned decisions are very much influenced by the willingness of single hospital-based systems in rural area to, in fact, contract with our plans.

Finally, number four, in testimony, we've offered principles for your consideration in designing prescription drug coverage. These principles are embedded in many of the proposals being discussed today, beginning with the concept of universality, which is that all benefits -- beneficiaries should be eligible to participate in this benefit. We believe that that's common to both proposals, as we've heard them discussed. Subsidies for low-income beneficiaries, that seems to be common to both proposals. Sustained funding is a challenge for all proposals in this area, as it would be for any new benefit. And options and flexibility, you're having a great deal of discussion about that. We commend you for that. And, finally, a floor package of benefits, which we understand the concept of a floor is common to both.

In conclusion, Mr. Chairman, we stand ready to work with you, to contribute to the committee's efforts, and we support the objective, which we know all of you share, of providing this important benefit and this important population with affordable prescription drug coverage.

Thank you.

REP. BILIRAKIS: Thank you, Karen. Mr. Fuller, nice to see you, sir.

MR. FULLER: Thank you, Mr. Chairman and members of the committee. It's a pleasure to be here. I've submitted a statement that you have for the record. It may be during the questioning we can address some of the issues there. I thought that I might reflect a little bit on some of the comments that were made by the members in their opening statements, as well as some of the questions, because there is much that we agree with and many very fine questions raised.

I represent 150 chain pharmacy companies, 32,000 pharmacies, and for many of the seniors that are without drug coverage today, I sense something of a train wreck coming. I fear that with thoughtful deliberation, which you're having today and in other places of the Congress -- most of us spent eight hours yesterday at Ways and Means. We're prepared to -- and happily, we'd spend eight hours with you today to advance this, some of us would.

(Laughter.)

REP. BILIRAKIS: Because it's -- and it's serious issue. But at the end of the day, if nothing passes this Congress, for hundreds of thousands of Americans, who will go into those 32,000 pharmacies today, they're going to continue for years to face the same problem.

We worried about this some months ago. And as a result, we, at the National Association of Chain Drug Stores, considered an approach slightly different than what's been talked about during much of the day, but it relates to some of the issues that have been raised, because if you take the 39 million people on Medicare and you take out the 70 percent that have some prescription drug coverage now, and you look, then, as we have done, at the individuals that are 200 percent of the poverty line and below, you could provide coverage for them through the states, with a grant of $30 billion at the federal level, supplemented by the states, or you could put 41 billion (dollars) out there to the states and cover it all.

You might have a co-payment at the state level. You wouldn't have a cap. You wouldn't have a premium. You could make it -- put it into effect fairly quickly, because somewhere, Chip and I are close, we say 15, he says 19, we're approaching 20 states that already are, and you can do it this year, and you can provide them with the coverage fairly quickly. So that with all the fine deliberation that's going on, you would give yourselves next year, with the Congress and a new administration, the chance to really tackle major Medicare reform, which we are all for, and I think we all believe should have --

REP. BILIRAKIS: So, you would do that outside of the scope of Medicare?

MR. FULLER: Pardon me?

REP. BILIRAKIS: The suggestion would be outside of the scope of Medicare?

MR. FULLER: It would be provided by the states, outside of HCFA and -- yes -- yes, sir. And, in fact, it would be similar to a state- based approach, Chairman, that you have offered as H.R. 2925.

REP. BILIRAKIS: That's just coincidental.

MR. FULLER: It is coincidental. But, we find much to recommend it.

My statement says and we really have applied three tests to our plan and to others. We said, look, first of all, there needs to be a sense of urgency about this. I've addressed that. It needs to be enacted this year.

Secondly, it needs to recognize and it ought to enhance patient care and patient outcomes. After all, at the end of the day, what we want to make sure of is that seniors are getting the kind of care they need. You raised, Mr. Chairman, in your opening remarks, comments about the role of pharmacy. I have great respect for insurance companies. I have great respect for pharmacy benefit managers. But, frankly, it's pharmacists that manage health care for patients, working with their doctors. And if we turn the program over -- or hope to turn some of these programs over to institutions that don't recognize the role of the pharmacist -- I'm not suggest that insurance companies don't recognize it -- but if we don't recognize the role of pharmacists clearly, the kind of program that Mr. Stupak, where a patient buys a prescription for $100, whether he agrees or disagrees with the price, for a drug that has to be used properly or it isn't worth anything, we're going to see a further erosion of the quality of patient care. So part of our plan and part of our senior Rx goal plan would specify the kind of pharmacy services that should be covered.

And, finally, and I'll close with this, the third question is a fair return of community pharmacy. Now, 10 years ago, 75 percent of people purchased their prescriptions at retail. Utilization has increased. The quality of pharmaceutical medication has dramatically increased. They are of tremendous benefits to people. Certainly, the cost has increased, but so has the whole process by which -- the processes evolved, by which we pay for this medication.

Today, most of the chains that I represent, 90 percent of the prescriptions are paid for by a third party client, usually involving a PBM, which has driven down the price. A CBO study, which I can provide you with, shows most of the costs are driven out by attacking costs at the pharmacy level. But, pharmacy, the margin is about 2 percent or less. They are not going to find much more savings there. And you are, in fact, making it more and more difficult for community pharmacy to provide the kind of services they should be able to provide. Perhaps I can discuss that more in some of the questions.

Thank you.

REP. BILIRAKIS: Thank you, Mr. Fuller. Mr. Kahn?

MR. KAHN: Thank you, Mr. Chairman. As you know, Mr. Chairman, over a decade ago, I worked long and hard on the last attempt by the Congress to develop a drug benefit for seniors in Medicare catastrophic. Later, I staffed the members, who led the effort to repeal that law, also. So, I have a deep and personal understanding of how truly difficult it is to develop a federal policy to assist seniors in purchasing drugs.

If nothing else, as has been pointed out today, I think it is critically important that seniors have full confidence from the get go, in whatever policy you develop, and that they understand there will be cost sharing, that cost sharing is found to be acceptable to them before you enact anything. This and other lessons of that Medicare catastrophic debate are important to draw upon, as the committee examines this complex issue.

I, also, assisted in the development of Medicare Plus Choice and share the subcommittee's concerns about the future of that program. I believe that the future of market oriented approaches to preserving Medicare depends on keeping Medicare Plus Choice viable.

Mr. Chairman, I believe there is a consensus today that seniors need help with prescription drugs. Advances in drug therapies have vastly improved medical care, as well as the very health of millions of Americans. However, at the same time, these advances come at a tremendous cost. A study done for HIAA and the Blue Cross Blue Shield Association by the University of Maryland projects that the nation spending for prescription drugs will increase by 15 to 18 percent annually over the next five years; I repeat, over the next five years. This reflects more than a doubling of annual drug costs to 212 billion (dollars) by 2004. These growing drug costs are clearly putting a squeeze on the nation's seniors.

Mr. Chairman, we all agree on the goal of helping seniors with drugs. But, as you and the subcommittee consider solutions, I urge you to weigh carefully the consequences of the policy alternatives.

The lessons of unintended consequences were learned well in 1988 and 1989. I will be happy to comment specifically on the new bipartisan drug coverage plan when the legislative details are available.

I can say, however, from my understanding of the proposal, it appears to provide a realistic approach to assuring seniors that coverage for drugs will be available to them, since it has a fall back. However, HIAA continues to maintain its strong conviction that the much discussed private drug only insurance option is unworkable and will not fulfill the expectations of seniors. In my written testimony, I provided a detailed critique, which elaborates on our company -- our member company's concerns. Additionally, as you consider options, because of the expensive nature of drug coverage, we are equally concerned that simply mandating that Medicare HMOs or Medigap plans cover our patient prescription drugs will not serve beneficiaries well.

Next, the bipartisan proposal recognizes that Medicare Plus Choice plans are severely underpaid and action is necessary now to save this important option that so many seniors depend on. Most Medicare HMO plans now offer prescription drug coverage. However, sustaining this benefit will be difficult, since payment inequities and regulatory burdens are major hurdles. Medicare Plus Choice cannot continue to offer even the basic Medicare benefits, if the status quo remains. Therefore, for a senior's drug program to be successful, Medicare must make a firm commitment to provide payments to Medicare HMOs that keep pace with escalating medical costs, including those for pharmaceuticals.

Finally, the proposal for a new Medicare board to replace HCFA has great potential. Our experience indicates that HCFA has had great difficulties implementing the Medicare Plus Choice program and a fresh start is needed. Last week, HIAA released a white paper by Bruce Freed (sp), the former director of HCFA's HMO office. The paper well documents the problems that have been -- that have caused many HMOs to throw up their hands and either exit all or part of the Medicare program. I urge you to review the Freed (sp) report and consider his recommendations.

In conclusion, I would like to reiterate the point that if the Congress and administration do not address the pressing problems facing Medicare HMOs, it will be difficult, if not impossible, to succeed at developing true market-oriented approaches to reforming Medicare.

Thank you, very much, Mr. Chairman. I'd be happy to answer any questions that the subcommittee may have.

REP. BILIRAKIS: Thank you, Chip. Ms. -- Dr. Feder, we've had the pleasure of having you here before us before and it's good to see you again. Please proceed.

MS. FEDER: Thank you, Mr. Chairman. Mr. Chairman, Congressman Brown, members of the committee, it's a pleasure to be with you this afternoon, to discuss the design of a Medicare prescription drug benefit.

In brief, it is my view, first, that a meaningful benefit is sorely needed. Prescription drugs have become a fundamental part of medical treatment. It is a travesty that prescription drug coverage has become a standard part of insurance coverage for the working age population and is still not provided to the population over age 65, who most needs the protection.

Second, it is my view that the way to provide the benefit is to build on the success of the Medicare program, not to pretend that a means tested voucher or reliance on a private insurance market can be any substitute for the financial access and financial protection that is achieved by a universal public program.

Let me elaborate. First, very briefly on the need, despite the widely recognized importance of drug protection, the sources of that protection are deteriorating, not improving. In recent years, we have seen a dramatic decline in the number of employers, who are providing prescription drug coverage for their employees; Medicare Plus Choice plans have restricted the benefits they are providing; and Medigap plans have to charge so much for their limited coverage, that it's hard anymore even to call that insurance. In short, the sources of protection are indeed drying up.

Happily, we see less debate today than even a year ago that the limited availability of affordable coverage is a significant problem; but, as shown this morning, we still see significant debate about how to address that problem. Some argue that public support is needed only by the low income population. That argument ignores lots of evidence and lots of experience. First, it ignores that the problem of affordability does not stop at incomes of 133 or 150 percent of poverty. An individual with 15 (thousand dollars), 16 (thousand dollars), or $17,000 is no better able to afford insurance coverage than an individual at 12 (thousand dollars) or $13,000. And for people with these incomes, even relatively modest expenses on drugs can be catastrophic.

Second, it ignores that means tested programs, in the words of Congressman Waxman, tend to be mean programs. They tend to pose barriers to participation, rather than promoting ready access. They are likely to offer lower quality care. Think for a minute whether members of Congress would like to be in the lowest cost plan. And, as compared with programs that bring together all -- people of all income, as Medicare does, they are likely to be vulnerable to inadequate political and financial support.

Some, also, argue that the appropriate vehicle for coverage is a private insurance market, again ignoring lots of evidence and experience. The Medigap and the Medicare Plus Choice markets show us that competition does not provide beneficiaries service and efficiency they can count on. On the contrary, competition creates tremendous uncertainty as to what plan or what benefits will be available to beneficiaries at any given time. And competition tends to divide the healthy from the sick and the modest income from the better off, as plans compete to get good risks and avoid those in need of service. It is disconcerting, at best, that even when insurers, themselves, acknowledge that they are not the ones to count on for stable, affordable coverage, that some, nevertheless, continue to insist that they can do the job.

Today's arguments about means testing and private insurance and even about the destruction of industry of the private sector are remarkably similar to the arguments that were made prior to enactment of Medicare in 1965. We rejected those arguments as a nation in 1965; it's time to reject them again.

Contrary to what some would have us believe, Medicare is an enormously successful program. It is time to incorporate the prescription drug coverage that ought to be there within it, according to Medicare's principles. In brief, the drug benefit must be designed to provide, not just claim, that it is a universal entitlement for all Medicare beneficiaries. That --

REP. BILIRAKIS: Please summarize, if you would, Doctor.

MS. FEDER: Absolutely. It must be affordable for all beneficiaries, which means subsidies must go across the income spectrum, so that we have universal participation to match universal entitlement and the benefit must be defined, specific, and uniformed for everyone, because we cannot have an entitlement unless beneficiaries know what they are entitled to. In sum, the evidence and experience makes clear that the right thing to do is to incorporate a prescription drug coverage into Medicare, not to invent or create an alternative that is doomed to failure.

Thank you, Mr. Chairman.

REP. BILIRAKIS: Thank you. Mr. Donoho?

MR. DONOHO: Mr. Chairman, Mr. Brown, members of the committee, my name is Patrick Donoho. I'm Vice President of Government Affairs and Public Policy for the Pharmaceutical Care Management Association. PCMA represents managed care pharmacies and organizations, who, as a substantial part of their business, is managing pharmacy benefits. We are the PBM industry.

I'm pleased to provide you some of our outlooks on views on providing the prescription drug coverage under Medicare. Our members currently provide care for over 10 million Medicare beneficiaries through employee retirement plans and Medicare Plus Choice plans. Collectively, they cover benefits for over 150 million Americans. We are pleased that many of the pending proposals recognize that it would be more efficient to use existing drug benefit managers in an expanded Medicare drug benefit program, than to attempt to recreate these capabilities in HCFA.

Let me give you our six basic principles that we think would make a successful program. First, the benefit should be delivered in a manner that enhances the health of seniors and the disabled. It is essential that the program not simply help pay for drug costs, but, also, protect the health of seniors. Some drugs are inappropriate for use among the elderly, others are used at different dosing levels and are appropriate for younger populations. Seniors without prescription drug coverage do not currently benefit from the safety of drug interaction screening mandated by over 90 for Medicaid recipients in presently and virtually all third-party programs.

Second, legislation should provide the benefit to the private sector. Competition among private sector PBMs deliver significant cost savings and has spurred innovation in the use of advanced technology for administering those benefits. A new drug benefit should embrace and promote competition among these entities and ensure the vitality of innovation through competition. We had a slight discussion yesterday in Ways and Means and repeated here today about rural coverage. Many of the plans in the private sector today mandate that you have rural coverage. I think there are 52,000 pharmacies in the United States and we have to ensure that we have coverage for the people in the plans that we administer.

Third, the legislation should retain flexibility and cost controls within the private sector. Prescription drug coverage for Medicare enrollees must permit pharmacy benefits managers to continue such programs, as pharmacy network management, formulary development and management, mail service pharmacies, disease management, prescription compliance and adherence programs, utilization review, and provide a profiling for adherence to best medical practices.

Fourth, legislation should encourage the continuation of current prescription benefit plans. A prescription drug benefit plan for seniors should contain some incentives for employers to continue to provide prescription drug coverage for their -- to their current retirees.

Fifth, a plan should be designed to protect beneficiaries against catastrophic liability.

And sixth, the goal of an agency overseeing the administration of a prescription benefit should be to foster innovation and competition. The legislation should not freeze in time the management techniques used today by PBMs.

In examining the various proposals that have been announced and introduced, we see much commonality. In particular, most proposals appropriately focus on PBMs, encouraging or mandating use of the latest tools to improve health outcomes and to eliminate medical and medication errors. Where proposals differ is on whether we, as PBMs, will have the flexibility to use our tools in management of the benefit. Any legislation that does not empower us, as PBMs, to negotiate discounts and the pricing concessions from drug manufactures and pharmacies, as we do today in private plans, will not be able to deliver in the anticipated cost savings.

We share the concerns expressed by the Congressional Budget Office and the General Accounting Office that political pressures and policymakers on PBMs might limit the tools available to a PBM, making it more a transaction processor than a benefit manager. We, also, share the concerns of some of the authors of proposals that HCFA is unlikely to favor competition over regulation. Therefore, we are pleased to see that some legislation envisions new structures for administering a Medicare drug benefit.

I'm willing to answer questions thereafter and we're willing to help you craft a bill. Thank you.

REP. BILIRAKIS: Thank you. Thank you for that, Mr. Donoho. Mr. Pollack?

MR. POLLACK: Mr. Chairman, thank you, very much for inviting us to lunch. I appreciate it.

(Laughter.)

MR. POLLACK: In my testimony, I focused on the need for a prescription drug benefit and for moderating prices. Here, I'd like to focus on the legislation that we've been talking about this morning, mainly because there appears to be a rush to mark up this legislation. And notwithstanding the fact that this is still a work in progress, I think we know enough to say there is reason for abundant caution. Clearly, the proposal looks much better from a distance than it does closer up. Let me suggest to you five areas that I would like to see us look more carefully at.

First, there's the question about the reliance on the private insurance industry to provide this policy. We've had ample discussion about this this morning. We know that the industry, notwithstanding the fact that it has been offered very significant subsidies, has balked at offering this coverage through its own private plans. But, we don't need merely the protestations of the industry to tell us that we have to look at this with abundant caution. We have experience with the Medigap program, which for many years has been offering a prescription drug benefit. And I would suggest, if I may, if you look at Appendix II that's appended to my testimony, one of the things we looked at were the difference in prices that people experience for very comparable policies, one that provides prescription drug coverage and another that does not.

Now, what we find, first of all, is that only 8 percent of American seniors in the Medicare program have opted into a Medigap plan that provides prescription drug coverage. This is a mature product and, yet, only 8 percent of American seniors have opted into it. If you look at the comparison between plan F and plan J, under Medigap, with J being the one that provides a prescription drug benefit, you'll see, on average, the price differential is over $1,700. It gives you good reason why it is unlikely that the industry is going to be able to develop a plan that's going to be usable.

Secondly, and if I can accentuate one thing, it is the second point, and that is I don't think that seniors are going to get good value for their premium dollar under this proposal. There are three reasons for that. One reason, Mr. Ganske has already explained, and that relates to adverse selection.

I'd be happy to discuss what I think is a real comparison between the potential adverse selection problems in the administration's proposal and this one. I think there's a major difference. But, obviously, there is a significant adverse selection problem.

But, there are two other concerns, and that is that Medigap plans use about 35 percent of the premium dollar on items that have nothing to do with claims benefits, whether it includes agent's fees, advertising and marketing, profits, and administration, it is considerably more expensive than it is under the Medicare program and that means less value is provided.

But perhaps the most important reason really goes to the question as to why the pharmaceutical industry sight unseen is giving us full page advertisements, telling us why they support legislation that has not even been crafted into language. But, I think the reason is very obvious. The pharmaceutical industry knows that if we establish private insurance policies, we're not going to have the same kind of marketing power that exists in the Medicare program. We'll have very organized bargaining power, when you have various insurance companies negotiating for seniors, as opposed to the Medicare program that can really bring clout to the table. And, frankly, that's the bottom line difference between this bill and the administration's bill. Under this bill, there would not be that bargaining power to reign in the prices and, as a result, senior citizens would not get the value that they would receive under Medicare.

Third, it is really absurd to now pull at the shred of the genius of the Medicare program, which is a program that brings people together irrespective of their age, irrespective of their health conditions, and irrespective of their income, and now, we want, in effect, provide a means tested benefit. Now, I don't want to take second seat to anyone and saying I support special care for the poor. But, as Judy Feder indicated, we're talking about a very miserly standard here. When we're talking about 150 percent of the federal poverty level, we're talking about $12,525 a year in income for a widow.

And if I may just refer you to Appendix VIII in the testimony, let's take a look at what the costs are for that widow and what a bite out of her income it will take, when she has just minor health conditions. If she has a problem with diabetes, hypertension, and cholesterol, she's going to take Gluophage, Procardia XL and Lipitor 10, an that's going to cost her as much as $2,295 a year. That comprises over 18 percent of her income, one out of every $6 of her total income just for those three pills, and we're saying we're not going to provide benefits for people at that income level.

REP. BILIRAKIS: Mr. Pollack, your time has long expired. If you could summarize with just a few seconds, I would appreciate. You will probably have an opportunity to make these points, which are very good ones, during the inquiry section.

MR. POLLACK: Well, I guess the last point I would make very shortly is the question about this fallback. What is this fallback? Is this fallback, in effect, going to be a public program for those portions of the population that the industry does not wish to serve? If it does, we're going to have wonderful segmentation. We're, in effect, inviting the insurance industry to provide coverage for those people, who are the easiest to cover: the least sick, the youngest, and those portions of the geography of our country that they think they can make a profit in. And, of course, then, perhaps the Medicare program would wind up holding the bag for all the rest. And I fear years from now, we're going to come back and look at --

REP. BILIRAKIS: Mr. Pollack, I'm sorry --

MR. POLLACK: -- and we're going to say the Medicare program is not functioning well.

REP. BILIRAKIS: -- I'm sorry to cut you off, but I've really got to move on. Ms. Davenport-Ennis, please proceed.

MS. DAVENPORT-ENNIS: Thank you, Chairman Bilirakis and members of the committee for your invitation to be here this afternoon. I'm Nancy Davenport-Ennis. I'm the Executive Director of two national organizations, one of which is the National Patient Advocate Foundation. Our organization supports public policy that ensures patients timely access to cutting edge therapies. Our affiliate, the Patient Advocate Foundation, provides oncology, nurse case managers, coding and billing specialists, and attorneys, to both consult and intervene on behalf of patients, who have faced denial of access to care in the health care delivery system in this country.

Based on the work of our organizations, we are pleased to share our ideas for the design and implementation of such a program. Our ultimate goal is a rational and valid prescription drug program that will meet the needs of all seniors, including individuals with serious and life-threatening diseases. Because of our experience with cancer patients and perhaps because I am a twice survivor of cancer, I am the mother-in-law of a cancer survivor, I'm the aunt of a now deceased 34- year old niece, who died after five-year battle with ovarian cancer, and perhaps because I have the opportunity to interface with case managers that served over 29,000 Americans last year, who were facing denial of care, many of my recommendations will be specific to the issue of cancer protection. I would, also, like to cite, for the record, that because I have not had access to the bill that has been introduced, I am here to talk about Medicare modernization and not to address specific tenets of specific legislation.

I'd like to go back to the evolution of cancer care and cite that Medicare does pay for prescription drugs, as you know, that are provided incident to a physician's services. Because most current anti-cancer drugs are administered intravenously by physicians, they are already covered by Medicare. Cancer patients have come to expect and, in fact, prefer dramatically care in the community setting. And I thank the Congress for their role in seeing that we have been able to maintain continuity of care in this particular area, with regard to the future of cancer care.

Medicare currently pays only for those oral chemotherapy agents that are a replacement for intravenous chemotherapy agents. Oral chemotherapy drugs that are not a replacement for existing IV drugs will be a critical part of cancer care in the future and cancer patients have expressed a strong desire to use these medications. Medicare reimbursement will play a key role in the acceptance and proper use of these drugs. It will not be sufficient for physicians to give a patient a prescription for these drugs and have no further responsibility for that patient's use of the drugs.

The payment system has recognized that these drugs will need to be monitored more carefully than many other self-administered drugs, because of issues of side effects and compliance. Therefore, physician reimbursement for supervision of this therapy must be adequate. In order to prevent financial disincentives against the use of these drugs, including the imposition of unreasonably large co- payments or coverage caps, oral chemotherapy drugs should be incorporated in the existing Medicare drug coverage system.

Our constituents, cancer patients and others with serious and life-threatening illnesses, will benefit from a new prescription drug benefit, only if it is administered fairly and consistently. In administering any benefit, it is essential that a balance be achieved between the availability of the benefit and the preservation of funding for the benefit. At times, it appears as though the balance struck by HCFA is weighted more towards preservation of financing than availability of benefits. I base that, again, on the fact that we have served so many Americans that have confronted problems with denial within the Medicare program. Last year alone, patients from 44 states contacted us for help, with regard to denial of Medicare benefits.

A series of agency actions, both recently and historically, confirm our concerns about HCFA's administrative approach. These actions include development of an outpatient perspective payment system that would have severely limited, if not eliminated, cancer care in the hospital outpatient department. The problems in this proposal were remedied legislatively after an outcry from patients and others.

We are concerned about the policy for injectable drugs and certainly the Congress has been successful, and once again, making certain that patients will continue to have access to physician point of service injectable drugs.

The issue of average wholesale pricing has, also, been a concern. HCFA has repeatedly sought to reduce reimbursement for Medicare outpatient drugs, threatening a situation where oncologist would suffer a loss of drugs administered to Medicare patients.

Cancer patient groups have made clear their objections to these changes, unless some modifications are accompanied by appropriate and adequate adjustments and chemotherapy administration fees.

With regard to clinical trials coverage, the cancer patient community celebrated a victory last Wednesday, when the president announced a policy of Medicare coverage for routine patient care costs for those enrolled in clinical trials. We are now quite concerned to learn that HCFA has prepared a program memorandum implementing the president's directive that would, in fact, negate the president's announcement on this fact.

REP. BILIRAKIS: Please summarize, Ms. Davenport-Ennis.

MS. DAVENPORT-ENNIS: I will be happy to. I am here this afternoon to say to each of you, we are most willing to share with you data that we have, as a result of our patient cases, that may be beneficial to you, as you design a new Medicare program that is going to work in the area of prescription drug benefits. We will be happy to share the specifics of what we feel would be important in that and we're most happy to answer questions from members of the panel this afternoon.

REP. BILIRAKIS: Thank you, ma'am. I -- you've been so patient sitting here all of these hours and sharing lunch with us, and, you know, so I really hesitate and hate to cut off anyone. But, we've got to have a structure, I suppose, in order to be able to function, so I hope you will forgive me, in that regard.

Ms. Eshoo, I'm glad to see that she's still here, coined a phrase earlier, which probably said it better than any of us could, when she talked about this problem being like putting socks on an octopus. It says it all, I think. It's just so very, very difficult, and to try to do it right -- not just to do it, but try to do it correctly.

I have as much -- personally, I have as much optimism, I suppose, as maybe all of us I like to think have, in getting the job done and getting it done this year. We have to be practical, will we be able to get it done this year? Politics is -- it certainly is a very large part in all of this, partisanship, things of that nature, not being certain that we've gotten certain parts right and that sort of thing.

So, I would ask -- raise the question, and Mr. Fuller touched on it, there are people out there that are hurting. And I know that a couple of you made comments about means testing and that sort of thing and I don't know -- for the life of me, I can't really understand when there's just a limited amount of resources available, why we can't rightly focus those resources for those who really more truly need it than others. But, that's beside the point. But, if we're not able to get the job done now -- I mean, Mr. Fuller referred to programs that are in place already, approximately 20 states around the country. Other states -- as I understand, the National Governor's Conference met -- I know they met up here just a few days ago, maybe a month ago or something like that, and I understand that one of their top priorities was some sort of prescription drug program in their states. Florida just recently completed their legislature and they are putting a program into place.

If we have these programs in place, what is wrong with until -- until we can get it right and make it a part of Medicare -- and I haven't heard, frankly, anyone in this Congress, and I won't say that they're aren't some, but I haven't heard anyone in this Congress say that prescription drugs should not be a part of Medicare. But, until we can get it right, what is wrong with maybe complementing, if you will, and supplementing those programs that already exists with federal dollars -- call it block grants, call it whatever you will?

They will then be able, I trust, if it's done right, to help even more people; maybe double, if you will, the number of people that they take care of. And, of course, if you take -- if you add to that, hopefully, some help for those people, who maybe don't qualify as being the very core, if you will, if you add to that the stop loss concept for those, who would not qualify for the subsidy, but, at the same time, have prescription drug costs that would be out of the roof and really run them into the hole -- so, I raise that question. Very quickly, I don't have that much time, if each of you can take maybe just a few seconds to respond to that, I'd appreciate it, negative or positive, whatever.

MR. KAHN: Well, Mr. Chairman, HIA believes that the issue you're raising is an important one, which is we ought to do now what can be done and clearly states are showing they can very rapidly implement these programs. It has grown from around 13 to about 19 in just a few short weeks, actually. And I think anyone at the table has got to admit that the current pricing of drugs is Byzantine and the complexity of adopting any kind of benefit, whether it's private sector or public sector, that's universal is such that it will take years. And so, we believe firmly that the best to do now would be to help those most in need immediately, because otherwise, it's going to be years.

MR. FULLER: I would just maybe supplement what I said by saying in the month that we've been working on this, we have seen the American Pharmaceutical Association come on board supporting it. They represent the nation's pharmacists. The American Society of Consultant Pharmacists, Food Marketing Institute, and the National Consumer's League all signed on to the programs. And we think there's growing attraction to this state-based approach.

I would, also, add that we would recommend that the program be sunsetted; that this not continue forever. Sunset in five years or whenever there is a major Medicare reform; but, we keep the pressure. It's the kind of pressure, in which there could be --

REP. BILIRAKIS: Yes. That would be a concern, you've got to keep the pressure on, that's for sure.

MS. IGNAGNI: But, Mr. Chairman, I think that without a doubt, in with the choices doing something or doing nothing, something is always better than nothing. Having said that, we have a time of tremendous prosperity in this country, probably like no other we've seen in a very long time. There are two issues that are -- remain to be addressed in health care and probably many, many others, but two large ones loom over us: one is the matter of prescription drugs, to update this 1965 benefit program; and the second is the matter of the uninsured, which looms large and will undoubtedly get larger, as the economy slows. So, we would say, on the part of our members, that we would like to sit with you, to sit with members of the minority and work together, to try, at this juncture, to address this unique opportunity to fulfill that promise that was made in 1965 to beneficiaries.

REP. BILIRAKIS: Dr. Feder?

MS. FEDER: I actually agree with Karen Ignagni, that the promise of Medicare of mainstream protection is no longer being fulfilled without the prescription drug protection.

REP. BILIRAKIS: Agreed; agreed.

MS. FEDER: Good. And the barrier -- the barrier really is political. Sure, it's hard to do the specific design and it takes effort and there is contention around it. But, we are capable of agreeing, as policy analysts, on a design. The greatest underlying problem that I see in reaching agreement is that rather than having a political consensus on the value of the Medicare program, the Medicare program, even its basic benefit, in addition to its administration, has been under siege for the last five years. And it seems to me that to go in a direction of very modest means test to benefits, which we know from the outset would be inadequate, is to walk away from what we need to do and have the resources to do, which is to strengthen and recognize and support the program that we know works.

REP. BILIRAKIS: But, in the meantime, of course, there's an awful lot of needy people out there, who would not have --

MS. FEDER: But that's because we're not willing to act. We can do it.

REP. BILIRAKIS: Mr. Donoho?

MR. DONOHO: Mr. Chairman, I guess -- you know, our association starts with the premise that Medicare needs to be reformed. We spent a year or more in the last couple of years studying this issue. What we're here today about is taking a piece of that study and enacting it for Medicare.

From what I understand, and I guess the concern I'd express, because our association hasn't taken a position on a state-based plan, is that once you give it to the states as a block grant or however you do that, how do you bring it back under a Medicare-style program? I mean, it's just a question. And once you get a program operating similar to Title XIX Medicaid, how do we achieve reform and how do we come back to it, in terms of Medicare, itself?

REP. BILIRAKIS: Which is a question that would have to be answered. Mr. Pollack?

MR. POLLACK: Mr. Chairman, let me tell you that we actually have worked with numerous states actually to establish some of these programs. Having said that, let me make clear what the impulse was on the part of the states and why I don't think it's the right direction to go here. The states have done this, because they've thrown their hands up and they said we're waiting for the federal government. We can't do anything else.

We are at a position today where we can do something much more significant. I have two -- I have three fears. One fear is that if we move in this direction, we are not going to keep the same sense of urgency about the real reform that we need. Secondly, these low- income programs have very poor participation rates. If you look at things like the qualified Medicare beneficiary program, the SLMB program, as well, they have very low participation rates, because they're treated very differently than when you have a universal program. And lastly, these programs do not have the opportunity of containing costs and containing prices. And so, if we don't contain those costs and prices, that benefit quickly will be less meaningful.

REP. BILIRAKIS: Well, all right. Ms. Ennis, very briefly, if you can, since you are last?

MS. DAVENPORT-ENNIS: I would like concur with remarks that Karen Ignagni made, in terms of the need to absolutely look at addressing prescription drug benefits while we have an economy that will allow us to do that. I think, also, from our experience, we must do something to deal with the uninsured population.

I would, also, have to say that based on our experience in state legislation, before moving to the federal level in that activity, each time that we worked on a state to effect reform, what we found was that the process was usually a slow process. It was a hit-or-miss process. We ended up with citizens in one group of states having one set of services and in other states, having no services at all.

With regard to the block grant program, we would share the same concern that has previously been voiced, that if we get it started at the state level, how are ever going to get it back? And, as you say, Chairman Bilirakis, there are so many people that are hurting and right now the one vehicle that we have available to them in all states is to try to get them into an indigent drug program, either through their state or through a pharmaceutical manufacturer. And I can share with you in great detail that that's --

REP. BILIRAKIS: Please don't today.

MS. DAVENPORT-ENNIS: No, I won't go in great detail, but I will share with you that it's very difficult to affect remedy for the at- risk populations that find themselves needing this help the very most.

REP. BILIRAKIS: Thanks. I asked for it; I got it.

(Laughter.)

REP. BILIRAKIS: Mr. Brown? I appreciate the committee's indulgence.

REP. BROWN: Thank you, Mr. Chairman. Mr. Pollack, you held up a larger, but a black and white version, of -- this was in Congress -- I think in Congress Daily today, private drug insurance lowers prices 30 percent to 39 percent, shouldn't seniors have it. Your point was that it segments the market and not using -- not using Medicare buying power, if you will.

There's another underlying perhaps inadvertent message, I think, that says something else; that is that in background, you hear the drugs companies over and over talk about $500 million -- costing $500 million to research a new drug. They've never really provided evidence of that 500 million (dollars), but that's the number that even the media sometimes accept without really any documentation. It's almost become part of the rap in this town, that it costs $500 million, no questions asked, even though 50 -- almost 50 percent of prescription drug research and development is paid for by taxpayers. That's rarely mentioned in all of this. The drug companies are going to see any action by Congress to reduce prices in any way would make the drug companies unable to do this wonderful, and it's wonderful, research that they do.

But, this ad says if all seniors had access to private market discounts in medicine, then on average, it would cost 30 to 39 percent less. Private prescription drug insurance is the cure. One-hundred- fifty million Americans don't pay full price for their medicines, why should any senior? Are they suggesting, in your mind, that if senior citizens could get a 30-39 percent discount, that they still would be able to do all of this research?

MR. DONOHO: I made that very point in testimony yesterday in the Senate with Allen Holmer (sp), the present of the Pharmaceutical Research and Manufacturer Association. In effect, they seem to be saying, come at us with 30 to 39 percent discounts. It's not going to be harmful to us.

The point you're making, I think, is amplified in Appendix XII to my testimony. If you look at the various companies, you'll see that they're spending considerably more on marketing, advertising, administration, than they're spending on research and development. They take considerably larger amounts in profits than they spend on research and development.

If I just might give you two illustrations. Merck spends three times -- two-and-a-half times as much on marketing-related costs than it does on research and development. It receives profits that are three times as high as what they spend on research and development. Eli Lilly spends one-and-a-half times as much on marketing and takes one-and-a-half times as much of research and development for profits. Clearly, if we moderated prices, it would not hamper the ability to undertake research and development, and the industry seems to be admitting this with their advertisement.

REP. BROWN: Dr. Feder, if I could switch to you for a moment. The republicans claim that relying on the private sector would permit flexible benefits and avoid a one size fits all approach, that Medicare has traditionally successfully used. Give us the downsides of that in a prescription drug program.

MS. FEDER: Sure. I think that the one size fits all language is intended to be pejorative and if we step back -- number one, we need to step back and look at what the one size that does fit all is being advocated; that being that we're saying that everybody is -- ought to be entitled -- very senior ought to be entitled to a defined prescription drug benefit. That kind of protection everybody does indeed need. So the label, itself, is misleading.

When they talk about flexibility, I think that they are implying that there ought to be a variation in benefits, a wide choice of plans, and we've heard a lot of problems in that argument discussed this morning. One is that the flexibility that is talked about, in terms of relying on a private market, is a flexibility to serve some areas and some people and not others. It is a flexibility and uncertainty that has plans coming and going from markets and changing their benefits, because that's the way the market works. So, we've heard a lot of discussion about the uncertainty that it creates for beneficiaries.

In terms of the flexibility of benefits, it means we -- as we've heard many others say this morning -- many members of the panels say, the committee say, that it creates concerns about what people can expect, as well as a competition in the marketplace that is designed to avoid risky patients, rather than to really provide care efficiently.

So, I would say, in all those respects, and add to them, the administrative costs and the marketing costs and the lack of knowledge that consumers will have going into a plan on what they are really getting with formularies, for example. That's what is being called flexibility is really confusion and fragmentation.

REP. BILIRAKIS: The gentleman from Pennsylvania, Mr. Greenwood.

REP. GREENWOOD: Thank you, Mr. Chairman. In a quick response to Mr. Brown's commentary, I would agree it would be a good idea for us to get documentation of what exactly it costs to produce a drug, because I know I use that $500 million for a drug figure and by virtue of this statement, I'd like -- hope that the pharmaceutical industry would provide us with that substantiation. I'd, also, like some substantiation of the gentleman from Ohio statement, that 50 percent of the profits of pharmaceutical companies come from -- are taxpayer funded, because that gets bandied around, too, and needs some substantiation. So, I'd hope we can provide the committee with that.

Mr. Pollack, in your testimony, you say that prescription drug coverage should be added to the Medicare benefits package, in such a way the beneficiaries have the same guaranteed coverage for drugs that they have today for hospital physicians and other Medicare coverage services. I want to understand what your proposal is. Would you assume that there's -- that the beneficiaries pay a premium for that

MR. POLLACK: Yes, I do.

REP. GREENWOOD: And would you assume that there's a co-pay?

MR. POLLACK: Probably, yes, with a possible -- with a probable hopeful exception for those of lower income, who would have that subsidized.

REP. GREENWOOD: You assume that there's a deductible?

MR. POLLACK: Not necessarily. It might; might not.

REP. GREENWOOD: Okay. Would you assume that there's a stop loss? In other words, would you assume that there's a cap, I should say, to beneficiaries have access to whatever the costs are, if it's 10,000 (dollars), 20,000 (dollars), 30,000 (dollars) --

MR. POLLACK: There should be a catastrophic benefit, yes.

REP. GREENWOOD: Okay. And what would that cost?

MR. POLLACK: Well, it depends on how it was designed. I'm not an actuary, so I'm not -- I don't think I can give you that cost and, of course, it would depend very much on a variety of factors. So, I don't know how I can give you an estimate of that without knowing the details.

REP. GREENWOOD: Well, in your testimony, you say we've been engaged in analyzing the implications of changes in Medicare program and Medicare beneficiaries for some time. You talk about your research you do and you come to the committee and made a clear recommendation. And I'm a little surprised if you haven't any idea what your recommendation would cost, because that's -- we have to --

MR. POLLACK: I did not say that we're coming in with a proposal. We said the approach should be to incorporate this into the Medicare program. There are many ways to do it and those different ways are going to cost very different amounts of money.

REP. GANSKE: Would the gentleman yield?

REP. GREENWOOD: Well, I'll yield briefly, Mr. Ganske.

REP. GANSKE: Thank you.

REP. GREENWOOD: I think people yield to you before and lose their time.

REP. GANSKE: One additional question to you, sir, and that is if it sounds to me like Mr. Pollack is saying that this should be a standard part of Medicare and that to me means that if it's like physician services or other services, that it is not voluntary.

MR. POLLACK: Well, Part B is voluntary and --

REP. GREENWOOD: Reclaiming my time, as the gentleman -- to further describe the gentleman's proposal, would yours, in fact, be voluntary or would it be a requirement that everyone participates in Medicare pay this premium, whether they already have coverage from their employer or not?

MR. POLLACK: I think the likelihood is that it would be voluntary. I think -- I don't think it's feasible probably politically to enact a plan that was not voluntary.

REP. GREENWOOD: In all due respect, Mr. Pollack, you spend a lot more time criticizing the proposals that are on the table than you have proposing something yourself, and all -- continued in all due respect, that's the easy part of this process. The easy part of this process is knocking other people's ideas; the hard part of the process is coming up with something that we can afford and that makes sense and I haven't seen that in your testimony.

Do you believe that the pharmaceutical industry ought to be nationalized or do you think it ought to remain in the private sector?

MR. POLLACK: No, I think the -- I think the pharmaceutical industry should be in the private sector.

REP. GREENWOOD: Okay. If you were going --

MR. POLLACK: But even in the private sector --

REP. GREENWOOD: Thank you for answering the question. Let me just get to the -- where I want to go here. If you were running a private sector pharmaceutical company, would you forego marketing, advertising, and administration of profits, or any of those?

MR. POLLACK: Of course not and I'm not saying they should. I am say, however, that when the industry keeps on asserting research and development is going to go down the tubes if we do something to moderate prices, I suggest to you that's very misleading --

REP. GREENWOOD: Well, let me --

MR. POLLACK: -- because there are much larger pots of money, including marketing, advertising, administration, and profits, that lower the amount of money that is spent on research and development. And to say that when we moderate prices, the only thing that's going to happen is that we're going to limit research and development is absurd.

REP. GREENWOOD: Well, the reality is that if you were running a company, whether you were making pharmaceuticals or whether it might be widgets, you can't survive if you don't have marketing. You can't survive -- and you can't compete if your marketing isn't robust. You can't survive if you don't have administration, unless management is going to work for free. You can't survive if you don't have profits, because nobody is going to invest in your company. So, research is the one thing that then becomes dispensable, because that's the one thing that's not necessary to survive. You can survive into the future without research, but you can't survive without those other costs.

MR. POLLACK: Oh contraire, I don't -- I just -- I don't believe that for a moment. First, I'm not suggesting at all that we should do away with marketing and do away with advertising. And I'm not saying there should be x amount spent on it or y amount on profits. That's not the point I'm making. But what I am saying is that when the industry tells us the only thing that's going to give is research and development, that's plain nonsense.

And it is in the industry's interest to undertake research and development. It doesn't do this merely for altruism. The reason it undertakes research and development is it brings new products to market for which they can make a profit. It is in the interest of any company to do research and development. But to say if we moderate prices, that the only thing that's going to be harmed is research and development, is a wild exaggeration.

REP. GREENWOOD: I'd love to respond; my time has expired.

REP. BILIRAKIS: I thank the gentleman.

Mr. Pallone?

REP. FRANK J. PALLONE (D-NJ): Thank you, Mr. Chairman. I wanted to ask Mr. Pollack a question. But, I mean, to me, I think you've been quite clear in basically suggesting that something like the president's proposal, that has a -- that is part of the Medicare program, it's universal, that, you know, is affordable, that has some kind of effort to deal with the price discrimination issue is certainly, you know, one way to go, and that you've been concerned about, you know, this Thomas -- I call it the Thomas proposal or republican proposal, as not accomplishing those goals.

And what I wanted to ask Mr. Pollack is that, you know, I try to get down the specifics and give an example, if we can maybe contrast the Thomas proposal with the president's, with an example, and I'm going to give you an example of a widow living at 150 percent of poverty, who has diabetes, hypertension, high cholesterol, no supplemental drug coverage, drug costs for medication to treat these illnesses consume over 18 percent of her income. What kind of prescription drug benefit does she need? And, you know, keep in mind the two options, the Thomas versus the president's.

MR. POLLACK: Well, clearly, the proposal we've been talking about this morning does not provide a subsidy for that individual. The way the plan is structured, as I understand it, is that it provides a subsidy up to 133 percent of poverty and then it phases down, and it phases completely out at 150 percent. So, this widow is provided with no subsidy whatsoever, and so she's going to have to bear the brunt of those costs.

Under the administration's proposal, there would be a subsidy, in effect, for everybody and so this individual would get assistance. There would be a significant contrast.

REP. PALLONE: I mean, I think that's the bottom line, is how this is going to apply to individuals. But, thank you.

I wanted to ask Mr. Kahn -- and I may have misunderstood what you said, but let me say if I can clarify it. You said that private drug insurance -- the private drug insurance option is essentially unworkable and you said how you were pleased with the Thomas having the possible fallback on a government program; and then you talked about how Medicare Plus Choice needs more dollars, particularly for drug coverage. Are you basically saying to us that -- I mean, I don't know what this fallback is, because that's been very unclear to me. You don't really want to see private insurance with a fallback. Wouldn't it make more sense to have some kind of a -- you know, Medicare program along the lines of what the president suggests to begin with, rather than have this private insurance with a fallback?

MR. KAHN: The president's plan presumes that Medicare Plus Choice will continue on into the future and Medicare Plus Choice offers a comprehensive benefit. We're only talking about a piece of that benefit when we're talking about pharmaceutical. So, presumably, whether it's the fallback or whether it's the president's plan, there will be money in there to subsidize the coverage in the Medicare Plus Choice plan for pharmaceuticals.

REP. PALLONE: And there is, in fact. But, I guess what I'm trying to pinpoint is, you know, I don't -- I think you were saying clearly that the private drug insurance option is unworkable. I mean, it doesn't seem to me to make sense to say, okay, we'll try that and if it doesn't happen, you know, we'll fall back on the government. I mean, it would seem to me to make more sense, if you really believe that the private insurance option is unworkable, to simply do something like the president, rather than hope that somehow, you know, we're going to fallback on something that's undefined, at this point.

MR. KAHN: Well, my member companies haven't chosen to endorse any of the universal plans. That's one of the reasons when the chairman asked the question, I answered positively about our member companies feeling about helping the low income elderly through the block grant. But, I guess my answer to you is that either the fallback or the president's plan, if it's universal, it answers your problem of making sure there is something for all Medicare beneficiaries, depending on how it's structured.

REP. PALLONE: Well, let me just ask one more thing, because I think my time is up. In the Thomas plan, what we're told is that, you know, there's a subsidy of like 30 to 35 percent. Do you feel that if there were a larger subsidy, that, you know, private drug insurance options would be workable? Is it just a question of the level of subsidy? Or you just think the idea is unworkable?

MR. KAHN: I think the idea is unworkable. I mean, let's say, in Part B right now, you have 75 percent subsidy and you have 98 percent compliance with a voluntary program. But, it is a universal program and, also, the premiums are collected with your Social Security check. So, there's a sort of big hammer there to make sure those premiums are collected.

I guess we have our doubt, both on the administrative side, the risk selection side, and just the cost in payment side of providing any kind of drug only benefit in any form. Drug only, I need to stress that, because Medicare Plus Choice and comprehensive benefits are fundamentally different than a drug only benefit.

REP. PALLONE: Thank you.

REP. BILIRAKIS: REP. BURR, to inquire?

REP. BURR: Thank you, Mr. Chairman. Craig, let me say to you, I hope you'll be happy when this bill is finalized, to read that we do understand the importance of pharmacists; but more importantly, we have written in language that will address the medication management, disease management function that many druggists around the country currently perform, and it's a very important part of the overall healthcare system today. It's going to be up to plans to determine some reimbursement; but, hopefully, there is a framework that has thought through everybody, who plays a role in this.

Mr. Pollack, let me go to you, because you were very specific on the 150 percent of poverty and that there not be a means test, and I don't think anybody has portrayed it as one. The president's plan cuts off at 150 percent of poverty. Does that make you objectionable to the president's plan?

MR. POLLACK: No. What the president does --

REP. BURR: The president's plan cuts off at 150 --

MR. POLLACK: No, no, no, no. What the president -- what the president does is very different than this proposal. Now, let's --

REP. BURR: Mr. Pollack, you haven't read our plan.

MR. POLLACK: Well, I've read what you have issued. You don't have a bill.

REP. BURR: Well, then, to make a statement that you just made, the president's --

MR. POLLACK: Sir, I can only go with what you have released so far.

REP. BURR: The president subsidizes everybody's premium, correct?

MR. POLLACK: Correct.

REP. BURR: He has 150 percent cutoff of poverty on where additional subsidies go.

MR. POLLACK: That is correct; that's correct.

REP. BURR: If Ms. DeParle is correct, that we use instead of a subsidy to the premium, we use our subsidy to buy down the high risk and by her statement, our subsidy might be a little bit larger, but we go to the same 150 percent of poverty, we're just using the subsidy not for the premium, but to buy down the high risk, now where is the difference?

MR. POLLACK: I think there's a significant difference. First of all, the subsidy that is provided, in effect, goes directly to the beneficiary and so it, in effect, pays for 50 percent of the cost of that benefit.

And I --

REP. BURR: Do you think first dollar of coverage --

MR. POLLACK: And I have --

REP. BURR: -- or long-term is more important?

MR. POLLACK: Pardon me?

REP. BURR: Ms. DeParle said that predictability was one of the primary objectives. And I think Ms. Davenport, you know, she speaks for the groups that are out there, but she didn't face behind this issue. Do these people want to know that there's a point they can reach in an illness in a given year and not have any financial exposure?

MS. DAVENPORT-ENNIS: Yes. I'm delighted to answer that question. Absolutely, the patients that contact us will say often, is there a vehicle for insurance for me that is going to tell me how much I need to pay; how much will be my co-pay; where will my stop loss be; what happens to me if I cancer or need a heart transplant and have a catastrophic event that I need coverage for; and what's it going to cost me when I'm 65, 70, and 75.

I brought with me today two stories of two Americans. One is a woman in Nicholasville, Kentucky, 68 years old. Her total income per month is $830. She is a widow. She has throat cancer. She needs to take eight maintenance medications for this cancer, to keep her in remission. The total cost of that medicine per month is $600 a month. She does not have $600. When she called us to help, she had been eight months with buying two medicines a month and each month, she would switch to another two medicines.

REP. BURR: And the reality is that --

MS. DAVENPORT-ENNIS: And the reality was --

REP. BURR: -- Part B probably has gone up, because of some medical need in the meantime.

MS. DAVENPORT-ENNIS: Absolutely. And then what we did was we assisted her in an application process to get her into -- it was referred to as SLMB program through Medicaid, which she is now paying a $45 a month premium for, but she can get the medicine and she can have the care. So --

REP. BURR: Well, hopefully, she'll have some options that might be less than the $45.

MS. DAVENPORT-ENNIS: Absolutely.

REP. BURR: Let me go on to one last thing for you and that's the issue of self-injectable drugs. I'm sure that you have watched HCFA, who had drugs that they reimbursed on, and the cost of technology now allow those drugs to be self-injectable. HCFA has determined they're no longer reimbursable. What comfort level would you have with that experience at HCFA, at putting them in charge of determining the coverage determinations of a new prescription drug benefit?

MS. DAVENPORT-ENNIS: I think for our organization and perhaps we are joined, I know, by other professional organizations in the country, the physicians and the nurses, we feel that the medical decision has to be made by the physician -- by the treating physician. And if the treating physician determines that a medication can be self-administered, is appropriate for that patient, we still want to see a vehicle for reimbursement for that American consumer to have. Our experience with HCFA, as we have seen program memoranda that have changed from state to state and medical director to medical director, is one of inconsistency. And inconsistency is a simple word for us to say today, but it's not a simple process to reverse, when it impacts an entire state at a time and you have to go through a process to change it.

So, to answer your question summarily, we would be very troubled, if we added another area of responsibility to an agency that, at this point, we feel as very good intentions, is over burdened, is understaffed, and we feel the issue of administering a prescription drug benefit program is a complicated program that needs a fresh approach, high energy, and complete attention to the details that would be part of that process.

REP. BURR: I thank you. Mr. Chairman, let me, also, point out for the purposes of the members, because I know Ms. Eshoo and others, we have worked aggressively for a number of years to try to change a policy at HCFA relating to immunosuppressant drugs, drugs that are needed to be taken by every person, who gets an organ transplant, for their entire life. Medicare's policy still is that we pay for three years. Now, we'll pay for an additional organ transplant, when they reject it, because they can't afford the continuation of the drugs. It is ludicrous for us to believe that we can have example after example after example and not consider a new entity to do nothing to administer --

REP. ESHOO: Would the gentleman just yield for a moment?

REP. BURR: I have no time.

REP. BILIRAKIS: The gentleman's time has expired, but I -- it is now the gentlelady's turn.

REP. ESHOO: It is now my time. Thank you, Mr. Chairman. I just the reason I was asking you to yield was to point out that Congress put what you just described in place as law on the books, and that's why we are trying through Congress, as members of Congress, to change that. But, that's not HCFA, okay. I mean, what's fair is fair.

REP. BURR: Regarding injectable drugs, though, you would agree

REP. ESHOO: Exactly; exactly.

REP. BURR: -- it was HCFA.

REP. ESHOO: Thank you. Every single one of the --

REP. BURR: The gentlelady would be happy to know that --

REP. ESHOO: Every single one of the panelists, I think whether members agree or disagree with different parts of what you've said, I think you're just absolutely terrific. I think if all of the members of this subcommittee, both sides of the aisle, and all of you could stay in this room for the next 48 or 60 hours, we'd really come up with something, because we've got the expertise here in front of us. So, thank you, very much.

I want to go to something that I think has been touched, but perhaps members don't have the clearest of understanding about, and that's the whole issue of risk -- of risk. Now, there are different ideas; i.e., proposals. The Thomas proposal, although it is not in writing -- again, I spent a lot of time at Ways and Means yesterday listening, and what I believe is the case with the Thomas proposal, which will be in legislation, is that the risk is assigned to insurers. Now, to Mr. Kahn, you were saying that -- and I think you've caused some people considerable heartburn, but, nonetheless, you know, I mean, you have said, look, we will not and cannot design a vehicle freestanding for drug only insurance. But, the Thomas plan assumes that the risk will be assumed, at least partially, by insurers.

Can anyone tell me who these insurers are and how you assign this risk? And I think that it's an important question; you're touching on some of it and others have in different ways. Medicare human beings are called beneficiaries. So, is there -- are they going to assume the risk? Are we, as a nation, through a system, going to assume the risk? Or is there a vehicle that's going to assume the risk and what is this vehicle?

So, in designing a plan, members, especially of this subcommittee, because we have a huge responsibility here -- or maybe we don't. Maybe it will be ripped out of this subcommittee and just be dragged to the floor, which has happened before, too. But, I mean, I want to be respectful of this, and who can answer this question for us -- not just me, but for us? Anyone want to take a stab at it? Maybe Mr. Kahn should start.

MR. KAHN: If there is a fallback or if there is a government -- a broad program, then the risk is spread and the taxpayers are paying part of it and the beneficiaries, through whatever premiums you charge, are paying the other part, and then they're paying whatever the co-payment is the cost sharing.

So, the rest of the risk is --

REP. ESHOO: I'll just jump in. I mean, it's some advertising for my legislation. I mean, we say that we encourage PBMs to bring the price down, whatever. Now, in the -- I believe in the Thomas approach, they're required to do that. So, you know, I mean, again, the whole idea of risk bearing, I don't --

MR. KAHN: You really need to separate the -- the role of the PBMs, they're the mediators --

REP. ESHOO: Right.

MR. KAHN: -- and they can contain the base cost and possibly the growth over time. But, they're -- I don't want to speak for them, but, I mean, I don't think they're waiting here to accept 100 or even 50 percent of the risk.

REP. ESHOO: No, they're not. It's not the way the work.

MR. KAHN: Because the dilemma --

REP. ESHOO: It's not why they work well either.

MR. KAHN: Right. The dilemma here is that you have many people who use no drugs and many people who use drugs in a very predictable way, because they have a chronic illness or because of their situation. And so, those who have a predictable use will want to buy the coverage and those who don't will be less likely to. So, the selection is obvious. And they you've got a product -- one product that you can't manage across the whole comprehensive benefit package.

REP. ESHOO: But does everybody understand this answer, though? I don't know if the members do; but, again, what I'm trying to do, as you are -- each one of you are, I guess, is to highlight the areas that we have to really be very concerned about, because if there is an assignment of risk to a vehicle -- because we're all dealing with words right now. I mean, you can dress up these vehicles. There was on the front page of something yesterday, where they can wrap automobiles. Well, there's like a vinyl wrap around this thing and we've got to know what the words mean. I would much rather be up- front and say, as a nation, we are going to assign the risk collectively to ourselves. And most frankly, members, if you're not willing to assign dollars to this, then you're not for a drug prescription benefit, because you can't do this on the skinny. You can't be skin flints and say we're for it. It won't work.

So, I don't know if anyone else wants -- Karen, do you want to take a stab at this risk business?

MS. IGNAGNI: Thank you, Ms. Eshoo, I appreciate the opportunity. I'm not talking about a specific proposal now. We, too, are looking forward to seeing all of the proposals and analyzing them.

But, just in terms of the issue of risk and how you go forth, one option that's been discussed by a number of members very well on the panel has been the issue of government program risk pooling. Another way that's often adopted in the private sector, and sometimes it works well and sometimes it doesn't quite frankly, but there are opportunities, I think, to build on it, which is the option of risk pooling. So to the extent you were taking catastrophic costs and aggregating them and trying to distribute those costs across a broad population and subsidizing from that, that's one strategy --

REP. ESHOO: I know what pooling -- risk pooling and that is. But, if we're going to design a benefit, I think the question that needs to be answered legislatively is who pays the risk.

MS. IGNAGNI: And I think that's one of the issues that the committee is going to need to zero in on, as you look at details of proposals. However, what we've seen is that there are ways to distribute risk, other than one particular approach, and I think that that would be part of the art of crafting the right proposal.

REP. ESHOO: Or, you know, in a cruder language, who is left holding the bag. And so, you know, we will have a revolution in this country, if, in fact, there is something that's designed and marketed to be one thing and then turns out to be something else. It's all going to come back on us for future members of Congress.

REP. BILIRAKIS: It won't be the first time, though, will it?

REP. ESHOO: Mr. Chairman, I think probably my time is up --

REP. BILIRAKIS: Yes, it is.

REP. ESHOO: -- but ask unanimous consent to insert these letters relative to this issue in the record.

REP. BILIRAKIS: Without objection, that is --

REP. ESHOO: Thank you, very much.

REP. BILIRAKIS: Dr. Ganske -- REP. ESHOO: And thank you to all the panelists. I think you're terrific.

REP. GANSKE: Thank you, Mr. Chairman. Well, I'm having a good time of this. It's much more fun to sit in front of you than behind you. At the Ways and Means hearing, they actually face you. I, also, think that there's a likelihood that this will probably be the last time this committee looks at this issue. It's my understanding that in Ways and Means, on Monday, or sometime next week, this issue will be rammed through the committee. Republicans will march lock step, vote for a bill, and it will come to the floor, and I think that that's unfortunate on this issue, because there are a lot of issues in the details that we need to know about.

There have been rumors, for instance, that there will be a provision in this bill that would allow private employers to opt out of their current promises on prescription drug benefits for retirees at ?some buy out.? Who knows what that would be. Who knows, you know, how much the taxpayer will be taking on for that provision.

When you talk about a government fall back program, if there are no private programs, would there be a government fall back program if, for instance, the Medicare beneficiary didn't like either of the two private plans? Where will that government program be? How do you compare apples to apples, in terms of benefits? We've gone over a whole bunch of issues today that need to be answered.

Ms. Ignagni and Mr. Kahn, you'd be happy to know that I'm not going to ask you any questions about managed care today, with patient protection -- patient protection at all. I'm not even going to ask you how much the republican leadership had to lean on you to mute your criticism of the ?plans,? as have been reported in the press.

I do, however, want to address the essential problem, which many of you have addressed, and that is that when you look at the current program and you look at those Medigap policies that do offer prescription drug, as has been so aptly described by Mr. Pollack, because only the beneficiaries that need it sign up for it, who have the expenses, then you end up with very high premiums and this gets to Mr. Kahn's and Ms. Ignagni's point about adverse risk selection. Now, you can cure that by requiring all Medicare beneficiaries to be in the program. However, as Mr. Pollack aptly pointed out, that's very difficult politically. And we're really looking, I think, at a political logjam on this. So, I want to go to then the other chart that Mr. Pollack pointed out, and that was, you know, for that widow living on $12,500 a year.

And my question ties in with the chairman's question. Now, he proposes a block grant, to somehow go back to the state. I propose additional funding to go into expansion of QMB, SLMB with a spend-out. So for instance, you could go for some specified percentage above those programs, so that if a person has additional pharmacy expenses, they'd deduct that from their income and then they get into the programs. And I honestly think, then, that if you add a prescription drug benefit to those programs, you'll see a much-increased participation, because seniors will really like it and that will take care of some of the objections that Mr. Pollack has. I think that, you know, in where we're at this year, I don't see the QMB program as welfare. I see this as assistance to people, who are above the Medicaid program, assistance with their premiums, and assistance with their co-payments.

Now, there -- you can say, well, maybe we shouldn't do anything on that right now, because that could take some steam out of a more comprehensive benefit later on. We see that argument frequently with bills on the Hill, don't we? You know, don't put a little benefit on there, because it could prevent overall reform. I think we're going to be facing overall reform regardless. But, I do see that for this widow here, that would be a significant help.

My question to you is this, okay: we've been talking about Medicare recipients a lot. This is a very informed group. I think we ought to be looking at the high costs of drugs for everyone. If you address that issue and you help the QMB, SLMBs, then you're going to be helping those Medicare beneficiaries, who are above them, with their prescription drug prices, just as you would be helping everyone else with their prescription drug prices. So, my question is this: what else can we do on this prescription drug cost problem that would have not just Medicare beneficiaries, but everyone? Do you have any suggestions for us on this? There are some proposals out there in Congress, as you know about. And we can start with Ms. Ignagni. That's my question.

MS. IGNAGNI: Thank you, Dr. Ganske. I'll be very quick, because I'm sure my colleagues want to interact on this question, as well. I think that you raise a very I important point. Remember, and you know well, that the increase in expenditure are roughly, according to researchers, one-third price, two-thirds use. To really need to -- what we've tried to do in our manage care programs is create formularies, create a range of strategies to, in fact, allocate resources as broadly as possible. And what we face in the context of patient protection discussion is a continuous chipping away and sometimes direct assault at many of the strategies that we've used.

And by the way, as we look at the president's proposal, we know he's talking about similar kinds of strategies to get costs under control. So, if both proposals contemplate that, we think we can build on that. But, you really need to look both at the use side and whether or not there's pressure to go forward with two drugs, when other drugs can substitute. How do we encourage generics and how do we get our hands around this issue, without necessarily and unilaterally agreeing on one solution that is probably going to be limiting in what can ultimately come out of it.

So, I think you're right, that this carries over to patient protection and a number of the strategies that have been proposed would do a very good job of continuing to get costs under control. It will be harder to do.

REP. BILIRAKIS: The gentleman's time has expired. Well, I think we have --

REP. GANSKE: Gentleman, could we hear from the rest of the panel on that?

REP. BILIRAKIS: If the rest -- if the rest take that much time, we're -- no, we -- I don't think we ought to give the rest of the panel --

REP. GANSKE: Are we going to have another round, Mr. Chairman?

REP. BILIRAKIS: I'm not contemplating another round. We've been here since 10:00 this morning.

REP. GANSKE: Could I have a yes or no question -- answer on --

REP. BILIRAKIS: By all means, a yes or no question.

REP. GANSKE: Yes or no. Okay, here's my question: should we repeal the advertising portion of the FDA reform bill?

MR. KAHN: Yes.

REP. GANSKE: Mr. Kahn said yes. Can we go down the line?

MS. FEDER: No comment.

REP. GANSKE: No answer.

MR. POLLACK: Yes.

MR. DONOHO: I'm not fairly versed on the issue, so I can't give you a good answer. I'd be happy to get back to you.

REP. GANSKE: Mr. Fuller, did I hear from you?

MR. FULLER: We have no position.

REP. GANSKE: Karen?

MS. IGNAGNI: Our members haven't taken a position on this. I think that if you begin to do it in one sector, you're under pressure to do it in others, and the question is, is that the right strategy. But, I don't want to preempt our members. They have not taken a position.

REP. GANSKE: Thank you, Mr. Chairman.

REP. BILIRAKIS: That was a very good question, by the way.

Mr. Stupak?

REP. STUPAK: Thank you, Mr. Chairman. In my opening statement, I showed this chart from my district, where we have different prices for the same drug -- with Zolcor (ph), whether you're in a federal supply service, major wholesaler, chain store, independent, average retail, average wholesale price. Any of the plans before Congress right now would stop this prices discrimination?

Karen?

MS. IGNAGNI: I don't know the answer to that.

REP. STUPAK: Mr. Fuller?

MR. FULLER: (Off mike.)

REP. STUPAK: Mr. Kahn?

MR. KAHN: No, they wouldn't stop it, but they would get some people better prices.

REP. STUPAK: Okay. Dr. Feder?

MS. FEDER: They would provide -- the president's plan, for example, would provide people for a specified premium, subsidized premium, drugs they could count on with known cost sharing. It would be very different in that situation.

REP. STUPAK: Mr. Donoho?

MR. DONOHO: I think my colleague, Chip Kahn, said it best, no, it will just change the market, in terms of who is available, to which price.

REP. STUPAK: Mr. Pollack?

MR. POLLACK: The administration's plan would do a great deal to reduce those disparities.

REP. STUPAK: Davenport-Ennis?

MS. DAVENPORT-ENNIS: Yes, and because, once again, we have not had an opportunity to review all the plans, our constituents have not taken a position.

REP. STUPAK: So the only way to get these prices down, to get them somewhat reasonable, so we don't have 134 percent difference, is who has the -- really the clout at the table, so to speak, to when they negotiate, on behalf of uninsured seniors, right, basically?

MR. DONOHO: Yes.

REP. STUPAK: Yes, yes?

MR. DONOHO: That's a very big factor.

REP. STUPAK: Okay. Let me ask a more specific question, then, Dr. Feder.

AAHP testified that many seniors, who wouldn't otherwise have access to drug coverage, either because they don't have retiree coverage or drugs -- they just can't afford them, can't buy them, so if they can't afford a Medigap policy that covers drugs, are able to get drug benefits through their Medicare+Choice Plan, won't we use that model as a way to get drug coverage to all seniors? There's been some instability in that Medicare Plus Choice market, but couldn't we provide extra funding, so that more plans would get back to the market and provide drugs?

MS. FEDER: I think what we -- we certainly can provide -- through Medicare and through Medicare Plus Choice plans, we can provide prescription drug coverage, but the way to do that is to incorporate it into the core benefit of Medicare and then have the plans offer that benefit. The way we're doing it now, and if I'm hearing you correctly, just put some extra money in the plans, it's available in some places and not available in others.

REP. STUPAK: Well, it's not in mine. But, at some length --

MS. FEDER: Correct, in some places. But, it is a function of where the plans find that given a -- given level of payment, they can profitably offer that benefit. And as we have worked over the last several years, to constrain Medicare costs and eliminate the deficit, we have constrained both fee for service and Medicare Plus Choice Payments, and we're finding that there's not as much room in this extra payment to offer this benefit. It's not a way to do it, because it doesn't guarantee the availability of that benefit everyplace. It should not rest on whether a plan wants to be there, whether they find it profitable. That's not the way to do it.

REP. STUPAK: Karen?

MS. IGNAGNI: I appreciate the question and I believe we have a track record that can be built on and with additional resources, that's a major start at moving in this direction. But, I don't want to mislead you about the need for additional resources now on the basic side before we get to additional. But, it's a model that can be built on.

REP. STUPAK: And I don't totally reject the model and if we had some more resources, maybe we can get there, but how do you overcome what I see, and maybe I'm using the wrong words, instability in the private market insurance? I still see a cherry picking going on. My district, they probably don't even offer it. I'm sure if I am 70 years old, I start having a battle with cancer, I'm sure I'm going to be dropped, because I get too expensive.

MS. IGNAGNI: Well, actually, Mr. Stupak, as you know, one of the accomplishments of our programs actually is to do a better job managing chronic illness. The existence of prescription drugs in most of the Medicare Plus Choice programs has actually recruited in not only the lower income, and the HCFA data confirm that absolutely, but people with the highest health care costs, because of our ability to coordinate that care and offer them more. That's, I think, a model that can, in fact, be built on. And in the rural areas, one of the major barriers, our health plans would very much like to serve the rural community, has been the unwillingness of single health care systems that don't have any competition to actually contract with our plans. So, we need to talk about that, as we think about going forward. We would love to be participating in your area and other areas where we haven't had the opportunity.

REP. STUPAK: Do you want to add anything further, Dr. Feder?

MS. FEDER: Just that I think it's critical that if you don't define the benefit, you're leaving too much discretion to plans. What you need to do is define the benefit and then have the payment mechanism that plans can know what it is that they're suppose to bid on or offer and proceed that way.

MS. IGNAGNI: And we agree with that. We agree with the defined benefit, for purposes of bidding.

MR. KAHN: And it's, also, important to point out that the pharmaceutical benefits that are generally offered now by health plans under Medicare Plus Choice are not as generous as the ones you -- all these different plans anticipated. So, there's got to be more funding to get those drugs at the level that these different bills anticipate.

REP. STUPAK: So, we're going to have someone ?negotiating? and you've got to have a defined plan, if that's what I'm hearing.

MR. KAHN: The plans can do the negotiation or work through PBMs. The question is the money.

MS. IGNAGNI: And define benefit --

REP. STUPAK: Defined -- yeah, you've got to have defined. Thank you, Mr. Chairman.

REP. BILIRAKIS: I thank the gentleman. Mr. Bryant?

REP. BRYANT: Thank you, Mr. Chairman, and the panel. It's been a long day so far. Let me just take you back on a couple of questions my friend from Michigan led us in to. Mr. Donoho, you've been quiet here for a while. Let me ask you a question directly. In your statement, you indicate that the drug benefit should be administered through the private sector and, also, the competition among private sector PBMs would deliver significant cost savings and spur innovation. In light of this issue of the cost that we've been talking about, the high cost of drugs, would you expand on your statement?

MR. DONOHO: Well, it's been our experience in the private sector, anyway, that the competition has spurred the cost savings. If you talk about decision directly let's take on drug costs, it's the competition within an PBM to -- in terms of formulary development, after you've done your P&T analysis, you've looked at your -- you've covered all of your classes of product and you find out that there are two competing products in the marketplace today, then you can go back and get a reduced reimbursement. The question, I think, in my opening statement was: has the federal government -- our concern, in terms of the federal government operating a program, is the fact do they have the will to put that kind of hard decision on the table, because the hard decision on the table, then, is to say to somebody, listen, this product, if you have competing plans, you can have choice; but if you have the hard decision of saying I'm not going to cover this particular product and then you've got no choice to seniors, then you've got a different kind of kettle of fish and you've got to have a prior authorization, like our plans do. But the question then becomes, and that's the way you get leverage to negotiate it, it isn't based on volume -- let me make sure that you understand that -- it's based on market share. If you can move market share for drug manufacturers, they'll negotiate on price. That's been our experience.

REP. BRYANT: Okay. Thank you. Let me jump to another issue very quickly, in terms of those of us that, in this whole concept, are, also, concerned with consumer protections. The bipartisan bill that we're talking about today primarily -- I would indicate that in that, for the first time, we create an office of beneficiary assistance within this MBA, this outside of HCFA agency that will administer this. It's an office of beneficiary assistance and its purpose is to provide education materials to the beneficiaries without the entire Medicare program. Within the office of beneficiary assistance, there will be a Medicare ombudsman, whose sole purpose is to assist beneficiaries, when they're having trouble with claims and appeals, getting access to care, and generally need help or answers to questions. Such a one-stop central beneficiary assistance oriented office does not currently exist within the HCFA and for those reasons I think, again, particularly the panelists on the end that are from citizen's groups and family groups and so forth, that, also, should be of interest there.

Ms. Ignagni, on the end, a question -- I think we've talked about this a little bit, but let me clearly get your response to this, in terms of the criticism of this bipartisan bill and building in flexibility that would allow health plans to provide a standard benefit or a benefit that is actuarial equivalent. That criticism that that would encourage health plans to develop proposals only to attract the health beneficiaries, cherry picking, how do you respond to that particular issue?

MS. IGNAGNI: Well, first of all, I think, as I understand the proposal, and I appreciate the question, it is to have a full benefit. There will be a clearly set out benefit. The concept of actuarial equivalence would then allow us to do better than the floor, which is what we do now in Medicare Plus Choice, as you know. We have a floor set of Medicare benefits. We meet that floor.

But because we are more efficient at disease management, coordination of care, etc., we can for the same dollar value offer beneficiaries more, which is why it's such a travesty that three weeks before the date on which we have to notify HCFA of what plans will be forced out of this program who are serving 6.2 million people, that we're not moving to do something about that.

We've taken heart that this committee in fact has made that a major part of its agenda over the years.

So the idea that actuarial equivalents would somehow mean that there would be no baseline benefit is not something that I understand this proposal before you, and we're all looking for the details to be.

So I think what we all are saying on this panel is we agree with the concept of a floor. That's where you start. We in the health plan community can do better than that for beneficiaries. We would like to be able to be given the opportunity to do better than that for beneficiaries.

REP. BRYANT: Just following up on that, I'm curious if you have an opinion about our move from the administration of this from HCFA over to an outside agency that we established. Do you think it would help planned health plans, do you think this would help health plans participate in the Medicare Plus choice?

MS. IGNAGNI: Two and a half years sago --

REP. BRYANT: -- on this on Medicare Plus Choice, as you know.

MS. IGNAGNI: Two and a half years ago there was a reorganization at HCFA which I believe based on what we've seen from the administrator recently, is an acknowledgement of much of what our members have said for two and a half years, that that reorganization has not worked.

The administrator herself, to her credit, has begun to A, recognize it; B, put in place in some strategies to respond to that.

The concept here is whether you set up a new agency within HHS or whether you aggregate the responsibilities of HCFA differently. We have to do things differently than the way we're doing it now. We have instability, we have no predictability with respect to the regulatory environment. We have 900 pages of regulatory compliance that we started with, but then virtually every two weeks there's been a policy letter which we have to comply with.

I'm pleased that the administrator has recognized this. She's moving in a particular direction. I think there are many options, and for us the most important thing is to aggregate these responsibilities, somehow make progress on the conflict within HCFA which is purchaser, regulator, competitor. How are we going to sort that out?

There was a model that worked well in the past. We're beginning to go back to that model. I think that's a big and important step forward.

REP. BRYANT: I thank the panel and yield back.

CHAIRMAN BILIRAKIS: Mr. Barrett, the current ranking member to inquire.

REP. BARRETT: Thank you, Mr. Chairman.

Mr. Kahn, notwithstanding the red tinge in your beard, I don't think of you as a flaming radical. (Laughter) And it strikes me almost as counterintuitive that you're here today representing the insurance agency and yet telling us that your industry feels that this approach that's being advanced has some problems to it.

It strikes me as again odd, although I must admit that my feelings run the same way.

Can you talk a little bit more, just about the adverse selection issue that you see out there that I've got to believe you think is a fatal flaw to this proposal or you wouldn't be so up front about it.

MR. KAHN: Let me say, I believe that in the case of drug-only policies and the fact that 35 percent of Medicare beneficiaries have no coverage and another number has sort of mixed coverage, you would assume that if this was a good product he would be there. It's not. There are not companies seeking to do it, and actually those companies that have supplemental policies, the H, I, and J, a lot of companies have left that, and there are a few companies left in it, but they're not enthusiastic about that coverage because they end up paying actually there the highest prices just like the beneficiaries who have no coverage.

But I think part of the adverse selection issue goes down to this. You've got some people that don't use any drugs; a very large number that use between $500 and $2500 worth of drugs which can be significant on somebody's budget, particularly if you're just living on social security or a little bit extra above social security, but at the same time that's not enough money to call it catastrophic.

And the fact is only four percent of expenditures for drugs is over four percent.

Actually, one of the interesting things here for the elderly is that drugs are different from all other kinds of health expenditures. In all the areas of health, when you look at the total, most of the spending is done by a few people. The trouble with drugs is it's done by many people and it's frequently predictable, and that's why we don't think you could sell an affordable policy.

At the same time, there's another factor. I'll just take -- I wish I had copies of this chart to pass around.

The HCFA actuaries projected drug costs in March of '99 and they thought that by 2007 they would grow to about $170 billion. Six months later, they decided no, they were wrong, looking at the market, seven or eight years out they'd be at $223 billion.

The point I make is that when an actuary looks at numbers like that and that kind of volatility, if he's stuck or she's stuck with a recommendation for a premium on 399, and the insurance commissioner or whoever says that's the premium, then when they go back and say wait a second, we miscalculated because there's a new report now that says six months later that we were wrong, they're going to be stuck. That's how the actuaries look at this. This is just not an individual benefit that we can provide insurance for.

REP. BARRETT: Ms. Davenport-Ennis talked about your patients or your clients, and say a person with cancer or a person with a disability.

I'm going to ask each of you just a yes or no question. Do you think that there is a private insurance company out there that would sell a drug-only policy to a person with cancer, and that person, say at 200 percent of poverty, could afford it?

Ms. Ignagni?

MS. IGNAGNI: Our plans would do it in the context of Medicare Plus Choice.

REP. BARRETT: That wasn't my question. My question was a drug- only policy.

MS. IGNAGNI: It depends on what the rules are.

REP. BARRETT: What do you mean, it depends on what the rules are?

MS. IGNAGNI: We haven't seen the proposal, we're looking forward to seeing the proposal.

REP. BARRETT: But I think we understand what we're talking about here. It would be a private company --

MS. IGNAGNI: Let me give you an example --

REP. BARRETT: I don't want an example.

MS. IGNAGNI: Okay. Well, if you want to understand the answer I need to give you an example.

REP. BARRETT: I'll go to Mr. Fuller.

MR. FULLER: I really have to yield to the people in the insurance -- I don't know.

REP. BARRETT: Intuitively, what do you think?

MR. FULLER: No. I can't speak for all companies but at least my own, I doubt they would offer the policy in the first place.

REP. BARRETT: Dr. Feder?

DR. FEDER: I'd defer to Chip Kahn.

MR. KAHN: I don't know.

REP. BARRETT: Intuitively, as a businessman. Would you sell this product -- Do you think you could make money selling a drug-only insurance policy to a 68 year old woman making $20,000 a year who has breast cancer?

MR. KAHN: Intuitively, maybe not. Probably not.

REP. BARRETT: Mr. Pollack?

MR. POLLACK: It may be possible. I wouldn't take the odds with me to Las Vegas.

MS. DAVENPORT-ENNIS: I guess that as a ten year survivor, and one who does not have to take medications to deal with my former diagnosis, I would not be able to answer you as a specialist. I would only be able to say that if you bet the odds on me you would have done all right in selling the policy, but I can't answer the question for the community.

MR. KAHN: Mr. Barrett, excuse me, but I think you really ask the wrong question. The question is, are there enough people who are well but concerned that they might have a risk that would buy the policy so that you could sell it to the 68 year old who already has --

REP. BARRETT: Why would I buy the policy if I were well?

MR. KAHN: In our society people buy insurance every day for a lot of reasons. My point is that if you could get enough people to buy insurance in this case, you could insure the risk. Our concern is that those people who are well now, because of the costs in the payoff year, are not likely to buy it.

REP. BARRETT: My time has run out, but let me follow up on that then.

If this bill became law tomorrow, a 40 year old man, 40 year old woman, would they buy this policy? Of course not.

MR. KAHN: I would say a 65 year old who was perfectly well would probably not buy it, and that's the problem.

REP. BURR: Would the Chairman entertain a question? The acting Chairman?

REP. GANSKE: The Chair would recognize the gentleman for one minute.

REP. BURR: Thank you. Maybe the Chair could help us on this, because this is one of the details of the plan that we don't know about. That is, will everybody when they turn 65 be given one chance to enter this? Or will you have an annual chance to get into this program? Most people, if they have an annual chance, and they have no prescription costs, will not. But they may think well, maybe I'll get, maybe I'll need some prescription drugs in September or August. I could just eat those costs until January 1 comes up and then since I need the drugs then I'll get into the plan.

Can the Chair answer my question? Is there an annual up for this? Or is this a one-time offer? Or is the detail being worked out?

REP. BURR: The Chair is not on today's panel, but I'd be happy to turn that over to Mr. Kahn. (Laughter)

MR. KAHN: I haven't seen the bill. This is an important question.

REP. BURR: It is an important question, and the gentleman's time has expired.

The Chair would announce to the members that we're going to do a second round.

Has the gentleman from Ohio gone yet?

REP. STRICKLAND: Nope, I haven't.

REP. BURR: Then the Chair would recognize Mr. Strickland for five minutes.

REP. STRICKLAND: Thank you.

This is a fascinating hearing. I'm glad we're having it. I think if we've kept our ears open and listened we've probably learned a lot.

I'd just like to say, Mr. Fuller, you make a statement in your testimony that you think the highly efficient community pharmacy infrastructure needs to be protected, and I feel the same way.

Are you familiar, sir, with Mr. Allen's bill? And if so, would you tell me what you think of that bill and why you either think it's a good idea or a bad idea.

MR. FULLER: First, I thank you for sharing the concern about community pharmacy. I also appreciate the comment that the Chairman made earlier that some of the provisions that we've talked about are in fact being incorporated into the legislation.

I'm familiar with the Allen bill. I probably am not going to satisfy you. We have not taken a position on it. Our companies have not taken a position on it. We're concerned about a number of elements in it. Any kind of price control mechanism philosophically is a concern to us, no matter who it applies to because it at some point is going to trickle down to the pharmacy and be in force, so we're concerned about that. We haven't taken a position on it.

REP. STRICKLAND: Thank you.

I continuously hear comments from seniors who are concerned about the cost, and I think the cost is something we ought to be concerned about as well. And we know that as Mr. Pollack has said in his testimony, that tax dollars are used to promote research and that research leads to new pharmaceuticals and those pharmaceuticals are sold to consumers -- to American consumers and to foreign consumers. And I don't think there's any real debate about the fact that foreign consumers, pharmaceutical medications, pay significantly less than American consumers. And you're here because you're experts.

I would just like your personal opinion. You don't have to even speak for the agency or association or university you're with, but I would like your personal opinion.

Do you think the government should be concerned about that and should try to find some way to keep American consumers from experiencing this type of price discrimination given the fact that so many of these pharmaceuticals are developed with American tax dollars in part?

MS. IGNAGNI: I do, Mr. Strickland, and I think there are other ways, however, in addition to price controls that one can get at that issue.

MR. FULLER: I think we have to be concerned about it, and certainly we're seeing seniors every day that are going across the border to get drugs. There's proposals to allow drugs to be purchased internationally and brought here. There's concern. So I think it's going to have to be examined pretty carefully.

I would add that there's also very noticeable differences in the availability of certain drugs and medicines, both generic as well as branded drugs in these countries that control prices, so there are some offsets here that you would also have to take into consideration when you look at the overall issue.

MR. KAHN: I think there needs to be a complete reevaluation.

I'm not an expert in trade law, but of our trade law. It would be good to put some pressure on the rest of the world because it doesn't make any sense for us to pay the basic price and everybody else to pay the price at the margin.

DR. FEDER: I guess I'd look at it from the opposite perspective. I think the reason it is this way is because everybody else in the world provides everybody in their country health insurance and decides what essentially they're willing to pay. We don't do that in this country.

There are many ways for us to consider beginning to lower what we're willing to pay and I think that's what we ought to be doing.

MR. POLLACK: I think we have to be concerned about price controls, and being an American I think I'd turn around and say maybe we should look at designing a system to take better advantage of competition within the system.

If you look at what we've done on price controls to date, like on Title 19 Medicaid, what's the impact been? And like our people's business, since you have a best price can we negotiate down below best price without impacting the Medicaid program?

We've got competition in the market. How do you design a system to take advantage of that competition I think is the answer we'd give.

MR. DONOHO: Mr. Strickland, I would say that we need to do something not just because there are inequities from one country to another. This is an affordability crisis for a lot of people. That's why we need to do something.

I don't think we need price controls. I think we need to give the Medicare program the same kind of leveraging authority that other institutions have. Hospitals, HMOs, others, they use their leveraging authority to get prices down. We should do the same thing for seniors through the Medicare program.

MS. DAVENPORT-ENNIS: Certainly I would agree that for our constituents there is not a patient that we deal with when we get into debt crisis resolution as a result of their diagnosis that the cost of all health care does not become problematic for them including the cost of pharmaceutical agents.

As we look at many discussions in which we talk about what the pharmaceutical agents are sold for abroad, what they are sold for in America, there are three conclusions that we come back to routinely. Why is that happening? What are the pressures that we can put in place in this country to look thoughtfully at why is there such a wide variation from this country to another country? And what can we do to empower the individual consumer in America, and particularly the senior consumer, to negotiate for the most attractive prices available to them in purchasing the agents that they need.

We are not a part of the pricing structure for the pharmaceutical industry. Therefore we don't have any concept of how those figures are originally introduced to the market, and I think it's a fair piece of the evaluation, that that would also have to be looked at as a nation.

REP. STRICKLAND: Mr. Chairman, can I make a concluding sentence?

REP. BURR: The gentleman may.

REP. STRICKLAND: We hear about the world economy and the fact that we're a part of it, but as long as other nations have controls and our nation does not have some control, it is inevitable, it seems to me, that the American consumer is going to subsidize the foreign consumer.

Thank you.

REP. BURR: The gentleman's time has expired. The Chair would recognize the gentleman from Iowa, Dr. Ganske, for five minutes.

REP. GANSKE: Thank you, Mr. Chairman. I want to try to get a handle on the Medicare HMOs, and Ms. Ignagni you can help me on this. There have been a lot of reports about the Medicare HMOs dropping out of the market because you haven't received a large enough update increase.

Are we seeing Medicare HMOs drop out of markets where their AAPCC is say above 450?

MS. IGNAGNI: We have, and we may as July 1 approaches. I think that one of the things that we're working very hard, and are looking forward to working with this committee is trying to avoid that, stabilizing this program, and continuing to allow this to be a choice for people because they can receive so many benefits. These are people on very fixed incomes, limited means.

REP. GANSKE: This is even despite the fact that Medicare HMOs are increasing their deductibles and co-payments for their prescription drug coverage.

MS. IGNAGNI: Yes, sir.

REP. GANSKE: Just so everyone is clear, the Medicare HMO is paid on a monthly basis per enrollee an amount determined by a formula called the AAPCC, adjusted per capita cost something.

How much additional funds do you need for a prescription benefit do you think, for Medicare HMOs to be able to continue to offer prescription drug coverage?

MS. IGNAGNI: First of all, sir, I think the first thing we need is to stabilize the program. Before we get to additional benefits we need -- There's a great deal of unfinished business to fulfill that promise that was made to people in 1997 that they would have a choice.

One of the most effective strategies there is to impose a safety net so that the purchasing power of the Medicare Plus Choice capitation or reimbursement to the plan is actually keeping pace with what the costs of purchasing health care from the academic teaching centers, from the physicians in that community, et cetera.

What we have is a major problem because we've lost that relationship.

REP. GANSKE: So you would like to see an increase across the board.

MS. IGNAGNI: Across the board --

REP. GANSKE: So for instance there are some counties where the payment for a senior citizen could be as much as $750. What you're saying is that those, in order to stabilize your drug benefit programs, even for those in those areas they need a higher increase in their adjustment. Is that right?

MS. IGNAGNI: Yes and no. Number one, we have to stabilize those programs across the country, and there are a range of strategies to do that. We have to deal with the particular problems of the blend, counties, making sure that that's funded, irrespective of what happens on budget neutrality, et cetera. Number one.

The floor issue, number two. We have to have a better risk adjustment system than we do now. The one we have on the table does not work, is not encouraging disease management or the kinds of strategies we've employed so well.

Once you do that, and that can be done and it can be done this year. Once you do that then you need to do something additional for the prescription drug question.

REP. GANSKE: You're telling me you're seeing Medicare HMOs drop out of AAPCC areas that are significantly above $450. And we heard in Ways and Means yesterday that they're talking about raising the AAPCC to a floor of $475.

Now that's only about $50 higher than what it currently is in Des Moines, Iowa where there really aren't any plans being offered.

How high would you have to get that AAPCC to see HMOs move into more rural areas where there have been lower AAPCCs? Because we know in the rural areas we have a disproportionate number of very elderly that have a higher percentage of prescription drug costs than in some of the more urban areas.

Do you have any ideas what levels we would be looking at?

MS. IGNAGNI: In many cases, Dr. Ganske, and I know that you know this because we've had some discussions about it, that this issue about presence of Medicare Plus Choice in rural areas in many cases has little to do with payment. It has much more to do with whether a provider system, often with no competition, is actually willing to negotiate with the health plan. In a number of situations because there is not competition in the market in the provider community, individual systems are unwilling to contract.

REP. GANSKE: I understand there are other factors that enter into it, but it would appear to me that on the face that one would have to significantly increase that floor above what I hear is currently being proposed. I think you're looking at something more in the range of $600 or $650.

MS. IGNAGNI: I think if we think that the way to solve the Medicare Plus Choice systemic challenge now is to only increase the payment in rural areas, then I think we're kidding ourselves and I think we will let a number of beneficiaries down. There is more that needs to be done.

I'd be happy to spend some time with you on some of the specifics because what I'm excited about is people are beginning to talk very specifically about them.

REP. GANSKE: Yesterday Mr. McDermott asked Chairman Thomas a question about well, if studies have shown that payments to Medicare HMOs have actually cost more than what they would have, and you're familiar with some of those studies, why is it that Republicans want to move Medicare beneficiaries, all Medicare beneficiaries into HMOs? And Mr. Thomas said this, and I'd like your response to this.

He said, "Well, that only tells half the story." In other words, he agreed with the initial premise. Then he said, "We'd like to see competitive HMOs."

Is it your position that you would like to see the majority of Medicare beneficiaries in Medicare HMOs?

MS. IGNAGNI: I think we offer opportunities for Medicare beneficiaries. Right now in the here and now, and I couldn't responsibly answer any other way, we have to build capacity to accommodate all beneficiaries, so I don't want to mislead you about that, so I wouldn't make that promise. But what I can actually tell you is these, the systems that we have have done a better job in managing the chronic care challenges of people who are over 65, and the literature is beginning now to support that.

So we have coordinated care, we have early intervention. But what we've done is create a promise that hasn't been funded. So we need to do the second step which is to fund the promise so that more and more seniors can take advantage.

And there's no lack of interest. There's a great deal of interest. But now because plans have been forced out, seniors in fact are faced with situations where in many markets there is not a plan, or likely to be no plan in the future. And that's not what we promised in '97, and that's not what people indicated they wanted. We have the highest degree of satisfaction in the Medicare population in our health plans because of the comprehensiveness and the breadth of the intervention here, and we want to be able to partner with the best physicians and best facilities around the country to continue to do this job.

REP. GANSKE: You are an effective spokeswoman. I would point out that sometimes patients when they get sick decide to leave Medicare HMOs and then go into fee for service and there may be some adverse risk selection.

But I appreciate the Chair's indulgence. Thank you.

REP. BURR: I thank the gentleman for his question.

The Chair would recognize Mr. Deutsch.

REP. DEUTSCH: Thank you Mr. Chairman.

Ms. Ignagni, if I could follow up a little bit on some of the questions that Dr. Ganske was talking about.

From your perspective why is it important to stabilize the Medicare Plus Choice program if we are going to eventually have prescription drug coverage for all Medicare beneficiaries even who are not in Medicare HMOs?

MS. IGNAGNI: Because I think we can build on this model and we can do better. So to the extent that you establish a floor benefit package, however you construct the proposal, whether you look at the bipartisan proposal, where everyone is looking for the details, and we're looking for them as well, and will be looking to analyze them; or the President's proposal; or the Democrats' proposal that we've seen thus far. I think there is a broad scale recognition that once you establish a floor, because of the nature of coordinated care systems we can do more for seniors, and we're looking forward to doing that.

But we can't build on that track record unless we stabilize the existing program.

REP. DEUTSCH: It's interesting, in my district I have both an urban setting, a traditional health care urban setting, and as you're aware also, Monroe County, the key is actually technically a rural health system because Monroe keep [tape skip] a competitive HMO market. And in fact one of the phenomenon is people using fake addresses to actually get prescription drug coverage because they can't get HMO coverage and the only way they can get the prescription drug coverage is by using a neighbor, a friend, a relative's address in a county that has an HMO that services -- which is illegal, and I don't know the enforcement side of it or how much enforcement is going on. But it sort of talks about the problem.

In terms of just seeing how many join HMOs because of that need, do you have any feel or any empirical data in terms of that marketing tool, that coverage of prescription drugs, what it means?

MS. IGNAGNI: We know that a number of beneficiaries have joined our plans because of the existence of prescription drugs. So the tenor of your question is absolutely right.

However we also know, and I think the next point is not often recognized or not recognized enough, that people on fixed incomes value the cost containment protection number one, the cost sharing protection, I'm sorry.

The second that they value, element of what we provide, is this notion of catastrophic coverage which as we've heard this morning was embarked upon in the traditional Medicare program, and then ultimately that was repealed.

We continue to offer not only cost sharing protection but catastrophic coverage, and that's a very, very strong value for individuals on a limited income.

REP. DEUTSCH: We had about five minutes on our introduction, let me sort of follow up, and it's really not a question, may a rhetorical question. But I think one of the interesting things about prescription drug coverage, it's really sort of fascinating talking to constituents -- not just Medicare constituents, but people's parents are on Medicare, but also I think what's really interesting is talking to physicians who are not participating in HMOs, how supportive they are of prescription drug coverage. Because I think physicians who I've talked to literally see people leaving their practice because of HMO coverage because they have someone who is a middle class senior who's spending $500 a month on prescriptions and that person, even though they don't want to leave their cardiologist or whoever, effectively they don't have a choice and have to join an HMO to get the prescription drug coverage. And they know that if there was a prescription drug coverage under Medicare, that's a person who they see, who they talk to, who they know as a patient, who wouldn't leave.

It's kind of a strange phenomena.

If anything, we keep trying to shift the pendulum where it's an even choice, where consumers really have a choice and it's level, and in some cases, maybe the incentive to join an HMO has gotten too high. Reimbursement might have been too high. The extra benefits, health care benefits everything else, might be too much, and then this sort of, we've leveled it maybe now the other way. So this can kind of level back.

One of the interesting things that maybe you can share as well, and if anyone else on the panel, let me just open this up as well to anyone else who wants to respond. But one of the issues that we have talked about in prescription drugs is the actual potential cost savings of providing prescription drug coverage. Because avoiding adverse health consequences because people don't tale it.

From the HMO perspective, where you're basically indemnifying the person, do you have empirical evidence to sort of talk about your savings, about people getting the drugs regardless of their cost, which is effectively the way HMOs can do that.

MS. IGNAGNI: Yes, because the existence of prescription drugs allows us to do the early intervention to prevent the catastrophic illness down the road. There's no question about that.

REP. DEUTSCH: Does anyone else want to respond to that?

MR. POLLACK: I'll give you a real life example. One of the issues with the elderly is hypertension. If you look at hypertension in a managed benefit, hypertension non-compliance is about 49 percent. If you look at that about a third of them, this is a study done by one of our members, if you look at a third of those require hospitalization. The average hospitalization is at $15,000 a year.

So if you can increase compliance, if you can maintain people on hypertension, look at the money that you're saving. It's just one simple study.

MR. KAHN: I think we're looking at Medicare from the standpoint of drugs because of the discussion today, and I think you tend to get a little bit perverted. I think from the standpoint of the beneficiary, you're describing how they join HMOs because in a sense they get a deal, and that's why they give up fee for service.

I think we have to, and I can't say this year or next year, but there is a point in the future where in a sense Medicare Plus Choice isn't the problem, fee for service Medicare is the problem. Because whether it's home health, skilled nursing facilities, outpatient hospital departments. I've spent 13 years working on payment policy and I can tell you it's about over.

The way HCFA applies the rules that Congress passed is such that it's going to be very hard for the infrastructure through this old fee for service system to be sustained. I don't know what the crisis is, and obviously in the skilled nursing facility area you can make the argument there are a lot of people that came in and abused Medicare for years. A lot of providers. You can see what the stock market is doing to them today. Half of them are in bankruptcy.

But the point is that from an infrastructure standpoint to serve the beneficiary, I think the fee for service system is extremely sick and that if we let the managed care infrastructure fade, which it's about to do, I think we're going to have some real organizational problems in terms of how to get services to beneficiaries. And this is a serious problem.

There are a lot of physicians now that don't like to take fee for service Medicare because of the way Medicare pays.

DR. FEDER: Mr. Deutsch, I can't let that one stand. I deferred once to Chip, I can't do it again.

It seems to me that what we have, there is an ongoing issue in managing the Medicare program which I think is intrinsic to managing a health insurance program which is trying to balance what we want to pay and the access to quality care that we desire.

It is true that in the last few years we have adopted some new prospective payment systems that need work, and I think will continue to need work. But to say that the fee for service system is sick when it continues to guarantee millions of Medicare beneficiaries access to care and has simultaneously been able to slow its cost growth so that we've extended the life of the trust fund to 2025, doesn't make any sense to me.

I think on the contrary, it really is that there were claims made for managed care and what it could deliver, and I don't think we've seen delivery on those claims and performance.

My view is that we should not have a situation, as I said before to Mr. Stupak, when you talk about having a level playing field, we need that core benefit. And we need to have people not moving in and out of fee for service and managed care because they can get extra benefits one place and not another.

We need to have a core benefit, make it a reasonable price or a reasonable system of paying for that core benefit in fee for service and S5 and then enable beneficiaries to choose.

REP. BURR: I thank the gentleman from Florida.

You've got nine minutes.

I really did have a goal when I got in the seat to try to get these witnesses out by 3:30, and you have had an extremely long day.

I will not ask you questions but I will summarize the questions that I would have asked with my won answers, if that's okay, with you. (Laughter)

We've got a huge challenge. I think that's evident by the varying degrees of answers, but more importantly the questions that still remain unanswered. That means that we have to go into new ground and to plow that ground.

Illness is not predictable. Illness is not predictable if you're young, illness is not predictable if you're old. It puts a unique challenge on us to provide not only the coverage for those who are at risk, whether it's because of a financial point in the sand that was set or because of a current health problem, but we're also challenged to produce a product that really resembles more of a life insurance product. A product that ensures individuals who have the means today to pay for drug costs that they're protected against the drug costs of tomorrow. But more importantly, against the terminal illness that might strike and that the resources might not be there for an unpredictable outflow of money.

So the challenge for us is to make that predictable, to bring some parameters to the process and to respond to not only those who choose between food and drugs, but to try to design a program that fits the needs of the long term security and predictability that has been expressed by many of you.

One of the other most difficult things is to integrate a new program into a system that has had a difficult time at making new coverage decisions. I think every member of the subcommittee at some point in any given month has dealt with a manufacturer of a medical device, a pharmaceutical, a member of a patient's group who seeks to try to accelerate the coverage decisions at HCFA. Because technology changes with such a fast pace today HCFA, for whatever reason, is unable to make those coverage determinations in a fashion that we would all want for the quality of care of the patient. I think that's one thing that has contributed to many of us looking outside of HCFA, to create a new entity whose sole focus it is to administer the Medicare prescription drug benefit, regardless of how it's configured.

I would say that in the proposal that hopefully will be out next week, we would also create a new responsibility within the benefit administration, Medicare benefit administration, which would be a Medicare ombudsman.

One place for everybody to go, whether it's for an appeals process, a coverage determination, somewhere that you can go that covers not only what HCFA's got responsibility for, but hopefully the new drug entity and the administration of that.

Somebody mentioned earlier stock prices or Wall Street.

Believe it or not, that is a consideration in this plan, too.

We understand that our hopes at bringing down drug costs and meeting the challenges of a doubling of the population under Medicare in many cases can only be met through new technological breakthroughs and non-invasive medical devices, and pharmaceuticals that actually do cure things that today we treat and maintain in a very expensive way.

We're confident that we have to continue a commitment. Not only a public commitment to the NIH for research, but we have to make sure that the incentive exists in the system for private sector companies to continue their research and development to find those breakthroughs. Without that, the future will be predictable, and I think Chip you alluded to a deterioration in one part of the system. That we're talking about is a deterioration of the entire system.

I remember three and a half years ago when I landed in the Czech Republic and had an opportunity fresh into a new democracy to sit down with their Minister of Health. They had a hybrid Soviet system that they had continued over from their independence.

I also had an opportunity to go back last year on the day that the Minister of Health was headed to the government to drop off their new health care plan. It very much resembled the hybrid of our managed care system. But the question was why?

They went through a very detailed statement about the lack of money, and they cut reimbursements to try to save money, and when they cut reimbursements, doctors began to leave. When doctors began to leave, hospitals began to close. And all of a sudden they had a quality of care issue that they realized they created because they tried to treat it in the wrong way.

We understand that we need our entire system to be strengthened. If I had my choice, it would be comprehensive reform. It would be something that mirrors more what the Medicare Commission which I think put partisanship aside and addressed some very long term needs of our health care system for seniors. Unfortunately, I don't believe that that's possible to reach this year. But I believe it will continue to be our goal to make sure that we reach it in the not too distant future.

I hope that the stand-alone drug effort is a step in the right direction. It is not a solution to the problem, but I don't believe it is a step in the wrong direction.

Clearly, we didn't expect to find consensus today, and clearly every member will leave with additional questions that I hope we'll find answers as we move through whatever markup process, whatever floor activity process we go through. I am confident of one thing. That this subcommittee, both Republican and Democrat, is engaged in this issue, is willing to learn. From those that feel shorted from today's opportunity to testify, please take the opportunity to go see those members and educate them further. It will contribute to a much more accurate debate as we move to House activities.

Let me once again thank all of you for your willingness to be here today.

This hearing is now adjourned.

END

LOAD-DATE: June 17, 2000

Document 43 of 268.


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