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Congressional Testimony
May 4, 2000, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
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TESTIMONY May 04, 2000 NANCY-ANN DEPARLE ADMINISTRATOR HEALTH CARE FINANCING
ADMINISTRATION SENATE FINANCE IMPLEMENTATION OF MEDICARE
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BODY:
Testimony of NANCY-ANN DEPARLE,
ADMINISTRATOR HEALTH CARE FINANCING ADMINISTRATION on MEDICARE
GOVERNANCE before the SENATE FINANCE COMMITTEE MAY 4, 2000 Chairman Roth,
Senator Moynihan, distinguished Committee members, thank you for inviting me to
discuss our efforts to strengthen and improve Health Care Financing
Administration (HCFA) management. I greatly appreciate your support in these
efforts and your concern for the management challenges facing
Medicare, which will celebrate its 35th birthday this year. I
believe we share the goals of increasing flexibility in purchasing and
management, maintaining and improving the program s high level of efficiency,
and modernizing Medicare s benefits while ensuring access to
high-quality, accessible services for all beneficiaries. The people who work at
HCFA care deeply about serving the 39 million senior citizens and people with
disabilities who rely on Medicare for health care coverage, and
I am very proud of our record of accomplishments. HCFA is the largest health
insurer in the nation, providing coverage for some 74 million Americans through
Medicare, Medicaid, and the State Children s Health Insurance
Program, and paying about $368 billion for health care services this year. For
Medicare alone, the agency pays more than $210 billion in
claims to some 700,000 physicians, 6,000 hospitals, and thousands of other
providers and suppliers each year. We contract with 55 private health insurers
to process nearly 1 billion Medicare fee- for-service claims
each year, and with 346 private health plans that provide managed care.
Innovations we have developed in quality improvement and prospective payment
systems that promote efficiency have been widely adopted by other insurers. We
spend less than two percent of Medicare benefit outlays on
program management. This compares to Medicare+Choice plan
administrative costs that average 11 percent and are sometimes 25 percent or
more, and supplemental Medigap plan administrative costs that average 20 percent
and are sometimes 40 percent or more. HCFA s administrative costs still compare
favorably, even when adjusted to account for differences such as marketing
expenses, profits, and other costs that private plans may incur. Success and
Solvency We also have had solid success in meeting the priorities that I
articulated at my 1997 confirmation hearing before this Committee: modernizing
and strengthening Medicare, starting with implementation of the
Balanced Budget Act of 1997 (BBA); sharpening our focus on fraud, waste, and
abuse to ensure that Medicare dollars are spent appropriately;
launching the State Children s Health Insurance Program; and, meeting the Year
2000 computer challenge. Our National Medicare Education
Program is an unprecedented enterprise designed to help
Medicare beneficiaries understand Medicare and
their options under the Medicare+Choice program, as well as the
important new preventive benefits included in the BBA. We have implemented the
vast majority of provisions in the BBA, which modernizes
Medicare and Medicaid and strengthens the solvency of the
Medicare Trust Fund. We have approved State Children s Health
Insurance Program plans for all states and territories and enrolled 2 million
children. We have made substantial progress in implementing new prospective
payment systems for skilled nursing facilities, hospital outpatient departments,
and home health care that include incentives to provide care efficiently. We
have had solid success in fighting fraud, waste, and abuse. Our
Medicare payment error rate is down by about half. We have many
new tools to prevent improper payments and keep unscrupulous providers out of
our programs. And we have a comprehensive program integrity plan in place that
will help us bring the payment error rate down further. And we achieved this
while successfully meeting a daunting Year 2000 computer challenge. Despite many
predictions of failure, we met this challenge and in the process developed what
our independent verification and validation contractor decided were best
practices that they in turn recommended to their other clients. The BBA and our
successes in fighting fraud, waste, and abuse, have together contributed to the
strongest projection of Medicare Trust Fund solvency in the
program s history. The Part A Hospital Insurance Trust Fund, which was projected
to become insolvent in 1999 when President Clinton took office, is instead now
projected to remain solvent until 2025. We have also tackled other long-standing
challenges with success -- improving services to beneficiaries, improving
nursing home quality, improving financial and contractor management, and
creating a more open Medicare coverage determination process.
We continue to implement management improvements outlined in the President s FY
2000 and FY 2001 Budgets. This initiative is specifically aimed at improving our
internal communication, increasing our flexibility to operate, and perhaps most
important, increasing accountability to our constituencies. We fostered a new
focus on serving beneficiaries in all we do through our new Center for
Beneficiary Services. This Center has improved the quality of materials for
beneficiaries, and its director is a leading member of our Executive Council,
bringing a beneficiary focus to all senior level deliberations. And it has made
advances in health promotion, for example, by developing tear-cards for colon
cancer awareness posters so beneficiaries can take information with them to help
start difficult conversations with physicians. We are already seeing results of
this sharper beneficiary focus, with numerous awards for our beneficiary web
site, www.medicare.gov, and a high rating for beneficiary
services in the 1999 American Customer Satisfaction Index. We launched a major
initiative to improve nursing home care and safety. We tightened rules,
clarified guidance, increased surveyor training, required prompt action on
complaints alleging harm to residents, and posted survey results on the
Internet, and acted to protect residents in facilities with financial
difficulties. We greatly improved internal financial management and oversight of
claims processing contractors. I am determined to meet the same high accounting
standards required of major private corporations. This year, for the first time,
we obtained an unqualified audit opinion, which means that auditors determined
that our books and records adequately reflect Medicare assets
and liabilities. But we intend to do even better. We are developing an
integrated financial management system to better coordinate and reconcile
contractor data. We consolidated contractor management responsibility by
appointing a Deputy Director for Medicare Contractor Management
and creating a Medicare Contractor Oversight Board. We are
determining payment error rates and developing performance report cards for
every contractor. And the President s fiscal 2001 budget includes funding for
new positions at contractors and at HCFA to further tighten financial controls
and ensure swift, coordinated responses to fraud, waste, and abuse. We have made
the Medicare coverage determination process open and
accountable. Every member of the public can request a national
coverage policy decision and submit new data for review by our
Medicare Coverage Advisory Committee. Information on the
status, evidence, and rationale for all determinations is posted on the
Internet. And there are timeliness standards for actions on determination
requests. Preparing for the Future Building on our success in meeting our goals
and tackling longstanding management challenges and, thanks to additional
resources Congress provided in 1999 and 2000, we are now eagerly preparing for
the future. We are conducting a comprehensive assessment of workforce needs,
bringing in new employees with private sector experience, and enhancing training
for current staff. We also are consulting with experts across the country and
preparing for structural reforms that Medicare will need to
address the demographic and health challenges of this new century. We are
pleased to see a bipartisan consensus emerging on the need to modernize and
strengthen the program. As we work together to act on this consensus, we must
not only ensure that the proposals meet the goals of strengthening and
modernizing Medicare, but do not undermine the basic commitment
of guaranteed access to high-quality health services that has made
Medicare the success that it is. The President has proposed
such a plan. It includes: Adding a voluntary, affordable prescription drug
benefit available to all beneficiaries. No one would design
Medicare today without a drug benefit. Pharmaceuticals are
essential to modern medicine, and no Medicare modernization
package is complete unless it ensures that a comprehensive drug benefit is
available and affordable to all beneficiaries, both in
Medicare+Choice plans and the traditional fee-for-service
program. Improving access to preventive services. We need to focus more on
avoiding problems, instead of paying too much to treat preventable problems
after they occur. The President and Congress added several important preventive
benefits and eliminated copayments for others in the BBA, but there is much more
that we can do to promote access to these services. The President s plan would
eliminate all existing cost sharing for preventive services and evaluate
coverage of additional preventive services. Creating the Competitive Defined
Benefit system . The President s plan would replace the complicated statutory
formula used to pay managed care plans with a payment system based on price
competition. For the first time, beneficiaries would shop for a health plan
based on its price and quality by paying lower Part B premiums for more
efficient plans. Managed care plans would also benefit since their payments
would be based on what they bid and, unlike today, they would receive an
explicit payment for covering prescription drugs. Using proven private-sector
purchasing tools. Primary care and disease management programs are proven to
improve health care outcomes while controlling costs. We also need to use
bidding to determine what we pay to suppliers and health plans, rather than fee
schedules or formulas that result in payment rates that bear no resemblance to
true market value. We know this works in the private sector, and we are seeing
substantial savings for both beneficiaries and the program in our competitive
bidding demonstrations for medical equipment. Reforming
Medicare contracting rules. The plan would bring
Medicare contracting in line with standard contracting
procedures used throughout the Federal government. While we are making strides
in strengthening oversight of the private insurance companies who, by law,
process Medicare claims, the General Accounting Office and HHS
Inspector General agree with us that we need an open marketplace so we do not
have to rely on a steadily shrinking pool of insurance companies and can use all
firms capable of processing claims and protecting program integrity. Dedicating
non-Social Security surplus to strengthen Medicare s trust
fund. In addition to modernizing the basic program structure, we must shore up
its financing and prepare for the inevitable influx of new beneficiaries as the
Baby Boom generation reaches retirement age. The President s plan does so by
dedicating $299 billion over 10 years of the on-budget surplus to the program to
help extend the solvency of the Hospital Insurance Trust Fund through at least
2030. It makes sense to use the budget surplus to help prepare
Medicare for the Baby Boom s retirement, since the surplus was
largely generated by the Baby Boom. It also helps contribute towards the
President s goal of eliminating the national debt by 2013 because these dollars
would be used to buy down debt. The details of the President s reform plan were
outlined last June, in the President s FY 2001 budget, and in legislative
language sent to Congress last month. We hope that it serves as the basis for
comprehensive reform this year. Another Medicare reform
proposal introduced recently is the Medicare Preservation and
Improvement Act of 1999, whose primary sponsors are Senators Breaux and Frist.
This plan is the next iteration of the Breaux/Thomas plan and is, in my view, a
significant improvement over that proposal. It no longer raises the age of
eligibility for Medicare, restricts assistance for drug
coverage to low-income beneficiaries, or includes a home health copay. It also,
like the President s plan, injects price competition into
Medicare. Its focus on the need for Medicare
reform is a contribution to the debate. We are, however, concerned about the
plan s Medicare Board proposal, which I would like to discuss.
The Administration also has concerns about its premium support proposal, which
would have the effect of increasing premiums for the traditional program from 25
to 47 percent, according to the independent Medicare actuary.
The GAO and CRS have also testified that traditional program premiums would
increase. The plan would offer a 25 percent subsidy for private drug plans,
which neither guarantees that a drug option will be available nor affordable to
all beneficiaries, unlike all other Medicare benefits. And the
plan merges the Medicare trust funds and caps general revenue
for Medicare, causing this new trust fund to become insolvent
in 2008, according to the GAO. In contrast, the President s plan would extend
the Medicare trust fund s life. Concerns with a
Medicare Board Given the topic of this hearing, I would like to
focus on the Board proposal in the Breaux-Frist plan as well as other options
being contemplated by Congress. This Committee has been considering proposals to
fundamentally change the administration of Medicare, including
a proposal to separate administration of original fee-for-service
Medicare from oversight of Medicare+Choice
plans, and instituting a new Medicare Board to manage the
Medicare program. I believe Congress has been contemplating
such changes to solve certain perceived problems with the way
Medicare is administered today. These include the desire to
insulate Medicare from "politics," and make it function more
like a private sector company, make the program more responsive to providers,
and to address the perceived conflict of interest that exists for a single
agency to run both the fee-for- service and Medicare+Choice
programs. However, I believe that some of these issues can be addressed without
an overhaul of Medicare s management, and others are inherent
in the running of any major program, so that even the most radical
Medicare board would not "solve" them. We can and should build
our efforts to adopt the best private sector management practices. We have
created the new Medicare Coverage Advisory Committee and
Citizens Advisory Panel on Medicare Education to get public and
private input on these important topics. Our reform plan would give
Medicare additional management tools that would allow it to
operate more like a private health plan. And, we continue to explore ways to
incorporate both advice and practices that have proven successful in the private
sector. An issue that cannot be solved under either the current structure or a
Board is the influence of "politics" on Medicare. Politics are
a part of any major public or private institution and no amount of restructuring
can change that. In a public program like Medicare, "politics"
is part of public accountability. It is appropriate for a public program of
Medicare s size and importance to be accountable to
beneficiaries and taxpayers through their elected representatives -- Congress
and the President. Furthermore, I do not believe the alleged conflict of
interest between fee-for-service and managed care exists at HCFA. Our "clients"
are beneficiaries and the taxpayers who support them. Our goal is to give
beneficiaries and taxpayers the best health care for their dollars, whether it
be through managed care or the traditional program. We have worked very hard to
revise regulations and take other steps to help plans participate in the
Medicare+Choice program, and believe managed care is an
important option for beneficiaries next to the traditional
Medicare program. For these reasons, I do not think that a
Medicare Board is necessary. Moreover, as it is structured in
the Breaux-Frist plan, a Board would create significant risks to
Medicare. The Board would be a 7 member, independent group, not
subject to any civil service rules or "sunshine laws" whose members could only
be removed for cause. It would administer the competitive premium system and
oversee the operations of all Medicare plans, including
enrollment, contract oversight, and beneficiary education; and approve and
authorize payments for all plans, including traditional
Medicare. HCFA would be reorganized into two divisions: one
that runs the new health plan operating Medicare
fee-for-service and a second that would manage graduate medical education,
Medicaid, the State Children s Health Insurance Program, and other functions.
Rather than explicitly modernizing the traditional program, the proposal would
have HCFA submit a business plan directly to Congress every year, beginning in
2002, for approval. The major concern with this Board is accountability. With
the Board outside the Executive Branch, the President would have virtually no
authority over one of the most important Federal programs. In fact, under the
proposal sponsored by Senators Breaux and Frist, the Board and its members would
be accountable to no one, including Congress. Seniors and people with
disabilities rely on their elected officials to respond to their concerns about
the care and service they receive in Medicare. This is an
extraordinary change given that Medicare is one of the largest
government programs, accounting for up to 11 percent of the federal budget, and
is of critical importance to millions of our nation s most vulnerable citizens.
This Board would create its own substantial conflict of interest concerns, both
with the Board and with original Medicare. Unlike existing
Federal boards, the proposal sponsored by Senators Breaux and Frist would create
a Medicare board with virtually no conflict of interest
requirements for Board members, such as financial disclosure, limits on any
management role or financial interest in regulated entities, or limits on member
activities after service. That would allow members to make decisions based on
personal financial interests or potential benefits from future employment with
regulated plans. The proposal sponsored by Senators Breaux and Frist creates a
potential conflict of interest for original Medicare, as well.
That is because it gives the program a fixed annual budget and that could create
undue incentives to put cost concerns ahead of beneficiary rights, quality
concerns, and other oversight obligations. Finally, a Board would detract from
administrative efficiency. One of Medicare s greatest strengths
is its very low administrative costs. A Board, however, would need to hire staff
to perform many duplicative functions, such as beneficiary education, that the
original program would need to continue. Under the proposal sponsored by
Senators Breaux and Frist, the Board s staff would be hired outside the Civil
Service system, further increasing costs. Above this redundant bureaucracy would
be a top-heavy Board with seven highly paid members which would not be more
nimble than the current administrative structure. In fact, CRS notes that
"Difficulties in administering the program are more likely to arise and produce
conflicts more difficult to resolve when a program is divided between two
distinct federal entities than when located within one entity." Such a situation
would likely not address the concern that Medicare be more
responsive to providers or beneficiaries. CONCLUSION In considering how to
strengthen and improve Medicare s administration, we must
carefully and honestly confront the question of what we are trying to fix.
Change for the sake of change does not make the improvements necessary to
strengthen and modernize Medicare and its administration. We
must modernize Medicare governance with effective reforms:
injecting competition into the system; giving HCFA other private sector
purchasing tools; contracting reform; and administrative flexibility to manage
the program. We must secure stable, adequate funding to manage the program and
meet demographic changes. We must continue to improve information technology,
staff development, and other infrastructures for effective, efficient
management. And we must work together to give Medicare the
state-of-the-art management this program, its beneficiaries, providers, and
other partners deserves. Medicare is a complex program and its
administration is complex. On any given day, someone will disagree with a
decision or feel we were not responsive enough. In the two and a half years that
I have been Administrator, HCFA has been the subject of more than 1100 audits
and oversight reviews by the General Accounting Office and HHS Inspector
General. We receive, on average, more than 700 letters a month from members of
Congress, and our contractors receive thousands more. This intense oversight and
interest is appropriate, given the billions of dollars at stake and the
influence Medicare has on the lives of so many Americans. This
is an important point. I believe part of the context for the interest in
Medicare governance today has to do with our work implementing
the truly historic Balanced Budget Act of 1997, combined with our unprecedented
efforts to fight fraud, waste, and abuse. The BBA represented the agreement of
Congress and the Administration to slow the growth in Medicare.
Reducing spending by such an unprecedented amount in such a relatively short
time was an unequaled challenge. Virtually every hospital, physician, home
health agency, skilled nursing facility, durable medical
equipment supplier, and other health care provider in the country has
been affected, and almost all have seen an impact on their revenues. Such
significant change with such an ambitious implementation schedule has created
pressures and dissatisfaction. And HCFA, of course, was the face of the BBA for
these providers and, as such, the focus of much of their unhappiness. But the
BBA was the right thing to do. Medicare is now solvent through
2025 because of it, and that gives us time to consider other changes that should
be made to further strengthen the program for the future. I believe HCFA did a
good job, albeit not a perfect job, in implementing the BBA given the time
frames, the competing interests of program stakeholders, and the complexity of
the changes. The BBA served to put HCFA administration in the spotlight. I do
believe, however, that we have done well in implementing the law and remaining
true to the law s intent. The past two years have not been easy for us,
providers, beneficiaries, or members of Congress, particularly members of this
Committee. Our heightened focus on program integrity also marked a substantial
change from past dealings with providers. Moving in just a few short years from
relatively lax efforts to a zero tolerance policy on fraud, waste, and abuse has
created its own pressures and dissatisfactions, and it has been challenging for
both us and providers. We are proud of our record of strengthening
Medicare for beneficiaries and management of its operations. We
are committed to meeting the management challenges that lie ahead. And we are
eager to continue working with you to build upon our achievements and further
strengthen and modernize this essential program. I thank you again for holding
this hearing, and I am happy to answer your questions.
LOAD-DATE: May 8, 2000, Monday