[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
LEGISLATION TO COVER PRESCRIPTION DRUGS UNDER MEDICARE
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 13, 2000
__________
Serial 106-113
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
71-459 DTP WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
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20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
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C O N T E N T S
__________
Page
Advisory of June 6, 2000 announcing the hearing.................. 2
WITNESSES
Health Care Financing Administration, Hon. Nancy-Ann DeParle,
Administrator, accompanied by Gary Claxton, Deputy Assistant
Secretary for Health Policy, U.S. Department of Health and
Human Services................................................. 71
______
Allen, Hon. Thomas H., a Representative in Congress from the
State of Maine................................................. 32
American Association of Health Plans, Karen Ignagni.............. 107
Breaux, Hon. John, a United States Senator from the State of
Louisiana...................................................... 20
Cardin, Hon. Benjamin L., a Representative in Congress from the
State of Maryland.............................................. 12
Eshoo, Hon. Anna G., a Representative in Congress from the State
of California.................................................. 29
Health Insurance Association of America, Charles N. Kahn III..... 137
Kennedy, Hon. Edward M., a United States Senator from the State
of Massachusetts............................................... 16
National Association of Chain Drug Stores, Craig L. Fuller....... 111
Older Women's League, Deborah Briceland-Betts.................... 124
Peterson, Hon. Collin C., a Representative in Congress from the
State of Minnesota............................................. 26
Pharmaceutical Care Management Association, Patrick P. Donoho.... 131
Pharmaceutical Research and Manufacturers of America, Judith H.
Bello.......................................................... 115
Schondelmeyer, Stephen W., University of Minnesota............... 135
Thomas, Hon. William M., a Representative in Congress from the
State of California............................................ 10
SUBMISSIONS FOR THE RECORD
60 Plus Association, Arlington, VA, James L. Martin, statement... 164
American Society of Health-System Pharmacists, Bethesda, MD,
statement...................................................... 165
O'Dell, Mae, as presented by Betty J. Boucher, Reston, VA,
statement...................................................... 167
Honeywell, Annette Guarisco, statement........................... 168
National Association of Health Underwriters, Arlington, VA,
statement...................................................... 169
Wilkins, Tom A., Reston, VA, statement........................... 176
LEGISLATION TO COVER PRESCRIPTION DRUGS UNDER MEDICARE
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TUESDAY, JUNE 13, 2000
Committee on Ways and Means,
House of Representatives,
Washington, DC.
The Committee met, pursuant to call, at 10:08 a.m. in room
1100, Longworth House Office Building, Hon. Bill Archer
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 6, 2000
No. FC-22
Archer Announces Hearing on
Legislation to Cover Prescription Drugs Under Medicare
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
legislation to cover prescription drugs under Medicare. The hearing
will take place on Tuesday, June 13, 2000, in the main Committee
hearing room, 1100 Longworth House Office Building, beginning at 10:00
a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include Members of Congress, as well as other parties
pertinent to the development of legislative proposals . However, any
individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
Although Medicare currently offers a range of health care benefits,
it differs significantly from other Federal health care programs and
private sector health insurance in that it does not generally offer its
enrollees coverage for outpatient prescription drugs. This is
significant given that, on average, seniors currently spend in excess
of $600 annually on prescription drugs. However, in the absence of
Medicare prescription drug coverage, beneficiaries have come to rely
upon several other sources of prescription drug benefits, such as
employer-sponsored retiree health insurance, Medicaid or other State-
sponsored health programs, and managed care plans offered through the
Medicare+Choice program. In total, recent data indicates that
approximately two-thirds of beneficiaries have coverage through these
alternate sources, thus leaving more than 10 million beneficiaries
without coverage.
Last year, the Clinton Administration introduced a proposal in his
budget to provide a prescription drug benefit for Medicare
beneficiaries. The proposal would require seniors to pay a monthly
premium to receive the benefit, where the beneficiary would split
prescription drug costs with the Federal Government up to a certain
amount. The proposal did not address prescription drug costs higher
than the benefit cap.
Earlier this year, the concurrent resolution in the budget set
aside $40 billion over the next five years to address Medicare
prescription drug coverage. House Republicans have unveiled their
blueprint to expand prescription drug access through the creation of a
public-private partnership that subsidizes all Medicare beneficiaries,
provides more choices for beneficiaries to get coverage, and protects
beneficiaries from the full amount of extraordinary catastrophic drug
costs. Congressional Democrats and President Clinton have announced
principles that largely mirror the Administration's earlier
prescription drug proposal, which was the subject of a Subcommittee on
Health hearing in May (see Health press release, HL-14, dated May 4,
2000). In addition, the Administration's proposal was modified by
including a catastrophic drug benefit after beneficiary drug costs
surpasses a certain amount.
In announcing the hearing, Chairman Archer stated: ``We are
committed to strengthening Medicare and adding a prescription drug
benefit under Medicare this year. This hearing will give the Committee
an opportunity to explore in greater detail the various plans being
discussed, especially the House Republican plan. I look forward to
working in a bipartisan fashion toward passing a bill in the House of
Representatives that can be signed into law by the President--America's
seniors and the disabled deserve action on this critical item this
year.''
Health Subcommittee Chairman Thomas stated: ``We have crafted a
plan to lower drug prices for seniors who currently have no coverage by
helping them purchase insurance under Medicare. I am pleased that the
President has offered a plan that rejects price controls and that
Congressional Democrats have offered a plan that rejects price controls
and includes immediate protections from catastrophic drug costs. We
stand ready to work with Members on both sides of the aisle and in both
Houses of Congress to make a prescription drug benefit under Medicare a
reality, and this hearing will move us one step closer toward moving
legislation that will do that this year.''
FOCUS OF THE HEARING:
The hearing will examine legislation proposed in recent months to
improve access to prescription drug coverage for Medicare beneficiaries
and the related effects on the financial outlook of the Medicare
program.
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noted above.
Chairman Archer. The Chair asks members, guests, staff--
take your seats, please. We will likely have a rather long day
of hearings. Let's try to get started with the least amount of
ambient noise.
Today the Ways and Means Committee considers an extremely
important subject to all Americans, but particularly those who
have reached their senior years. Health problems are
exceedingly important to seniors. They are to all of us, but
when we are younger I guess we think we are invulnerable and
then we get older and we find that we are not.
I know that first-hand because at this moment my 96-year-
old mother is in the hospital, and is hopefully getting first-
class care. While our seniors are in the hospital, of course,
they get coverage for prescription drugs under Medicare. But if
they are outpatients where we have hopefully the opportunity to
reduce the incidence of needed hospital care, then of course
there is no coverage for prescription drugs. On a bipartisan
basis, the Congress and the White House desired to find a way
to have Medicare coverage on prescription drugs, although there
may be differences in approaches.
We have already had full hearings on the administration's
proposal for prescription drugs. So hopefully we will not need
to further explore that today. But we will be exploring other
approaches that are being pushed by Members of Congress and by
others who have given thought to this problem. It is important
that we find a solution that is ultimately one that will let
seniors, on an outpatient basis, have access to prescription
drugs on an affordable basis.
Less than 3 years ago, the health care program for our
Nation's elderly and disabled was headed toward financial ruin
by 2001. Next year, it was scheduled to demise. Yet in the face
of severe opposition, we succeeded in saving Medicare for a
generation and pushing Medicare's bankruptcy back an additional
24 years to the year 2025. I think all of us can take great
comfort in knowing we have done that. But with that extra time
comes the added responsibility of modernizing and strengthening
Medicare for this and future generations.
Our seniors deserve more than partisan politics on an issue
as important to them as prescription drugs. And I hope that we
can find a bipartisan answer for this very important problem.
The plan that will be presented by Mr. Thomas, on which a great
deal of work has been done on a bipartisan basis with Democrat
Members of the House, would over the next 5 years give
Medicare's 40 million recipients real bargaining power to lower
their prescription drug process and will invest up to $40
billion.
Unfortunately, there are defects in every plan. There are
certainly defects in the President's plan because the benefits
would tend to vanish over time as drug costs out-pace
inflation. So I hope we will look as objectively as possible at
all the various approaches and in the end come out with the one
which is the most affordable, the most available, and also the
one that is affordable to society as a whole in the way that
the costs of Medicare will increase.
[The opening statement of Chairman Archer follows:]
Statement of Hon. Bill Archer, a Representative in Congress from the
State of Texas
Good morning. Today, the Ways and Means Committee will
examine one of the most important health care issues facing
seniors not only today, but the 77 million baby boomers who
will soon retire and be eligible for Medicare in the coming
decades.
Less than three years ago, the health care program for our
nation's elderly and disabled was headed toward financial ruin
by 2001. Yet in the face of severe opposition, we succeeded in
saving Medicare for a generation--pushing back Medicare's
imminent bankruptcy an additional 24 years to 2025.
But with that extra time comes the added responsibility of
modernizing and strengthening Medicare for this and future
generations this year. Our nation's elderly and disabled have
waited long enough for Medicare to catch up with the miracles
that modern medicine provides today through prescription drugs.
Our seniors deserve more than partisan politics on an issue
as important to them as prescription drugs. That's why House
Republicans and some Democrats have come together in a
bipartisan spirit to craft a plan to lower drug prices for
seniors and the disabled who currently have no drug coverage by
helping them purchase insurance through Medicare. Our plan
invests $40 billion over the next five years to give Medicare's
40 million recipients real bargaining power to lower their
prescription drug prices.
Further, benefits under the President's plan vanish over
time as drug costs outpace inflation. The non-partisan
Congressional Budget Office recently said that, ``Assuming that
the cost of prescription drugs continues to rise more rapidly
than the CPI, the real value of the [President's] benefit cap
would shrink, thereby eroding the benefit.'' But perhaps more
importantly, our plan will not endanger existing drug coverage
that seniors might already have through a former employer,
which is a great concern I have with the Administration's plan.
But despite these differences, working together, we can
pass a bill and get it signed into law this year. Americans
want us to work together to protect Medicare and modernize the
program with prescription drug coverage, and that's exactly
what we intend to do. We can help seniors and the disabled with
the costs of prescription drugs. If we put progress before
politics and ideas before ambition, we can and will be
successful in ensuring Medicare for generations to come. Our
seniors and elderly expect and deserve no less.
So having said that, I have now recognized Mr. Rangel for
any statement he might like to make.
Mr. Rangel. Thank you, Mr. Chairman.
I appreciate your thoughts in this being a bipartisan
effort. You wouldn't believe that at the Democrat's caucus
yesterday there were rumors that we were going to have a
hearing today on no bill, that we would have no witnesses, and
that we were going to mark up the bill on Thursday. Thank God
those rumors are not true and we had to withdraw our request to
have a day's hearing for ourselves.
I do hope we can break the tradition of this Committee of
not reporting on any bill unless we are guaranteed a veto.
Clearly, the only way we can have a bipartisan bill is for
us to talk with each other. I understand my dear friend and
chairman of the Health Subcommittee held a press conference
this morning in connection with what will be discussed. Some of
us did not make the press conference, but we hope to find out
what it is that we hope we can get bipartisan support on.
Clearly, the American people believe that in a time of
prosperity and longer life they are entitled to have affordable
drugs. Certainly, we don't want a bill that is just helping the
pharmaceutical companies and the HMOs. We want something that
older people can depend on.
Pete Stark has worked very hard on this subject matter with
Democrats on the Committee. I am depending on him and Mr.
Thomas to work together and bring something to the Full
Committee that we can, with a deep-seated pride, report on.
I would like to yield to Mr. Stark.
Mr. Stark. Thank you, Mr. Rangel.
Mr. Chairman, I just wanted to join in a commitment to
provide a drug benefit to the two-thirds of the seniors in this
country who lack adequate, reliable, affordable pharmaceutical
coverage. About 12 million have no coverage at all. And perhaps
another 12 to 15 million have coverage that is in danger of
being canceled, reduced, or the premium increased to the point
where they can't afford it. We cannot tolerate that.
I think that on behalf of all the Democrats--and I think
most of the Republicans--we should have a plan that is
absolutely voluntary and that promotes people keeping their
current coverage, if they like it, that has catastrophic
protection, that is simple, and is run by private contractors
not bureaucrats, and uses the private market to negotiate
prices and not government price control.
There is one difference, I think, and that is the one-size-
fits-all--which doesn't trouble this Democrat. It defines
Medicare, perhaps the most popular government program in the
country. So that if we have a drug benefit for seniors, it
should be for every senior, without regard to where they live,
because the rural beneficiaries would be denied coverage in
most rural areas under many plans I have heard described. We
would strengthen Medicare by providing drug coverage to all
seniors, both those in HMOs and those in fee-for-service. And
if that is one-size-fits-all, let's stand up and proudly
support that particular uniform coverage which we all want.
I look forward to learning and seeing a Republican bill--if
there is one--and being able to examine the details and see how
it will work to meet those standards.
Thank you for having this hearing this morning.
[The opening statement of Mr. Rangel follows:]
Statement of Hon. Charles B. Rangel, a Representative in Congress from
the State of New York
Mr. Chairman:
I am pleased that we are holding this hearing, and that we
soon will be marking up a bill at long last to provide help to
our Nation's seniors and disabled with the terrible burden of
pharmaceutical costs. I appreciate, Chairman Archer, your
accommodating a number of our requests for witnesses at this
important hearing.
Democrats have proposed a number of bills in this area, and
have filed a discharge petition to get full House consideration
of either a bill that I, Mr. Stark, Senator Kennedy, and many
others have sponsored, or a bill by Rep. Tom Allen that ensures
seniors the same discount on drug prices that other large
purchasers get.
Two-thirds of our Nation's seniors either have no
prescription drug insurance or have inadequate and unreliable
insurance. One-third of American seniors have no insurance
coverage and they face the highest retail drug prices in the
world. It just defies common sense that in this country, where
we encourage pharmaceutical manufacturing and where the best
drugs in the world are developed, that our seniors pay far more
for their drugs than their peers in Canada, France, Japan, or
any other nation. That's just not fair to our seniors and, as a
result, they desperately need help.
In this time of economic boom, it is unworthy of a great
Nation to have millions of seniors rationing their
prescriptions--cutting pills in half--to stretch their budgets.
A good Medicare drug benefit is the single most important thing
we can do to improve the health of our retirees and disabled.
Acting now will save lives. It is immoral to do nothing.
Yet, this Committee and this Congress have found the time
to pass numerous tax cuts--and will be pursuing more this
summer. These tax cuts explode in cost in the out-years,
benefitting the very wealthiest in our society. If the Congress
chose to hold back on those tax cuts, we easily could afford a
prescription drug benefit far, far better than the one on which
we will be voting.
The early press reports on the Republican bill indicate it
is a give-away to the drug manufacturers and to the HMOs which
have been fighting the patient protection bill of rights.
Mr. Chairman, I hope these reports are wrong, and that we
can work together to pass a bill that our Nation's seniors need
and which helps our retirees with the crushing burden of
prescription drug costs. I look forward to working with you in
the days ahead.
Chairman Archer. Without objection, all members may insert
written statements in the record at this point.
[The opening statements of Mr. Coyne, Ms. Dunn, Mr.
Ramstad, and Mr. Foley follow:]
Statement of Hon. William J. Coyne, a Representative in Congress from
the State of Pennsylvania
Mr. Chairman, I am pleased that the Committee is holding
hearings on the need for a Medicare prescription drug benefit.
And I am pleased that the majority has finally shown some
interest in providing America's seniors with such a benefit.
But I am afraid that the legislation that the House Republicans
introduced today may not do enough to help the senior citizens
in my district who currently can't afford the prescription
drugs that they need.
There are a number of concerns that I have about the
Republican plan, which was unveiled just this morning.
First, the Republican plan might result in less health care
choice for many senior citizens. This proposal purports to
guarantee seniors the freedom to choose among plans. It is my
understanding, however, that government-subsidized premiums
would only cover enrollment in the lowest cost plan available.
And that means that many low-income seniors would have to
enroll in an HMO in order to get prescription drug coverage--
which, of course, would mean that they would no longer be able
to consult with any physician they wanted--or in some cases to
see their current doctor. The average household income for
senior citizens in my district is a little over $13,000. Nearly
half of the seniors in my district live on around $9,000 a
year. I am afraid that they would have little real choice under
the Republican plan. I believe that Congress should preserve
the Medicare fee-for-service option as an affordable option for
all seniors--and that a Medicare prescription drug benefit
should be part of that option.
Second, the proposal appears to do little or nothing to
help the seniors with modest incomes--people with household
incomes in the $20,000 to $30,000 range. Many of these people,
while well-off compared to low-income seniors, are still
confronted with hundreds or thousands of dollars in annual
prescription drug costs that they often find hard to meet. It
seems to me that Congress should enact a Medicare prescription
drug benefit that helps all seniors.
In addition, I am concerned about the subsidy that the plan
provides to insurance companies. On the one hand, nothing in
the bill would require the participating insurance companies to
pass the federal subsidies that they would receive along to
seniors through lower premiums; consequently, the proposal
might prove to be a windfall for insurance companies that does
little, really, to help seniors. On the other hand, there is
the risk that the program might not work at all. So far, health
insurance companies have said that they do not plan to offer
prescription-drug only plans even with the subsidies in the
Republican plan. If that is, in fact, the case, the Republican
bill would not meet its state goal of reducing prescription
drug costs for seniors.
I am a cosponsor of H.R. 1495, the Access to Prescription
Medications in Medicare Act. H.R. 1495 would provide all
seniors with prescription drug coverage for costs of up to
$1700 per year. H.R. 1495 would also cover all costs after the
beneficiary pays $3000 in total drug bills in
a given year. I believe that H.R. 1495 would be a better
starting point for Medicare prescription drug benefit
legislation that the bill drafted by the Committee Republicans.
I would hope that the Committee would spend an adequate
amount of time considering the pros and cons of each of these
bills. I am concerned that the Committee might vote on the
Republican bill this week--only two days after it was
introduced. That, in my opinion, is far too precipitous a pace
for legislation that will affect millions of seniors on fixed
incomes. It seems to me that it would be better for America's
seniors that we get it right the first time--rather than having
to pass the Medicare Prescription Drug Benefit ``Refinement''
Act next year.
I look forward to working with my colleagues in a
bipartisan fashion to provide a decent, affordable Medicare
prescription drug benefit to all of America's seniors.
Statement of Hon. Jennifer Dunn, a Representative in Congress from the
State of Washington
Mr. Chairman, I would like to commend you, Chairman Thomas,
andother Members of the committee who have worked so hard on
this effortto provide prescription drug coverage to Medicare
beneficiaries.
We want to give seniors access to an affordable,
voluntaryprescription drug benefit. Today, I want to highlight
two importantchanges that we can make as part of this
comprehensive effort toimprove Medicare for our seniors.
First, we need to ensure access to innovation. Medicare
currentlycovers intravenous drugs administered by a health care
professional ina hospital or clinical setting, but it does not
cover biotechnologyproducts that are self-injected by the
patient. As a result, patients with chronic illnesses are being
denied access to the latest technology that could help them
regain the quality of life they deserve. We must provide access
to self-injected biologics not only through a new prescription
drug proposal, but also through Medicare Part B. This change
makes sound policy, it helps seniors in rural communities, and
it helps women who are disproportionately affected by chronic
diseases such as rheumatoid arthritis.
Second, we need to rectify payments to Medicare+Choice
plans. Reimbursement rates for Medicare+Choice plans are based
on the cost of services incurred in a county. However, costs
incurred in military facilities are left out of this equation,
resulting in lower overall Medicare+Choice reimbursement rates
in areas with a significant military presence. To fix this
situation, we must count the cost of services provided to
military retirees over the age of 65 in military hospitals when
calculating the reimbursement rates for Medicare+Choice plans.
This is one reason why the reimbursement rates in Washington
State are so low, and many health plans have stopped providing
service in rural communities. I am concerned that many more
health plans will follow in low-payment, urban areas like
Western Washington.
I am pleased that the Committee is moving to ensure that
Medicare+Choice plans will soon receive adequate funding. In
doing so, we will be able to provide greater access in rural
communities and low-payment counties. The efforts of Chairmen
Archer and Thomas will give the 200,000 seniors in Washington
State who participate in Medicare+Choice the opportunity to
select a health plan that provides quality care.
I hope to work with the Chairman to address both these
problems so that our seniors can continue to receive the care
they need.
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Hearing on Legislation to Cover Prescription Drugs Under Medicare
Mr. Chairman, thank you for calling this important hearing
today to review legislation to expand access to prescription
drug benefits for seniors.
As founder and co-chair of the House Medical Technology
Caucus, I am well aware of the incredible advances that the
medical technology industry has made in recent years to treat
and cure many illnesses, diseases and conditions. Similar
discoveries and innovations have been made in the area of
pharmaceuticals.
Sadly, however, Medicare has not kept pace with the
incredible strides of American medical ingenuity. I've authored
legislation to ensure that seniors have access, through
Medicare, to new technologies, and I look forward to similarly
working on improving senior access to life-saving and life-
enhancing prescription drugs.
I applaud the many proposals--from the Medicare Commission,
the President and many of our colleagues in Congress--to
address this important issue. Since anything worth doing is
worth doing well, we must carefully review all proposals for
their strengths and weaknesses, as well as intended and
unintended consequences.
At the same time we tackle this important issue, I strongly
believe we must also address the issue of access to an
affordable Medicare+Choice option under Medicare. These are
inter-related issues, as a significant number of seniors
currently access some form of prescription drug coverage
through Medicare+Choice. And, since seniors in Minnesota, and a
number of other efficient or rural areas, have had difficulties
attracting and maintaining access to a Medicare+Choice option,
we must address the problems that plague this program in
certain areas of the country at the same time.
Mr. Chairman, thanks again for holding this hearing. I look
forward to learning more from today's witnesses on how we can
best address these critical access and coverage issues.
Statement of Hon. Mark Foley, a Representative in Congress from the
State of Florida
Thank you, Mr. Chairman, and let me commend you for holding
this hearing today to talk about one of the most important
issues facing this Congress.
Our seniors face a crisis in health care today. When the
Medicare system was begun it was designed as a ``sick care''
system. That is, when a person over 65 becomes sick, the
Medicare program steps in at that point to treat, and hopefully
rehabilitate, them. Since that time we have realized the need
within the program to take a proactive approach to senior
health care by turning it into a ``health care'' system--
instead of treating someone who is already sick, Medicare
should put resources into healthy lifestyles and preventive
medicine. Because of current advances in medical technology, we
know that this type of system can make a difference. A large
part of that system, and the developing technology that has led
us to it, is pharmaceuticals.
Implementing such a large change to a federal program, as
we on this panel know all too well, does not come easily. Our
senior population is diverse, as are their medical needs. One
of the most important factors in this debate, and one which is
often overlooked, is that some 65% of Medicare beneficiaries
already have some type of public or private prescription
coverage. If these people are in fact happy with their current
coverage, they should not be forced into a government system.
In realizing the federal government's role in providing
this benefit we cannot underestimate the importance of allowing
private providers the opportunity to participate in the plans.
At the same time, there must be an incentive for participation.
The recent problems within the Medicare + Choice program
illustrate this problem perfectly. Congress created a new
option for beneficiaries to provide a low-cost Medicare option,
but, because of low reimbursement rates, many insurance
companies have pulled out of the plan, leaving Seniors with no
new option. We must ensure that the prescription drug coverage
provided is in fact a viable option.
Cost is another important and troublesome factor in this
debate. Ensuring private providers have an incentive to
participate is the first step. I have introduced H.R. 4236
which would increase payments to HMOs that participate in
Medicare and provide incentives to HMOs to include prescription
drug coverage for their beneficiaries. This is one way to
expand the current private drug coverage many seniors enjoy at
a lesser cost to the government.
This addresses part of the problem but is not a total
solution. I have introduced H.R. 4235 to provide a safety net
for low income seniors enrolled in Medicare. We can all agree
this is an important component of any new proposal and much of
the reason the Medicare program was created in the first place.
I commend Chairman Thomas for his hard work in this area and
want to impress upon him my willingness to work to see that a
comprehensive plan is passed this year.
Finally, to ensure that all seniors have options, we must
include in any plan those seniors who may not fall in the
``low--income,'' may not be fortunate enough to have private
coverage, or may struggle to pay for their supplemental
coverage. To help these people I have proposed H.R. 4234 to
provide a tax credit for those who pay for their own drugs or
who participate in a supplemental insurance plan. This is a
simple step to help ensure all seniors have a viable option to
help cover necessary but expensive drug costs. I hope the
committee will consider each of these proposals as a part of an
overall prescription drug plan.
I feel confident we will hear quite a few viable ideas and
proposals today and hope that this discussion will lead us down
the path to passing an effective prescription drug plan for
seniors this year. Let me simply take this opportunity to
implore my colleagues on both sides of the isle to remember the
importance of this issue to those it will benefit. Election
year politics can often impede the path of such important
proposals. Seniors in my district and throughout the country
need prescription drug coverage now, not an election year
issue. I am deeply concerned over reports that members who have
reached across party lines to form a consensus on this bill may
face political consequences. I renew my commitment to seeing a
bipartisan prescription drug plan passed this year, and hope
that I can count on my colleagues to put partisan politics
aside and do what is right for our nations' seniors.
Chairman Archer. Our first witness this morning is one of
our own, the chairman of our Health Subcommittee, Mr. Thomas.
He is joined, as I understand it, on a bipartisan basis with
the gentleman from Minnesota, Mr. Peterson. I understand the
two of them have been working together on a plan.
Mr. Thomas, we are pleased to receive your testimony this
morning. How does it feel on the other side?
STATEMENT OF HON. WILLIAM M. THOMAS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Thomas. Thank you, Mr. Chairman. It is an impressive
view from this side of the table.
I am cognizant of a number of members who won't have the
number of opportunities I will have to intervene over the next
several days, so I have no written statement and I will make a
very brief oral statement.
I share in the vision of my colleague from California, Mr.
Stark, with just a couple of exceptions. I think one of the
concerns that we brought from the President's program wasn't
that it was a one-size-fits-all, but that it was a one-size-
fits-some. That in fact seniors who are worried about their
prescription drug costs are not worried about the first dollar
but are worried about the last dollar. So rather than a prepaid
plan of one-size-fits-some, what we are trying to move forward
on a bipartisan basis is insurance for all seniors.
As my friend and colleague, Mr. Rangel, said, we are going
to move forward on a bipartisan basis. If you will recall, on
the Balanced Budget Act, Medicare reforms passed this Committee
34 to 1. My goal is always to better ourselves and my goal is
to have a unanimous vote.
I tell my friend from New York that at 9:30 we held a
bipartisan press conference. The work product that will come
that will come out of the bipartisan working sessions that have
been going on for more than a year will have the imprint of a
number of Democrats, but the number of Democrats who have had
input and the number of Democrats who feel comfortable standing
up at the beginning of the process is a decidedly different
number.
I do believe that when the bill goes to the floor and the
final vote is recorded, that will be more than enough evidence
that this plan is bipartisan.
I am also pleased to have my colleague from the other side,
the Senator from Louisiana, Senator Breaux, because we spent
more than a year looking at various proposals in great detail
with the best minds available to us, both intensively and
extensively examining options. I think all of us are in
agreement: This needs to be an addition to Medicare; it needs
to be an entitlement; it needs to be voluntary; it needs to be
available in every corner of the United States.
One of the things of which we are becoming more and more
aware is that there probably needs to be a structural change as
well. As the Medicare Program has advanced, one of the things
we did in 1997 was add choice to the Medicare Plus Choice
Program. But, frankly, the administering of that program has
not been what many of us would have thought appropriate. In
fact, it is also true to others on this panel because they have
examined the Health Care Financing Administration and said
perhaps it is time that we look to a different entity to
provide the nurturing of the benefits to seniors.
And that is why in this bipartisan proposal we will include
the creation of a new administrative entity called the Medicare
Benefits Administrator under the health care structure of the
Health and Human Services Department. It is not something
radical or rogue. It is an entirely appropriate maturing of the
administrative structure.
But as we begin to get these details examined, I think you
will find to a certain extent there is some commonality. As we
did in 1997 with my colleague to my immediate left, it isn't
stressing the differences that will get us a bill this year, it
will be stressing the commonalities. That is why I was saddened
a bit by the White House press conference yesterday--and I
assume it will continue--and I hope some of my colleagues will
take note of the fact that what we need to do is to take a look
at the similarities in the proposal, work on the differences
instead of emphasizing the differences because if we emphasize
the differences it will be extremely difficult to come to
agreement.
I look forward to working with my colleagues to advancing
Medicare to making sure that seniors--wherever they are and in
whatever plan they have--have an opportunity to examine the new
prescription drug program and make a choice. Is this program
better than the one they have? Is it a program that now is a
program where they don't have one? That choice American seniors
deserve. It is overdue and we ought to do our job and move
forward in a bipartisan way.
Thank you very much, Mr. Chairman.
Chairman Archer. Thank you, Mr. Thomas.
Chairman Archer. Our next witness is also a member of our
Committee, a very strong contributing member from the Minority
side. Before I recognize you, the Chair would observe we have
10 minutes left on this initial 15-minute vote. I am told there
will be another 5-minute vote on the heels of that. The Chair
would like to wait as long as we can toward the end of this 10
minutes and then stay over for the two votes and come back
immediately for the rest of this panel.
Senators, I am sorry about this, but as you know, there is
nothing we can do about it.
I know they will want to stay for questions, too, so it is
not just the presentation. Otherwise, I would say go ahead.
Mr. Cardin?
STATEMENT OF HON. BENJAMIN L. CARDIN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MARYLAND
Mr. Cardin. Thank you, Mr. Chairman.
Mr. Chairman, I agree with Mr. Thomas. I hope that we can
work out and enact prescription drug benefits under Medicare
this year. Each of us in our districts is hearing from our
seniors on a very regular basis--and rightly so. Let me just
tell you one example in my district of a person who was at a
supermarket and went through the check-out line. She had some
groceries and she had three or four prescription drugs. She
took out some of her groceries and she took out some of her
prescription drugs because she couldn't pay the full bill.
This is a common story in all our districts. I have
constituents who have out-of-pocket costs of $1,000, $2,000, or
$3,000 a year. They just cannot afford it and they expect that
Medicare would cover these costs.
I was listening to Mr. Stark and was listening to Mr.
Thomas about one-size-fits-all. That is not Medicare. Medicare
has been probably the most successful program we have ever had,
certainly in the insurance field, to cover our seniors. It is
not one-size-fits-all. You can get your care provided under
fee-for-service, under an HMO, your employer may provide
benefits for you, you might be using a Medigap plan. But the
key thing about Medicare is that we have core benefits of
covered service that you know as a senior you will be entitled
to get those benefits.
I would hope that the standard that we would be using to
judge the plans--I would hope where we would start is that
prescription drugs should be no different than physician
services. A senior should be guaranteed that it is a covered
service. How the senior receives those services could well be
through fee-for-service, through an HMO, or through some
private insurance. That is fine. But let us make sure it is in
the core plan.
That is one reason why the bill that Senator Kennedy and my
friend, Mr. Stark, will be speaking about complies with that
requirement. I support that approach.
Let me talk about a bill I filed last year, H.R. 1796, the
Medicare Chronic Disease Prescription Drug Benefit Act. I was
joined by Congressmen Coyne, Levin, Stark, and Thurman. That
bill recognized the fact that we need to include prescription
drugs in the core benefits of Medicare. However, that we could
not do it all at one time, that it would be too expensive.
But what we did there was to pick certain diseases that we
knew would provide preventive health care for our seniors. If
they take their prescription drugs, they will stay out of the
hospital and stay healthier. We also know that these
prescription drugs would be extremely expensive. So this bill
has a catastrophic coverage aspect to it. It also includes
drugs that people won't take unless they need to take them. You
don't take drugs for hypertension unless you need to take those
drugs. The diseases were hypertension, major depression,
rheumatoid arthritis, heart disease, and diabetes.
And we have a mechanism to add additional diseases that are
truly for preventive care. There is cost-containment in our
legislation through the use of a deductible, co-payment for
brand name drugs and pharmacy benefit managers.
Mr. Chairman, I will put my entire statement in the record
and I will be very brief today because I have the privilege of
serving on this Committee.
The bill that I filed and the bill that Mr. Stark filed--
both expand Medicare's core benefits to include prescription
drugs. I think if we start with that one principle, then I
think we will have room in which we can reach agreement to be
able to bring out prescription drug benefits for our seniors,
this year.
I thank the chairman for his time.
[The prepared statement follows:]
Statement of Hon. Benjamin L. Cardin, a Representative in Congress from
the State of Maryland
Chairman Archer, Ranking Member Rangel, and fellow Members
of the Ways and Means Committee, I appreciate the opportunity
to share my views with you on one of the most pressing problems
facing America's older and disabled citizens today-access to
comprehensive medical care. Medicare, the federal health
insurance program for the elderly and disabled, covers a wide
range of medical services-inpatient hospitalization, physician
services, physical and occupational therapy, skilled nursing
facility, home health and hospice care are all covered. Yet,
despite Medicare's success in eliminating illness as a major
cause of financial ruin for elderly Americans, the burden of
high prescription drug costs remains a source of hardship for
many beneficiaries.
When Congress created Medicare in 1965, prescription drugs
were not a standard feature of most private insurance policies.
But health care in the United States has evolved considerably
in the last 35 years. Now most private health plans cover drugs
because they are an essential component of modern health care.
They are viewed as integral in the treatment and prevention of
diseases. But Medicare, for all its achievements, has not kept
pace with America's health care system. Regardless of our
party, we can all agree that it is time to modernize Medicare
to meet our beneficiaries' needs.
Because Medicare does not cover prescription drugs, its
beneficiaries, 80% of whom take a prescription drug every day,
must either rely on Medicaid if they qualify, purchase private
supplemental coverage, join a Medicare HMO that offers drug
benefits, or pay for them out of their fixed incomes. Without
coverage, these costs can be extraordinarily burdensome for the
elderly, who already have the highest out-of-pocket costs of
any age group and who take, on average, eighteen prescriptions
each year.
Medicaid does provide prescription drug coverage. But
nearly 60% of Medicare beneficiaries with incomes below the
federal poverty level were not enrolled in Medicaid as recently
as 1997. And even Medicaid enrollees with drug benefits must
forgo some of their medications. In fact, eleven state Medicaid
programs have imposed caps on the number of prescriptions
covered each month.
The drug coverage available through Medigap leaves much to
be desired. Only three of the ten standardized Medigap plans
offer drug coverage, and these plans-H, I, and J--have limits
on the benefits and high cost sharing. Two plans have caps of
$1250, and the third has a cap of $3000. The high cost of these
Medigap policies has put them out of reach for most low- to-
moderate income Medicare enrollees. In my home state of
Maryland, a 70 year-old beneficiary must pay anywhere from
$1100 to $3550 per year for such a plan.
Some beneficiaries get drug benefits through retiree health
plans. Although between 60 and 70 percent of large employers
offered retiree benefits in the 1980s, fewer than 40 percent do
so today. Of these employers, nearly one-third do not include
drug benefits in the package.
So that leaves Medicare HMOs, which are rapidly vanishing
as an option for seniors. Nearly 1 million seniors are likely
to lose their Medicare+Choice plan at the end of this year. In
2001, none of Maryland's rural counties will have a
Medicare+Choice option. This is the dismal situation in a state
where only three years ago every senior had access to at least
two HMOs, and some could choose from as many as eight. But
access to drugs in a Medicare HMO is not only a rural problem.
Next year, we will have just two plans available to our urban
beneficiaries; both will impose a monthly premium, and at best,
the drug benefit will be capped at $1000. Last year,
Medicare+Choice enrollees from my district, which is centered
in Baltimore, told me that they had to rely on pharmaceutical
samples to get sufficient amounts of medications because of the
caps imposed by their plans.
The problem of HMO withdrawals is often cast as a payment
issue. But the HMOs themselves say that other factors play an
equal if not greater role in their decision to leave Medicare.
Raising the payment floor to $475 or $500 in Maryland would not
have prevented insurance companies from leaving Cecil Country,
where the 1999 payment was $532, or Allegany County, where the
1999 payment rate was $574. None of the seniors in these
counties has any Medicare+Choice option now. Rather than
spending money to selectively prop up private plans, Congress
should add a drug benefit to the basic Medicare package. This
would allow Medicare+Choice plans to compete on the basis of
their ability to manage care rather than on how deftly they can
move money from column A to column B to finance an ever-
shrinking drug benefit.
Our examination of the current landscape has made us
painfully aware of the gaping hole in Medicare's safety net. We
can repair it now before more elderly and disabled citizens
fall through. A comprehensive Medicare drug benefit is
expensive, and we are limited in how broad a package we can
create immediately.
In the first session of this Congress, joined by four of my
colleagues on this committee--Mr. Coyne, Mr. Levin, Mr. Stark
and Mrs. Thurman, I introduced legislation that takes an
important, incremental step. HR 1796, the Medicare Chronic
Disease Prescription Drug Benefit Act, recognizes the
importance of preventive care and provides coverage for drugs
that have been determined to show progress in treating chronic
diseases. Why chronic diseases? Because the average drug
expenditures for elderly persons with just one chronic disease
are more than twice as high than for those without any. And
because we know from years of advanced medical research that
treating these conditions will reduce costly inpatient
hospitalizations and expensive follow-up care. This legislation
has built-in catastrophic care. It provides medications for
those beneficiaries with the greatest need for assistance: the
GAO study of the Medicare+Choice program has shown us HMOs
enrollees are younger and healthier than those in fee-for-
service Medicare. This tells us that it is the older, sicker
seniors, precisely the ones who need more medications, who have
reduced access to drug benefits because they are not in HMOs.
HR 1796 addresses their needs. It begins with five chronic
diseases--diabetes, hypertension, congestive heart disease,
major depression, and rheumatoid arthritis--that have high
prevalence among seniors and whose treatment will show
improvement in beneficiaries' quality of life and reduce
Medicare's overall expenditures.
The Medicare costs associated with inpatient treatment of
these diseases are exorbitant.
Hypertension is a major risk factor for heart
disease, stroke and kidney failure, affecting nearly 40% of all
Medicare beneficiaries. It is responsible for 32,000 inpatient
admissions each year.
Major depression affects more than one million
beneficiaries, more than any diagnosis except heart disease.
Medicare spends $1.8 billion each year for 320,000 admissions
to treat major depression. Treatment has been found to reduce
overall health costs by 29%.
Rheumatoid arthritis affects more than 1.75
million beneficiaries. The annual rate of hospitalization (34%)
is nearly twice the rate for all Medicare beneficiaries
(18.7%).
Heart diseaseis the largest single cause of death
for the elderly. Drug therapy can reduce death rates for heart
patients by 40%, but only half the people who could benefit
from these drugs receive them. Medicare spends $7 billion
annually for inpatient treatment of heart disease.
Diabetes affects six million Americans over age
65. This Committee recognized the importance of preventive care
for diabetes in 1997, when we passed the Medicare preventive
benefit amendments that for the first time paid for glucose
monitors, test strips, and self-management training for
diabetics. I will use this disease to further illustrate my
point:
Diabetes is the leading cause of end-stage renal
disease. People with diabetes are twice as likely to
have heart disease and to suffer a stroke as people without
diabetes. The risk of leg amputation is up to 40 times
greater for diabetes sufferers. Each year, Medicare
pays for 56,000 admissions for amputations, and spends $700
million on inpatient costs. Amputees are far more
likely to require home health care and nursing home care.
Medicare spends an estimated $28.6 billion annually
treating diabetics. With proper treatment with
insulin, diabetes can be managed and most of these costs can be
avoided.
HR 1796 provides coverage for drugs after an annual $250
deductible is met, with no copayment for generics and a 20%
copayment for brand-name drugs. QMBs and SLMBs will be exempt
from deductibles and copays. Pharmacy Benefit Managers (PBM)
under contract on a regional basis with the Health Care
Financing Administration will negotiate with pharmaceutical
companies to purchase these drugs and will administer the
benefit.
This bill covers five major chronic conditions, but we know
that there are others that should be covered as well. Our bill
provides a process for the Institute of Medicine to determine
the effectiveness of this benefit and the Medicare savings it
produces, and to recommend additional diagnoses and medications
that should be considered for coverage.
Mr. Chairman, modern medicine has the capability of doing
extraordinary things, and the nation's pharmaceutical companies
should be recognized for their contributions toward curing
disease and improving the quality of life for many. But no
medical breakthrough, no matter how remarkable, can benefit
patients if they can't get access to it. My bill is a cost-
effective, economically sound approach to prescription drug
coverage is a matter of common sense: if Medicare beneficiaries
can secure the medications they need, they will be able to
manage their conditions, and they will be much less likely to
require extended and costly inpatient care. This legislation is
a first step, and a major step, toward making this a reality.
I also support the comprehensive drug benefit bill
introduced by my colleague from California, Mr. Stark. Both of
these approaches establish prescription drug coverage as a
guaranteed benefit under the Medicare program. Both approaches
recognize prescription drugs as an integral component of
medical care. Both approaches ensure that seniors' access to
drug coverage will no longer depend on where they live. Both
approaches mean that our seniors will have coverage for
prescription drugs, and they will not be dependent on an
insurance company's business decision, which could reduce or
eliminate their benefits. And finally, both approaches expand
choice. For seniors who want to maintain traditional Medicare,
they guarantee the availability of drug coverage. For seniors
who choose private health plans, they reimburse these plans for
the cost of drugs, thereby encouraging them to stay in the
program. For seniors who have retiree health benefits, they
support the ability of employers to fulfill the promise of
retirement security they have made to their workers.
Congress created Medicare in 1965 to provide health
insurance coverage for vulnerable citizens when the private
sector would not do so. We enacted a benefit that was
guaranteed to all without regard to income or place of
residence. We have convened today, because, again, the basic
health care needs of our beneficiaries are not being met by the
private sector. As we work to modernize Medicare, let us make
certain that all enrollees have access to prescription drug
coverage regardless of income, regardless of place residence,
and always with the health of our beneficiaries as our primary
objective.
Chairman Archer. Thank you, Mr. Cardin.
Our next witness is a gentleman well known to the Congress
and to the Nation and has been most active in health issues
over the years. Senator Kennedy, we are pleased to have you
here in the Ways and Means Committee and will be pleased to
hear your testimony.
STATEMENT OF HON. EDWARD M. KENNEDY, A UNITED STATES SENATOR
FROM THE STATE OF MASSACHUSETTS
Senator Kennedy. Thank you very much, Mr. Chairman. It is a
pleasure to be with my colleagues here on this panel, all who
have given a great deal of thought and attention to this issue.
I commend them and I thank you, Mr. Chairman, for your
involvement. I also thank Congressman Thomas who works on this
issue and our chairman, Mr. Rangel, and Congressman Stark as
well.
If I could, Mr. Chairman, just walk through these charts
very quickly. We have high drug prices for seniors.
Prescription drug coverage for seniors is going down. One-third
of our senior citizens have no drug coverage. Employer-
sponsored coverage is going down rapidly every year. Medicare
HMO deductibles are going up. The only group of seniors that
really has any health care guarantees are those seniors on
Medicaid.
Second, Mr. Chairman, you see on this chart, Medicare HMOs
are reducing their level of drug coverage. This year, 75
percent will cover less than $1,000 in prescription drug costs
and 32 percent will cover $500 or less. The major sources by
which our seniors are getting their prescription drugs are in a
state of collapse. If you add to that the increased cost of
Medigap plans that provide drug coverage, that collapse is
evident.
On this chart we see the increase in drug costs. We have
the costs of CPI versus the costs of prescription drugs. So we
have the collapse of drug coverage at the same time we have an
increase in cost.
Next, most seniors do not have high incomes. The meidan
income for a senior is less than $14,000. This is very
important. People talk about middle-income senior citizens and
high-income senior citizens. When you have 78 percent of our
seniors with incomes below $25,000, you are talking about a
very limited group. That is why universal coverage is so
compelling. We are basically talking about people at the
margin.
We believe that there should be coverage for all seniors.
It should be voluntary. You ought to have basic coverage, which
is essential and some level of catastrophic coverage. You have
been through the President's bill. I won't take the time to go
through it. It does provide coverage for all, it is voluntary,
it has a catastrophic provision, and it is affordable.
Now let me just mention, Mr. Chairman, my concern about the
Republican proposal. It is inadequate in terms of the
government contributions. It leaves out too many seniors and is
too costly for middle class seniors.
The impact on Medicare beneficiaries of an inadequate
government contribution is that you still leave many seniors
with no coverage whatsoever. Under the administration's
program, the President's program, the government contribution
is 50%, so it will likely cover all 12 million seniors without
drug coverage. Under the Republican proposal, the government
contribution is only 25%, and is estimated to result in
coverage for 6 million. So we have to ask ourselves, Is this
really a program or a promise? Which 6 million seniors are we
going to leave out? It seems to me, if we are really going to
do the job, we can't afford to leave out half of those who are
not going to have the coverage.
Second, contrast the cost. Under the administration's
program, when fully phased in premiums will be $575 annually
versus $1,276 under the Republican plan. So you are talking
about half the number of seniors that will be covered because
the cost is more than double.
Now, Mr. Chairman, looking at the blue chart one more time,
you are going to have second-class coverage for low and middle
income seniors. You are going to guarantee $500, or $700, or
whatever it is, but it is going to be the cost for the lowest
priced benefit package. When that happens in our health care
system, it means an inadequate benefit. We are going to
accelerate a two-tier system, I believe.
The Republican plan does not have a defined benefits
program, Mr. Chairman. I think it is absolutely essential that
in any program that is going to be given its worth you provide
a defined benefit. I believe that there is excessive reliance
on the private insurance industry. I think this Committee made
the wise decision at the time Medicare was enacted to recognize
that the private insurance industry is not adequate to deal
with the issue.
These are the central concerns. I am concerned that this is
a promise without the reality. It is not a real true Medicare
benefit. It leaves out too many seniors. It is too costly for
the middle class and there is no guarantee of defined benefits.
I thank the Chair.
[The prepared statement follows.]
Statement of Hon. Edward M. Kennedy, a United States Senator from the
State of Massachusetts
Thank you, Chairman Thomas and Congressman Stark, for the
opportunity to testify on this very important issue. You have
both been leaders on this issue, and I welcome the opportunity
to share my views with the Committee. No issue is more
important to senior citizens than prescription drug coverage
under Medicare. There is no issue facing this Congress in which
a bipartisan solution is more important.
The need for action is as clear as it is urgent. Medicare
is a specific contract between the people and their government.
It says, ``Work hard, pay into the trust fund during your
working years, and you will have health security in your
retirement years.'' But that commitment is being broken today
and every day, because Medicare does not cover prescription
drugs.
Too many elderly Americans today must choose between food
on the table and the medicine they need to stay healthy or to
treat their illnesses. Too many seniors take only half the
pills their doctor prescribes, or don't even fill needed
prescriptions at all--because they can't afford the high cost
of prescription drugs. Too many seniors are paying twice as
much as they should for the drugs they need, because they are
forced to pay full price, while almost everyone with a private
insurance policy benefits from negotiated discounts. Too many
seniors are ending up hospitalized--at immense cost to
Medicare--because they aren't receiving the drugs they need at
all, or can't afford to take them correctly. Pharmaceutical
products are increasingly the source of miracle cures for dread
diseases, but senior citizens are being left out and left
behind because Congress fails to act.
Senior citizens are being hit by a one-two punch. Coverage
is declining-and costs are soaring. 12 million senior citizens-
one third of the total-have no prescription drug coverage at
all. Surveys indicate that only half of all senior citizens
have prescription drug coverage throughout the year. Coverage
through employer retirement plans is falling. Medicare HMOs are
cutting back. Medigap plans are priced out of reach of most
seniors. The sad fact is that the only senior citizens who have
stable, reliable, affordable drug coverage today are the very
poor on Medicaid.
Prescription drug costs are escalating. Since 1996, costs
have grown at double-digit rates every year. Last year, the
increase was 16%, while the increase in the CPI was only 2.7%.
No wonder access to affordable prescription drugs has become a
crisis for so many elderly Americans.
It is long past time for Congress to act. There are four
basic principles that any prescription drug proposal should
meet.
It must cover all senior citizens.
It should be voluntary.
It must provide both basic coverage and catastrophic
coverage.
It must be affordable for senior citizens.
Coverage for All
Medicare and Social Security are the two most successful
federal social programs ever enacted. One of the reasons that
they are so popular and effective is that they cover all senior
citizens. Everyone-rich and poor alike-contributes during their
working years. Everyone benefits during their retirement years.
That model must be preserved for a Medicare prescription drug
benefit. Additional help can and should be provided for the low
income elderly, but the benefit must be one in which government
and senior citizens share in the cost at all income levels.
Senior citizens want Medicare, not welfare.
As a practical matter, a program targeted on the low income
elderly won't meet the need. The vast majority of the elderly
are of moderate means. A program restricted to the low income
elderly will still leave millions of senior citizens unable to
afford the prescription drugs they need. Fifty-seven percent of
seniors have incomes below $15,000 a year, and 78% have incomes
below $25,000. Only 7% have incomes above $50,000 a year. The
older they are, the more likely they are to be in poor health-
and the more likely their limited income cannot meet their
health needs.
A key component of coverage for all is a fair sharing of
costs between the government and the beneficiaries. Only if the
government pays a substantial share of the premium-a minimum of
50%-for every beneficiary can affordable coverage for all be
guaranteed and the principle of social insurance be maintained.
Voluntary coverage
There is no need for a mandatory program. A program that is
voluntary will gain the broadest possible public acceptance. If
it is well-designed, it will assure that every senior citizen
has adequate, affordable coverage from some source.
Basic and Catastrophic Coverage
It is clear that Medicare should cover both basic
prescription drug expenses and catastrophic expenses. The basic
coverage will meet the needs of senior citizens with moderate
drug costs, and the catastrophic coverage will protect those
who need very expensive drugs.
A drug bill of $200 or $100 or even $50 a month is a heavy
burden for most senior citizens. They deserve help in meeting
these expenses. A program that asks them to pay premiums and
receive no basic benefits is not defensible. That is why a
basic benefit is essential.
But a basic benefit alone will not help those who need
drugs costing thousands of dollars a year. Increasingly, many
of the miracle drugs that are coming on the market have price
tags at those levels. Often, they save money for the system
overall, by reducing the need for costly hospital and physician
care. But senior citizens will not be able to afford these
medications unless Medicare includes catastrophic protection.
Affordability
Premiums under the new program must be affordable for
senior citizens. Special help needs to be provided for the low
income elderly, but the government should share in the premium
cost for all of the elderly.
Affordability also has another meaning, however. Millions
of Americans with private insurance coverage pay much less for
prescription drugs today than senior citizens pay. Citizens of
foreign countries often pay a small fraction of the American
price. Government agencies like the Veterans Administration
receive large discounts. Private purchasers who buy in bulk--
such as HMO's, insurance companies, and large corporations--all
receive substantial discounts.
Any Medicare prescription drug coverage should be set up to
provide the benefits of bulk purchasing for senior citizens.
Any program we are likely to enact will still leave senior
citizens responsible for paying a significant proportion of the
costs of the drugs they buy. They deserve to pay that
proportion based on a fair price, and taxpayers deserve a fair
price, too.
The bill introduced by Senator Daschle, Senator Moynihan,
myself, and the majority of the members of the Democratic
caucus in the Senate embodies each of those principles. It
effectively meets the need of every senior citizen for
affordable coverage. It provides basic and catastrophic
benefits at a price the elderly can afford--and I hope that,
with the new surplus projections expected later this month, we
will be able to improve it further. It assures that Medicare
beneficiaries will receive drugs at the same discounted prices
now available only to the biggest purchasers. And it supports
and improves existing coverage through employer retirement
plans and Medicare HMOs.
As important as it is to pass Medicare prescription drug
coverage that does the right thing for the elderly, it is
equally important not to pass a program that pretends to do the
job but does not. There are four specific pitfalls that we
should avoid.
First, a program that only subsidizes the very low income
elderly and provides no government contribution or a very
limited contribution to the vast majority of moderate income
senior citizens will leave out too many in need and impose
excessive premiums. Senior citizens at 150% of the poverty
level have an income of only $12,000. If they have to pay the
full premium of a plan similar to the President's, the cost
would be approximately $1,300 a year, before a dime's worth of
coverage was received. CBO has estimated that even with a 25%
contribution, half of all the senior citizens who have no
prescription drug coverage today would be left out. This result
is clearly unacceptable.
Second, the premium contribution should not be based on the
cost of the lowest priced plan in an area, if multiple plans
are offered. To do so would be an invitation to segregate those
of low and moderate income into substandard programs.
Third, the program should provide a defined and specific
benefit-not one based on a concept of actuarial equivalence.
The elderly deserve to know what they are getting. Insurance
companies should not have the opportunity to manipulate
benefits to attract the healthy and force the sick into the
highest cost plans.
Finally, there should not be excessive reliance on the
private insurance market. Private insurance has a proven track
record of failure in meeting the needs of the elderly. The cost
of selling and administering individual insurance programs is
unacceptably high, compared to Medicare. Benefits the elderly
need and deserve should not be used to subsidize insurance
company profits or excessive administrative costs.
Few if any issues facing this Congress are more important
than giving the nation's senior citizens the health security
they have been promised. The promise of Medicare will not be
fulfilled until Medicare protects senior citizens against the
high cost of prescription drugs, in the same way that it
protects them against the high cost of hospital and doctor
care. I urge this Committee to act, and act promptly, to meet
this pressing need.
[Charts are being retained in the committee files.]
Chairman Archer. Thank you, Senator.
Senator Kennedy. I am glad to clear the room. That happens
to me all the time over in the Senate, too.
[Laughter.]
Chairman Archer. The Chair exhorts members to hurry over
and vote, then we will do the second vote and come back. The
Committee will stand in recess.
[Recess.]
Chairman Archer. We have a lot of witnesses, so the Chair
encourages everybody to take their seats and cease ambient
noise.
Our next witness is another respected Senator, who has
spent long hours toiling the financiers of Medicare and the co-
chairman of the Medicare reform commission last year. We are
happy to have you before us today, Senator Breaux. We will be
pleased to receive your testimony just as soon as the outside
noise abates.
STATEMENT OF HON. JOHN BREAUX, A UNITED STATES SENATOR FROM THE
STATE OF LOUISIANA
Mr. Breaux. Thank you very much, Mr. Chairman and Members
of the Ways and Means Committee.
I don't know whether it was something Senator Kennedy said
that cleared the room or the expectation of what I might say
that cleared the room, but we are glad that you are back.
It is really interesting that co-chairman Thomas and I had
our last Medicare Commission meeting in this very Ways and
Means Committee hearing room. We are glad to be back and
hopefully this is not the last meeting of the Ways and Means
Committee on this very important issue.
Congratulations to you, Mr. Chairman, and to all the
members, first of all for having this detailed hearing on the
issue of prescription drugs followed by the very somewhat novel
concept of actually scheduling a markup on the legislation,
which I think is incredibly important if we are going to get
anything done in the few remaining days we have in this
Congress.
Thank you for the schedule you have set out. I hope the
Senate will be able to follow your leadership and actually move
to a markup if we are going to get anything done other than
have an issue to talk about. We can all have an issue about
whose fault it is that prescription drugs are not passed in
this Congress, but then we will be arguing about failure and
whose fault it is. If we want to actually get something done
for seniors, it is going to take some setting of schedules,
scheduling markups, and working toward a bipartisan agreement.
Otherwise, we are not going to get anything done other than
create an issue for each party to argue about in the upcoming
elections. That would be a real tragedy, and I know that we do
not want that to happen.
Let me make basically two points. The first point is that
we should use the issue of creating a prescription drug plan
for seniors as a means to also at least put a downpayment on
Medicare reform. It is actually quite easy just to spend $40
billion on prescription drugs. We could agree on how to do
that. It is not that much of a problem. But if we can agree
that we are going to have $40 billion for prescription drugs
over 5 years, let us at least use that to get some minute
degree of reform of the Medicare Program itself in order to
package the two together.
I think it would be a serious mistake just to add $40
billion to the existing program without any reform at all. We
all know the problems with Medicare. Medicare benefits only
cover about 53 percent of the average senior's health costs and
47 percent comes out of their pocket. It is not nearly as good
as it should be. The average senior, according to AARP, spends
over $2,400 out-of-pocket in the Medicare Program for things
that are not covered by Medicare today, and that is not
acceptable.
General revenues are already paying 36 percent of the cost
of Medicare, and I think that is not acceptable. You look at
the 77 million baby boomers that are coming on to the program.
The program, in its current state, is not acceptable. It does
need major reform. And this should be the opportunity to add
prescription drugs and at the same time do something on real
reform. Senator Moynihan has said that prescription drugs and
reform have to be linked together.
The Breaux-Frist 2000 measure--which Dr. Frist and I have
now presented--is an outgrowth of the Medicare Commission and
is a version of S. 1895, which was the Breaux-Frist
Comprehensive Medicare Reform With Prescription Drug bill that
we introduced. Recognizing that we probably only have 30 days
left before we are out of here and the elections are begun, we
are not going to be able to do any major reform of Medicare
plus prescription drugs.
But what we have outlined in Breaux-Frist 2000 I think is a
major step in the right direction that hopefully we can agree
on. We create, as Congressman Thomas does, an outside-executive
branch agency to run both Medicare+Choice as well as run the
new prescription drug program. Medicare+Choice is not working,
and for many it is an unmitigated disaster. It is overly
regulated, reimbursements are too high in some areas and not
high enough in others. So we would put Medicare+Choice under
the new agency, allow them to run it based on competition, as
well as running the prescription drug plan.
Our prescription drug plan is subsidized across the board
at 25 percent. It is income-related, which means it is means
tested for upper-income seniors. For everybody under 135
percent of poverty, it is 100 percent subsidized and is
ratcheted down from 135 percent up to 150 percent on a scale
declining to 25 percent.
We think that it will work. We create a reinsurance pool
much like Congressman Thomas does to pay for catastrophic
costs. We also allow the insurance to provide coverage for the
out-of-pocket expenses as well as for the prescription drugs.
We also require that people have to sign up early, like they
have to do for part B, to make sure they get into the new
prescription drug program.
The final point is--very quickly--don't set a deductible
and a copayment in legislation. Our plan calls for a
prescription drug plan of an $800 actuarial value. You could
come up with all kinds of combinations under that. If you set
the specific deductible and the specific copayment, every year
Congress will be coming back trying to lower the copayment or
increase the deductible or vice versa. That is not the way to
do it. I would suggest an $800 actuarial value and let
companies offer different variations and people pick the one
that best suits them.
Thank you, Mr. Chairman.
[The prepared statement follows.]
Statement of Hon. John Breaux, a United States Senator from the State
of Louisiana
Mr. Chairman and Members of the Committee:
Thank you for inviting me to testify today on an issue
critically important to the health of our nation's seniors--
prescription drugs. As you know, last November, Senator Bill
Frist and I introduced legislation, S. 1895, along with
Senators Kerrey and Hagel, to strengthen and improve the
Medicare program and provide a long-overdue outpatient
prescription drug benefit. Much of what we proposed in S.1895
reflects the policies supported by a bipartisan supermajority
of the Medicare Commission which I had the privilege to co-
chair with the Chairman of the Ways and Means Health
Subcommittee, Congressman Bill Thomas. However, given the
limited number of legislative days remaining in this Congress
and the difficulty of passing comprehensive Medicare reform
this year, Senator Frist and I recently outlined an
incremental, bipartisan Medicare proposal (Breaux-Frist 2000)
that we believe represents an important down payment on
Medicare reform and prescription drugs. The following is a
comparison of S.1895 and the incremental Breaux-Frist 2000
proposal.
----------------------------------------------------------------------------------------------------------------
S.1895 (Medicare Preservation and
Improvement Act of 1999) Breaux-Frist 2000
----------------------------------------------------------------------------------------------------------------
Administration Independent Medicare Board New executive branch Medicare agency
with advisory board (similar to SSA)
Competition Premiums linked to national weighted Premiums linked to fee-for-service
average
Drug Benefit Drug benefit through high option Drug benefit through existing M+C
plans with minimum acturial value. plans and private entities with
Approved by Medicare Board. minimum acturial value; reinsurance
program to assist with high-cost
cases; overseen by new Medicare
agency.
Drugu Subsidy Full low-income subsidies up to Same
135%; sliding subsidy 135-150%;
universal 25% subsidy over 150%.
Solvency Unified trust fund; general revenue A and B Trust Funds remian separate;
funcing limited to 40% of total no trigger to general revenues; new
program costs. measures to gauge Medicare solvency.
----------------------------------------------------------------------------------------------------------------
I have said many times and I continue to believe that we
must use the addition of a prescription drug to benefit to
Medicare as an opportunity to make important structural changes
to the program. To quote my wise friend and colleague Senator
Moynihan: ``Medicare reform is the price we must pay for
prescription drugs.''
Adding a new drug benefit to Medicare by itself removes
what little political incentive exists to do the heavy lifting
needed to reform the underlying program. That is why it is so
critically important that the issues of reform and prescription
drugs be linked. We need to fix Medicare now so that we can
keep the promises we've already made to seniors, before we make
a new promise in the form of a prescription drug benefit.
As we address the addition of a prescription drug benefit
this year, we should not overlook the problems Medicare faces
today. The facts bear repeating. Today, we know Medicare:
Will continue to consume an increasing share of
the federal budget, reaching 25% by 2030;
Only covers 53% of seniors average health care
expenses. According to AARP, Medicare beneficiaries spent
approximately $2,430, or 19% of their income, out-of-pocket for
health care in 1999.
Will continue to grow by an average of 6.9% over
the next 10 years, doubling spending from $208 billion today to
more than $400 billion in 2010;
Relies on general revenues to pay for 36% of total
program expenditures and will continue to use an increasing
share of general revenues, leaving fewer and fewer federal
dollars available to support other federal programs;
Faces a demographic tidal wave with 77 million
baby boomers becoming eligible for Medicare beginning in 2010.
OVERVIEW OF BREAUX-FRIST 2000
Real Competition to Fix Medicare+Choice
Breaux-Frist 2000, which we plan to introduce later this
month, lays the foundation for the kind of reform I believe
will ultimately be necessary if Medicare is to be sustainable
in the long-term. First, it takes steps to stabilize a
Medicare+Choice program which is clearly on life support.
Medicare+Choice is a take-it-or-leave-it system with
reimbursements that are too high in some counties and too low
in others. It is also a program regulated by an agency that
knows little about private sector, market-based health care
delivery.
In Breaux-Frist 2000, we allow plans to set their premiums
each year rather than waiting for government-administered
reimbursements. But beneficiary premiums under Breaux-Frist
2000 would be linked to the cost of the HCFA-run fee-for-
service plan so beneficiaries in fee-for-service won't pay a
higher Part B premium than they otherwise would under current
law.
New Medicare Agency
Today, the Health Care Financing Administration (HCFA) runs
the fee-for-service and Medicare+Choice programs, and controls
the terms of competition between private plans and the HCFA-run
fee-for-service plan. As illustrated in the attachment, Breaux-
Frist 2000 would establish a new executive branch agency
outside of HCFA and the Department of Health and Human Services
(HHS) to oversee Medicare+Choice and the new prescription drug
benefit.
Like the Social Security Independence and Program
Improvements Act of 1994, which moved the Social Security
Administration (SSA) outside of HHS, this new entity will be an
executive branch agency, with a Commissioner appointed by the
President and confirmed by the Senate. Our proposal would also
create an advisory board within the new Medicare agency to
advise and make recommendations on Medicare policy. HCFA would
continue to run Medicaid, the State Children's Health Insurance
Program (SCHIP), and the fee-for-service program in which 83%
of seniors currently participate. The new Medicare agency, and
a change in HCFA's role and mission, are the critical down
payment Congress must make if it passes prescription drug
legislation this year.
Universal Prescription Drug Benefit
As I've said many times, prescription drugs are as
important today as a hospital bed was 35 years ago when
Medicare was first established. The growing importance and
increased use of prescription drugs have had a disproportionate
effect on the elderly, who account for 13% of the population,
but more than one-third of the nation's total drug
expenditures.
I strongly believe that one of the reasons we don't have a
prescription drug benefit in Medicare today is because of the
rigid, government-administered pricing system, which is
micromanaged by Congress and slow to adapt to changing health
care needs and technologies. No government program can possibly
keep up with the increasingly rapid rate at which new life-
saving and life-improving drugs and technologies are brought to
the market. That is why I have serious reservations about
giving HCFA any pricing, management or administrative role over
a new prescription drug benefit in Medicare. Moreover, simply
using private contractors like pharmacy benefit managers (PBMs)
in a given region is no different than how HCFA currently
contracts with fiscal intermediaries and carriers to deliver
Part A and B benefits.
Breaux-Frist 2000 provides affordable and accessible
outpatient prescription drug coverage for all beneficiaries and
ensures seniors have access to the latest pharmaceuticals.
Under our proposal, all Medicare beneficiaries will have access
to an outpatient prescription drug benefit meeting a minimum
actuarial value. Beneficiaries enrolled in Medicare+Choice will
be offered the prescription drug benefit through the plan in
which they're enrolled. Beneficiaries in fee-for-service
Medicare would select a drug benefit offered by new private
supplemental plans. Subject to approval by the new Medicare
Agency, these new private plans could also offer stop-loss
protections and additional benefits such as dental, vision or
long-term care.
To help with catastrophic drug costs, Breaux-Frist 2000
establishes a reinsurance pool, setting aside a specific dollar
amount each year to help subsidize plans for their highest
costs prescription drug cases. This in effect provides an
additional reduction in drug premiums for all beneficiaries.
This reinsurance concept is very similar to the one recently
proposed by Chairman Thomas and other House members. In
addition, seniors would be protected against catastrophic drug
expenses through new stop-loss protections.
Some have argued that public financing of private coverage
won't work and that a one-size-fits-all HCFA-managed benefit is
the only option. I disagree. Breaux-Frist 2000 contains several
features I believe will make private coverage of prescription
drugs work for seniors.
First, strong government oversight and substantial public
funding give seniors and plans a strong incentive to
participate. Second, funding for reinsurance will help health
plans with their highest cost drug cases and a one-time
enrollment feature will help attract a diverse pool of
enrollees. Finally, Breaux-Frist 2000 contains a fallback
provision, as S.1895 did, that charges the Medicare Agency with
guaranteeing all seniors have access to a prescription drug
benefit in those areas where private sector participation does
not materialize. Regardless, adverse selection or a lack of
plan availability could not be worse under a reformed system
than they are under current law, especially for seniors who
need drug coverage.
Under Breaux-Frist 2000, all beneficiaries will receive a
subsidy toward the purchase of drug coverage. Low-income
beneficiaries below 135% of the federal poverty level (FPL)
will receive a full subsidy for the lowest cost comprehensive
or supplemental plan; beneficiaries between 135%-150% FPL will
receive a subsidy based on a sliding scale, phasing down from a
50% subsidy at 136% FPL to a 25% subsidy at 150% FPL. Breaux-
Frist 2000 also provides a 25% universal subsidy toward
coverage for all beneficiaries over 150% of poverty. These
premium subsidies would be treated as taxable income, reducing
their final value somewhat for more affluent seniors.
Coverage: The Key to Affordable Prescription Drugs
The key to providing affordable prescription drugs to
seniors without stifling innovation and competition is through
coverage. Any time members of Congress or their staff need a
prescription filled, they take their prescription to a pharmacy
and, if they're in a managed care plan, they most likely pay
only a $5 or $10 copayment. If they pay coinsurance for each
drug, they will still pay less than retail as a result of lower
prices negotiated by insurers which are passed along to
consumers. Seniors and others without prescription drug
coverage pay the full retail cost set by individual pharmacies.
Since no insurer is negotiating discounts on their behalf,
these Americans end up paying the most for prescription drugs.
But, if they had coverage and an insurer or PBM to negotiate
lower prices, they would reap the benefit of lower prices which
other insured Americans enjoy.
There has been much discussion regarding drug pricing and
the availability of drugs at lower prices in other countries,
such as Canada and Mexico. Some have advocated using Canadian
cost containment policies as we design a prescription drug
benefit for America's seniors. But any price controls, whether
implicit or explicit, will have devastating, long-term
consequences for the development of new medicines that allow us
to lead longer, healthier, more productive lives. Price
controls are not the answer-providing seniors coverage for
prescription drugs is.
New Measures of Medicare Solvency
Under Breaux-Frist 2000, the Part A and B Trust Funds would
remain separate. New mechanisms will be established so
Medicare's financial health is measured by looking at total
spending and revenues for the entire program as opposed to only
looking at the balance in the Part A Trust Fund. These measures
would be used to sound an early warning and trigger debate as
to policy decisions necessary to financially sustain Medicare.
Conclusion
The overwhelming public support for an outpatient
prescription drug benefit gives us a real opportunity to make
Medicare better with bipartisan legislation. Seniors absolutely
need prescription drug benefits, but adding prescription drugs
without addressing the underlying program will only worsen
Medicare's financial deficiencies and administrative
inefficiencies.
Medicare must be modernized and put on a sound financial
footing to be able to provide seniors with a drug benefit that
is an integral part of their health care plan. I believe we
should use this opportunity to pass meaningful, bipartisan
legislation and take an important first step toward an improved
Medicare for all Americans. Thank you again for the invitation
to appear before this committee and I'd be happy to answer any
questions.
[GRAPHIC] [TIFF OMITTED] T1459.001
[GRAPHIC] [TIFF OMITTED] T1459.002
Chairman Archer. Thank you, Senator Breaux.
Our next witness is a member from our own body, the
gentleman from Minnesota, Mr. Peterson.
STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MINNESOTA
Mr. Peterson. Thank you.
Good morning and thank you, Mr. Chairman and Ranking Member
Rangel, for inviting me to testify today before you on this
important issue.
Medicare has delivered quality health care for over 30
years, but most everyone agrees that it needs to be reformed
for the future. I want to agree with my colleague here, Senator
Breaux, that we ought not to add a drug benefit without getting
some kind of reform in the system.
I also want to associate myself with most of his remarks
because basically where he is, is very close to where
Congressman Thomas and I are, and that is as Congress and the
public discuss Medicare reform--specifically the addition of a
prescription drug benefit--the debate has predictably evolved
into a highly politicized one, which I think is real
unfortunate. I have been concerned for some time that it has
become so politicized that Congress will fail to produce a
proposal that has a real chance to become law. Unfortunately,
the real losers in this political battle are the people who
need the help the most.
Today, I believe this debate has received an important
second wind because this morning myself and a team of
bipartisan colleagues--Congressman Thomas, Ralph Hall from
Texas, Richard Burr from North Carolina--announced a plan that
would offer a voluntary and universal prescription drug benefit
to American seniors. This new entitlement would provide
affordable prescription medicines to Medicare beneficiaries and
provide much needed reforms to the Medicare+Choice Program.
For the past few years, I have been working toward a
solution that would not only provide a prescription drug
benefit for all seniors, but also guarantee affordable and
accessible medicine for rural seniors. While the
Medicare+Choice Program conceived in 1997 has increased access
in some regions, Rural America has been left behind.
I believe the measure we announced today has the best shot
we have in offering universal prescription drug coverage to all
seniors, regardless of where they live. Our measure satisfies
the principles, I believe, necessary for Medicare prescription
drug benefit. As I stated, the plan provides a voluntary
universal prescription drug benefit by making it available to
everyone. No senior will fall through the cracks. And moreover,
by making it voluntary, we protect seniors who are happy with
their current coverage.
Like the President's plan, the low-income folks are fully
subsidized. All Medicare beneficiaries will receive a subsidy,
which will help keep the cost of their benefits more
affordable. And a stop-loss provision provides seniors with the
peace of mind that Medicare won't abandon them when they are
the most sick.
Additionally, the measure provides safeguards for Rural
America. Rural districts across the country, including my own
in Northwestern Minnesota, suffer from acute deficiencies in
health care and reimbursements. Any Medicare reform needs to
recognize these problems and close the funding discrepancies in
health care between the rural areas and some urban areas.
To that end, our plan reforms Medicare+Choice and thereby
increasing incentives for private plans to participate in the
rural areas. While I am hopeful that the reforms of
Medicare+Choice will accomplish the goal of expanding access to
prescription drugs, quite frankly, I have been around long
enough to remain concerned that these reforms could fall short,
especially in Rural America, given what has happened in the
past.
Other aspects of our plan that will increase the likelihood
that carriers will offer prescription drug coverage in new
markets include subsidies for drug plans and Federal exemptions
for State licensing requirements for companies who desire to
expand their coverage area. If these incentives fail, and there
are not at least two plans operating in any particular area,
the new Medicare Benefits Administration--which is newly
created that will operate within the Department of Health and
Human Services--will be responsible for administering the
benefit.
This aspect of our plan should bring peace of mind to all
seniors, especially seniors who are without quality and
affordable prescription drug coverage because of where they
live. Thus, if market forces do not prevail, Medicare
beneficiaries in Rural America will not be left behind with
this legislation.
This legislation is consistent with my philosophy of a
middle-of-the-road, common-sense solution to important policy
questions. I believe it is truly the best approach and can be
done without risking the financial health of the Medicare
Program.
Mr. Chairman, I look forward to working with all of you and
thank you for the opportunity to testify before the Committee.
[The prepared statement follows.]
Statement of Hon. Collin C. Peterson, a Representative in Congress from
the State of Minnesota
Good morning. Thank you Mr. Chairman and Ranking Member
Rangel for inviting me to testify today on this very important
issue.
Medicare has delivered quality health care for over 30
years, but everyone can agree that it needs to be reformed for
the future. As Congress and the public discuss Medicare reform
measures--specifically, the addition of a prescription drug
benefit--the debate has predictably evolved into a highly
politicized issue. I've been concerned for some time now that
it has become so politicized that Congress will fail to produce
a proposal that has a real chance to become law. Unfortunately,
the real losers in this political battle are the people that
need help the most.
Today, I believe this debate has received an important
second wind. This morning, myself and a team of bipartisan
colleagues--including Congressman Bill Thomas, Congressman
Ralph Hall, and Congressman Richard Burr--announced a plan that
would offer a voluntary and universal prescription drug benefit
to American seniors. This new entitlement would provide
affordable prescription medicines to Medicare beneficiaries and
provide much needed reforms to the Medicare+Choice program.
Over the past few years, I have been working towards a
solution that would not only provide a prescription drug
benefit for all seniors, but also guarantee affordable and
accessible prescription medicine for rural seniors. While the
Medicare+Choice program conceived in 1997 has increased access
in some regions, rural America has been left behind.
I believe that the measure we announced today is the best
shot we have in offering universal prescription drug coverage
to all seniors regardless of where they live.
Our measure satisfies the principles I believe necessary
for a Medicare prescription drug benefit. As I stated, our plan
provides a voluntary and universal prescription drug benefit.
By making it available to everyone, no senior will fall through
the cracks. Moreover, by making it voluntary, we protect
seniors who are happy with their current coverage.
Like the president's plan, the low-income are fully
subsidized. All Medicare beneficiaries will receive a subsidy,
which will help keep the cost of the benefit affordable. And a
catastrophic benefit provides seniors with the piece of mind
that Medicare won't abandon them when they are the most sick.
Additionally, the measure provides safeguards for rural
America. Rural districts across the country, including my own
in Northwestern Minnesota, suffer from acute deficiencies in
health care. Any Medicare reform needs to recognize these
problems and close the discrepancies in health care between
rural and urban areas.
To that end, our plan reforms the Medicare+Choice program
thereby increasing incentives for private plans to participate
in rural areas. Increased participation in the Medicare+Choice
program is an important step in increasing prescription drug
accessibility for all Medicare beneficiaries.
While I am hopeful that the reforms to Medicare+Choice will
accomplish the goal of expanding access to prescription drugs,
quite frankly, I've been around long enough to remain concerned
that these reforms could fall short--especially in rural
America.
Other aspects of our plan that will increase the likelihood
that carriers will offer prescription drug coverage in new
markets include subsidies for drug plans and federal exemptions
from state licensing requirements for companies who desire to
expand their coverage area.
If these incentives fail, and there are not at least 2
plans operating in any particular area, the Medicare Benefits
Administration--the newly created entity that will operate
within the Dept. of Health and Human Services--will be
responsible for administering the benefit. This aspect of our
plan should bring piece of mind to all seniors--especially
seniors who are without quality and affordable prescription
drug coverage just because of where they live.
Thus, if market forces do not prevail, Medicare
beneficiaries in Rural American will not be left behind.
This bipartisan legislation is consistent with my
philosophy of middle of the road common sense solutions to
important policy questions. I believe it is truly the best
approach and can be done without risking the financial health
of the Medicare program.
Thank you again Mr. Chairman for inviting me to testify
before the committee.
Chairman Archer. Thank you, Congressman Peterson.
Our next witness is our colleague from California, the
gentlelady Anna Eshoo. We are happy to have you before the
Committee and you may proceed.
STATEMENT OF HON. ANNA ESHOO, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman. Good morning to you, to
our Ranking Member, Mr. Rangel, and to all the distinguished
Members of the Committee.
You have my printed testimony, so I am going to summarize
since you have listened to almost all of us with patience this
morning on this most important issue of not whether we should
provide prescription drug coverage for the seniors of our
Nation, but rather how to.
There are some in Congress who think we should turn the
problem over to the private insurance industry. I am not one of
those that belongs to that school of thought. I don't know what
is happening in your congressional district, but daily I
receive telephone calls and letters and e-mails from my
constituents. They are frantic because the private insurance
market is pulling out from under them.
Others believe that the Federal Government should really
limit how much drug companies can charge. I don't believe in
price controls and the legislation that I have introduced does
not mirror that thought. I really believe that if we don't have
competition, or if we stifle it, patients will be at risk in
terms of the access of what will be brought to market.
Startup companies won't have an incentive to do what they
do very well. I think just about everyone here has traipsed
through my congressional district. It has the largest
concentration of biotechnology companies, not only in
California but in our country and in the world. So I think we
have a responsibility to work with those that really possess so
much of the intellectual property that is out there and what
they are doing.
My legislation really builds on the President's plan. It is
the Medicare Prescription Drug Act of 2000, H.R. 4607. It stays
true to the hallmark of the Medicare Program by providing a
generous, defined benefit package that is easy for seniors to
understand. Yet I think we took a step into the future by
introducing private sector competition.
It would be available to all Medicare beneficiaries and the
Federal Government will pay half of an individual's drug costs
up to $5,000 a year when fully phased in. For seniors whose
out-of-pocket expenses exceed $2,500 in drug expenditures, the
Federal Government will then stand next to them.
PBMs will deliver the benefits and seniors will choose
among multiple options, much like we do today in the Federal
Employees' Health Benefit Plan. I have used models that already
work. So I don't use a lot of theory in the legislation, but
rather models that work.
By allowing multiple PBMs to use the same tools that have
made them successful in reducing costs and promoting quality
for employees in the private sector, my bill will, for the
first time, introduce open competition into Medicare, reduce
prices, and increase consumer choice.
I am going to bring my testimony to a conclusion. Let me
just summarize that it is universal, it is voluntary, it will
improve efficiencies. We don't create Federal bureaucracy,
which has been described at the witness table, but rather place
the responsibility not in HCFA for the administration of the
plan, but in OPM.
The Office of Personnel Management does a superb job in
administering the plan that we are all a part of today. And it
is the largest in the country, as you well know. There are
pricing efficiencies by injecting competition, as I have
described, through the PBMs. There is a stop-loss provision.
The President's plan stops there. I think it is important to do
that. And I think that it is very fair because we recognize in
the legislation that there are those that simply cannot afford
to pay anything. We will stand next to them.
Those that earn less than 135 percent of poverty, do not
pay any premiums or co-pays.
In the words of FDR--and I think that they are important
words to recall today because I consider today's hearing
somewhat historic--``never before have we had so little time in
which to do so much.'' It is up to the Congress to come
together around a universal plan and stand next to seniors
because we know that what is out there today, in many cases, is
not working and that the majority of seniors do not have any
coverage whatsoever.
Thank you, Mr. Chairman and all the Members of this
Committee. It really is a privilege to come before you and
testify on an issue that I think in our day and time we can
really do something about.
[The prepared statement follows.]
Statement of Hon. Anna G. Eshoo, a Representative in Congress from the
State of California
Thank you, Mr. Chairman and Members of the Committee for
the opportunity to testify before you today regarding the very
important issue of how we create a Medicare prescription drug
benefit.
When Medicare was created in 1965, seniors were more likely
to undergo surgery than to use prescription drugs. Today,
prescription drugs are often the preferred, and sometimes the
only, method of treatment for many diseases. In fact, 77% of
all seniors take a prescription drug on a regular basis.
And yet, nearly 15 million Medicare beneficiaries don't
have access to these lifesaving drugs because Medicare doesn't
cover them. Countless others are forced to spend an enormous
portion of their modest monthly incomes on prescription drugs.
Right now, 18% of seniors spend over $100 a month on
prescriptions. Seniors comprise only 12 percent of the
population, yet they account for one-third of all spending on
prescription drugs.
The question before Congress is not whether we should
provide a Medicare drug benefit, but how to do it.
There are some in Congress who think that the way to do
this is to turn the problem over to the private insurance
market, but the private insurance market is pulling out from
under seniors in the Medigap and Medicare+Choice markets. I
receive letters and calls every day from seniors in my
Congressional District who are frantic that their Medicare HMO
has raised prices, scaled back benefits, or is pulling out of
the market entirely. Why should seniors trust the private
insurance industry if this is what is happening to them today?
Chip Kahn of the Health Insurance Association of America
(HIAA), the trade association that represents the health
insurance industry, has stated publicly that health insurance
companies won't offer Medicare drug-only plans because they
can't make enough money. So, I don't believe that the private
insurance model will work.
Others believe that the federal government should limit how
much drug companies can charge for their products. I disagree.
Price controls are anti-competitive and can place patient
access at risk. I have the largest concentration of
biotechnology and pharmaceutical companies located in my
Congressional District and I see every day the capital risk
that is inherent in research and development. Start-up
companies in my district won't get the capital necessary to
develop that next breakthrough Alzheimer drug if the investors
know that the federal government is going to cap how much they
can charge for it.
I've introduced legislation that builds upon the
President's plan by incorporating open competition and reduced
administrative inefficiency. My bill, The Medicare Prescription
Drug Act of 2000 (H.R. 4607), stays true to the hallmark of the
Medicare program by providing a generous, defined benefit
package that's easy for seniors to understand; yet we took a
step into the future by introducing private-sector competition.
The result will be a more affordable drug benefit for both
beneficiaries and the Federal government.
The bill is simple. Available to all Medicare
beneficiaries, the Federal government will pay half of an
individual's drug costs up to $5,000 a year, when fully phased
in. For seniors who exceed $5,000 in drug expenditures--or
$2,500 in out-of-pocket costs--the Federal government picks up
the whole tab.
PBMs will deliver the benefit and seniors will choose among
multiple options much like we do today in the Federal Employees
Health Benefits Plan (FEHBP). By allowing multiple PBMs to use
the same tools that have made them successful in reducing costs
and promoting quality for employees in the private sector, my
bill will, for the first time, introduce open competition into
Medicare, reduce prices, and increase consumer choice.
According to CBO, if only one PBM is allowed in each region
and PBMs are not allowed to offer a selective formulary, there
would be little incentive for reduced pharmaceutical costs.
Simply purchasing a large quantity of drugs does not drive
prices lower in the private sector. Pharmaceutical companies
grant discounts when a PBM can show that it increases a
company's market share.
By contrast, allowing for multiple PBMs, and allowing the
PBMs to be more selective about the drugs they offer will
result in price competition among pharmaceutical companies. We
would also allow PBMs to pass cost savings on to Medicare
beneficiaries in the form of lower co-payments. The result
would be lower drug prices for beneficiaries and significant
savings to Medicare. To ensure patient quality, when only one
drug is available for a given disease or condition, the PBM
would be required to carry it on the formulary.
We've also removed sole administration of the program from
HCFA. HCFA will continue to oversee beneficiary eligibility and
enrollment but it can't, by itself, run this program. The
healthcare system has evolved rapidly, and regrettably HCFA has
not kept pace. HCFA lacks the expertise to run a benefit that
relies on private sector competition to control costs.
Fortunately, there is another agency that has expertise
interacting with private sector health plans, and has proven
that it can administer benefits effectively and efficiently
with a minimum of bureaucracy. It's the Office of Personnel
Management (OPM)--which runs the widely acclaimed FEHBP. OPM
will define market areas, articulate quality and performance
standards, and evaluate PBMs--just as it does currently for
health plans. OPM will ensure that competition is harnessed to
run an efficient benefit of the highest quality. Under OPM's
leadership, I'm confident that an efficient and effective
competitive benefit can be integrated successfully into the
Medicare program.
I'm proud of this legislation and proud of the support it
has received to date. Original cosponsors of the bill include a
large number of Commerce Committee members and a broad cross-
section of the Democratic Caucus--from New Democrats to Blue
Dogs to traditional liberals. We agree that the best way to get
this done is to provide a generous, reliable Medicare drug
benefit for seniors without price controls and without harming
innovation.
Congress should enact a Medicare drug benefit. For our
Nation's seniors, prescription drugs are not a luxury. During
these times of historic prosperity and strength, there is
absolutely no reason to be forcing seniors to decide between
buying prescription drugs or other necessities of life. I
appreciate the opportunity to testify before you today.
Chairman Archer. Thank you, Ms. Eshoo.
Our last witness is another one of our colleagues, the
gentleman from Maine, Mr. Thomas Allen. Welcome to the
Committee. You may proceed.
STATEMENT OF HON. THOMAS H. ALLEN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MAINE
Mr. Allen. Thank you very much, Mr. Chairman, Ranking
Member Rangel, and all the distinguished Members of the
Committee. I appreciate the chance to come before you today and
discuss an issue that millions of Americans deal with on a
daily basis when they try to make choices between their food
and their medicine, between their rent and their medicine,
between their other bills and their medicine. They are all
following this hearing and this issue with personal interest.
Over 2 years ago, I asked the Democratic staff on the
government Reform Committee to do a study in my district and
what we found was that on average seniors pay twice as much for
their medications as the drug companies' best customers--the
big HMOs, the hospitals, and the Federal Government itself
buying through Medicare or the VA. In October 1998 we did
another study which showed that Mainers pay 72 percent more
than Canadians, 102 percent more than Mexicans for the same
drugs in the same quantity from the same manufacturer.
The pharmaceutical industry every year sits at the top of
the Fortune Magazine ranking of profitable industries. This
year, like last, they were number one in return on assets,
number one in return on revenues, number one in return on
equity. In short, the most profitable industry in the country
is charging the highest prices in the world to people who can
least afford it, including seniors on a Federal health care
plan called Medicare.
In September 1998 I first introduced what is now H.R. 664,
the Prescription Drug Fairness for Seniors Act, to give some
relief to seniors for this price discrimination. It would allow
pharmacists to buy drugs for Medicare beneficiaries at the best
price given to the Federal Government. No new bureaucracy, no
significant cost to the Federal Government, and discounts of up
to 40 percent for our seniors. It would give Medicare
beneficiaries negotiated discounts, just as Aetna, Cigna, and
the Blue Cross plans all negotiate lower prices for their
beneficiaries.
I am pleased that both the House and the Senate have taken
steps to cover military retirees over 65 with just this kind of
negotiated discount approach. Most of us voted for that in both
the House and the Senate.
In my State of Maine, with unanimous support in the State
Senate and all but 11 votes in the House of Representatives,
the State has enacted a bill that essentially allows Maine to
be a pharmacy benefit manager for all those people in Maine who
don't have prescription drug coverage, about 300,000 plus
people. The State will negotiate lower prices for them.
Seniors, however, need more than a discount. They need a
Medicare prescription drug benefit that is affordable and
meaningful. They need the assurance--and we as taxpayers need
the assurance--that Medicare will get the best price possible
in this market. So, therefore, the right approach is a discount
and a benefit that are blended together in a structure that
allows Medicare to get lower prices for itself and for our
seniors.
A prescription drug benefit must be universal and
voluntary. It must, in my opinion, be administered under
Medicare. It must cover all medically necessary drugs. It must
end price discrimination. It must end geographic
discrimination. And it is on these areas where I believe the
Republican plan falls short.
We have different views of what seniors need. I believe
what they need--what they ask me every day when I am in my
district--is stability and continuity and predictability and
equity in their plan. Medicare gives them that; the private
insurance market does not.
I am not satisfied that there are effective cost-control
mechanisms in the Republican plan. Mr. Chip Kahn, who has
testified in the past, has said that the private insurance
industry won't provide stand-alone prescription drug coverage
for seniors because it is like ensuring against haircuts. Too
many claimants make private insurance not an appealing market.
People have talked about the need for reform. Let me
conclude by saying this: We don't need more managed care, more
for-profit managed care in Medicare. And that is where some of
those who talk about reform want to go. In my State of Maine,
managed care is in decline in terms of its appeal to providers
and to patients. Last year, almost 400,000 people were simply
dropped from Medicare managed care because the HMOs did not
make enough money on them.
As I said before, stability, continuity, predictability,
equity--those ought to be the guiding principles that will lead
us to a plan that will not be changing every year as a plan
founded on private insurance would.
Mr. Chairman, I thank you very much for your time and the
attention of all the members.
[The prepared statement follows.]
Statement of Hon. Thomas H. Allen, a Representative in Congress from
the State of Maine
Mr. Chairman, Ranking Member Rangel, distinguished
Committee members, I appreciate the opportunity to testify
before you today, and to address an issue that millions of
American seniors confront whenever they try to make choices
between food and medicine, the rent and medicine, their other
bills and their medicine. They are watching this hearing with
personal interest.
More than two years ago I asked the Democratic staff of the
Government Reform Committee to investigate the high prices paid
by seniors in my district in Maine. We found that on average
seniors without prescription drug coverage paid twice as much
for their medications as the pharmaceutical companies' best
customers: the HMOs, the big hospitals, and the federal
government buying drugs for Medicaid or other agencies like the
Defense Department.
A later study, released in October 1998, found that seniors
in Maine pay 72 percent more than Canadians and 102 percent
more than Mexicans for the same drugs in the same quantities
from the same manufacturers.
These studies and others, replicated in congressional
districts across the country, confirm that many seniors,
covered by Medicare for hospital and physicians services,
simply cannot afford the third aspect of their health needs:
the drugs that their doctors tell them they have to take.
The pharmaceutical industry, year after year, sits at the
top of the Fortune Magazine list of most profitable industries
in the country. The latest report covering 1999 showed the
industry maintained top rankings from previous years: #1 in
return on revenues, #1 in return on assets, #1 in return on
equity. And the prices they charge to the uninsured in America
remain the highest in the world.
In short, the most profitable industry in the country is
charging the highest prices in the world to people who can
least afford it, including seniors on a federal health care
program called Medicare.
Long before this issue became front-page news, in September
1998, I developed the Prescription Drug Fairness for Seniors
Act, H.R. 664, to give seniors some relief from the price
discrimination practiced by the pharmaceutical industry. We
have 153 cosponsors. The bill is simple. It would allow
pharmacists to buy drugs for Medicare beneficiaries at the best
price available to the federal government, typically the
Veterans Administration price or the Medicaid price. It creates
no new bureaucracy. It incurs no significant cost to the
federal government. It gives Medicare beneficiaries negotiated
lower prices, just as customers of Aetna, Cigna and other
private plans receive the benefit of negotiated lower prices.
I was pleased that the House voted last month to give a
segment of the Medicare population, military retirees over the
age of 65, access to the DOD prescription drug program, which
is administered by the federal government and uses negotiating
power to give its beneficiaries drug prices equivalent to the
best prices obtained by other federal agencies. My bill, H.R.
664, would offer the same negotiated price discounts to all
seniors that 353 House Members, including most on this
Committee, voted to give to over-65 military retirees.
Since the Senate defense bill includes a similar
prescription drug provision, it is almost certain that 1.4
million seniors (military retirees) will by the end of the year
gain access to prescription drugs at negotiated prices that are
24-70 percent cheaper than the average private sector price. I
hope that this Committee will act to provide similar discounts
on prescription medications for 15 million Medicare
beneficiaries with no coverage, and avoid making Congress
responsible for continuing price discrimination by offering
some Medicare-eligible seniors drug price discounts unavailable
to other Medicare-eligible seniors.
The State of Maine just enacted legislation to make the
State, in effect, a pharmacy benefit manager for all Mainers
who don't have prescription drug coverage, seniors and others.
Everyone without coverage will get a MaineRx card which will
entitle them to pharmacy prices negotiated by the State with
the manufacturers. The bill passed unanimously in the State
Senate and with only 11 dissenting votes in the State House of
Representatives. The concept is embodied in H.R. 664.
Seniors not only need lower drug prices through negotiated
discounts, they need a Medicare prescription drug benefit that
is affordable and meaningful. Taxpayers need the assurance that
Medicare gets the best price for its beneficiaries, so that the
program remains cost-effective with the additional drug
benefit. That is why blending the benefit and the discount in a
process that assures Medicare will have some leverage over
price is the right package. In order to be affordable and
meaningful, a benefit must reflect the following principles:
A prescription drug benefit must be universal and
voluntary so that all Medicare-eligible seniors have access to
the program and to avoid adverse risk selection.
It must be administered under Medicare. For three
decades, our nation's elderly have relied on Medicare as their
health insurer. Medicare covers hospitalization and doctor
visits and should be modernized to cover the fastest growing
aspect in our health care system, prescription medications.
It must cover all medically necessary drugs so
that all beneficiary are guaranteed affordable access to any
drug their doctor prescribes for them.
It must end price discrimination by giving
beneficiaries access to Medicare's volume purchasing power to
negotiate and achieve the same drug price discounts that
favored large purchasers obtain.
It must end geographic discrimination by ensuring
that beneficiaries in rural areas have access to all benefits
and do not suffer when benefit providers change or leave their
area.
Seniors deserve a prescription drug benefit that offers
stability, continuity, predictability and equity. A program
that does not reflect these values will take seniors, and
taxpayers, in the wrong direction. With al due respect, I am
concerned that the plan proposed by the Chairman of the Health
Subcommittee does not reflect these values.
The Republican plan provides subsidies on a sliding scale
to give seniors the chance to purchase private insurance to
cover prescription drugs. The premium, co-pays and benefit can
be changed by the company every year. There are no effective
cost control mechanisms, so the taxpayers are not protected.
Mr. Chip Kahn, the director of HIAA, has said that the
insurance industry won't provide stand alone prescription drug
coverage, because it would be like ``insuring against
haircuts.'' Too many claimants make this an unappealing market,
and 85 percent of seniors take some prescription medication.
If Maine were a low-lying state, and 85 percent of our
residents filed a claim for flood insurance every year, we
would not be able to buy flood insurance at any price. The same
applies to prescription drugs.
We are all aware of the growing problems of the managed
care industry in attempting to serve the Medicare population.
Last year, almost 400,000 people were simply dropped from
Medicare managed care plans because the HMOs did not make money
serving them. Medicare HMOs are now charging copayments for
drugs, and lowering the amounts of drugs covered.
The Republican plan assumes you cannot trust Medicare and
that seniors are better off getting coverage from HMOs and
other insurance companies. I believe the plan is better for
those companies than it is for seniors. As the Committee
debates this plan, I urge Members to ask these questions:
Can we guarantee that coverage will always be
available to all beneficiaries under a private insurance model?
Are prescription drugs an insurable product in this market?
Does relying on Medicare managed care programs
offer stability and predictability, given the recent track
record of Medicare managed care dropping drug coverage and
leaving markets?
Will a private market prescription drug benefit
offer continuity and equity? Are seniors well served when
benefits vary widely from plan to plan, and change from year to
year depending on the whims of the market and the changes in
providers?
Are there assurances that a private prescription
drug policy would be affordable for seniors? Will millions of
middle-income seniors who need help with their drug costs be
able to get it?
Does the plan create new bureaucracies and thus
add inefficiency and expense?
Does the plan ensure that seniors won't continue
to suffer price discrimination, and provide sufficient
negotiating leverage over price so that continued drug
inflation (three to four times the overall rate of inflation)
does not drain Medicare finances or make drug coverage a
product that insurers cannot afford to provide?
Will attempts to force other countries to raise
the prices their consumers pay for prescription drugs
necessarily mean that drug prices for American consumers go
down, or will additional revenues overseas simply end up as
increased profits for U.S. manufacturers? It is fair, moral or
even legal to try to use trade law to dictate domestic health
policies in other countries?
Seniors need stability, equity, continuity and
predictability in their health care plans. They don't get it
from for-profit managed care as currently structured. They
won't get it from private insurance policies with the premiums,
co-pays, benefits or even coverage open to change every year.
We need to keep it simple. Seniors need a universal
prescription drug benefit under Medicare with negotiated price
discounts that make the program affordable to beneficiaries and
to taxpayers. The Democratic plan does this, and the
alternatives do not.
Again, I appreciate the opportunity to testify before the
Committee and will be pleased to answer any questions.
Prescription drugs can improve, and often extend the lives
of people with serious illnesses and chronic disabilities.
Recent pharmaceutical breakthroughs offer hope and relief to
patients suffering from Alzheimer's, AIDS and other deadly
disorders. But the explosion in prices for prescription drugs,
coupled with widespread and growing lack of prescription drug
insurance coverage, has left millions of Americans unable to
afford the drugs their doctors tell them they have to take.
The Need for Affordable Prescription Drugs for Seniors
Prescription drugs, no matter how innovative and effective,
provide no benefit to people who cannot afford to take them.
Who are the people left behind? Disproportionately, they are
many of our nation's seniors.
Congress did not include an outpatient drug benefit when
Medicare was created 35 years ago because pharmaceuticals
played a much smaller role in health care and were not a
significant cost to consumers. But today, seniors, who comprise
12 percent of the population, use one-third of all prescription
drugs.
It is estimated that at least one-third of Medicare
beneficiaries have no drug coverage at all and must incur these
expenditures out-of-pocket. Medicaid is available only to the
poor, often driven into poverty by rising medical bills. About
8 percent have Medigap drug coverage. But these plans are too
expensive and inadequate for most beneficiaries.
About 17 percent of Medicare beneficiaries have coverage
through Medicare managed care. These plans are very unstable.
Some are dropping prescription drug coverage. Some are dropping
out of Medicare entirely. In 1999 almost 400,000 people have
been dropped form Medicare managed care plans. According to a
recent report all Medicare HMOs will begin charging copayments
for drugs next year. Already 21 percent of Medicare plans limit
drug coverage to $500 or less. By next year 32 percent of
Medicare managed care plans are expected to have such limits.
Seniors deserve more predictability, continuity, stability, and
equity than is offered by medicare managed care.
The National Economic Council and Domestic Policy Council
report only about one quarter of Medicare beneficiaries have
meaningful coverage provided by a retirement plan. Even these
plans are even threatened by the high prices of prescription
drugs. The proportion of firms offering retiree health coverage
has declined by 25 percent in the last four years. Among the
largest employers, over one-third have dropped coverage. A
principal reason for dropping coverage is that employers cannot
afford to pay for prescription drugs.
What does this lack of adequate coverage mean? The General
Accounting Office has estimated that the misuse of prescription
drugs costs Medicare an estimated $20 billion per year in
hospital and physician expenses. The National Economic Council
reports that inappropriate use and underutilization of
prescription drugs has been found to double the likelihood of
low-income beneficiaries entering nursing homes. They report
that drug-related hospitalizations accounted for 6.4 percent of
all admissions of the over 65 population and that over three-
fourths of these admissions could have been avoided with proper
use of medications.
Perhaps most importantly, this lack of adequate coverage
means that seniors are left to make choices that no one should
have to make. Do they pay the rent or take their high blood
pressure medication? Do they buy groceries this week or fill
their prescription for an osteoporosis drug? We can do better
by our nation's seniors.
Seniors are Paying the Highest Prices
As prescription drugs have become an increasingly important
component of health care, the pricing practices of drug
manufacturers have become increasingly discriminatory toward
those least able to afford their products, especially seniors
without prescription drug coverage.
Under the leadership of Representative Henry Waxman, who
sits on this Subcommittee, the House Government Reform
Committee minority staff have spent much of the past year and a
half examining the drug prices charged to senior citizens and
others who pay for their own drugs. They have conducted studies
in over 80 Congressional Districts across the nation. The
resulting studies confirmed a shocking pattern of price
discrimination.
Not only are seniors in this country paying high prices for
their drugs, they are paying more than consumers in other
countries. The Government Reform Committee conducted a cost
survey of medications commonly used by seniors in the U.S.,
Canada and Mexico for the same drugs in the same amounts from
the same manufacturer. In my district American seniors pay 72
percent more than consumers in Canada, and 102 percent more
than consumers in Mexico. Older Americans pay the highest
prices in the world for their prescription drugs.
The Industry
The pharmaceutical industry earns more in profits ($26.2
billion in 1998) than it spends on research ($24 billion).
Fortune magazine rates pharmaceuticals as the nation's most
profitable industry: No. 1 in return on revenues (18.5
percent), assets (16.6 percent) and equity (39.4 percent). The
profits of other industries that rely heavily on research pale
in comparison: telecommunications, 11.5 percent; computer and
data services, 5 percent; and electronics, 3.6 percent.
In short, the most profitable industry in the nation is
charging the highest prices in the world to those who can least
afford it, senior citizens without prescription drug coverage.
The Prescription Drug Fairness for Seniors Act
To protect America's seniors from this drug price
discrimination, over 130 other members of Congress have joined
me to support H.R. 664, The Prescription Drug Fairness for
Seniors Act. Senators Edward Kennedy and Tim Johnson introduced
a companion bill, S. 731. Our legislation gives Medicare
beneficiaries the same advantages that large HMOs and other
bulk purchasers like the federal government receive. Currently,
virtually all federal health care programs, including the
Veterans Health Administration, the Public Health Service and
the Indian Health Service, obtain prescription drugs for their
beneficiaries at low prices. Our legislation takes the same
common sense approach, which is to buy in bulk and save money.
H.R. 664 would allow pharmacies to buy prescription drugs
for Medicare beneficiaries at the ``best price'' given by the
manufacturers to the federal government. The best price to the
government typically the Medicaid or Veteran's Administration
price and, according to GAO, is close to the best price given
by the manufacturers to private sector customers. In practice,
the federal government would negotiate lower prices for
beneficiaries who are already on a federal health care plan
called Medicare.
I designed this bill to attract bipartisan support. This
bill would not significantly increase federal spending. It
creates no new federal bureaucracy. Yet it provides a price
discount to seniors of up to 40 percent. While other plans for
a prescription drug benefit under Medicare involve substantial
expense, my plan involves no significant cost to the federal
government or the taxpayers. I believe that H.R. 664 is a
fiscally responsible approach relying on free market
negotiation to ensure that Medicare beneficiaries get the
prescription drugs they need.
The Prescription Drug Fairness for Seniors Act does not
impose price controls on the pharmaceutical industry, it ends
price discrimination. The bill enables senior citizens to
purchase prescription drugs at the same prices the drug
manufacturers offer to their favored customers. Rather than
imposing a top-down, arbitrary price, the bill leverages the
market power of the federal government. Companies can set their
best price at whatever level they want and the market will
bear. Given our government's social contract with seniors, it
is fair and appropriate to use this buying power for the
benefit of Medicare recipients, just as we do for other
government-sponsored health care beneficiaries.
I understand the need for ongoing research and development
in the drug industry. That is why I have supported efforts to
extend the research and development tax credit as well as to
increase funding for the National Institutes of Health. I am
confident that if enacted, H.R. 664 will not force the
pharmaceutical industry to reduce research expenditures.
Competition within the pharmaceutical industry would assure
continued investment.
The historical evidence assures us of continued research
and development in this industry. The 1984 Waxman-Hatch Act
increased the availability of generic drugs and provided more
competition for brand name drugs. Despite the dire predictions
of the pharmaceutical industry, the legislation did not stifle
or even reduce innovation in the pharmaceutical industry. In
fact, pharmaceutical companies more than doubled their
investment in research and development, from $4.1 billion to
$8.4 billion over the five years following enactment of Waxman-
Hatch. Similarly, 1990 legislation that created a drug rebate,
requiring drug companies to reduce their prices for drugs sold
to the Medicaid program, did not reduce innovation in the
pharmaceutical industry. Since 1990, pharmaceutical companies
have almost tripled their spending on research and development,
from $8.4 billion in 1990 to $24 billion in 1998.
While H.R. 664 is designed to assist all Medicare
beneficiaries, it will not solve the problem. Medicare
beneficiaries don't just need lower prices for their
medications, they need coverage. The President has proposed a
benefit, and Representatives Stark, Dingell and Waxman have
proposed a benefit. I strongly support these initiatives and
believe that it is time to update the Medicare program for the
21st Century and include a prescription drug benefit.
That said, I believe that the Prescription Drug Fairness
for Seniors Act complements a prescription drug benefit. We
must work to ensure that drug prices are lowered, even in the
context of a benefit. With questions about the future viability
of our nation's health care program for seniors, this approach
will assist seniors without increased burdens on taxpayers.
Conclusion
Chairman Bilirakis, I again want to thank you for holding
this hearing today. I realize that you, several of my
colleagues on this panel, as well as many members of this
subcommittee have proposals aimed at providing seniors with
assistance in affording their prescription drugs. I look
forward to working together toward a solution that makes
prescription drugs affordable for all citizens in this country.
Chairman Archer. Thank you, Mr. Allen.
We now go into our questioning period. I am sure there will
be many members who wish to inquire.
I really hope we can proceed on this very, very important
project without turning it into some sort of a political
activity. The Chair is disappointed at the White House's
comments yesterday, which really were clearly designed for
political reasons, to make a statement about the Committee
moving too fast without a bill. This was an unnecessary comment
by the White House, instead of trying to work with us to try to
create friction. We are going to have a bill and statutory
language and there will be adequate time for the members to
look at that before the Committee ever marks it up. The Chair
is going to insist on that. Hopefully, the White House will
work with us and not against us as we walk down this path.
As Senator Breaux said so appropriately, we shouldn't be
taking out our political cudgels. We should be taking out our
efforts to work together to find an answer to this very
important problem.
With that, I recognize Mr. Crane for any inquiry he might
like to make.
Mr. Crane. Thank you, Mr. Chairman.
I was reading an article--and the chairman is looking at
it, too--that was in today's issue of Congress Daily. I would
like to ask Mr. Thomas to respond to one paragraph in here.
``The report prepared by the White House at the request of
Senator Max Baucus argues that rural Medicare beneficiaries are
just the sort likely to be disadvantaged by the GOP plan.''
Could you respond to that?
Mr. Thomas. Tell my friend from Illinois that the
President's plan is just as likely unless they say Medicare is
going to guarantee that rural Americans will receive this
prescription drug benefit. You have heard it from me and you
have heard it from my colleague, Mr. Peterson, that in fact the
program we are going to talk about on a bipartisan basis in
statutory language guarantees as the insurer of last resort
that every American will also have it with government, if
necessary.
The key here is that the comments that are being made are
an attempt to drive a wedge so that people won't be able to
work together in these last few weeks. No one is going to
sponsor a Medicare Program under Medicare that is not a
benefit, that isn't an entitlement, and that doesn't make sure
that every American anywhere has the opportunity to get the
prescription drugs if they are a senior and need them. That is
not going to be an issue. However, they are going to say it
over and over again and the press will report it.
Mr. Crane. Yet another question, and this is from the same
article.
``The White House officials, while admitting that they
hadn't seen the details of the GOP plan, nevertheless asserted
that those seniors paying premiums would have lower costs under
the President's plan than under the proposal to be outlined by
the GOP.''
Mr. Thomas. Well, I don't know about the GOP plan, but the
bipartisan plan that we are going to present probably will cost
a little more than the President's plan because, remember, the
President's plan is not an insurance plan. It is a prepayment
plan that leaves seniors 100 cents on the dollar obligated for
anything over $2,000. You will recall that after the
President's plan came out, they talked about adding a year
later a catastrophic sometime in 2006. With no structures,
Congressional Budget Office can't determine its costs.
More recently, Democrats went to the White House and
proposed adding a catastrophic to the President's current
proposal. The only problem is that it is triggered by the
Secretary of HHS, which means there are no details, which means
it has no cost.
What we did was to build an insurance plan with
catastrophic from the very beginning under the $40 billion
amount that has been provided by the Majority Leadership for
Medicare modernization and prescription drug. Any of the
proposals--the President's plan adding on in 2006 or the more
recent plan adding to the President's plan today--double the
cost of the program. Our program will be comprehensive, provide
insurance at the affordable cost.
If it costs a couple of dollars more to get full insurance
and stop-loss, I think you will find out most seniors are not
worried about the first dollar they are going to pay for
prescription drug insurance, it is their worry about that last
dollar. We provide comfort on that last dollar, the very
expensive costs of prescription drugs, from day one.
Mr. Crane. Thank you.
Chairman Archer. The Chair is going to jump in momentarily
to ask Senator Breaux, Where, if at any place, do you disagree
with the presentation just made by Congressman Thomas?
Mr. Breaux. I spent a year disagreeing with Thomas on the
Commission, and then we came to a conclusion that was pretty
much the same after a year of debate.
I think we are very close in the sense that what he is
attempting to do is the same as ours in trying to bring about
some degree of reform to the program as well as establishing a
prescription drug plan.
For those who have a concern about the insurance aspect, I
would remind all of us that everyone at this table, and
everyone on the Ways and Means Committee, and everyone sitting
behind every one of you get their prescription drugs through an
insurance plan that is negotiated by the Federal Government
Office of Personnel Management. And when you or I or any of our
staffs walk to the drug store and the cost of the drug is $100,
through our insurance we don't pay $100. We pay a copayment or
a deductible. The copayment may be $10 or $15. And that is
through a negotiated insurance plan which is available to 10
million Federal employees.
And what Congressman Thomas and what Senator Frist and I
have proposed is the creation of a federally structured
insurance plan which provides the same type of coverage to the
Medicare beneficiaries. In that sense, we are the same.
Chairman Archer. I am a little bit curious because we
continue to hear this plan described as the Republican plan.
Does that mean that we should welcome you into the Republican
party?
Mr. Breaux. No. I will tell you that I am very serious on
this. If we look at this as Republicans and Democrats, we will
end up at the end of this year with a debate about whose fault
it is that we didn't do anything. Democrats will blame
Republicans for not being willing to step forward, and
Republicans will blame Democrats for not being able to work
with them. And the end result is that the American public will
be sick and tired of us fighting with each other instead of
joining together to fight for them.
That is the choice we have. Neither plan is going to be
perfect, but our challenge is to work it out together, forget
about the political arguments, and start arguing about success
and who did it as opposed to arguing about failure and whose
fault it is.
Chairman Archer. Thank you very much.
Mr. Rangel?
Mr. Rangel. Thank you, Mr. Chairman.
The reason we got stuck with this Republican plan label is
because--unlike in past years where Mr. Thomas has worked so
closely with Mr. Stark to surprise most people in the
Congress--they came and they worked together and they produced
their product. With all due respect, Mr. Chairman, to
outstanding members in the other body and Democrats outside of
this Committee, in the past this Committee used to pride itself
with our ability to work on these complex issues and work
together. I certainly would not think if the President picked
up a Republican to support his initiative that we would reach
out and call it a bipartisan effort.
And also, you have to work hard at being bipartisan. It
just doesn't happen. And the speed at which we are moving with
no bill defies even partisanship. We couldn't get by with this
on our side to ask for support when we don't even have the cost
of the bill. It is hard to ask questions if you don't have a
press release. I assume Mr. Thomas has issued that.
It would seem to me that if the Health Subcommittee,
instead of having these exchanges at the hearing, could get
together and try to come up with something they can present to
the Full Committee that that would be the way you move toward
bipartisanship.
But is it true, Mr. Thomas, that you were seriously
thinking about marking this bill up on Thursday of this week?
Mr. Thomas. I tell my friend from New York that a number of
the pieces of the bill have not only been aired in front of the
Subcommittee over the last year and a half, but a major portion
of the reform is in fact a bill that the gentleman from
California, Mr. Stark, and the gentleman from California, Mr.
Thomas, are cosponsoring.
So there are major components of the reform that are
already in legislative form. We are picking up pieces of
legislation that have been worked on bipartisanly to form a
bipartisan structure.
I am flattered by the Ranking Member's question of me, Do I
schedule Ways and Means hearings and do I determine what
appears at those hearings? I will tell you modestly, that is
not one of my jobs. That is the chairman and the leadership. I
will be pleased and ready at any time this Committee is willing
to mark up bipartisan legislation to modernize Medicare and
provide prescription drugs for seniors. The sooner the better.
Mr. Rangel. So I would not be insulting you if I said that
you haven't the slightest clue when this would appear before
this Committee?
Mr. Thomas. If the gentleman was to join us on Monday, I
believe the schedule is that we will be marking up the bill on
Monday.
Mr. Rangel. Well, that is what I was asking, so you were
able to get that.
Mr. Thomas. I think I read it in the paper.
[Laughter.]
Mr. Rangel. Could you refer me to what column or item I
could read more about your bill? Has that been reported this
morning?
Mr. Thomas. I can give you a number of outlines. I can give
you specific structure. And I will be pleased, as soon as our
friends at the Congressional Budget Office--and you and I have
shared long hours of talking about what excellent work they do
and how timely they do it--gives us a score. I would not want
to begin a markup here--and we will not begin a markup here--
until we know the exact costs, according to the Congressional
Budget Office.
It is not an open-ended proposal, Mr. Rangel. It is an
attempt to build a credible product of reforming Medicare and
providing prescription drugs for the amount that has been
provided in the budget, $40 billion.
Mr. Rangel. So this search for bipartisanship--which the
trip should end by Monday before the markup--is on a bill that
you and Mr. Stark agree in part with, but the other parts we
don't know. They are not locked into place. The costs of the
bill we don't know. We don't know how to find out exactly where
you end up, but between tomorrow and the rest of the week, we
have the weekend to find this bonding and to come up on Monday
with a bipartisan solution to this very complex----
Mr. Thomas. I tell my friend that the price will not be
more than $40 billion over 5 years. That was the budget amount.
It will be under that. And there are a number of people who
have contributed in a bipartisan way.
I mentioned one section, just to let you know that the
Chairman and the Ranking Member on the Subcommittee continue to
work together and produce legislation where we are able--other
members work together as well. We have been working in a
bipartisan way for more than a year. Mr. Peterson and I have
been working since 1993 together in working out Rural America's
health care problems for our seniors.
And a number of those who have a bipartisan stamp on this
shows it takes the route of not standing with us at a press
conference, and I fully understand why.
Mr. Rangel. If the President vetoes the State tax bill, we
will be saving approximately $50 billion a year. Would that
have any impact on the cost of your proposal?
Mr. Thomas. I will tell the gentleman that I am operating
under the budget resolution which says that for Medicare
modernization and prescription drugs there is $40 billion. If
somebody wants to provide more money to write a better program
in modernizing Medicare, making fundamental changes, you
probably could spend more money, but I doubt if you will write
a better program.
Mr. Rangel. Thank you.
Chairman Archer. Ms. Johnson?
Mrs. Johnson. Thank you, Mr. Chairman.
Thank you all for testifying. I think it is to noted how
much solid thinking has been going on on both sides of the
aisle and in both chambers on meeting this challenge. It really
isn't a question of whether we should provide prescription drug
coverage for Medicare, it is just a matter of how we do it
because it just essential. Modern medicine without drugs is
really not health care anymore.
Let me just ask a couple of questions.
This is an area where truly the devil is in the details. If
you look at the commonalities in all the bills, they are very
great. One of the differences that strikes me is that a number
of the plans you have presented are based on actuarial
equivalents. So whether they are insurers, pharmaceutical
benefit managers coupled with reinsurers--whoever it is that
wants to offer this pharmaceutical benefit--has a lot of
latitude in how they do that. On the other hand, in Ms. Eshoo's
plan and Mr. Allen's plan--although, Mr. Allen, you didn't
really mention the details--it is a defined benefit. That is a
very substantial difference.
I would like you to comment, if you would, on that because
it is not only a defined benefit, it is a very generous
benefit. What is going to be the premium cost to cover 50/50 up
to $5,000 with catastrophic covering above $5,000?
And then any of the others of you who want to comment why
you chose an actuarial equivalent versus a defined benefit, I
would like to hear from you, too.
Ms. Eshoo?
Ms. Eshoo. Thank you. It is a very good question.
The cost of the premium in my plan is approximately $44 a
month. It is what the President's plan proposed and the amount
of defined coverage that I have in my legislation is the same.
Where we differ, of course, is with the stop-loss. The
President's plan did not have that.
But I think it is very important--as we are debating who,
what, Democrats, Republican, bipartisan, whatever--we have to
get into the depth of what these plans are and what kind of an
effect they are going to have on people.
In my colleague from California's plan, he relies on the
private insurance industry to provide the benefit. In my plan,
while we allow private sector competition through the multiple
PBMs, the Federal Government is ultimately at risk. Again, I
don't think seniors want to be reliant on the private insurance
market.
Mrs. Johnson. I would like to get to the nature of the
insured product later because it is very different from yours,
but just to get back to the cost of yours, yours is actually
very different from the President's, which is 50/50 up to
$2,000. Yours is 50/50 up to $5,000 with stop-loss above that.
So looking at the estimates I have gotten from CBO on other
issues----
Ms. Eshoo. The President's is 50/50 up to $5,000 when fully
phased in, and the cost of that is a monthly premium of $44.
Mrs. Johnson. But that includes no stop-loss. I got
separate stop-loss estimates from CBO and they are far higher,
at least far higher than you estimate. I do have them here some
place and maybe later on I can come back to that.
Here they are. For $6,000, it would be $38 a month. So that
would be on top of the $44 a month. So your premium would be
quite significant.
Ms. Eshoo. The risk beyond the monthly premium for stop-
loss I already stated in the bill provides for--it is the
Federal Government that is at risk. I think----
Mrs. Johnson. So is there going to be no premium?
Ms. Eshoo. It depends on what kind of investment members
want to make in this.
Mrs. Johnson. I think it is very important to know what the
cost will be if there is going to be no premium and if the
government is going to pay the whole cost or what the
government is going to pay.
Ms. Eshoo. No, the government doesn't pick up the tab for
the whole thing. As I said, up to $5,000, $2,500 out-of-pocket
for the beneficiaries, when it is fully phased in, would be $44
a month for that. The stop-loss is included in the $44 premium.
Mrs. Johnson. Thank you.
Ms. Eshoo. We do collectively in the system----
Mrs. Johnson. Thank you.
Ms. Eshoo.--just as we do in----
Mrs. Johnson. Excuse me. I would like to give Senator
Breaux a chance to talk about define benefit versus actuarial.
Mr. Breaux. Thank you, Congresswoman Johnson.
I think the question you have and we all have as well--in
writing a prescription drug program, do you spell out in
Congress the amount of the deductible and the amount of the
coinsurance? Do you want to write that in the law of the
country so that every year you come back and have to revisit it
and say that it should be lower or higher?
Or is it better to say that we are going to provide an
actuarial value of whatever value you want? Then companies can
come in and offer some plans with a high deductible, some with
a low deductible, some with higher copays and some with lower.
Then the beneficiary gets to pick the one that best suits their
family.
That is exactly what all of us have. When OPM asked the
companies to provide prescription drugs, the only thing they
put out in their call is a package of prescribed drugs. And we
get all kinds of different options.
I like what Bill Thomas has done because he set a number of
deductibles and copayments, but you can vary from that. By
setting the copayments, CBO can score that. It is very
difficult for them to score just an $800 actuarial value. So if
you do what he did and yet give them some flexibility in
offering different combinations, I think that may possibly be a
good way of doing it.
Mrs. Johnson. Thank you very much.
Mr. Thomas?
Mr. Thomas. Just very briefly--because I don't want to be
reported incorrectly--my friend from California, in indicating
that our plan relies on private insurers only missed, I think,
the point where we said that this is an entitlement and that
the Federal Government--under Mr. Peterson's and my bill, and
Richard Burr's and Ralph Hall's--will be the insurer of last
resort. There is no reliance ultimately on the private plan. We
shouldn't put seniors in that position. The government will be
there if necessary. We shouldn't repeat ever again that our
plan leaves seniors out in the cold if insurers don't
participate. That is not the plan. No matter how often people
repeat it, that is not the plan.
We believe the private sector can do a great job, but we
should never totally leave it to the private sector. We have
the government as the insurer of last resort.
Chairman Archer. Mr. McCrery?
Mr. McCrery. Thank you, Mr. Chairman.
As the law school alma mater of mine and Senator Breaux
marches toward yet another college world series title, it is
particularly appropriate for me to welcome him today to the
Ways and Means Committee.
Mr. Breaux. I have two alma maters in the world series.
Mr. McCrery. I am aware of that, Senator.
[Laughter.]
Mr. McCrery. It is a pleasure to have my colleague from
Louisiana with us at the Ways and Means Committee today.
Senator Breaux is recognized as a leader in the field of health
care in policy circles and here on Capitol Hill. It is kind of
him to come over and share some of his valuable time with us in
the Ways and Means Committee.
Senator Kennedy had to leave--and that is unfortunate--but
Mr. Stark is here and has worked with Senator Kennedy, I
believe, on his plan so maybe he can clear up the confusion.
Senator Kennedy presented some very colorful charts very
quickly, but I was able to catch a couple of the figures he
mentioned, as I am sure members of the press and media were,
one of which was that the Kennedy plan covers everybody. Of the
12 million people that are currently without any benefit, they
will get coverage under the Kennedy plan. Whereas under the
bipartisan or Republican or Thomas-Peterson or Breaux-Frist
plan there will be 6 million of those 12 million that won't get
any coverage.
I would like to know where he got those numbers. Who came
up with those numbers? He didn't cite any source for that. He
just put them up there for everybody to see.
Mr. Stark, do you know where he got those numbers?
Mr. Stark. No, I don't, but I would presume that he was
suggesting that the Republican plan would only cover lower
income seniors. That may have changed. Not having a bill, it is
a little difficult. But originally some of the early press
releases suggested that. It may have been changed. But I
believe if that was the case, it would have limited the
coverage----
Mr. McCrery. That may in fact be the case. But as I have
been working on this plan that has now been a bipartisan plan
for quite some time--I have been in a number of meetings with a
number of Democrats putting together this plan--and as far as I
know our plan was never intended to only cover low-income
seniors. However, I will accept that as an explanation of the
flawed numbers that were shown by Senator Kennedy in this
hearing today.
Mr. Allen?
Mr. Allen. I am going to take a stab at answering----
Mr. McCrery. That's OK. I think we have the answer to that.
Let me talk about your ideas for just a second.
There was a letter sent to the President and Members of
Congress by 535 economists from every State in the country in
which it was stated that in countries with price controls,
health care services are severely rationed. Patients wait
months and sometimes years for surgery, suffering significant
harm to health and even death as a result.
Government bureaucrats rather than doctors or patients
select treatment. Pharmaceutical innovation languishes. Price
controls do not reduce medical costs, nor do they call forth
improved health care services. Instead, they produce lower
quality medical care, reduced innovation, and costly new
bureaucracies to monitor compliance, adding to the burdens of
health care providers already entangled in red tape. Price
controls harm consumers of medical services, especially those
most in need of health care services.
Then there is a book written by a Canadian doctor recently.
His book won the Donner Prize for the best book on Canadian
public policy. The author of that book said recently that price
controls in Canada have effectively killed off research and
development, adding that the nation relies heavily on the
United States work in the pharmaceutical field. It would be
very damaging, he said, ``in terms of a lack of development of
prescription drugs, if the United States imposed price
controls.'' He noted that the biggest medical advances of the
past three decades have been in the area of pharmaceuticals.
He said that although some brand name prescription drugs do
cost more in Canada, many new drugs are not available in its
pharmacies and the generic prescriptions are often more
expensive than in the United States.
If 535 economists and a Canadian doctor who has been
awarded the Donner Prize say that price controls don't work,
why would you want to pursue that course?
Mr. Allen. Let me first quickly answer the question before
in which I think the difference between the 12 million and the
6 million I think has to do with whether the subsidy under the
Republican plan is big enough to attract all the people who
don't have insurance now to buy private health insurance. So
let me lay that aside.
Mr. McCrery. I don't think there has been a good answer to
that question, but the fact is that unless you make it
mandatory--and you and every other panelist, including Senator
Kennedy, has said that this is not mandatory but voluntary--I
don't think you can ensure that all 12 million under any plan
will be ensured.
Mr. Allen. My understanding is that if you provide 50
percent subsidy, you get almost everyone to sign up.
Price controls. Of course, there is great diversity of
opinion in Canada as there is in this country about just what
the right step is. But if you will look at the publications of
Canadian PhRMA, what PhRMA is saying up in Canada, if you look
at the last couple of years of their publications, what they
say is that R&D in Canada is accelerating even faster than it
is in the United States. And they must presumably have some
basis for doing that.
Second, with respect to my legislation, my legislation is
not, in my opinion, a price control bill because what it
provides is that the best price given to the Federal
Government--either the VA price or the Medicaid price--the
Medicaid price is a 24 percent statutory discount from
something called the average manufacturer's price. The average
manufacturer's price is a market price. How a statutory
discount from a market price, over which the pharmaceutical
industry has more control than anyone else, can be a price
control is beyond me. It is not really a price control bill.
Finally, I would say this: The pharmaceutical industry will
tell you that half of all new drugs are developed here in the
United States. What that means is that half of all new drugs
are developed around the rest of the world. There is in fact a
vibrant R&D industry going on in Europe and in other places.
The real difference between the United States and other
countries in terms of spending is not R&D--because you can't
really figure that out looking at these multinational
corporations' books--the real difference is marketing.
The pharmaceutical industry spends hundreds of millions, if
not billions, of dollars here in the United States to market
their drugs and they are not allowed to do that to the same
extent in other countries. The direct consumer advertising in
the country, the ads you see on television, are one reason why
the industry costs would be somewhat higher here in the United
States than they are in other countries.
But the industry is seeking to expand its sales in other
countries. Don't worry. They are doing fine. They are making
money. They are by far the most profitable industry in the
country. And my bill, according to a Merrill Lynch study, would
not hurt their revenues at all.
Mr. McCrery. Mr. Chairman, we can disagree over whether Mr.
Allen's bill is a price control bill, but many of us think that
it is a direct price control by the government and would have
serious negative consequences for the golden goose that is
laying the eggs in the pharmaceutical industry for seniors in
this country.
Chairman Archer. The gentleman's time has expired.
Mr. Stark?
Mr. Stark. Thank you, Mr. Chairman.
I guess I would like to see the bill. I have read the press
releases on the bill you are working on, but maybe you could
help me with a few parameters that you have established in your
own mind.
You said a few minutes ago that it was clearly going to be
an entitlement. As I have read--and again, this is just what I
have picked up in the press--the plan would not be dissimilar
from HIJ in Medigap. It would have broad categories of benefits
that would be provided and in each State various insurers could
price it differently. In each community it might be priced
differently. But it would be a plan where beneficiaries could
compare plans, and then in any community where there were not
two plans--either through an HMO or through an insurance
company, Medigap-type plan--there would be a direct Medicare
plan.
Is that roughly what you have in mind?
Mr. Thomas. That's roughly correct, except when you made
the comparison to Medigap you mentioned HIJ--those are the last
three of the ten plans.
Mr. Stark. Yes.
Mr. Thomas. One of the problems with that is that the first
dollar by statute says that it has to go down to buy
deductibles and copay. We are doing first dollar going to
prescription coverage.
Mr. Stark. This would obviously be a completely different
plan, but it would be distributed and have regulations or
definitions?
Mr. Thomas. Correct.
Mr. Stark. And it would be sold by private people who could
charge different prices for it?
Mr. Thomas. It would be similar in terms of the fee-for-
service program to the President or to the Democrats where you
have PBMs or other entities offering it.
The difference, of course, is the President has only one. I
believe in competition we would have more than one.
Mr. Stark. For the low-income people, they would be buying
the same plan? They would get a direct subsidy and in a sense
their premium would be paid directly by the government?
Then for those that are above the various poverty
categories, I assume there would be an indirect subsidy,
depending on which plan the people pick. Again, as an
entitlement, all these payments--the indirect and direct
subsidies--would come out of the Medicare Trust Fund? Or would
they come out of general revenues?
Mr. Thomas. I will try to be very brief because I don't
want to just use your time, but it does take a while to talk
about.
There is a subsidy to all seniors if they voluntarily join
the plan. The subsidy is in the government and the private
sector shared buy-down of the high-risk pool.
Mr. Stark. That is the only subsidy that an insurance
company would get for the non-poverty participants. Is that
correct?
Mr. Thomas. But that is a 30 to 35 percent subsidy that
goes to everyone. Then we add on top of that, similar to the
President's plan, low income.
Mr. Stark. Where does that money come from?
Mr. Thomas. That money comes from the money that has been
saved over the last several years, the $40 billion.
Mr. Stark. Out of the trust fund?
Mr. Thomas. No. This is a part B benefit, so it is a
general fund part B benefit. That is why there is another
provision that talks about restructuring Medicare financing
carried over from the Medicare Commission. The current
structure really isn't very good.
Mr. Stark. So it comes out of general revenues as Part B--
--
Mr. Thomas. Surplus. The decision will be made in terms of
cost coming forward.
Mr. Stark. As an entitlement, it is guaranteed just as
physician's payments are under Part B?
Mr. Thomas. That is correct.
Mr. Stark. You have further suggested that the premiums
would be $35 to $40.
Mr. Thomas. When I was asked at the press conference--and
that is where that number came from--apparently it doesn't do
any good to tell people it is a $740 actuarial value. They want
to know what it looks like because they want to compare.
Notwithstanding the fact we have a built-in insurance pool and
the President doesn't, we still in the bill will create a model
or standard benefit, as Senator Breaux said--and those of us
who have lived with CBO in getting numbers out of them--they
won't score it because they don't know what the actuarial
benefit program would look like because it has an infinite
number of options.
So if the government is going to pay for the low-income, we
provide a model or a standard benefit that would look something
like the $35 to $40 premium, the $200 to $250 deductible, 50/50
copay, with the catastrophic attachment. That allows CBO to
score. That is representative of a $740 value.
But it could be structured slightly differently. You could
have a zero deductible as the President does.
Mr. Stark. If the numbers are right, you are going to get a
$740--wherever it comes--let's say it is a $740--they will pay
$40 a month, they will pay $480. So you're getting $260 plus
they're getting a quarter, approximately, of that $480 or $740
in subsidy, so they'd be getting about $180, $185 on top of the
$260----
Mr. Thomas. I will tell the gentleman that the way he
started with the math, it doesn't come out right. I will be
more than willing to sit down and work with him----
Mr. Stark. They're getting about $440----
Mr. Thomas. No, they're getting about an $800 actuarial
value, a $740 actuarial value.
Mr. Stark. In exchange for their premium? Or do you add the
premium to that?
Mr. Thomas. No. When you go through and build the premium
and the deductible--for example----
Mr. Stark. If I pay the $40 a month, that is $480 a year.
Mr. Thomas. I prefer $35. I am trying to get it to $35.
Mr. Stark. All right.
Then I am getting a $740 value for that. Is that on top of
the $480?
Mr. Thomas. No. For example, if you paid the $35 premium,
you would then be in a--say you did the $250 deductible--you
would be in the 50/50 copay up to about $2,200, so you would
split that. So there is $1,100 of benefit in the copay area
alone, and then you still get the catastrophic attached at the
back end. And that is where the heavy 35 percent subsidy comes
from in reducing the cost.
All these numbers would be greater if you didn't have the
shared insurance provision. People would not be able to afford
it, even if they were healthy.
Mr. Stark. Will the premiums be withheld from the Social
Security payment as they are for part B premiums?
Mr. Thomas. In creating the Medicare Benefits
Administration, that decision is left to those who are now
dealing directly for beneficiaries on the benefit. It is
logical that you could then deduct from your Social Security,
as you suggest, the part B premium of a 25 percent subsidy. You
could simply attach that, if they so chose. That would be an
easy way to deal with it.
Mr. Stark. If somebody missed a premium, how could they get
back into the system?
Mr. Thomas. If they missed the premium, they would
obviously be notified by their private insurer. The private
sector has the periods of grace periods, penalties, and the
rest. All of that would operate as it does in terms of when you
miss your payment on your insurance, unless of course you have
automatic deduction.
Mr. Stark. Mine is withheld.
But if it is canceled for non-payment because it is not
withheld from Social Security--if they are paying it and
something happens to them--can they get back in?
Let's say they lose it because they have hard times and
they can't pay their premium beyond where the insurance company
will carry them.
Mr. Thomas. I will tell the gentleman that we are way at
sea in trying to write legislation if you are going to put down
the specific remedy for someone who misses a payment because
something happened to them beyond their control. That clearly
is an area for the Medicare Benefits Administrator, who is now
charged solely with managing the benefits, instead of trying to
run it out of the back shop of the Health Care Financing
Administration. And they will work in an administrative way to
resolve all these problems.
These are the areas where Congress shouldn't be involving
itself. We should create a new entity under HHS dealing with
benefits to deal with exactly those kinds of questions.
Chairman Archer. The gentleman's time has long since
expired and----
Mr. Stark. I just want to suggest that my constituents'
concern with managed care--which the Republicans have managed
to frustrate us from reforming--will not be comfortable with
that answer. They don't believe that the managed care or the
private insurance industry is going to give them a benefit they
can depend on. I think they will treat this much the same as
they treat managed care now. They don't trust it. They just
feel that for-profit managed care is there to deny the
benefits----
Mr. Thomas. I tell the gentleman we have a fee-for-service
prescription drug program.
Chairman Archer. The Chair is going to have to cut off this
colloquy, as productive as it might be, and encourage the two
gentleman who work together on the Subcommittee to continue
their discussion about details privately or publicly after the
conclusion of this hearing.
The Chair now recognizes Mr. Camp.
Mr. Camp. Thank you, Mr. Chairman. Thank you for holding
this hearing.
I want to thank all of you for testifying this morning.
There has obviously been a lot of work and informed discussion
here today.
I just have a couple of questions.
Ms. Eshoo, I noticed that in your proposal, in your written
testimony, and in your statements here today that you don't
force beneficiaries in a region into just one pharmaceutical
benefit manager. And in your written statement you talk about
options, helping reduce costs, and promote quality for
employees.
Can you tell me a little about why you made that decision?
Ms. Eshoo. We all know that a major part of the problem
that seniors are facing today is the cost, the high price of
drugs. Setting aside any consideration of price controls, what
we worked very hard on was to come up with legitimate
competition to reduce prices for both the beneficiary and the
Federal Government. But we also worked to allow for
competition, which I think is really very important to the very
small biotechnology companies that are coming up with life-
saving drugs.
So it is competition, but it also forces the competition
relative to market share.
I think there is a misnomer today about volume buying and
that if you buy in volume there are discounts. It really
doesn't work that way with the Federal Government today. It
just doesn't. But where you make them sharpen their pencils and
offer the deepest discounts is by offering them at market
share. I believe that is what would bring the pricing down.
I think it is fair, but we also have on the other side of
the package a generous benefit.
I also think, most frankly, that the Congress is going to
have to come to grips with how much they want to do. If we are
going to be skin flints, we should just say so up front. I
don't think $40 billion in a plan is going to buy and pay for
the kind of package that we want to go home and tell our
constituents about.
Mr. Camp. I am interested, though--your plan and others--
Congressman Stark as well has the same model--and your concept
of competition and bringing more choices to seniors--so I guess
the converse would be true that if there were only one
pharmaceutical benefit manager, then there would be a lack of
choice and competition and the quality and reduced price that
go along with that as well. I presume that is why you chose the
model that you did.
Ms. Eshoo. Well, we looked at it. We looked at how they
work. As I said in my opening statement, I didn't base the
legislation that is supported by a number of Democrats on the
Commerce Committee--on theory. I went out to see how things
work.
I think that is a very important aspect of the plan. But I
also think that Members of the Ways and Means Committee should
know that nowhere in my legislation do we rely on the private
insurance market for any kind of provision. I don't think that
is working, seniors don't trust it, and I don't find that to be
a place that we should be moving to because there is a failure
out there in the market right now when it comes to private
insurance.
Mr. Camp. I also want to follow up with a question to
Senator Breaux.
Senator, your statement also indicates that a one-size
HCFA-managed benefit is not really an option that you would
support. What are some of the reasons behind that?
Mr. Breaux. Medicare+Choice is a good example.
Medicare+Choice is not working because it is being micromanaged
and the reimbursements are based on HCFA policies that are
based on fee-for-service fees. Some Medicare+Choice get paid
quite handsomely in some areas. In some counties, they get paid
far too low. As a result, they are closing up shop.
So I think what you have to do is create a program that has
the benefit of a government oversight, make sure it is run
properly, but at the same time get providers to compete against
each other and allow them to set their premiums based on what
they can provide the services for. What we are suggesting I
think accomplishes that.
Mr. Camp. Thank you very much.
Thank you, Mr. Chairman.
Chairman Archer. Mr. Weller?
Mr. Weller. Thank you, Mr. Speaker.
Let me begin by commending you and Mr. Thomas and Mr.
Breaux, and Mr. Peterson for working in a very, very bipartisan
effort to solve a challenge that is before us. Over the last
several years I have had a lot of town meetings, particularly
with seniors, who talk about the rising costs of prescription
drugs and the choices they have to make in setting their
household budget priorities. I have heard some pretty heart-
rending stories from widows who tell me they have to choose
between buying groceries and going to the drug store and buying
their prescription drugs. A senior told me that four times a
year he takes a shot and it costs him a total of $8,000 for
those four shots.
I have also had concerns expressed to me by retirees who
are concerned that if we move forward on prescription drug
coverage under Medicare they will lose the prescription drug
coverage that is offered by their retirement plan, which they
feel is better than anything the government can offer.
Those are all concerns that I believe are being addressed
in the bipartisan plan that is being offered by Mr. Thomas and
Mr. Peterson, as well as Senator Breaux. I commend them for
working in a bipartisan way. The prescription drug issue should
not be a partisan issue. It should be an issue on which we are
working together on affordability, choice, and retention of a
better plan if it is offered as part of your retirement plan.
I am just trying to understand how your proposal would
affect those retirees who currently have a plan that they like,
are happy with, and are satisfied.
Senator Breaux, can you explain how the bipartisan proposal
addresses those retirees who are happy with what they have?
Mr. Breaux. That is a good question. It really deals with
how much of a Federal subsidy you are going to have for the
prescription drug plan. If you have a subsidy that is too
generous, people will drop their private plans. About 33
percent of Medicare-eligible people have their prescription
drugs provided by their former employers. The three big auto--
General Motors, Ford, and so forth--all have very generous
prescription drug plans.
If you create a subsidy so high, companies will drop the
plan and let the taxpayer and the Federal Government pay for
it. If you have a 50 percent subsidy, you are getting pretty
close to that. I think you have probably reached that mark.
Ours is a 25 percent across the board subsidy, plus the
reinsurance subsidy that Congressman Thomas has. So we are more
generous than Thomas on that issue. We have the reinsurance
subsidy plus a 25 percent across the board subsidy.
I think that means that the private offerors will continue
to offer those plans for retired workers, and yet they have
another option to go into the government-type of sponsored
subsidized program. So the two could coexist together.
Mr. Weller. Senator, one of the concerns often raised about
giving seniors a choice--the President proposes a zero-choice
plan where you can only accept one thing, which is what the
government offers, and your bipartisan plan offers a menu of
options offered through private choices, such as
Medicare+Choice. Some raised a concern where we have seen
Medicare managed care plans have dropped out of Medicare. We
have seen that in the Chicago area, which I represent.
As I look at that issue--I know these past few weeks I have
been meeting with my local hospitals who are concerned about
Medicare reimbursements and the financial impact of how HCFA
has interpreted the Balanced Budget Act and the financial
squeeze they are under. Is the reason many of these managed
care providers--is it a reimbursement issue? Do they have a
hard time making ends meet because of----
Mr. Breaux. We could spend a long time picking out what is
wrong with Medicare+Choice. The central problem, I think, is
that it is dysfunctional, it is being micromanaged,
reimbursement rates in the regulations are based on fee-for-
service charges, which means that there are great inequities
and some counties are getting more than they need and other
counties are getting far less. They can't compete, they can't
reduce their premiums, they can only add more benefits to their
plans. Therefore, they find themselves getting into trouble.
That is why our plan suggests that the Medicare+Choice,
along with prescription drugs, be run through a new independent
agency outside of HCFA, like we did with the Social Security
Administration. Medicare+Choice cannot continue. I don't think
anyone would argue that it can in the way it is being operated
now.
Mr. Weller. Thank you, Senator.
Mr. Thomas, what is the bottom line for a senior? For the
typical senior, what will be their potential out-of-pocket
costs, on average, each month under the bipartisan proposal?
Mr. Thomas. I would tell my friend that it is difficult to
talk about the average senior. As we know, 28 percent of them
get it from their employer. An additional 20 percent get it
from Medigap, which is a $2,000 expenditure to get a very
modest drug program. Then there are those who don't have any.
So when you are putting a package together, you have to
meet all those concerns. For someone who doesn't have any
coverage at all, there is no reason in the world why a senior
should have to pay retail price for drugs. If Congress can't
come to a conclusion in this session, shame on us. They are the
last group to pay retail prices. If we had a prescription drug
program in place, they would have their costs cut by as much as
40 percent, comparable to what they paying going to Canada now.
But as you indicated with Senator Breaux, if they are
getting it from their former employer, you wouldn't want to
write a plan that is so rich that that 28 percent would bail
over into the Medicare Program. The biggest concern is that
high cost. What we do is say that we will bring in all seniors
of Medicare age, including those that are on the private
employer's plan, and we will let them share in the risk pool
that we have. Relieving employers of the potential of an
extremely high risk guarantees they are going to stay in the
plan much longer than would otherwise be the case.
When it comes to Medigap, Medigap is simply an out-of-date
program that was structured for a different time. There are a
number of insurance companies making enormous amounts of money
insuring what is basically non-risk. They would love to have
that program continue and not have a prescription drug added.
Listen carefully to some of these people who are
representing insurance associations and others saying that this
plan won't work. Their real fear is that if this plan works,
Medigap won't. They like insuring non-risk. They don't like
participating in sharing in real risk. That is the
responsibility. We will have the government back them up at the
bottom end, but if they are not willing to share in riding
product of pools risk, there are others who will.
So it is not an average senior. It is a plan that meets all
the needs of every senior.
Chairman Archer. The gentleman's time has expired.
Mr. Matsui?
Mr. Matsui. Thank you, Mr. Chairman.
Mr. Chairman, previous members when they were making
comments or asking questions referred to the President because
some in the administration expressed a great deal of skepticism
of the Republican plan. All of a sudden now the President is
being attacked for being partisan.
I would like to suggest that because someone might disagree
with the Republican plan doesn't necessarily mean that the
person is being particularly partisan. And I would hope that we
would make sure that when we use that word we use it with
perhaps some degree of clarity in the future.
I wasn't going to bring this up, but in view of that fact,
I might just mention a few things myself. Apparently, the
Republican conference held on June 8th, Glen Bolger, who is a
member of a group known as the Public Opinion Strategies--in
that Republican conference, it was stated, according to
briefing papers, ``It is imperative that the Republicans hang
together on this issue and pass a bill''--I guess they don't
state what kind of bill--``and it is helpful if we can be
bipartisan in our approach.''
I might just suggest that when you hear the word
bipartisan, think focus group because this is not a bipartisan
bill. Particularly when you take a look at some of the
documents here that was part of the handout at the Republican
conference, ``The Democratic Plan Has Some Potentially Fatal
Weaknesses,'' and then goes on to state how you can attack. But
in the spirit of bipartisanship, I think I will ask Mr.
Peterson some questions about the Thomas Republican bill.
You are familiar with the fact that in the proposed
document--and again, I only get this from press releases and
also from news reports--that the USTR has a role in this
particular----
Mr. Peterson. No, they don't. That has been dropped out.
Mr. Matsui. Is that correct, Mr. Thomas?
Mr. Thomas. I would tell the gentleman I don't know what he
has been reading, but I can assure you that when you see the
bipartisan bill it will look different than the documents that
have been given to you in a bipartisan fashion that describe
some bill that is not the bill that the gentleman from
Minnesota and I will be proposing along with the gentleman from
North Carolina, Mr. Burr, and the gentleman from Texas, Mr.
Hall.
If you are characterizing a Republican bill, that isn't our
bill.
Mr. Matsui. Is the gentleman then saying that there will be
no reference to the U.S. Trade Representative's Office in the
proposed legislation when we mark it up on Monday?
Mr. Thomas. Not in the bipartisan bill.
Mr. Matsui. Not in your bill? Is that it?
Mr. Thomas. Not in the bipartisan bill.
Mr. Matsui. Mr. Peterson, you do understand that in the
Medicare+Choice proposal that was instituted in the late
nineties that there has been a decrease in enrollment? Are you
familiar with that? I guess in 1997 there was a drop of about
300,000 plus.
Mr. Peterson. That doesn't surprise me. In my area, we have
zero and we never will get anything under the current system.
I think the only chance we have of getting any kind of
progress in this area is, as the Senator said, get this out of
HCFA, get it into some other kind of structure, and improve the
payments to areas like mine. If we would take money out of your
district and shift it to mine and equalize it, this would work.
The problem is that you are getting $800 and we are getting
$375. How can that work? And is it fair?
That is the basic problem with this whole situation.
Mr. Matsui. What is this new cooperation?
Mr. Peterson. Well, we are going to be increasing on the
AAPCC, we will be increasing the amount of money that goes into
rural areas. So it is more likely that people will go out there
and offer managed care plans.
Mr. Matsui. How does that happen? I understand that that
won't happen and that is why a lot of rural members express
skepticism about this program.
Mr. Peterson. I don't know who is listening to whom, but I
have been in the room, working with Mr. Thomas, and I have been
working on this. If we would have adopted the budget in 1995,
we would have had the money to fix this. But because we screwed
around, that 10.2 percent update that could have been used to
fix this was given out----
Mr. Matsui. Maybe you can talk about the current proposal.
How does this actually help rural areas?
Mr. Peterson. We are going to increase the amount of money
that goes into rural areas in the AAPCC. And when we do the
updates--I don't know how much I can say about this bill--but
there is going to be a bigger update for areas that are getting
less money and less money is going to go to areas that are
getting more money. So we are going to start to narrow this
gap. But the bottom line is that in a lot of parts of this
country they are getting prescription drugs because they are
getting these huge payments from Medicare. In my area, we don't
even have the opportunity because we are down at these low
levels because we have done a good job of holding down costs.
How are we ever going to get this benefit? One of the ways
is that in this bill--if this doesn't work and the extra money
doesn't bring these managed care plans into my area--what it
says in the bill is that we will provide that benefit through
this new Medical Benefits Board.
Mr. Matsui. My time has expired, but----
Mr. Peterson.--we are not going to get it under----
Mr. Matsui. The gentleman is taking a pretty big gamble
about expecting HMOs to go into the rural areas.
Mr. Peterson. But I will tell you that the current system
is not going to work. It is evidenced by what is going on in my
district.
Chairman Archer. The Chair is concerned that this panel is
going to run, the way we are going, until well after 1 . The
Chair would like very much to conclude this panel by 12:30 so
that we can take an hour for lunch and return at 1:30 for the
next panel. That will require considerable cooperation on both
sides of the podium.
The Chair is going to suggest--and I don't have to ask
unanimous consent, but I hope that it will meet with unanimous
consent--that there be 10 minutes allocated on the Minority
side and 10 minutes allocated on the Majority side in order to
conclude this panel. There will be plenty of time to question
the next two panels that are coming later today.
Mr. Stark?
Mr. Stark. Mr. Chairman, reserving the right for the
purpose of inquiring of the Chair, it is my understanding that
Ms. DeParle has to leave at 12:45. Would it be possible to
extend the 10 minutes per side at least for an additional 10
minutes for her to come in and present her testimony before we
adjourn? Otherwise, she will not be able to return.
I would ask if you could adjust your request to allow her
time to present her testimony.
Chairman Archer. Which witness was the gentleman referring
to?
Mr. Stark. The gentlelady who is the Administrator of HCFA.
She has to leave at 12:45.
Chairman Archer. The problem with that--and I would say to
the gentleman--and I accept that as a constructive suggestion--
the problem is that if she is simply going to speak and then
leave, it seems to me that is not a desirable situation,
either.
I would hope that maybe--we could take her later in the
afternoon if she could come back at a later time and I will be
happy to try to accommodate that. But I would want her to be
here beyond just making a short presentation and then leaving.
Could that be accommodated?
Mr. Rangel. Reserving the right to object, Mr. Chairman----
Chairman Archer. Well, if we can't have an agreement to try
to conclude here--now we have spent a couple of minutes talking
about this--by 12:30, we will just let this panel go on in
normal order and continue to let everybody question.
Mr. Rangel. But you want unanimous consent. Is that it?
Chairman Archer. Actually, the Chair does not have to ask
unanimous consent, but the Chair wants to be sure that
everybody is accommodated.
Mrs. Johnson. Mr. Chairman, could I just ask unanimous
consent and ask the indulgence of my colleagues?
I think it is really very important to hear the
Administrator and have at least a little time to question her.
I would like to ask--if I had known, I would have foregone
questioning myself--but would members be willing to forego all
questioning of this current panel since they are with us in our
daily lives?
Mr. Thomas. We would be happy to leave.
[Laughter.]
Chairman Archer. I thought that would accommodate the
panelists, too, to a degree.
But apparently we don't have any consensus, so we will just
continue right straight on through and let every member have a
chance to inquire and use their 5 minutes.
At this point, the Chair recognizes Mr. Lewis.
Mr. Lewis yields back his time.
Mr. Ramstad?
Mr. Ramstad. Mr. Chairman, I am not going to take my full 5
minutes, but I do want to make a fundamental point.
I want to thank the members of this distinguished panel for
being here today and to those of you who are trying to work in
a bipartisan, pragmatic, common sense way to craft a solution
to what I deem Minnesota seniors' number one problem and
certainly the number one problem of America's Medicare
beneficiaries as well.
I certainly agree with what my friend and colleague, Collin
Peterson of Minnesota, said. It is unfortunate that the debate
has become so politicized. I do note that the invited witnesses
here--six Democrats and one Republican comprising this panel--I
applaud our leadership's effort to depoliticize this issue. And
I know Mr. Thomas and those of us on the Task Force have tried
to be bipartisan. I appreciate certainly above all Senator
Breaux and Collin Peterson and the rest of you trying to work
in this collaborative fashion.
This is really critical that we get something done this
year. Forget the political issue. We need a solution. And I
thank you, Collin, for putting the best interests of Minnesota
seniors above politics. I know, not from you but from some of
your colleagues on the other side of the aisle, how much heat
you have taken for reaching out and trying to solve this
problem. I appreciate that. I want you to know that.
I also want to make the point that any plan we consider
must stabilize the Medicare+Choice option for the reasons you
stated, Collin. We know only too well in cost-efficient, low-
reimbursement States like Minnesota what is happening.
Minnesota seniors and Minnesota providers are being cheated
$450 in Hennepin County, which is a little bit better from the
seventh district, which you represent. But as Durenberger used
to say, there is no reason why you should be able to get two
and a half Medicare surgeries at the Mayo Clinic in Rochester,
Minnesota for every one in Miami, Florida. That is simply wrong
and it has to change.
Thank you for not only working on this, Mr. Thomas, Mr.
Peterson, Senator Breaux, and the rest of you, but for
realizing that we have to do it within the context of
Medicare+Choice. These two must remain linked. They are
interrelated issues, obviously.
I appreciate the effort that has been forthcoming.
I yield back the balance of my time, Mr. Chairman.
Chairman Archer. Mr. Levin?
Mr. Levin. Mr. Ramstad, to pick up your comment, I think
the test of bipartisanship will be whether there can be an
effort within this Committee between now and Monday to craft a
bipartisan proposal, and whether on Monday there is one. That
will be the test, not whether there are several Democrats out
of 200 who join with the chairman of the Subcommittee. The
test, so far, I don't think has worked out very well where you
have the Ranking Member of the Health Subcommittee asking
questions about what is in the proposal.
So I would hope, if we are serious about bipartisanship and
not having a political contest here, that there be some effort
within this Committee between now and Monday beyond what has
happened up to this day.
Mr. Ramstad. Would the gentleman yield briefly on that
point?
Mr. Levin. Sure.
Mr. Ramstad. As a member who tries and strives on a
continuing basis to be bipartisan wherever I can, I agree with
what you said to a point. However, I note on the bill the
presence of two Republican sponsors and two Democrat sponsors.
I think, if anything I think the message--and let's call a
spade a spade--I think the message of bipartisanship should go
back to your leadership, putting pressure on members not to
work on this because some people here want to keep the issue
rather than solve the problem.
Mr. Levin. Mr. Ramstad, I take back my time. That is simply
not true.
Well, you are working on that assumption, and when you work
on that assumption, you move headlong on a basis that doesn't
involve cooperation within this Committee.
I have never heard any word from our leadership telling us
not to work in this Committee on a bipartisan basis on this
issue.
Mr. Thomas, I would like to ask you one question because
there is so much confusion about what is in this bill because
it is not in written form, yet.
When would the last resort come into operation?
Mr. Thomas. The last resort provision is where the Medicare
Benefits Administrator attempts to create opportunities for
plans in areas who don't have any. Obviously, if the
Medicare+Choice plan in an area offers the prescription drug
benefit and there is the fee-for-service program, then you
would have the program. It is only in those areas that haven't
been able to attract a program. The Administrator is then
required to sit down and negotiate to provide the benefit.
What that negotiation is--whether it is an enhancement,
whether it is an assistance in a particular area--is the role
that the Benefit Administrator specifically ought to carry out.
Just as today in the Federal Employees Health Benefit Program,
when you have an administration of a program that seeks to
bring the product rather than restrict the product, you work
with those people who are interested, if in fact it is worth
their while to sit down and work.
What that is and how it works would be up to the
Administrator, so frankly it would be different in different
places, Mr. Levin.
Mr. Levin. So if there is in place in a particular area a
private plan, then there would be no government fall-back plan
available to the Medicare recipient?
Mr. Thomas. In the legislation, if for instance the private
plan means an HMO plan or a Medicare+Choice plan, there is a
requirement in the legislation that seniors have two choices.
So it would be incumbent, then, to bring the fee-for-service
prescription drug program to the area as well.
Mr. Levin. So if there is one or the other available, then
there is no additional available plan.
Mr. Thomas. No. If there is one or the other, there is a
requirement that seniors have at least two choices. So there
needs to be two choices, not one or the other.
Mr. Levin. They have a choice between one and the other?
Mr. Thomas. They ought to be able to have a choice, not a
one-size-fits-some, but a choice.
Mr. Levin. All right. Thank you.
Mr. Thomas. Thank you.
Chairman Archer. Mr. Collins?
Mr. Collins. Thank you, Mr. Chairman.
Mr. Chairman, on behalf of my bipartisan constituency, I am
pleased that we are moving forward with a process that I hope
will resolve a problem for many of my seniors at home who are
having to choose between food and drugs. So I look forward to
the continuation of this process, and hopefully we will have
something in place very shortly.
Thank you, Mr. Chairman.
Chairman Archer. Mr. Watkins?
Mr. Watkins. Mr. Chairman and members of the panel,
Oklahoma is dead last in reimbursement of Medicare in rural
areas, the small towns and rural communities. That is totally
unacceptable. And I am so thankful there has been some
discussion about the rural areas, depressed areas, the
forgotten areas of this Nation. I hope--and maybe I can get
some interpretation--there is some movement to change that.
Now, we are moving into prescription drugs. Very much
needed. My decision is going to be based on a plan that is
going to make sure that we are not discriminated against in the
small town rural areas again, that we are not second-class
citizens, if you please.
We talked about making the decision between having drugs or
medication and maybe food or shelter. The fact is that many of
them have to leave the small town rural areas in order to try
to go get a doctor or get that care.
Can someone give me some kind of assurance that Oklahoma is
not going to be dead last again?
Mr. Peterson. This moves us a long way in the right
direction. It is not as far as I want to go and probably as you
want to go, but I think it is our best chance of getting where
we need to be. So what we are going to do is raise that floor,
which is now at $375, up to $475, and then it is going to move
on up from there.
In addition, when you have the updates, if we are in those
low-cost areas, we are going to get more in the updates than
the areas that are higher than us. So it is going to narrow the
gap and make it more likely that people are going to come in
and offer these Medicare+Choice plans.
Now the one thing I want to say that hasn't been talked
about here today is that I don't think a lot of folks
understand the dynamics in rural areas like yours and mine. The
real problem that is going on is with our providers because
they are limited to the fee-for-service. We spend more money
than we care to in Medicare, so we cut down and every year we
ratchet down the percentage that we reimburse.
Many of these hospitals are 60 to 70 percent Medicare and
Medicaid dependent. So they have no place to shift this. We
keep screwing down the amount that we are going to reimburse
the doctors and the hospitals to 55 percent--whatever it is--
same thing in Medicaid. There is no way that these guys can
stay in business. And that is the bottom line problem here.
So what we are trying to do is get another alternative to
get the money out there so that these people can stay in
business. And this is going to move us a long ways in the right
direction.
Mr. Watkins. Senator Breaux, can you share your feelings,
and Mr. Thomas?
Mr. Breaux. I think it is very clear that if you have a
prescription drug program whereby you are subsidizing it as in
our bill 25 percent across the board for all beneficiaries,
plus you provide reinsurance funding for the companies for
high-cost beneficiaries that they may have to cover, you are
creating a package that is going to be very attractive in all
parts of the country. As long as you have a backup so that when
that doesn't work out you still have an agency that is going to
do it, I think you have covered the problems of Rural America
as well as urban areas.
Mr. Watkins. In a lot of these, you only have one small
drug store in the whole community. And sometimes the county. I
don't know exactly how that is going to----
Mr. Breaux. If you think about it, that small town with one
drug store may have one or two Federal employees who benefit
from the Federal Employees Health Benefit Insurance as well.
They have insurance for drug coverage and they pay a copayment
and they get their drugs at a very reasonable cost.
Mr. Watkins. Good point.
Mr. Thomas. I would tell the gentleman that if you go to
the retail drug store and take a look at what you are paying
there versus some of these mail-in drug provisions, you can
actually wind up getting the same prescription at a much
cheaper price and it arrives at your door. There is a
revolution going on, both on the Internet--not everybody has
computers to contact it--but certainly through mail-in
provisions. People send their pictures away through the mail to
get developed. There is no reason why you can't get
prescriptions through the mail.
It is not as desirable a program as you would have, say, in
an urban area. The key is that it is a program and it will be
available.
The point that Collin Peterson made is a fundamental one.
We have got to make sure that there is a cooperative effort in
providing not just prescription drugs to rural areas, but basic
health care. A hospital in an urban area that closes causes
problems. A hospital that closes in a rural area collapses the
core of the health care delivery structure.
So we are talking about continuing to monitor all those
areas that need adjustment while we are looking at
modernizations and while we are providing prescription drugs.
Just let me say that April 1 was a date we were promised to
get a new funding mechanism for skilled nursing facilities. The
Health Care Financing Administration missed that date. July 1
is the date that we were promised we were going to get a new
funding mechanism for outpatient hospital payments. The Health
Care Financing Administration is going to fail that date. At
some point, somebody has to realize that when agreements are
made and new structures need to go into place, that you have to
meet that deal. The beneficiaries are the ones who suffer.
Mr. Watkins. I would like to make one other point.
Chairman Archer. The gentleman's time has expired. He will
have to make the point at a later time.
The Chair will alert members that it is the Chair's
intention to recess the Committee at the conclusion of Mr.
McDermott's inquiry and return with this panel to conclude this
panel 1 hour later. We will recess for 1 hour for lunch at the
conclusion of Mr. McDermott's inquiry.
Mr. McDermott. Thank you, Mr. Chairman.
I appreciate you having this hearing. I wish we would have
a hearing when we had a bill in front of us.
As I listen to this debate today, we are asked to do two
things at once. One is to deal with the drug benefit and the
other is to reform Medicare. We are swallowing one pill in
order to get the other pill.
I want to talk a little bit about the whole Medicare reform
issue. I detest partisanship, so I am going to ask my question
of Mr. Breaux and Mr. Thomas.
HMOs cost Medicare money because they enroll healthier than
average people. The trustee's report for the year 2000 says
that. You can quibble with them, but that is what it says. The
OIG, the GAO, MedPAC, and HCFA all say that the HMO Program is
not saving us money, but is losing Medicare money.
The theory has been in the reform of Medicare that if we
got everybody into HMOs that somehow the private sector would
figure out how to save money. But what I see in this bill is
more money going into HMOs when the OIG, the GAO, MedPAC, and
HCFA all say they are getting too much already.
Either those four Federal agencies don't know what they are
doing, or mystically we are going to give this new Medicare
Benefit Manager organization all the HMOs and the drug benefit
and leave the fee-for-service system to wither on the vine in
HCFA by separating them. Somehow that is going to make them
better.
I would like to know how you figure you are going to make
this thing work when--Mr. Peterson lives in an area like I do.
I live in the most fiscally deficient area of the country.
Minnesota and Oregon are with us. Everybody talks about rural
areas. Never mind rural areas. Group Health of Washington is
going to pull out of this program in the urban areas if you
don't give them more money in my area.
What mechanism have you built into this that deals with the
disparities across this country? Is it somehow the employees of
this agency who are not going to be Civil Service employees--
you are going to hire them out of the insurance industry and
pay them whatever you want--they will not be under Civil
Service--how does that work to make it better?
Mr. Thomas. I would tell the gentleman that the theory of
getting them all into HMOs is only half the theory. The other
half is that you then have competition between the HMOs, at the
price at which they deliver the medical benefits.
What happened was that you only got half of it happening.
That is, you created an HMO Program, but then the funding of
that HMO Program or Medicare+Choice is administered prices--
10,000 administered prices in 3,000 counties and where you have
overpayment and over-utilization in some areas and
underpayments in others. Or, for example, in your area, which
is very efficient.
But unfortunately, it also has a direct competitor in
another Federal Government program called the Department of
Defense, which then has a profile offering that isn't examined
and pulled out and then priced accordingly, again, because of
the administrative structure. So what we propose is that you
begin what the other half of the agreement was that has never
been reached: Require competition.
Some of these plans are not going to like the other half of
the solution. They like the idea that you give them more money
where they need the money, especially in the lower area. This
bill, on a bipartisan basis, also says to forget trying to get
them to a demo on what a competitive model is. They are just
going to be in a competitive environment. The Medicare Benefit
Administration is going to negotiate prices, those below the
national average.
You and I might want to say, let's take everything we are
paying for Medicare+Choice and begin to divvy it up. As you
well know, those who are now over-compensated are certainly not
going to agree to that. They are not going to be part of the
arrangement. So whether we like it or not, we are going to have
to put more money out there than we should to allow those
programs that have a fixed price that eventually will no longer
be a handsome price until the competitive model reaches them
and then they will negotiate as well.
We do provide negotiation and competition and assistance
where you don't have the ability to negotiate and compromise.
If one thing came out of the Medicare Commission, it was that
the only way you are going to bend the growth curve 25 or 30
years out is to produced a Medicare that provides reasonable
competition. Even if you have to spend a little money up front
to get it started, it is in the long run the only way we are
going to save the money.
Mr. McDermott. The only thing I would say is that the
problem you face is the one you faced in 1997 when you made all
the Balanced Budget amendments by yourself without having
enough testimony. We wound up with the mess that we have today.
You cannot do this again and ram it through here by Monday so
that you can have a press release next Friday, which is what we
are doing. There is no question about it.
I rode on a plane from Seattle. I had 2,306 miles of
hearing what is going on in the Senate where the same thing is
being rammed through. I say to you----
Mr. Breaux. Rammed through? When are we going to do that?
[Laughter.]
Mr. McDermott. You watch and see. It will be rammed out of
the House and you guys will do it next.
I don't want it to be partisan, but you need to take time
to look at how this thing actually works and let us look at it
and think about it. We are going to be out of here on Thursday
night. We will not take a bill home to read, we will all come
home on Father's Day on the planes to get back here on Monday
not knowing whether or not we are going to have a piece of
paper to look at.
Mr. Thomas. No. My commitment to you will be that when you
get on the plane on Thursday, if at all humanly possible--and I
will say I will give it to you--you will have a bill to read. I
will do that if at all humanly possible because I do want to
meet that criticism. I think it is a legitimate one and I want
to do it. I went to too many Majority Ways and Means meetings
when the Democrats ran it where they passed paper out the day
of the hearing. That is not what we are going to do. You will
get it by Thursday when you get on the plane.
Chairman Archer. The gentleman's time has expired and the
Committee will stand in recess until 1:35.
[Whereupon, at 12:37 p.m., the Committee was adjourned to
reconvene at 1:42 p.m. the same day.]
Chairman Archer. The Committee will come to order.
The Chair invites any of the panelists who were part of the
first panel who are present to have a seat at the witness
table.
I assume that the Senators will not be returning and the
Chair would suggest that the three of you consolidate and take
seats at the center so that you are closer together in this
bipartisan effort.
Congressman Thomas, why don't you sit in the middle and
then we will put Congressman Allen on one side of you and
Congresswoman Eshoo on the other.
The Chair recognizes Mrs. Thurman for inquiry.
Ms. Thurman. Thank you, Mr. Chairman.
I am going to make a couple of statements, first based on
some of the statements I have heard here today.
First of all, we talked a little bit about why we needed to
be careful with having coverage that is better than any other
plan because we would have other retirees' health care plans
being eliminated or dropped.
I just want to say for the record we have already seen
since 1994 a dramatic number of firms already dropping
retirees' insurance, and people are still without a
prescription drug benefit. In fact, about 25 percent fewer
firms are now offering these plans.
I would also say that in my office recently a well-known
retail company came in and said that because of the cost of
prescription drugs they actually were going to have to reduce
their benefits to their employees and their retirees because of
prescription drug costs.
Mr. McCrery, one of the things that has concerned me and
really deals with what Mr. Allen has brought fowward and I
think needs to be reemphasized is that every Member of this
Committee voted on the DOD authorization bill last week, which
in fact does exactly what Mr. Allen's bill does. So if we say
that we are for or not for price discrimination then we would
have to suggest that we do that in every other program because
we allow others to buy at the best price.
So I think what we are saying here is that it is OK for
veterans and Medicaid and everybody else, but not for seniors.
To Mr. Peterson, one of the things that has really bothered
me--we always talk about Miami, Florida--there is a lot more to
Florida than just Miami. We have very similar situations as
Minnesota and other places across the country. In fact, this
past weekend, before this July 1st when Medicare+Choice
programs have to let us know that they might be pulling out, we
already have gotten the announcement that in two of my seven
counties we are seeing them pull out.
The reason I bring that up is that you mention in your bill
that you want to do a ceiling of $475.
Mr. Peterson. That's a floor.
Ms. Thurman. All right. A floor.
Well, let me just tell you about those counties where we
have either lost or will potentially lose plans.
In Citrus County, they get $489 today. And they pulled out
2 years ago. Dixie County, $493. Hernando County--this will
really be a shock--$543. Levy County, one that was below that
floor, $466. Marion County, $459. Pasco County, $572. And
Sumter County, $489.
Only one of those counties where they have either pulled
out or are already pulling out of now are below that floor. So
I don't know where we believe they are going to come in because
of higher reimbursements.
And I quite frankly think that in the Medicare Program in
general we have seen discrimination across this country. We
already have, in the Medicare+Choice Program, a prescription
drugs benefit. Right?
Mr. Peterson. If you have enough money allocated to that
county to be able to provide it.
Ms. Thurman. No, because before that if you were in the
Medicare+Choice before they pulled out, they had a prescription
drug. That is why most enrollees went into it, correct?
Mr. Peterson. Right. But in my area they didn't offer it at
all.
Ms. Thurman. So your folks have been discriminated against.
Mr. Peterson. Right.
Ms. Thurman. What I don't understand in the bill that you
are talking about is, Why would we prop up Medicare+Choice,
giving them more money, when they continually are pulling out
of these counties, when they come to the point where they
recognize they can't provide the services and exasperate the
system that is already in place?
I don't know why we are doing that.
I will tell you, in talking to my seniors and what my
seniors tell me, they want traditional Medicare. They don't
want to be discriminated against. They don't want beneficiaries
and HMOs to be given special treatment with more benefits than
they get. This is already what happens with Medicare+Choice.
They don't want a two-tier system. They don't want to get their
prescription drug benefits from the Medigap plans. They want a
prescription drug benefit in Medicare as a part of their basic
Medicare benefit and they want all beneficiaries to be treated
fairly with the same Medicare benefits for all Medicare
beneficiaries.
I don't see that happening under what you are proposing.
Mr. Peterson. And I don't see it happening under the
traditional system, either, because we only have so much money.
And when the cost of Medicare goes up faster, what do we do? We
reduce the fee-for-service reimbursement and then at my
Medicare-and Medicaid-dependent hospitals, it doesn't work
anymore. So the other system doesn't work, either.
I would like to put more money into this, but for whatever
reason they made this decision, there is going to be $40
billion go into it. But I have more confidence that we are
going to get there this way than we are going to get there in
the all command and control HCFA----
Ms. Thurman. But we have tried this system. That is what we
have been under. That is what we have been doing.
Mr. Peterson. Well, then, it is not working.
Ms. Thurman. We had a two-tier system.
That is because we give the money to Medicare+Choice and
you want to give it more.
Mr. Peterson. Let me just make one more point.
Under this program, if they all pull out and if there are
not two choices, then this new Medical Benefits Administration
Board is going to have to, under this legislation, provide the
drug benefit. So then they would get the traditional fee-for-
service, plus a drug benefit under this bill.
Ms. Thurman. Then let me go to Mr. Allen's issue because I
think this is an important point.
Chairman Archer. The gentlelady will be accorded a small
additional amount of time.
Ms. Thurman. I appreciate that, Mr. Chairman.
Mr. Allen, in saying what they have just said, wouldn't it
make sense that the one thing we have to do is to look at the
best cost that we can get for government to buy these drugs? Is
that what your piece of legislation does?
Mr. Allen. It is. And basically we want to do two things.
We want a benefit that is affordable to seniors and a benefit
that is affordable to the government, the taxpayer. That is why
when we talk about any of these plans, we have to be focused on
the cost containment, on getting some leverage over the
pharmaceutical industry.
It is my belief that the more consolidated--that is, if
Health and Human Services does the negotiating by itself for
all 39 million beneficiaries, you are going to get a lower
price than if you divide into regions and have PBMs. If you
have multiple PBMs, you have less market power than if you have
single PBMs.
So basically the fewer entities on the buying side, the
more market power, which is why this debate--wherever you come
out on it--the debate over the form of cost control is really
very important.
Chairman Archer. The gentlelady's time has expired.
I think this has been a very productive discussion. It is
not over yet because Mr. English and Mr. Doggett will still
inquire. But I am constrained to interject at this time that it
is not a zero sum game. You have many other countries that
squeeze down the price of drugs so that if you want to sell
them there, you have to sell them at a price that is less than
they are sold in the United States.
What does that do to the prices for the consumers in the
United States? That drives them up. It drives them up because
it all has to fit within the final ultimate net return.
The more you drive down the price--even if it is domestic,
it becomes comparable to the way that Canada and Switzerland
and others have driven down the price of comparable drugs--and
that forces up the price to everybody else. It doesn't come
free of charge.
That is what we need to understand in the overall scheme of
things. This is going to be a very difficult process to work
through and come out with the right solution.
Mr. English?
Mr. English. Thank you, Mr. Chairman.
I wanted first to recognize Mr. Peterson. I appreciate very
much your being here. In listening to the last line of
questioning, I am not sure you had an opportunity to fully
amplify on your views and fully answer those questions.
Would you like time to do so now, sir?
Mr. Peterson. Well, I think I pretty much got it answered.
The problem is that--as I said briefly to the gentlelady from
Florida--the fee-for-service system, the way we control costs
and HCFA does it by setting these prices and continues to
ratchet down--in my district, we have 70 to 80 percent Medicaid
reimbursements in those hospitals. They are being put out of
business.
At one time, before we got the $375 floor put in there, the
average in my district was $293. At the same time, it was 700-
some dollars in Miami. I can tell you that there isn't that
much difference in what you pay doctors and what it costs. But
the reality is that we are not going to take this money away
from Miami or these other places, so we have to figure out some
other way to get this thing equalized.
This bill starts to move us in the right direction.
Mr. English. And I would point out to the gentleman--and I
see the chairman of the Health Subcommittee is shaking his
head. He is very well aware that in my district we have a
situation similar to yours where we have seen not pull-outs but
dramatic reductions in benefits. A lot of that is directly
attributable to the fact that HCFA has arbitrarily decided in
places like Northwestern Pennsylvania to reimburse the same
procedures at a dramatically lower rate than in even
Southwestern Pennsylvania.
So from county to county, I have an enormous disparity
within my district and a significant difference in the
availability of benefits under Medicare+Choice. That is not the
fault of the insurance company--in this case, Blue Cross--as
much as it is policy decisions being promulgated by bureaucrats
right here in Washington.
Would the chairman of the Health Subcommittee amplify on
that, if he chooses to?
Mr. Thomas. Thank you very much.
I do think you heard a dramatic statement in the exchange
between my friend from Maine and the gentlewoman from Florida:
The concept that a government-controlled fixed price will
ultimately produce a lower price than a competitive model.
That is being rejected around the world repeatedly. As a
matter of fact, my colleague on my left--not always on issues,
I might say--believes that competition is a key to controlling
prices.
When you look at the government fixed price for Medicare,
we have been told that if you could negotiate a lower price,
you could actually get a cheaper price than the statutory
price. But beyond that, it is not just the single price of the
drug. The problem with many seniors is in taking the drug. It
is the management of the drug. It is consulting with and
appropriate delivery of the product. That is a package.
There are professionals who do that now. All of that should
be part of the negotiations. Even disease management is part of
the prescription drug program now--a very technical area--and
they are doing it at reduced costs with intensive management.
That is what should be part of the negotiations to determine
who delivers the service, not just the price.
As most people know in the marketplace, the price isn't
everything. It is the total package that is critical.
Mr. English. A couple of quick questions for the chairman.
Could you comment just very briefly on how his plan versus the
President's plan would impact on PPS-exempt hospital and on the
VA Prescription Program?
Mr. Thomas. I would have to tell you that in those areas
that we have worked at over the last several years, there is
less than a dramatic impact because this is primarily for the
modernizations in the prescription drugs. The area of the
outpatient and the VA--although we are continuing to work--it
seems as though that in the short run, even those who were
pushing, for example, the Department of Defense Tri-Care
Program to be advanced in terms of the drug ultimately see
those Medicare-eligible senior as part of the overall program.
So this is not year one and the last year of continuing
changes in Medicare. When we began in 1997 a cooperative effort
with the administration--the administration did sign that
bill--we knew we were going to have to make changes and we were
going to have to make midcourse adjustments. We made a
midcourse adjustment last year.
I will tell the gentleman, contained in the bipartisan
legislation is a Medicare lock box to say that if CBO shows
there are additional savings from Medicare in the general fund
out of fiscal year 2000, all that money should be preserved for
reinvestment back into Medicare. Those are areas we can focus
on to assist areas we have talked about in terms of
Pennsylvania hospitals in their ongoing concerns about
delivering health care.
Chairman Archer. The gentleman's time has expired.
Mr. Doggett?
Mr. Doggett. Thank you, Mr. Chairman.
Mr. Allen, my questions really center on you. I know first
of all that you must have been as happy as I was to learn that
there is now an interesting bipartisanship in this Committee in
addressing this issue. The only vote this Committee has ever
taken on this issue previous to today was the vote that Ms.
Thurman and I secured last September, in which we sought very
much to have bipartisan support for addressing this problem of
price discrimination against seniors that your proposal focuses
on. Instead, we got a stonewall, a totally partisan opposition,
a pretty straight vote that demonstrated Democrats wanted to
end the price discrimination and Republicans did not want to
act on that.
With reference to this spirit of bipartisanship, I
understand how it is going to work. Mr. Peterson says he is not
necessarily free to disclose all the details of this new, as of
yet, unveiled plan today. We have a press release. If we are
really fortunate, when we get on the plane to go away for the
weekend, we will get a copy of the bill and then we will be
asked to vote on this new proposal and shape any amendments
dealing with the issues you have raised or others on Monday,
the first day we get back.
So I guess that is a form of bipartisanship. It seems to
focus principally on who can praise the proposal the most
rather than who can focus on what impact, if any, it will have
on our seniors.
Even though you don't have the details of this new
Republican plan, isn't true--whether it is the Thomas
Republican plan or the various Democratic plans that have been
offered by a wide range of people here and in the Senate--that
your approach represents the most conservative approach in
terms of tax dollars? Isn't it the one that will cost the
taxpayer the least amount of money of any of the proposals,
whether they are called Republican, Democrat, or bipartisan?
Mr. Allen. That is certainly my opinion. I wouldn't expect
everyone to come to the same conclusion. But it is certainly my
opinion that basically when Mr. Thomas and others talk about
the need for competition, I want to say, wait a minute. Let's
talk about this in terms of market power. There are folks in
this room who really understand what market power is all about.
The pharmaceutical industry is by and large, when you look at
different kinds of drugs, very much concentrated. What the
industry wants is as many buyers as possible. That way any
individual buyer will have the least amount of market power.
Aetna, Cigna, United--all the health care plans--try to
negotiate lower rates for their beneficiaries. In my opinion,
Medicare should simply do the same for its beneficiaries. If we
do that systematically, we will have the lowest possible prices
around the country. And I can imagine doing that with 15 or so
regions, but by and large the more different buyers you have,
the less market power the buyers will have.
Mr. Doggett. I think you have seen this morning's Congress
Daily that has an advertisement from the pharmaceutical
industry suggesting that with private insurance seniors cen get
lower prices somewhere near 40 percent. Is there anything to
prevent them from simply lowering their prices by 40 percent
for uninsured seniors without any bill of any type?
Mr. Allen. No, there is nothing. It is a fairly amazing
advertisement because it basically says that private drug
insurance lowers prices 39 percent and that 12 million senior
Americans now have no prescription drug insurance coverage and
therefore pay full price because they don't have the market
clout that comes with a plan. That is part of what we are
saying.
Let me say one other thing that I think is important.
Referring back to the chairman's point a while ago, this
industry earns 18.6 percent return on revenues, according to
the latest figures. As Merrill Lynch and other security
analysts have shown, if you have either my plan or a benefit,
they will sell many more drugs in this country. It is not a
case of simply dropping prices in one country and forcing them
up in another.
By and large, this is a case where if they cut prices or
you have a benefit, then their market will expand dramatically
because so many seniors are not taking their prescription drugs
right now.
Mr. Doggett. As Mr. Matsui pointed out before our
Republican colleagues convened this bipartisan hearing, they
convened a focus group that warned that ``Republicans aren't
doing anything to help seniors,'' and their number one message
to attack Democrats seemed to have you in the bull's eye. It
said that the way to attack Democrats is to say, ``It is
politicians in Washington setting drug prices.''
Isn't that what your plan does?
Mr. Allen. My plan provides what we do for military
retirees now, what we do through the Medicaid Agency, and for
veterans. It simply allows the negotiation of negotiated lower
prices and essentially what happens in the private sector.
Mr. Doggett. The military retiree plan is the one you refer
to in your testimony that the House just voted overwhelmingly
to approve. It is a new plan that has not existed previously
that is going to take the same approach that you want to
provide for all uninsured seniors, and apply it to all military
retirees.
Mr. Allen. Over 65, that is correct.
Chairman Archer. The gentleman's time has expired.
Mr. Doggett. Thank you.
Chairman Archer. The Chair is prepared to close out the
inquiry of this panel in deference to them and their schedules
as well as deference to Nancy Ann DeParle, who has waited a
long time.
The Chair will recognize Mr. Neal, who has not inquired,
and the Chair will then recognize Mr. McDermott simply for one
question, which he tells me will receive a yes or no answer.
That remains to be seen.
Mr. Neal?
Mr. Neal. Thank you, Mr. Chairman.
Just a quick question for Bill Thomas, and the other
panelists may wish to comment as well. I followed some press
accounts of how you intend to deal with the whole question of
recovering some of the investment that we make on behalf of
taxpayers on some of the miracle drugs. It is an issue that,
while on the periphery, it is still out there. Maybe you could
inform us as to your intentions.
Mr. Thomas. I will tell the gentleman someone who is very
interested in that is Senator Ron Wyden. He has legislation and
others do as well.
In working on this side with the Democrats over a year and
a half, we examined a number of areas that we thought about
adding to the bill. We came to the conclusion that as we put
this together we are going to try to keep it a core Medicare
modernization in prescription drugs.
The difficulty with the number of areas mentioned--although
it may in fact be a worthwhile pursuit--it opens up then,
through the Commerce Committee jurisdiction, the entire Federal
Drug Act and that is not a direction, given the rules of the
House, that some folks wanted to go. I am talking with those
people who have an interest in providing legislation, even as
an amendment to this one that we can sit down and talk with the
Rules Committee, where something like that could be made in
order if someone--and the will of the House can be determined
on that.
The response I get back is that the taxpayers invest in a
number of areas, such as defense and others, and they don't get
a return on their investment there. I think maybe it is
something we need to look, in a broad-based way, about.
Although certainly government's job is to sponsor research and
development in a broad number of science areas, and there is a
societal benefit that accrues, but if an individual is going to
receive significant personal benefit from it, then there might
be a way for the government to piggy-back onto that and get our
fair share back, but only if there is somebody who gets a
single individual significant benefit out of the broad-based
taxpayer dollars.
So there is an area I think we can continue to work. But
rather than to put it in this bill, which has to go through
both Ways and Means and Commerce, opening up jurisdiction like
the entire FDA was a sobering thought for a number of people,
especially those on the Commerce Committee, who are part of the
bipartisan coalition. They suggested that we not do it in the
fundamental bill, but as an amendment it is something that
could be looked at.
Mr. Cardin. If I could respond, Mr. Neal, I think Medicare
beneficiaries have overpaid for a lot of the costs--whether it
be research, whether it be academic, health care costs,
training of doctors--there has been an unwillingness to look at
a more general way to cover these costs, and it has made it
more difficult for us to move forward with benefits for our
seniors.
One of the key differences--this has been a very useful
discussion, but I think one of the key differences that we have
on the approach Mr. Thomas has taken and the approach Mr. Stark
has taken, is that Mr. Stark's approach puts drug coverage as a
defined benefit within the Medicare system itself. That means
every senior will get it.
Yes, we hope there will be choice, that private insurance
will be involved. In 1997, we passed Medicare+Choice to give
the seniors--we thought--more choice, but private insurance
didn't want to take advantage of that.
One of the dangers, if you don't put prescription drug
coverage in the defined benefit package, is that the private
market may or may not do what we think they will do. They may
offer it in different ways. But if you have it as a defined
benefit in the core benefit structure of Medicare, then you
know the seniors will have at least the fall-back of fee-for-
service and competition will give other options to our seniors.
So I think the point you raise about recouping the
investment cost is a very important one, and we should make
sure that our seniors aren't going to overpay for the benefits
they are receiving, which would mean that they won't be able to
receive other benefits or expanded benefits because of the
costs we are providing for the Medicare system itself.
Mr. Thomas. Perhaps this defined benefit argument may be
more a semantical one than a substantive one. I want to sit
down with Ben and go over it.
When I was listening to what people are arguing as a
defined benefit, it was the specific parameters of the dollar
amounts of the program, and I really don't look at it that way.
I look at it as the substance of what it is that is being
offered, such as the preventive care and other aspects. It may
in fact be a semantical one and we may have a defined benefit
in this bill, once I understand exactly what the gentleman from
Maryland means.
Mr. Neal. I think we need to talk that out, but I think
many of us want to start with the concept of putting it in the
core benefit, the defined benefit, of Medicare and then make it
available for big delivery through fee-for-service or private
plans. You start with getting the private sector----
Mr. Thomas. But I would only say that the core benefit are
specific health care factors, not dollar amounts. You are not
talking about prescription drugs as dollar amounts. That is not
what I look at as a defined benefit. I look at it as the
programmatic aspect, which is the way traditional Medicare is.
That is why I think it may be more a semantic problem than a
substantive one.
Chairman Archer. The gentleman's time has expired.
The Chair now recognizes Mr. McDermott for a short question
that will receive a yes or no answer.
Mr. McDermott?
Mr. McDermott. Let me see if I can do it.
Mr. Thomas----
Mr. Thomas. Me? Yes or no?
[Laughter.]
Mr. McDermott. He said a short question for me, too.
When you were designing this benefit, did you expect the
same administrative cost in your benefit that is in a Medigap
policy? And is that built into the cost of the premium?
Chairman Archer. The gentleman is also free to answer ``I
don't know.''
Mr. Thomas. I do know. That is the problem. A yes or no is
not a sufficient answer.
This is so fundamentally different than Medigap. There are
administrative costs and CBO is pricing it out, but it is
nothing like Medigap in terms of the administrative costs
because it covers an entirely different structure, in large
part administered by newer entities that didn't really exist in
the current form they exist when Medigap was put into law.
But I am still going to try to get it to you on Thursday.
Chairman Archer. Thank you.
The Chair extends personal compliments to every member of
this panel. It has been very, very helpful, I believe, to the
consideration of this issue. We are very grateful to all of
you.
Thank you very much.
Chairman Archer. The next panel will be Hon. Nancy Ann
DeParle and Gary Claxton.
Ms. DeParle, my apologies for your having to wait so long.
It just seems to be a part of this process, that is, the U.S.
House of Representatives. But we are very happy to have you
before us today and we will be most pleased to receive your
testimony.
You may proceed.
Ms. DeParle. Thank you, Mr. Chairman.
Chairman Archer. I think everybody knows that you are the
Administrator of HCFA, so I don't think you need to mention
that again. Welcome.
STATEMENT OF HON. NANCY-ANN DEPARLE, ADMINISTRATOR, HEALTH CARE
FINANCING ADMINISTRATION; ACCOMPANIED BY: GARY CLAXTON, DEPUTY
ASSISTANT SECRETARY FOR HEALTH POLICY, U.S. DEPARTMENT OF
HEALTH AND HUMAN SERVICES
Ms. DeParle. Thank you.
I do think this morning has been constructive and I have
learned a lot from listening to the dialog.
We appreciate your holding this hearing to discuss the
Medicare prescription drug coverage problem. The Health
Subcommittee's hearing on this subject last month was very
constructive and we welcome the opportunity your hearing
provides today to further our bipartisan dialog.
With me this afternoon is HHS Deputy Assistant Secretary
Gary Claxton, who has worked extensively on analyzing and
designing the President's prescription drug proposal and also
analyzing the other proposals that are out there.
The Administration is encouraged by the growing commitment
to address this issue, the need of Medicare beneficiaries for a
prescription drug benefit. We want to continue working with you
to enact legislation that meets the key principles that
President Clinton has laid out for a Medicare drug benefit.
The drug benefit should be voluntary and accessible to all
beneficiaries. It should be affordable to beneficiaries and to
the Medicare Program. It should be a competitive benefit and it
should have efficient and effective administration. It should
ensure access to needed medications. It should encourage high-
quality care. And it should be consistent with broader reform.
Mr. Chairman, we have said many times that we are flexible
on the details of how a Medicare drug benefit is provided as
long as the design meets these key principles.
I was listening closely to the members of the panel who
presented earlier. I listened especially closely to Mr. Thomas
in talking about the plan he has been working on.
I do see some commonalities. It does appear that he has
tried to meet some of the President's principles and that he
has made some changes at least from earlier versions of the
plan that I have heard. But as I think everyone has emphasized
this morning, I haven't seen the details yet--we haven't seen
the details yet--so it is very difficult to say whether or not
this plan meets the tests that I set out to make sure that this
is really a guaranteed Medicare prescription drug benefit.
We do have some concerns, based on what we have heard so
far, about whether this benefit would really be affordable and
accessible for all beneficiaries. Most of our comments and
concerns really relate to this.
We continue to be concerned about the extent to which the
plan that Mr. Thomas described this morning relies on
participation by private insurers who have made clear many
times that stand-alone drug policies aren't feasible. Even if
some insurers do offer coverage--I imagine some will--they
would likely come in and out of the market, they would move to
marketable areas, and I suspect they would significantly modify
their benefit design from year to year based on the prior
year's experience.
We have seen this before and it has not been a good thing
for beneficiaries. I should just mention here that there
appears to be a lot of confusion about how exactly
Medicare+Choice reimbursement rates are set, so I want to just
take a minute to describe that for this Committee.
This Committee set the rates in law in the Balanced Budget
Act a couple of years ago. They are based on historical rates,
the 1997 rates, which are based on historical fee-for-service
volume and intensity, which is why you have such differences
around the country. The practice of medicine has differed
around the country in the Medicare Program, the number of
procedures people get and the types of doctor visits, and so
forth. The rate of increase was also set by statute. It is not
something that bureaucrats or that I set at HCFA. It is set by
statute and is the higher of three different rates, but there
is a guaranteed annual increase of 2 percent in that rate.
But as I said, what we have seen--and everyone here knows
it, many of you are experiencing this first-hand--is pull-outs,
a lot of movement by Medicare+Choice plans, a lot of
uncertainty, and a lot of instability. We are concerned that a
plan that relies heavily on private insurers would create the
same kinds of concerns again in the Medicare prescription drug
benefit.
I heard Mr. Thomas say that the government will be there in
every area if plans don't come in to provide a Medicare
prescription drug benefit. I am eager to see the details of
that and what that would really mean. My concern in hearing
about it, from a health policy perspective, is, What exactly
would that mean for risk selection? If the government is going
to be left in some areas, does that mean that plans wouldn't
come to many areas of the country, leaving the government
there, which would have to charge higher premiums? That results
in what my actuaries tell me is sort of a ``death spiral'' for
such a program if it is a drug-only program.
So I guess, Mr. Chairman, I would just say that this dialog
has been helpful in learning some of the details, but there
many, many more things we need to discuss. There are certain
difficulties inherent in trying to base a program on drug-only
insurance plans. I think you will hear more about that today.
We continue to believe that the benefit must be integrated
into the Medicare Program, that it should be like physicians.
Physicians are covered under Medicare, hospital visits are
covered. It should be just like that. We should provide drug
coverage to Medicare beneficiaries the same way that virtually
all private insurers do, by contracting directly with pharmacy
benefit managers in each region of the country. This will
ensure that all beneficiaries have access and that Medicare
gets the best prices through benefit managers who will
negotiate on behalf of beneficiaries.
This raises another concern that we have with the plan Mr.
Thomas discussed this morning, which is that, as he described
it, it does not provide direct premium subsidies to individuals
with incomes above $12,600 a year. As I understand it, it does
provide a direct subsidy to very low income people. For
everyone else, it relies on indirect subsidies to lower
premiums. As I understand it, the subsidies are paid to the
insurance companies and the proposition is that that will lower
premiums for everyone.
I think what is not clear is whether this amount of subsidy
will really ensure that affordable coverage is available to
all, or would be equally affordable in all regions of the
country. I heard this morning a sincere debate about how to do
that. I believe that everyone wants to do that. My question is
whether this plan really does do that.
We have other questions, Mr. Chairman, that are outlined in
my written testimony. We look forward to discussing them with
you. I think the most important question that we all have to
keep in mind is, How well does this plan, does the President's
plan--does whatever plan you have in front of you--really meet
the needs of Medicare beneficiaries, the 39 million Americans
who are depending on us to do something here? We have to keep
that first and foremost.
And while critical concerns remain, I hope that the time
and energy and commitment I have seen here this morning means
that we are turning a corner in our efforts to work together to
enact a Medicare drug benefit. We all agree that it is
desperately needed. I hope we are nearing a workable consensus
on the broader outlines of how the benefit should be
structured.
Now, Mr. Chairman, we need to get into the important deeper
details of how to make sure that the benefit can succeed. I
think we can meet these challenges if we continue the
constructive approach we have taken so far and I look forward
to continuing to work with you as we enter the next phase in
this critical debate.
Thank you.
[The prepared statement follows.]
Statement of Nancy-Ann DeParle, Administrator, Health Care Financing
Administration
Chairman Archer, Congressman Rangel, distinguished
Committee members, thank you for holding this hearing to
discuss Medicare prescription drug coverage. Your Health
Subcommittee hearing on this issue last month was highly
constructive, and we welcome the opportunity this hearing
provides to further our bipartisan dialogue. We are encouraged
by the growing commitment embodied in the new House Republican
proposal to address this issue. We want to continue working
with you to enact legislation that meets the principles
President Clinton laid out earlier this year.
Background
As we know, pharmaceuticals are as essential to modern
medicine today as hospital care was when Medicare was created.
Lack of prescription drug coverage among senior citizens today
is similar to the lack of hospital coverage among senior
citizens when Medicare was created. Three out of five
beneficiaries lack dependable coverage. Only half of
beneficiaries have year-round coverage, and one third have no
drug coverage at all.
Those without coverage must pay for essential medicines
fully out of their own pockets, and are forced to pay full
retail prices because they do not get the generous discounts
offered to insurers and other large purchasers. The result is
that many go without the medicines they need to keep them
healthy, out of the hospital, and living longer lives.
Drug coverage is not just a problem for the poor. More than
half of beneficiaries who lack coverage have incomes above 150
percent of the federal poverty level. Millions more have
insurance that is expensive, insufficient, or highly
unreliable. Even those with most types of coverage find it
costs more and covers less. Copayments, deductibles, and
premiums are up.
And coverage is often disappearing altogether as former
employers drop retiree coverage, Medigap is becoming less
available and more expensive, and managed care plans have
severely limited their benefits. Clearly all beneficiaries need
access to an affordable prescription drug coverage option.
KEY PRINCIPLES
The President has identified key principles that a Medicare
drug benefit must meet, and we are willing to support proposals
that meet these principles. It should be:
Voluntary and accessible to all beneficiaries.
Medicare beneficiaries in both managed care and the traditional
program should be assured of an affordable drug option. Since
access is a problem for beneficiaries of all incomes, ages, and
geographic areas, we must not limit a Medicare benefit to a
targeted group. At the same time, those fortunate enough to
have good retiree drug benefits should have the option to keep
them.
Affordable to beneficiaries and the program. We
must ensure that premiums are affordable enough so that all
beneficiaries participate. Otherwise, primarily those with high
drug costs would enroll and the benefit would become unstable
and unaffordable. And beneficiaries must have meaningful
protection against excessive out-of-pocket costs.
Competitive and have efficient administration.
Medicare should adopt the best management approaches used by
the private sector. Beneficiaries should have the benefit of
market-oriented negotiations.
Ensuring access to needed medications and
encouraging high-quality care. Beneficiaries should have a
defined benefit that assures access to all medically necessary
prescription drugs. They must have the assurance of minimum
quality standards, including protections against medication
errors.
Consistent with broader reform. The drug benefit
should be consistent with a larger plan to strengthen and
modernize Medicare.
THE PRESIDENT'S PLAN
The President has proposed a comprehensive Medicare reform
plan that meets these principles. It includes a voluntary,
affordable, accessible, competitive, efficient, quality drug
benefit that will be available to all beneficiaries. The
President's plan dedicates over half of the on-budget surplus
to Medicare and extends the life of the Medicare Trust Fund to
at least 2030. It also improves access to preventive benefits,
enhances competition and use of private sector purchasing
tools, helps the uninsured near retirement age buy into
Medicare, and strengthens program management and
accountability.
The President's drug benefit proposal makes coverage
available to all beneficiaries. The hallmark of the Medicare
program since its inception has been its social insurance role.
Everyone, regardless of income or health status, gets the same
basic package of benefits. This is a significant factor in the
unwavering support for the program from the American public and
must be preserved. All workers pay taxes to support the
Medicare program and therefore all beneficiaries should have
access to a new drug benefit.
A universal benefit also helps ensure that enrollment is
not dominated by those with high drug costs (adverse
selection), which would make the benefit unaffordable and
unsustainable. And, as I described earlier, lack of drug
coverage is not a low-income problem beneficiaries of all
incomes face barriers.
The benefit is completely voluntary. If beneficiaries have
what they think is better coverage, they can keep it. And the
President's plan includes assistance for employers offering
retiree coverage that is at least as good as the Medicare
benefit to encourage them to offer and maintain that coverage.
This will help to minimize disruptions in parts of the market
that are working effectively, and it is a good deal for
beneficiaries, employers, and the Medicare program. We expect
that most beneficiaries will choose this new drug option
because of its attractiveness, affordability, and stability.
For beneficiaries who choose to participate, Medicare will
pay half of the monthly premium, with beneficiaries paying an
estimated $26 per month for the base benefit in 2003. The
independent HCFA Actuary has concluded that premium assistance
below 50 percent would result in adverse selection and thus an
unaffordable and unsustainable benefit.
Premiums will be collected like Medicare Part B premiums,
as a deduction from Social Security checks for most
beneficiaries who choose to participate. Low-income
beneficiaries would receive special assistance. States may
elect to place those who now receive drug coverage through
Medicaid into the Medicare drug program instead, with Medicaid
paying premiums and cost sharing as for other Medicare
benefits.
We would expand Medicaid eligibility so that all
beneficiaries with incomes up to 135 percent of poverty would
receive full assistance for their drug premiums and cost
sharing. Beneficiaries with incomes between 135 and 150 percent
of poverty would pay reduced premiums on a sliding scale, based
on their income. The Federal government will fully fund States'
Medicaid costs for the beneficiaries between 100 and 150
percent of poverty.
Under the President's plan, Medicare will pay half the cost
of each prescription, with no deductible. The benefit will
cover up to $2,000 of prescription drugs when coverage begins
in 2003, and increase to $5,000 by 2009, with 50 percent
beneficiary coinsurance. After that, the dollar amount of the
benefit cap will increase each year to keep up with inflation.
For beneficiaries with higher drug costs, they will continue to
receive the discounted prices negotiated by the private benefit
managers after they exceed the coverage cap. To help
beneficiaries with the highest drug costs, we are setting aside
a reserve of $35 billion over the next 10 years, with funding
beginning in 2006.
Benefit managers, such as pharmacy benefit manager firms
and other eligible companies, will administer the prescription
drug benefit for beneficiaries in the traditional Medicare
program.
These entities will bid competitively for regional
contracts to provide the service, and we will review and
periodically re-compete those contracts to ensure that there is
healthy competition. The drug benefit managers--not the
government--will negotiate discounted rates with drug
manufacturers, similar to standard practice in the private
sector.
We want to give beneficiaries a fair price that the market
can provide without taking any steps toward a statutory fee
schedule or price controls. The drug benefit managers will have
to meet access and quality standards, such as implementing
aggressive drug utilization review and patient counseling
programs. And their contracts with the government will include
incentives to keep costs and utilization low while assuring a
fairly negotiated contractual relationship with participating
pharmacists.
Similar to the best private health plans in the nation,
virtually all therapeutic classes of drugs will be covered.
Each drug benefit manager will be allowed to establish a
formulary, or list of covered drugs. They will have to cover
off-formulary drugs when a physician certifies that the
specific drug is medically necessary. Coverage for the handful
of drugs that are now covered by Medicare Part B will continue
under current rules, but they also may be covered under the new
drug benefit once the Part B coverage is exhausted.
The President's plan also strengthens and stabilizes the
Medicare+Choice program. Today, most Medicare+Choice plans
offer prescription drug coverage using the excess from payments
intended to cover basic Medicare benefits. Under the
President's proposal, Medicare+Choice plans in all markets will
be paid explicitly for providing a drug benefit in addition to
the payment they receive for current Medicare benefits. Plans
will no longer have to depend on what the rate is in a given
area to determine whether they can offer a benefit or how
generous it can be. This will eliminate the extreme regional
variation in Medicare+Choice drug coverage, in which only 23
percent of rural beneficiaries with access to Medicare+Choice
have access to prescription drug coverage, compared to 86
percent of urban beneficiaries.
And beneficiaries will not lose their drug coverage if a
plan withdraws from their area, or if they choose to leave a
plan, because they will also be able to get drug coverage in
the traditional Medicare program. We estimate that plans will
receive $54 billion over 10 years to pay for the costs of drug
coverage.
Beneficiaries will have access to an optional drug benefit
through either traditional Medicare or Medicare managed care
plans. Those with retiree coverage can keep it and employers
would be given new financial incentives to encourage the
retention of these plans.
MEETING KEY PRINCIPLES
We are flexible on the details of how a Medicare drug
benefit is provided, but the design must ensure that we meet
the President's key principles of a benefit that is voluntary,
affordable, competitive and efficient. We have reviewed draft
descriptions of the plan, but we have not seen the details.
Based on this review, we believe the new Republican plan marks
important progress. However, we believe it does not meet the
President's test of a meaningful benefit that is affordable and
accessible for all beneficiaries. Key among our concerns are
the apparent lack of an individual premium subsidy for all
beneficiaries, an inadequate level of support, and reliance on
insurers who are unlikely to participate.
Will prescription drug coverage be available?
The Republican plan appears to rely extensively on
participation by private insurers who have made clear that
stand-alone drug policies are not feasible. Subsidizing private
insurers instead of establishing a reliable Medicare benefit
means that outpatient prescription drugs would not be part of
the Medicare benefits package like doctor or hospital care.
Beneficiary premiums would pay for expensive, private Medigap
plans whose administrative costs are on average more than 10
times higher than Medicare's, according to National Association
of Insurance Commissioners statistics, rather than an
affordable Medicare option. Furthermore, Medigap plans have
little experience negotiating with drug manufacturers and
relying on numerous plans does not pool the purchasing power of
seniors; both elements are needed to keep the benefit
affordable.
Building on the private Medigap insurance market would be
especially difficult in sparsely populated rural areas, where
risk pools are smaller and seniors are more likely to have
higher costs, as a report released by the President today
shows. There also is no certainty or stability in the drug
coverage options in the Republican proposal. Even if some
insurers do offer coverage, they would likely come in and out
of the market, move to profitable areas, and significantly
modify benefit design from year to year based on prior year's
experience. This would result in the same pull-outs and
uncertainty we see in managed care today.
The drafts of the new proposal suggest reliance on a ``fall
back'' mechanism, in which the government would ensure
availability everywhere. This seems to acknowledge the weakness
of the drug-only insurance plans. We continue to believe 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. This
will ensure that all beneficiaries have access and that the
pharmacy benefit managers can negotiate the best prices.
Is drug coverage affordable to all beneficiaries?
The Republican plan does not provide direct premium
subsidies to individuals with incomes above $12,600 a year.
Instead, it appears to rely on indirect subsidies of 25 to 30
percent to lower premiums. It is unclear that this amount of
subsidy will ensure that affordable coverage is available to
all or would be equally affordable in all regions of the
country.
There are several additional areas where we have questions
about the new Republican plan. These include:
Is it a defined benefit? The Republican plan
appears to allow insurers to offer an unspecified ``standard''
benefit, or an actuarial equivalent benefit. Only the stop-loss
amount is specified, and insurers would set deductibles and
copays.
This could lead to beneficiary confusion and benefit
packages designed for ``cherry-picking'' of low-cost, healthy
enrollees, with insurers offering no deductible, low copays,
and a low benefit cap that leaves a large gap before the stop-
loss kicks in. This would be a step backwards from the Medigap
reforms of the early 1990s that standardized benefits so plans
compete on price and quality rather than consumer confusion.
Does the plan assure access to needed medications?
The Republican plan appears to require insurers to cover only
all ``major'' therapeutic classes of drugs. Depending on how
that is defined, and the degree to which each insurance company
is permitted to define it, some seniors could be left without
the medications they need. It also appears to require a
beneficiary to go through a formal appeals process to get
coverage of off-formulary drugs the physician deems to be
medically necessary, which could limit access. Furthermore, the
Republican's multi-insurer approach breaks up the pooled
purchasing power of seniors, forcing insurers to reduce costs
through restrictive formularies and limited pharmacy choice.
Will the plan increase access to coverage for
rural beneficiaries? The Republican plan appears to rely on
additional assistance for Medicare+Choice plans as a means of
bringing those plans into rural areas where, because of sparse
health care service delivery structures, managed care has often
had difficulty thriving. It is not clear this will work.
Will the proposed approach to remove international
drug pricing disparities work? We agree that Americans,
particularly those who now lack prescription drug coverage,
should not disproportionately subsidize drug development.
However, it is not clear that having the U.S. Trade
Representative negotiate to address drug price controls in
other nations will result in fairer prices here at home. This
proposal could simply result in higher prices abroad without
having an impact on the high prices American consumers now pay.
Will the plan result in more efficient Medicare
administration? We understand that the Republican plan would
create a new Medicare Oversight and Management Administration
(MOMA) to administer the drug benefit and the Medicare+Choice
program. It appears to be adding a new layer of bureaucracy
since many MOMA activities would duplicate those that HCFA
would also need to continue, such as beneficiary education,
resulting in duplication and ignoring HCFA's expertise.
CONCLUSION
We may be turning a corner in our efforts to secure the
Medicare drug benefit that we all agree is needed. We are
nearing a workable consensus on the broader outlines of how the
benefit should be structured. Critical concerns about providing
an affordable, accessible, meaningful benefit and relying on
private insurers remain. But we are beginning to get into the
all-important, deeper details of how to make sure the benefit
can succeed. While a great deal of work remains, momentum is
now with us. The challenges before us can be met if we continue
the constructive approach that we have, together, taken to
date. And I look forward to continuing to work with you as we
enter the next phase on this critical issue.
# # #
Chairman Archer. Thank you, Ms. DeParle. And again, thank
you for your patience in waiting to present your testimony. We
are delighted to receive it. Hopefully the spirit of
cooperation will permeate the structure of our procedures as we
move forward.
If I may, I would like to ask you just a few questions.
Have you prepared the President's program in statutory
language so that we can be able to put it side by side with
whatever other program we might be looking at?
Ms. DeParle. Yes, sir, we have. I believe it was submitted
in February or March.
Mr. Claxton. March.
Ms. DeParle. It was submitted to the Congress.
Chairman Archer. Has it been in any way revised or changed
since then? Or is it intact as it was submitted in March?
Ms. DeParle. It hasn't been revised, sir, but we have said
that we want to work with the Congress to add to our program a
catastrophic benefit to protect beneficiaries who have really
high drug expenditures. We intend to do that. That is an
outline.
Chairman Archer. That is the item that Ms. Eshoo mentioned
in the stop-loss concept?
Ms. DeParle. Yes, sir.
Chairman Archer. Has there been a CBO analysis revenue
assessment of the plan that you sent up in March?
Ms. DeParle. I know that our actuaries have looked it. I
haven't seen a CBO analysis. I will ask Mr. Claxton is he is
aware.
Mr. Claxton. I believe that they estimated the overall
plan, but they didn't estimate the catastrophic component
because----
Chairman Archer. I understand. That is something that still
needs to be worked out.
Mr. Claxton. Right.
Chairman Archer. Okay.
Ms. DeParle. I am remembering now that at the last hearing
in front of your Health Subcommittee CBO testified and they did
say it was going to be around $159 billion over 10 years.
Chairman Archer. Do you remember a 5-year number?
Ms. DeParle. No, sir, I don't. I am sure I can supply that
for the Committee.
Mr. Claxton. It is $38 billion over 5 years.
Chairman Archer. OK, $38 billion and $159 billion.
I apologize. I was not present at that hearing, so some of
my questions may be a tiny bit redundant, but I will try to
keep it very brief.
Chairman Thomas is talking about a $40 billion expenditure,
so we are in the same ballpark as far as dollars are concerned
to the taxpayer. Is that fair to say? Over a 5-year period.
Ms. DeParle. I know that is what the Budget Resolution
says, and I know that is what he is trying to design. I believe
that ours would be more expensive with the catastrophic.
Mr. Claxton. In the President's proposal, we propose a
catastrophic plan to start in 2006, consistent with the amount
of money that was available in the budget. If our catastrophic
program started earlier, it would cost more than $38 billion.
Chairman Archer. I see.
Based on your own analysis, could you give us some idea of
what the first 5 years would be if you put the catastrophic or
stop-loss in effect at inception?
Mr. Claxton. We can certainly provide that for the
Committee. We don't have it right now.
[The information follows:]
Ms. DeParle: If we take the basic prescription drug
benefit, as proposed by the President in his February budget,
and move the effective date one year earlier, to 2002, and add
an out-of-pocket limit of $4,000 indexed to growth in the drug
component of the CPI, the net federal budget impact of the
entire drug would be $79 billion for FY 2001-2005, and $253
billion for FY 2001-2010. This policy and this estimate assume
a beneficiary premium contribution for only the base benefit,
so the out-of-pocket protection would be fully financed by the
federal government.
Ms. DeParle. If we take the basic prscription drug benefit,
as proposed by the President in his February budget, and move
the effective date one eyar earlier, to 2002, and add an out-
of-pocket limit of $4,000 indexed to growth in the drug
component of the CPI, the net federal budget impact of the
entire drug benefit would be $79 billion for FY 2001-2005, and
$253 billion for FY 2001-2010. This policy and this estimate
assume a beneficiary premium contribution for only the base
benefit, so the out-of-pocket protection would be fully
financed by the federal government.
Chairman Archer. We still do not have the statutory
language of the----
Ms. DeParle. No, sir, I do not. I am sure I could supply
that for the Committee.
Mr. Claxton. It is $38 billion over 5 years.
Chairman Archer. That was $38 billion. Okay, $38 billion
and $159 billion. All right. I apologize, I was not present at
that hearing, so some of my questions might be a tiny bit
redundant. But I will try to keep it very brief.
Chairman Thomas is talking about a $40 billion expenditure.
So we are in the same ballpark as far as dollars to the
taxpayers are concerned over a 5 year period. Is that fair to
say?
Ms. DeParle. Well, I know that is what the budget
resolution says, and I know that is what he is trying to
design. I believe actually that ours would be more expensive
with the catastrophic.
Mr. Claxton. In the President's proposal we propose a
catastrophic plan to start in 2006, consistent with the amount
of money that was available in the budget. If our catastrophic
program started earlier, it would cost more than $38 billion.
Chairman Archer. I see. All right.
Could you, based on your own analysis, give us some idea of
what the first 5 years would be if you put the catastrophic or
stop loss in effect at inception?
Mr. Claxton. We can certainly provide that for the
Committee; we do not have that right now.
[The information was not received at the time of printing.]
Chairman Archer. OK. We still do not have the statutory
language of the Thomas-Peterson bill. Hopefully, we will have
it by either very late tonight or before the close of business
tomorrow. Sometimes I have to add ``hopefully'' the way things
work here, and sometimes the difficulty in scoring takes a
longer period of time.
In the end, the Committee needs to be concerned about the
total dollar cost to the taxpayers as well as the total
affordability to the individual beneficiary. Moving to the
beneficiary side of it, what does your proposal require from
the standpoint of the beneficiary who elects to go into this
program? As I understand it, both would be a matter of choice;
people could either elect it or not elect it. So can you tell
me, Ms. Eshoo mentioned $44 a month, is that the figure that
you also would ascribe to, without the stop loss or
catastrophic?
Ms. DeParle. The premium starts off in the first year, sir,
at around $26 I think, and then it rises as the cap on the
benefit goes up to $5,000. So the premium goes up to about $50
four or 5 years out.
Chairman Archer. All right. Is it fair to say that when
fully implemented with the $5,000 coverage it would be $50 a
month?
Ms. DeParle. That is what our estimates are, yes, sir.
Chairman Archer. OK.
Ms. DeParle. And there is also coinsurance and we expect
beneficiaries to pay 50 percent.
Chairman Archer. Yes. Yes. Okay. So with the $26 premium in
the first year, what coverage would that provide?
Ms. DeParle. It would provide coverage up to $2,000 for
drug spending from the first prescription that a beneficiary
had covered, and then the beneficiaries would also get the
benefit of the lower prices that the pharmacy benefit managers
could negotiate if they had cost above the $2,000.
Chairman Archer. OK. All right. So you would get, in
effect, $1,000 of coverage for a $26 a month premium, as it
were? Because there is a 50 percent copay and you have up to
$2,000, $1,000 has got to be paid by the beneficiary?
Ms. DeParle. Yes, sir.
Chairman Archer. OK. As of this time, it is not possible to
compare that to the Thomas-Peterson plan because we do not know
precisely what those numbers are going to be. We will have
those when we mark up next week.
I think that defines to some degree what we are talking
about. Do you have any view as to what participation would be
required by the beneficiary for the catastrophic or stop loss
benefit?
Ms. DeParle. No, sir, we do not. That has been something
that has been criticized quite a lot that we have not put a
plan on the table. But we were really sincere in wanting to
work with the Congress to look at the contours of that.
Chairman Archer. No, that is fine.
Ms. DeParle. There are a number of different ways to do it;
there are three or four already out here. We are open to
discussing it.
Chairman Archer. Do you anticipate that there would be an
additional premium for that stop loss coverage of some number,
whatever it might be?
Ms. DeParle. We have not made a decision about that yet.
That is one way of doing it is to ask for an additional
premium. Another way is to have a lower benefit but not ask for
an additional premium. So we are still open to discussing it.
Chairman Archer. All right. The various plans that are
being proposed by different people have some differences
between plans other than the Thomas-Peterson and the
administration's proposal, but, apparently, all of them provide
for choice and election rather than being a mandatory program
that you would have to participate in if you were a Medicare
beneficiary. Is there a concern that the Committee should have
about adverse election?
Ms. DeParle. Yes, sir. In any of these plans, that is
something that you need to look at.
Chairman Archer. And what would be the way that we could
address that?
Ms. DeParle. Well, an important way to address it is,
according to the actuaries that we have consulted as well as,
frankly, private insurance plans that provide these kinds of
benefits, is we have to make sure that the subsidy that we
offer to beneficiaries is adequate to encourage most of them to
participate. Again, it is voluntary. But just as we have done
with part B of Medicare, we want to have this subsidy be
adequate to encourage them to participate. Why do we want to do
that? Because if we do not do that, then the ones who
participate are the ones who are really the sickest and that
just creates a very difficult risk pool, you are familiar with
those principles, and then adverse selection on top of that.
So I think that is a key parameter to keep in mind as we
evaluate the various plans.
Chairman Archer. I am not surprised. I am always realizing
that the ingenuity of the American people in this great land of
the free is such that people are going to decide what is in
their own best interests. And if I am a retired citizen and
covered by Medicare, and I am one of the 20 percent that does
not pay anything on drugs, I am basically healthy and I do not
see that I am going to have a major drug obligation, I am not
going to get into this. Whether the premium is $26 a month or
whether it is $50 a month, I am going to say, gee, that is a
lot of money for me over a year's time, why should I do that.
And I am one of the very ones that you need to get in to get
away from the adverse selection. So what do we do about that? I
am not just identifying this as a problem for your program. I
think it is potentially a problem for all of them.
Ms. DeParle. I think we have to look at the experience of
other programs. You could make the same argument for that with
Medicare part B. There are people who have very low costs
during the year. So what entices them to come in? I think what
it is with this population, in particular, while they may not
be sick right now, they know that there may be a time when they
are sick and that they will need that. It is the whole
principle of insurance. It seems to have worked OK with
Medicare part B and I believe that it will work.
I see your point, but I think that is why the actuaries and
the private insurance experts that we have talked to say it is
important to make sure that the government's contribution is
substantial enough. Also, there are rules about when you can
come in and you have to make an election at the beginning and
that sort of thing.
Chairman Archer. OK. Thank you very much.
Mr. Rangel.
Mr. Rangel. Thank you.
There are some Republicans that make the accusation that
the President and Democrats really do not want to resolve this
problem but would prefer to have it as an election year issue.
I do not know how they can think that since we do not have the
slightest clue as to what finally the Republicans, with their
newly found bipartisan Democrats, are going to come up with and
say this is the solution. I, for one, really believe that older
folks do not want a Democrat solution or a Clinton solution or
a Republican solution, they want relief.
It seems as though the so-called Democrat solution is to
treat prescription drugs as we treat medical care and to say
people are entitled to it and do it through the Medicare
Program. Others believe that we can do away with Medicare and
have HMOs take over this type of responsibility and subsidize
the private institution. If we wanted to shatter this myth that
this was some political conspiracy, has Mr. Thomas and his
bipartisan group approached the administration to see whether
or not they could come up with a bipartisan bill with the
President's support?
Ms. DeParle. I have not been approached, Mr. Rangel.
Mr. Rangel. Would you know whether or not there has been an
attempt by the Republican leadership to get the President on
board this piece of legislation that Mr. Thomas is putting
together?
Ms. DeParle. I think I would. I have said, and I said this
at the hearing that the Subcommittee had last month, we are
open to sitting down and working with whatever group up here
wants to work with us to try to enact a real Medicare
prescription drug benefit. We are open to sitting down whenever
and wherever they want to talk. But as far as I am aware, that
has not happened yet.
Mr. Rangel. Some Republicans think that they have to fight
both Democrats on the Committee as well as the President. Is
Mr. Stark's Subcommittee recommendations that far apart from
the President's recommendations?
Ms. DeParle. The Subcommittee recommendations being----
Mr. Rangel. The Democratic Caucus.
Ms. DeParle. From my understanding of it, the differences
are fairly minor. They have to do with implementation dates and
with things at the catastrophic----
Mr. Rangel. So the Republicans would not have to worry that
they are dealing with a two-headed monster. It would be a one-
headed monster, the differences, right? It is possible that the
Democratic Caucus and the White House could find a meeting of
the minds.
Ms. DeParle. Yes, sir, I think it is.
Mr. Rangel. You are talking a lot about bipartisanship, and
the Republicans are talking a lot about markup. How do you
think that is going to work?
Ms. DeParle. Well, at some point we are all going to have
to get together and put all of these issues on the table and
work through each one of them. The devil, I think Ms. Johnson
is the one who said it this morning, but the devil is in the
details. There are a lot of commonalities but we have yet to
really roll up our sleeves and do the hard work. Maybe the
markup starts that.
Mr. Rangel. I yield to Ms. Johnson to see how we are going
to do all this rolling up the sleeves between now and Monday.
Mrs. Johnson [Presiding]. Welcome, Administrator DeParle.
It is my understanding that in the material that you gave us on
the President's summary that your estimates of cost assume 95
percent participation.
Ms. DeParle. Yes, that is right. The actuaries believe that
the levels we are talking about would ensure that level of
participation.
Mrs. Johnson. OK. I just wanted to clarify that. I agree
with your earlier statement that to get participation the plan
has to be rich enough to attract it. By my calculations, to pay
the $24 monthly premium and the 50 percent copayment, you would
have to pay $1,288 for a $1,000 benefit. In other words, you
would have to need to spend $1,388 to get a $1,000 benefit.
About 80 percent of the seniors have less than $1,388
expenditures. So they would not be motivated under your plan to
choose this plan if they were part of the 80 percent that did
not have that benefit.
Now the same criticism could be made of every other plan on
the table. One of the reasons why the group that I worked with
was so intent on catastrophic is because we thought the
catastrophic benefit would give peace of mind to the people
whose drug costs were only $500, $600, $700 but they were
paying actually more than that between the copays and the
premiums for the commensurate benefit.
I asked the Congressional Budget Office, because I think
this is very important to get on the record in this discussion,
I asked the Congressional Budget Office what would be the cost
of catastrophic if it were mandatory. So this is the lowest
possible cost. Nobody is proposing mandatory anything. But I
wanted to see if you spread the cost of catastrophic across
every single senior in America what would it cost. And this is
what it would cost: In the first year, for a $6,000 threshold,
it would cost $21.60, and by 2010, it would cost $38.70, almost
$40, almost as much as your 10 year premium would rise to $44.
So, if we put catastrophic in there at $6,000, you would have a
$44 premium and a $40 catastrophic premium.
Now I understand you are expecting some government cost-
sharing. I just want to put on the table how really expensive
this is.
Mr. Stark. Would the gentlelady yield for just a moment on
the numbers.
Mrs. Johnson. Yes.
Mr. Stark. The President's plan for $1,288 would give you
$2,000 worth of benefits, not $1,000.
Mrs. Johnson. Well, see, but $1,000 of that is your own
money, and $1,000 is the government's money. So you spend
$1,000 of your money on copayments, $288 on premiums, and for
that you get a $1,000 benefit.
We will have to discuss this later because I do not want to
get stuck down in the conceptual----
Mr. Stark. OK. But you are wrong.
Mrs. Johnson. I think I am right. In other words, if you
have to pay for first dollar, if your prescription is $50, you
pay $25, they pay $25. So from the very beginning you are
paying half over and above your premium. So before you benefit
by $1,000 worth, you have spent $1,000. So that is why I say it
that way.
Ms. DeParle. If that is what your level of spending is.
Mrs. Johnson. If it is lower, you spend less.
Ms. DeParle. That is right.
Mrs. Johnson. And I figured that out all along the
continuum. The fact is that you do not get to the point where
there is much of a pay-off for low drug users because of the
premium and the copays. You see, the premiums offset the copays
until you get up. Anyway, I do not want to spend too much time.
Ms. DeParle. I think what we are arguing about, as you
point out, this is an issue, an aspect that every single plan
should be analyzed with respect to. And arguing about the
principle of insurance, you being from Connecticut, I am sure
you know better than most that----
Mrs. Johnson. But remember, those of us who were here
during catastrophic, and I voted against repeal, the concern of
the seniors was that they had to pay something for something
that they did not want to buy because they did not believe they
needed it.
In my estimation, the only real lure of this program is not
going to be the 50-50 up to $2,000. It is going to be the
catastrophic coverage. But you have to combine them, and all
the plans do. I just want to put on the record that combining
them is very expensive. And if you are not going to take it out
of premium, you are going to have to take it out of general
funds. At a certain point, we are going to have to engage in
the fact that in 10 years I believe it is Medicare is going to
be 25 percent of all Federal spending, and that is without
Social Security or the other senior benefit programs including
Medicaid and long-term care costs. So that is an important
problem.
Then I also wanted to ask you why you made the decision to
have your plan adjust for inflation rather than for the drug
inflation costs, rises in drugs. When you talk to seniors they
will tell you right away Social Security adjusts for inflation,
my rent goes up more; Social Security adjusts for inflation,
Medicare goes up more. So if we do not adjust this program to
begin with for drug costs, we will not give our seniors what we
are telling them that we will give them. Now if we do that, of
course it will be more expensive and the premiums will go up
more rapidly. But I think we have to be honest about that. I
think one of the problems we are going to have to tackle
together is this issue of inflation versus drug costs. If you
want to comment on that, you are welcome to do so.
Ms. DeParle. I think you are asking a lot of very good
questions. As I have said many times, we are open to sitting
down and talking to you about details like the ones you are
raising.
I do think though a lot of what you have raised goes to the
very heart of the principle of insurance and whether you
believe that people want insurance or not. My understanding
from all the actuaries and experts we have talked to is that a
system like the one we have proposed can work. Maybe others can
work as well, but ours can work.
I disagree just a little bit with Mr. Thomas on that in the
sense that when I go out and talk to our beneficiaries, yes,
they do want catastrophic coverage, but they also think they
really need help right now and they want help with covering the
basic cost of drug coverage.
Mrs. Johnson. I hear what you are saying about that. But a
95 percent assumption behind your cost estimates is, to me,
really misleading because there are so many people out there,
every State employee has far better coverage than this. And the
idea that they are going to give up their better coverage, and
there is no chance they are going to lose it, that a lot of
public employees will give up their better coverage to make
that rate 95 percent, especially without catastrophic, is not
common sense.
Now if we add catastrophic, that may help. But we are never
going to get that shift from the private sector to the public
sector, nor do we want it. So cost estimates based on 95
percent I think are really unrealistic. But these are the
details we will have to consider.
Ms. DeParle. And let me be clear, too, Ms. Johnson, we did
not tell someone, the actuaries to assume 95 percent. What we
asked them to do was to help us design something that would
achieve almost universal participation by beneficiaries. They
believe, based on the parameters of the plan that we have come
up with, that it would do that.
Mr. Thomas is talking to analysts from CBO. I am sure they
have views of this. There are lots of experts out there who
have views about this. That is one of the details that you
alluded to that we have got to sit down and start talking
about.
Mrs. Johnson. I would really like to talk to your
estimators about why they would estimate 95 percent when we
know that two-thirds of seniors already have some kind of drug
coverage and one-third have very good drug coverage. I think we
need to have them come talk to the Committee about why they
would do this.
I do not want to take more time just because I have the
Chair, but I do want to put on the record that I also strongly
disagree, and I cannot emphasize this enough, and I want to
emphasize it in public, I strongly disagree with your funding
mechanisms. Personally, to assume that PBA extenders would
provide $39 billion more over 10 years when, frankly, I am
doing the best I can to defer most of the PBA requirements,
because we are already saving more than was anticipated when we
passed those provisions in PBA, so since we are saving more
from Medicare than we anticipated, I certainly am not going to
support a 15 percent cut in home health benefits, I certainly
am not going to support a continued decline in uncompensated
care for hospitals and some of the other factors.
So not only do I think that your PBA extenders estimate is
not going to materialize, but I think your estimate of $8
billion over 10 years through a competitive bidding for
Medicare+Choice when the choice plans are crumbling because
they are so underfunded, and the same with $25 billion over 10
years for reduced Medicare spending in a number of other areas,
most of them competitive bidding and stuff, I cannot agree that
the money you say is going to materialize is going to
materialize. So I think both the cost of adding catastrophic
coverage and the real funding have to be looked at because it
is from those assumptions that you draw your $24 premium.
Ms. DeParle. We will be happy to sit down with you and talk
about the details.
Mrs. Johnson. Thank you.
Mr. Thomas.
Mr. Thomas. Thank you, Madam Chairman. I apologize for
running out and trying to get something to eat, but I was
listening to the discussion that was going on.
It is true, one of the more difficult parameters in trying
to create a product is to not give too much away to get people
to participate, but also give enough away to encourage people
to participate. The Medicare part B, seventy-five cents on the
dollar attracts 97 percent of the people. I guess we could go
to ninety cents on the dollar and get that other 3 percent. It
is a question of what you do in return.
Partially I think, although I am somewhat concerned about
the way their actuaries determined the 95 percent take-up rate
on the President's plan, it is in part A function of how much
you subsidize, and they subsidize fifty cents on the dollar up
to $2,000. It is kind of like questionnaires today, it is how
you ask the question. If you asked the question, would you like
to have protection there when the costs exceed your ability to
pay? They will say, yes. Do you want a program that covers your
first dollar expense? They will say, yes. So as you get in, you
have got to be very careful what you ask, how you ask it, and
what you are looking for.
But if, in fact, CBO scores, for example, the bipartisan
proposal near 90 percent, we are in the ballpark of shaping a
program that most people think is one that is worthy of
participating in. I think we should set that aside temporarily.
I do think that we should look at the record because the
Medicare Commission built a program which was an insurance
program. The President offered initially in his budget a
program that really did not have catastrophic. It was brought
to the catastrophic table by our argument that it should really
be an insurance program. It did not kick in until 2006 and with
not enough details for CBO to deal with. And then the
Democrats, in adding to the President's program, in that recent
Rose Garden ceremony, offered catastrophic today similar to
ours, but did not have details and said the Secretary would
trigger it. There was no cost associated with it. So it was not
really a realistic plan.
I just want to underscore that from the very beginning we
started with the concept of building an insurance plan, not so
much for what seniors even think they need today or over the
next three to 5 years. It is going to take a major push on
everybody's part to get this program in place and you are not
going to be able to go in and fiddle with it periodically on
fundamentals like whether or not it is an insurance program or
a prepaid plan. We just thought, looking down the road over the
next five to 10 years and the costs that seniors would be
facing, it would be worth it to get in place a program which
was a true insurance program.
I also heard Mr. Rangel's question of you. I would ask you,
Ms. DeParle, did you consult with the Chairman of the House
Subcommittee when you were making up your Administration's
budget that you were going to present to us?
Ms. DeParle. No, sir.
Mr. Thomas. You did not?
Ms. DeParle. No.
Mr. Thomas. So some of the things that are executive branch
involvement I did not get to participate in, and some of the
things that are Legislative Branch involvement you did not get
to participate in. Frankly, down the road we both wind up
participating. So the idea that in building this bipartisan
plan we did not consult with you and, therefore, somehow it is
tainted is once again an argument that is presented with
absolutely no substance or usefulness in advancing the fact
that the first panel had six Democrats and one Republican and
five of the six Democrats sounded awfully similar in the idea
that they wanted competition and that they wanted the
administrative structure outside of HCFA. As a matter of fact,
the gentleman from Maryland, as he indicated, was not so
disturbed at what it was, but that it did not have a defined
benefit. I actually think that is resolved as well, and we are
going to sit down and work on it.
The only way we are going to move forward is the way we
moved forward in 1997, looking at what we have in common,
stressing the commonalities, and building on that. To the
degree that the questions continue to visit what somebody said
behind closed doors, slipped to somebody in a leaked procedure,
to the degree that you use pejorative terms, as you define them
to be pejorative, to try to slow down the ability to come
together in a relatively short time to resolve our mutual
problem means you do not want it resolved, no matter how much
you say you are for it.
There is a bipartisan proposal. It will continue to build.
Frankly, the judgement of the bipartisan proposal will not be
the vote in this Committee. Everybody knows how people get
along in this Committee. The proof of the bipartisanness of the
measure will be the vote off the floor of the House. I think
you will find that when this measure reaches the floor there
will be an overwhelming bipartisan vote. My only hope is that
it will be sufficiently bipartisan to be able to carry over to
the Senate and wash those folks up on the beach of reality as
well so that we can possibly move forward with the Senate
proposal, get the conference, invite the administration to
fully participate, as we did in 1997, and surprise everyone by
doing something for seniors, and that is modernizing Medicare
and passing prescription drugs before we go to the election.
That would be a pleasant memory that I would love to provide
the President of his Administration, and, frankly, we should
not have beneficiaries wait 1 day longer than necessary to
provide this very useful service.
Thank you, Madam Chairman.
Mrs. Johnson. I agree with that. And it would be a very
pleasant memory.
Ms. DeParle. It would be a nice memory for me, and I would
like to work together with you on it.
Mrs. Johnson. Mr. Stark.
Mr. Stark. Thank you, Madam Chairman.
I love this discussion on bipartisanship. We Democrats
provided a couple hundred votes to help the Republicans carry
the Patient Bill of Rights on the floor. That has done us
precious little good in the Senate. We cannot get them to move
to carry our bill at all. So we are getting tired of getting
all these Democratic votes to help the Republicans carry their
bill only to have it defeated in the Senate.
A couple of other housekeeping things here. I would just
like to go over--I took my shoes and socks off to do this math,
Madam Chair, and I know we are not taking the standardized math
test here--but as I understand the President's bill, and far be
it from me to be defending the President, but if a person were
to receive $2,000 worth of drugs from the pharmacy, they would
pay $1,000 in cash as a copay and their premium, if we assume
it is $24, would be $288. Thus, for an outlay of $1,288 of cash
they would receive $2,000 in pharmaceuticals. If they go in and
buy a $2,000 prescription, one prescription let's say, they
would pay $1,000 copay, right, so they get $2,000 worth of
drugs for $1,000 copay.
Mr. Thomas. Would the gentleman yield because I think you
are on to something. Would the gentleman yield briefly on that
point because I want to agree with him. Would the gentleman
yield just very briefly?
Mr. Stark. OK. I know you do.
Mr. Thomas. You do not want me to agree with you?
Mr. Stark. I do. It is so obvious that----
Mr. Thomas. If the partnership pays out $2,288, the
government covers $722 of it----
Mr. Stark. I would reclaim my time.
Nancy, I have some questions about managed care and HMOs
and that sort of thing and drugs. Not knowing what is going to
happen, I heard Mr. ``Bipartisan'' Peterson this morning
suggest that we are going to save managed care in his rural
district, there are no HMOs in his district I believe, I know
there are no HMOs in North Dakota, and can you estimate for me
how much you would have to pay per person to get an HMO to go
into Fargo or Oaks, North Dakota. Any idea?
Ms. DeParle. I am trying to see if I can remember what
the----
Mr. Stark. The population of Oaks is 3,000.
Ms. DeParle. Well, what the county payments would be in
that area already. They are probably whatever the floor is.
Mr. Stark. Maybe $300 or $400. Is there any amount of money
under which an HMO could survive?
Ms. DeParle. Well, it depends on a lot of factors. It
depends on a network. It depends on whether there are people in
those areas who want to go in. There is one statistic though
that is at least chastening when you look at this, which is
that around 26 million of the 39 million Medicare beneficiaries
right now have access to a managed care plan.
Mr. Stark. And do not join.
Ms. DeParle. Well, around 7 million have. But that means
there are others who have not, even though, in my estimation--
--
Mr. Stark. Why would anybody in their right mind join a
managed care plan, and HMO except to get a pharmaceutical
benefit? You restrict your access to physicians, whereas under
Medicare fee-for-service you can go to any physician you want.
You restrict your access to hospitals. You are denied certain
covered services if the managed care plan decides to withhold
benefits from you. Why would you join a managed care plan
except to get the drug benefit?
Ms. DeParle. You might join one if you looked at the price
of Medigap, which, as you referred to earlier this morning, is
very expensive and the drug benefit you get is sometimes less
than the amount you are paying. If your doctor is in the
managed care plan and they offer prescription drugs which you
cannot get through Medicare.
Mr. Stark. I said if you did not get prescription drugs why
would you do it. You can still go to that doctor, can't you?
Ms. DeParle. Yes, sir. But in the past, some of the managed
care plans have had lower coinsurance.
Mr. Stark. Or none.
Ms. DeParle. Or none. In fact, they have had quite generous
premium arrangements. So there have in some cases been
benefits. But I have been surprised actually that even where
they are available many beneficiaries have not joined. I do not
know what the reason is for that. But that is one of the things
that makes me a little nervous about depending too heavily on
that part of the marketplace.
Mr. Stark. Then why would we give in managed care plans
more money if we are already, as we suspect, overpaying them?
In other words, we pay more to the managed care plans compared
to paying for those same people in fee-for-service Medicare. So
why would we give more money to managed care plans instead of
just letting every Medicare beneficiary have a drug benefit,
which would thereby save the managed care plans money, would it
not? In other words, if we provide a drug benefit to every
Medicare beneficiary, the managed care plans or the HMOs who
now provide a drug benefit save money, do they not?
Ms. DeParle. Well, they save money or they make money,
depending on how you look at it. Under the President's plan,
$54 billion of the $160 billion in our plan would be going to
managed care plans to cover drug benefits. The problem right
now is that they need to cover drug benefits, as you suggest,
to be competitive. I have talked to a number of the chief
executive officers of these plans and they tell me that to
provide the kind of benefit that Medicare beneficiaries want
they have to be able to provide prescription drugs and some of
those other things. But under the Medicare+Choice law, we are
not supposed to be reimbursing them to provide prescription
drugs.
The solution is we need a prescription drug benefit for all
Medicare beneficiaries. I guess I would have to say, Mr. Stark,
that I think there are some areas of the country where we may
never have managed care plans. That may be OK as long as
beneficiaries have access to a decent, affordable prescription
drug benefit. And that is why I would like to work together
with this Committee to get that done.
Mr. Stark. Thank you.
Mrs. Johnson. Mr. Levin.
Mr. Levin. Let me just say for those of us who are left
here in terms of bipartisanship, and Mr. Thomas, your comment,
I think as I look back at the legislation that has been within
the jurisdiction of our Committee, if there is not
bipartisanship on the Committee, the legislation does not
become law. So if there really is no effort to forge a
bipartisan kind of package here, there may be some Democratic
votes on the floor, a minority, but it will not become law.
Essentially, what we will be doing is positioning ourselves and
I think doing a lot of posturing.
So I think the test is not the floor, whether there will be
a minority, and probably a small minority, of Democratic votes,
but whether between now and Monday there can be the kind of
dialog among Democrats and Republicans here on the Committee
and with the administration that we can proceed other than
essentially on a partisan basis here in the Committee.
Therefore, I want to ask you, Ms. DeParle, because we have
gotten lost in a lot of speculative details, we do not have a
bill in front of us, just to lay out so that everybody
understands the challenge between now and Monday, there has
been some reference to common ground, there us if you would in
as simple terms as you can what you think are the basic
differences on key items between what is being proposed by Mr.
Thomas and is embodied in the President's proposal. In your
testimony I think you lay these out in terms of whether it is a
defined benefit, in terms of whether it will cover needed
medications. But try to spell out the four or five major
differences that you think need to be faced between now and
Monday, or whenever we are going to get our heads together, if
we do.
Ms. DeParle. I will try. The President's plan makes a
prescription drug benefit available to all Medicare
beneficiaries. It is an integral part of the Medicare Program.
Medicare beneficiaries would be entitled to coverage for
prescription drugs just the way they are now for physician
services or hospital services.
Mr. Levin. A higher copay.
Ms. DeParle. Yes.
Mr. Levin. But it is otherwise basically the same as other
services.
Ms. DeParle. Yes, sir. They pay a separate premium for it,
and there is a higher copay. There is a 50 percent copay. But
it is part of the Medicare Program and it is an entitlement.
We provide it through pharmacy benefit managers who would
negotiate----
Mr. Levin. But as you understand the Republican plan, it is
not?
Ms. DeParle. I think that we do not know, sir. I heard Mr.
Thomas say this morning that it is an entitlement. From what I
had seen earlier it was not clear to me that it was an
entitlement, except perhaps for the low income beneficiaries.
There is not a direct subsidy for all beneficiaries. I did not
see the word ``entitlement.'' I think the word ``entitled'' is
in there once. I have not seen the details. I do not know
whether it is a guaranteed benefit or whether it is just
available in certain areas of the country. I heard him say
today that he intends to have Medicare, a government plan be a
fall-back in every area. But I just do not know the details. So
that is my question, is it really a benefit for all Medicare
beneficiaries, or is it just in the areas where it is available
through a private insurance plan.
Mr. Levin. And whether it is affordable for everybody.
Ms. DeParle. Yes, sir. That would be the second question.
Again, I do not want to speculate because I saw a five or ten
page summary a week ago. Some of the details are different than
what I heard Mr. Thomas and Mr. Peterson say today. So I do not
want to speculate on it. But we do have a question about
whether it is affordable. Again, it may be affordable to people
who have one of those private insurance plans available. Is it
also affordable to people who do not have such a plan
available? We want this to be universally affordable.
There is also a question about the extent to which all of
the details can vary among the plans. That goes to both
accessibility and affordability and, to the stability of this
marketplace. It sounds like what they are talking about would
offer lots of different permutations of a Medicare plan, which
might sound good in theory, but what I hear when I talk to
beneficiaries is they want something that is stable. They want
to know how much they will be paying, they want to know what
their premiums are going to be from year to year. They do not
want something that is going to be that uncertain. So that I
think is another key difference between the plans.
I also have a question about whether or not the
administration of the new plan is going to ensure access to
needed medications. Again, I do not want to speculate, but an
earlier draft I saw of a plan did talk about requiring coverage
only of major therapeutic classes of drugs. It is not clear
what that means.
Mr. Thomas. Will the gentleman yield briefly?
Mr. Levin. Sure.
Mr. Thomas. You keep referring to some five or ten page
document. Who did it come from? Is it the Senate plan, Breaux-
Frist plan?
Ms. DeParle. I was told it was the House Republican plan,
which must be an earlier version because----
Mr. Thomas. Who told you it was the House Republican plan?
Ms. DeParle. It was called the Medicare Prescription Drug
and Modernization Act. We got it from someone on the Hill.
Mr. Thomas. The question I thought was to compare the one
plan to the other plan. We just consumed 3 hours saying it is
an entitlement, it is universal, it is going to be provided
through a public-private arrangement, but if it is not that way
then it is going to be provided by the public. So I appreciate
the gentleman giving me the time. But I did not spend 3 hours
reviewing the particulars not to hope somebody would not get
the fact that the bipartisan bill is not a Republican bill. You
keep referring to documents you say were given to you that is a
Republican plan. The bipartisan plan that Mr. Peterson and I
talked about today is not the Republican plan. And is there any
surprise that, in fact, what you keep referring to is not in
our plan.
I thank the gentleman for the time.
Mr. Levin. Let me just suggest, Mr. Thomas, and then I will
finish, as I said earlier, I think a plan that comes before
this Committee is a Republican plan if there is not a real
effort to involve Democrats on the Ways and Means Committee.
Ms. DeParle. And I am not trying to engage in any
speculation, Mr. Thomas. But Chairman Archer said this morning
that we had already had a hearing on the President's plan and
he hoped we would not spend time on that. That is what I am
most prepared to talk about. I am trying to do the best I can
with the materials that have been provided. I apologize if they
are not correct. And I have said many times that I listened
very carefully to what you said and I heard you say that you
intend this to be universal. I am not saying that it is not. I
am not making that affirmative statement. I am saying that I do
not know based on what I have seen.
Mr. Levin. Thank you.
Mrs. Johnson. Thank you.
I would like to just bring this back to what are some of
the most difficult issues. I think there is a lot of similarity
in terms of entitlement and universality and copays and things
like that. But I would like to bring it back to this issue of
negotiated price and whether or not----
Mr. McDermott. Madam Chair, when are the rest of us going
to get a chance to ask questions?
Mrs. Johnson. You will come next. I have had two Democrats,
I am going to one Republican, then I will have two Democrats
because my Republicans left.
Mr. McDermott. So you are taking all the Republican shots.
Mrs. Johnson. There are issues that we want to get on the
record that we have not been able to get on the record.
I want to understand better how using a single
pharmaceutical benefit manager to negotiate price we would
avoid price-setting. It seems to me it becomes then synonymous,
that with only one negotiator, then that is effectively a
private sector agent of the government setting the price. Then
another aspect of that question is that price and formulary in
the private world are usually very intimately related. In the
President's plan, is the pharmaceutical manager allowed to use
formularies, is he allowed to use utilization review, and so on
and so forth to control costs? Or is it just negotiated price?
Ms. DeParle. First of all, we are not using just one
pharmacy benefit manager. We are proposing to use a number of
different ones, as many as want to compete in this system, but
we do it by regions. There will one per region. The reason for
that is we want them to be able to negotiate the best price for
a number of beneficiaries in a particular region. We do not
want it to be different in Connecticut than it is the adjoining
States.
Mrs. Johnson. Is there any precedent for one in a region
being able to get the best price if there is nobody to compete
against them in that region?
Ms. DeParle. I think they do that right now with a lot of
private insurers. Most private insurers who use a PBM use one
for different areas of the country. So, yes, I believe that
there is.
Second, your question was whether or not we would allow
formularies. The answer to that is, yes. However, beneficiaries
would have the ability, if the physician felt that a drug that
was not on the formulary was what in his or her medical
judgement was what the beneficiary needed, they would have the
ability to get that drug.
Mrs. Johnson. So the model is one pharmaceutical benefits
manager and whatever formulary that pharmaceutical benefits
manager had negotiated. I think one of the differences between
the two plans is if there is more than one plan and more than
one pharmaceutical benefit manager, there will be a variety of
choices in terms of do you want to trade off a lower premium
and higher benefits for more restrictive benefit manager. And
having come from a part of the country where particularly
psychiatric drugs have been managed for a while, I can tell you
there is a big difference in managers, some I would not mind
having and others I would mind an awful lot. So I do not
necessarily want the government to negotiate with the lowest
price person.
Ms. DeParle. It would not just be on price, Ms. Johnson. We
would look at quality and service as well. It would not just be
who has the lowest price.
But one concern I have is raised by your earlier question,
actually. If you have pharmacy benefit managers competing the
way you described, and this is I think something in Mr. Thomas'
bill as well, where there are lots of different types of
prescription drug benefit packages out there, that may sound
good in the abstract, but you introduce a considerable risk
selection into the process then with plans being able to
cherry-pick and offer to the healthier beneficiaries. Then that
starts a spiral again where you do not have insurance anymore
at a certain point. What you have is something where the less
well-off and the sicker beneficiaries will not be able to
afford it.
So somehow we have to strike a balance between offering the
kind of choice that you are talking about and making sure that
we have a plan that is stable and financially able to provide
the benefits.
Mrs. Johnson. I look forward to working on that with you. I
do think also it would be a terrible error of public policy to
put this kind of benefit out and not in any way incentivize
people to participate in these disease management protocols
that cut other costs of Medicare.
Ms. DeParle. We have talked about that and I want to work
with you on it.
Mrs. Johnson. Mr. McDermott.
Mr. McDermott. Thank you, Madam Chair.
I always try to think about this as if I were a senior
citizen, and I am finding it easier to think about that. I want
to understand the President's plan. Would it be the
anticipation if you were running the plan under HCFA that you
would deduct the premium from my Social Security check?
Ms. DeParle. Yes, sir.
Mr. McDermott. So everybody would have paid into the plan,
and then you would distribute the money out to whatever plan
benefit manager my mother or any senior in that area, if they
had x clients, they would get x number of dollars for giving
that benefit. Is that right?
Ms. DeParle. Yes, sir.
Mr. McDermott. On an equal basis across the country? Or
would it be like gasoline prices, where in the middle West they
are at $2.20 a gallon and in Seattle it is $1.63 a gallon. How
would you----
Ms. DeParle. It would be an equal basis throughout the
country. The pharmacy benefit managers are not at-risk in this,
so they just would receive a payment for each beneficiary and
they would manage on their behalf.
Mr. McDermott. So Merck, Medico, or somebody like we have
that is located in New Jersey or Massachusetts, wherever they
are, they would get all the money to cover what was going on
with Seattle, or Minneapolis, or Provo, Utah, right?
Ms. DeParle. Right.
Mr. Claxton. Yes, sir. They would make disbursements from
Medicare for the benefits, yes.
Mr. McDermott. Since we have to imagine what the Republican
plan is all about, apparently they are going to set up another
administration, and if I am a senior citizen and I decide to go
into Medicare+Choice and I am in an HMO, also my drug money is
going to go into that same new administration. You will not
have any of it over at HCFA because they are going to
administer the whole drug benefit from this new administration.
Is that how you understand it?
Ms. DeParle. In an earlier draft, there was the MAMA
administration, yes.
Mr. McDermott. What happens when they close my HMO, as they
did last year for 700,000 people, and I now have to go over
into the fee-for-service program over at HCFA? You, because you
are now going to pay my bills. This administration is not going
to pay them anymore. I am going to move over here. So now my
money is split; some money goes to the benefit manager, some of
it goes to HCFA. Is that right? Is that too simple-minded? I am
trying to think like my mom thinks.
Ms. DeParle. Well, I am not sure I followed the last
movement. You said that your HMO pulled out.
Mr. McDermott. Yes, it pulled out and so I have got to go
to the fee-for-service plan.
Ms. DeParle. Right.
Mr. McDermott. So now I am covered under HCFA for my
medical care. But my drug money stays over in managed----
Ms. DeParle. Oh, I see what you are saying. I believe if
you are in an HMO, under Mr. Thomas' plan, the HMO would get
all the dollars including the prescription drug dollars. But
the idea would be they would get the Medicare capitation
payment which would include prescription drug money for you. If
your plan pulls out, then you would go back to fee-for-service.
I see what you are saying. I do not have enough details to know
whether the prescription drug money for you would be
administered by MAMA, or the Medicare benefits administration
that he talked about today, or whether that would go back to
HCFA.
Mr. Claxton. There is not really enough detail. We have
been told there will be a fall back Medicare plan in areas
where there is not private plans available. But we do not know
how it would be administered; whether we would charge a
premium, whether the premium would vary by area, or any of
those details. We have to wait for the plan I think.
Mr. McDermott. It seems to me though that there is a third
option. Unless you are going to require every HMO to provide
pharmaceutical benefits, there will be some people over here at
an HMO who are not covered for their pharmaceutical benefits
under their HMO and will get it from your fall back position.
Is that correct?
Ms. DeParle. Under our plan, a prescription drug benefit
would be part of the basic Medicare benefit package and all
HMOs would be required to provide it. I have been assuming that
Mr. Thomas' plan also made that part of the Medicare benefit
package and that HMOs would be required to provide it. Maybe I
am wrong about that.
Mr. McDermott. So it is a question of whether or not under
the HMO they are required to give a pharmaceutical benefit or
not. Is that correct? That has to be written into the law.
Ms. DeParle. Yes, I think that is an issue that I am not
clear on.
Mr. McDermott. So if I join an HMO, I am going to get
pharmaceutical benefits from that HMO, even if they say it
costs us too much, we cannot afford it.
Ms. DeParle. It is not clear from this one page document we
got today. It says Medicare beneficiaries will have access to
subsidized prescription drug coverage offered by private
insures and Medicare+Choice plans. But I cannot tell whether
that means M+C plans will be required to offer it or not.
Mr. McDermott. But in the President's plan no matter how I
have my health care delivered, I will get my pharmaceutical
benefit.
Ms. DeParle. Yes, sir.
Mr. McDermott. That is what I want to see. Thank you.
Mrs. Johnson. Administrator DeParle, did you increase the
reimbursements under your plan to the managed care choice plans
to account for that?
Ms. DeParle. Yes. It was $54 billion of our $160 billion
would go to Medicare+Choice plans to provide prescription
drugs.
Mrs. Johnson. Mr. Kleczka.
Mr. Kleczka. Thank you, Madam Chair.
Does not the President's plan and the Democratic Caucus
plan also provide some reimbursement to private health plans
who currently cover a drug benefit so they are not carrying the
cost of providing drug coverage themselves?
Ms. DeParle. Yes. These are the Medicare HMOs that we have
been talking about with Mr. McDermott. To employer plans, too,
yes.
Mr. Kleczka. That is what I am referring to the employer
plans. So we covered those employers who are currently offering
retiree benefits so we do not disadvantage them or provide an
impetus to give up their current coverage for seniors.
Ms. DeParle. Yes, sir.
Mrs. Johnson. Would the gentleman yield?
Mr. Kleczka. Sure.
Mrs. Johnson. It seems to me that with a 95 percent take-up
rate, since 44 percent of Medicare beneficiaries that have
coverage are retirees, that they are assuming that current
retirees who have prescription drugs through their place of
employment will actually move into the public program, the
public program will pick up those costs, and the employer will
probably wrap around.
Mr. Claxton. I think the 95 percent assumes that most
people who are in employer plans continue to stay in them, and
they would receive a subsidy from the Federal Government which
is less than we would pay if the people had moved to Medicare
but is an advantage to the employer who is offering a plan now.
So it is an incentive payment to employers to help them
maintain their plans over time.
Mrs. Johnson. So you think they will not restructure. The
subsidy will just encourage them to stay in?
Mr. Claxton. It is possible. They can restructure now. But
we think this will substantially discourage some to
restructure, because as long as they offer a benefit that is at
least as good as the Medicare benefit they are going to get
much more than they get today in terms of a benefit under this
program and they will have an incentive to keep it in place.
Mrs. Johnson. Incentive to keep it, which I think is very
important.
Sorry, Mr. Kleczka. Thank you for yielding.
Mr. Kleczka. Let me apologize Ms. DeParle because we are
going to be asking questions on a bill she has not seen. We are
asking about a bill this Committee is going to mark up probably
as early as Monday, with the anticipation of having this
legislation to the floor before the 4th of July break, and we
are asking you, the person who is probably the most
knowledgeable about Medicare and drug benefits, questions with
no bill printed before you, or before us. You are shooting in
the dark, as are the members of this Committee. I think when
you are talking about a drug benefit program that is going to
cost in excess of $40 billion, we should probably be more
careful how we go about devising this plan. However, you and I
cannot be held accountable for that because we are not in the
driver's seat.
I heard the authors' comments on a provision in their bill
which creates a fall back position which will be a fee-for-
service entitlement benefit. You cannot describe what that
provision looks like. I do not know what it is. I have looked
through all the documents here and there is nothing that tells
me what that is.
But let me ask a couple of basic questions about private
drug-only insurance because it is not part of the President's
plan nor is it part of our plan. One of the mainstays of the
Republican drug benefit plan is to have private insurers offer
this coverage. If you are in an area, it is hoped that two
insurers would offer the coverage.
Now let's use my district of Milwaukee. Let us say that
there are not two insurers around who want to do this. I have
to assume that if it is that profitable a line of insurance
they would be writing it now, but the fact of the matter is
they are not. So if two insurers do not come into the Milwaukee
area to write this, and we have seen managed care plans fall by
the wayside in my city, two or three have already got out of
the market because they are losing money, what is the benefit
for my seniors in that scenario?
Ms. DeParle. Well, if the only scenario is private plans, I
do not believe there is a benefit for your seniors in Milwaukee
because I am not convinced that they will be there.
We both heard Mr. Thomas today describe that the bill is he
working on with Mr. Peterson has a fall back so that the
Medicare fee-for-service program I guess would provide a
prescription drug benefit to seniors who were in an area where
there was not a plan available. I am eager to see the details
of that because that is where I will decide whether this is
really in the beneficiaries' interest or not.
Mr. Kleczka. One of the criticisms our proposal gets is
that it is too confusing. Boy, I think their proposal takes the
cake on the confusion scenario.
They also criticize the Democrat's drug proposal as putting
the Washington bureaucrats in control. It seems to the
Republicans are are not giving any authority to your agency,
which is already set up to do something similar to this.
Instead they create a brand new bureaucracy which was called
MAMA and now is called Medicare Benefits Administration. Based
on your experience, do you know how big this agency would have
to be to provide the services that are contemplated under this
bill? Are we talking one or two Federal employees, or are we
talking possibly 30, 40 people administering this to 40 billion
people nationwide. Do you have any guess how big ``Big MAMA''
might be?
Ms. DeParle. I do not know how big MAMA might be, but I can
tell you that our----
Mr. Kleczka. They are trading in Big Brother for Big MAMA.
Nevertheless, big is still part of the equation.
Ms. DeParle. I think the important thing here is not to
look at the size of it but whether it will be efficient and
effective.
Mr. Kleczka. I think we have to look at both.
Ms. DeParle. The Health Care Financing Administration has
about 4,500 employees. I do not think we are big enough,
frankly. We are trying to administer a program that is upward
of $200 billion a year. Every single member and this Committee
has been in touch with me over the past year on multiple
occasions, maybe not Dr. McDermott, everybody else, about
various things that you wish I were doing in your districts for
your providers or beneficiaries. All of that is legitimate. But
to run a prescription drug program will not be a two or three
person initiative. Even if you are just contracting--we want to
run this through the private sector with pharmacy benefit
managers--but I believe you want us to negotiate with them and
to get a good contract and to make sure they are doing their
jobs. I do not think it will be a two to three person
initiative.
Mr. Kleczka. So you are saying Big MAMA is going to be
pretty big to do the job right?
Ms. DeParle. To do the job effectively, I think you would
want it to be big.
Mr. Kleczka. I have one more question. This is one that
intrigues me and I have not heard much dialog here. This new
agency, Big MAMA, and I have this information from the
Republican analysis of the bill, can provide financial
incentives to private plans to encourage the formulation of
national and/or statewide plans. That says to me that we are
going to subsidize insurance companies. Is that what you
understand this to read? ``MBA can provide financial incentives
to private plans.'' We have heard, and, again, there is nothing
written, that the Federal Government is going to subsidize
private insurance companies to provide this benefit. That is
pretty important stuff. My constituents would love to know that
we are subsidizing Aetna or some of the other insurance
companies.
Ms. DeParle. That is how I read it. I do not know whether
this line on this piece of paper, I assume this is an attempt
to respond to the concerns many have raised about the fact that
you have a managed care plan in Milwaukee and you do not have
one in Kenosha. So maybe the idea is to try to encourage plans
to provide statewide plans. I have no idea what kind of
financial incentives it would take to do that.
Mr. Kleczka. I think in an effort to get two insurers into
a community when the insurers say this is not going to be a
profitable line, Big MAMA is going to come around and say we
will help you and provide for a profitable line, here is a
little subsidy.
Ms. DeParle. That is what it sounds like.
Mr. Kleczka. Madam Chair, thank you very much.
Mrs. Johnson. Thank you.
Mr. McInnis.
Mr. McInnis. Thank you. I would note, Madam Chairman, that
earlier there were comments, I think including the witness,
about how we need to come together and make an effort to come
out with something that is satisfactory. I just witnessed in my
opinion probably the most partisan remarks I have heard so far.
It is clear to me that when we have got someone who thinks
cuteness should prevail probably over common sense, ``Big
MAMA'' and things like that, you can understand why it is
difficult for any of us to sit down and have much of a dialog.
I should point out that the previous speaker was very
ardent in his remarks about the private marketplace. Sitting
here, one would think that the private marketplace is entirely
encompassed by HMOs. I would urge the gentleman--who clearly is
not paying attention, but if he gets around to the point that
he might--I would urge that he refer to the President's plan. I
am sure the witness has seen this. My understanding from your
previous comments is that this plan has not been altered in any
way. So, assuming that it has not been changed, I would urge
the previous speaker to read it. On page 22 it says ``Medicare
would not administer this benefit directly but would instead
contract out with private sector entities.'' So the President's
plan itself envisions a large----
Mr. Kleczka. Would the gentleman explain what you are
reading from?
Mr. McInnis. Sure. Page 22 of the President's plan to
modernize and strengthen Medicare for the 21st century.
Mr. Kleczka. It is the President's plan.
Mr. McInnis. That is what I referred to. So the President's
plan encompasses a large involvement of the private sector.
Isn't that perhaps because the private sector has some
experience in the administration of a plan like this?
Ms. DeParle. Yes. And what we are doing, sir, is we are
contracting with pharmacy benefit managers who now often are
the ones who provide this same service to private insurance
plans. The difference I think between the two plans, as I
understand them, is that Mr. Thomas' and Mr. Peterson's plan
would depend on private insurance plans, although today he
talked about a fall back of the government, to provide the
entire benefit. I think that is what we are expressing some
concern about.
But, yes, you are right, we want to work with the private
sector on this. That is what we put forward 2 years ago and
that is where we are now.
Mr. Kleczka. Would the gentleman yield?
Mr. McInnis. I will yield.
Mr. Kleczka. I might also point out that the current
Medicare Program also contracts out the claims processing. We
use private industry throughout the country and we just save
millions and millions of dollars because of the claims
processing costs are so low per claim. So it is not unheard of.
Mr. McInnis. Which is exactly the point that I would like
to make here. That is, there are a number of efficiencies out
there in the private sector that should be realized by any of
us up here who are coming up with this kind of a proposal. The
difficulty that I see is that when the Committee itself,
amongst our own members, begins to envision some horrible giant
out there, i.e., the private marketplace. That somehow suggests
it is evil to come up with a plan that is dependent on a
marketplace that has served our country very well, given us
pharmaceutical products that are second to none in the world. I
just want to make it clear that both plans envision involvement
of the private marketplace.
With that, Madam Chairman, I yield back the balance of my
time.
Mrs. Johnson. Mr. Neal.
Mr. Neal. Thank you very much.
I just would say in reference to something that Mr. McInnis
said when he talked about the success of pharmaceuticals, and
there is no question about it, that those pharmaceuticals are
successful with heavy government subsidies in terms of the
research. The taxpayer pays for much of that research.
Mr. McInnis. Would the gentleman yield?
Mr. Neal. Yes, I would.
Mr. McInnis. Absolutely. I agree. I think the
pharmaceutical companies have historically gotten a terrific
deal from the government using that research.
Mr. Neal. Right.
Mr. McInnis. I have no problem saying, just the same as we
did with the Saturday morning cartoon shows that we created
through our public broadcasting system, we ought to start
sharing in that. You have noticed in the last 5 years or so
that even our college universities are starting to realize the
value of that research. You are absolutely right. I think they
have received huge benefits from the government, and I think
that the government ought to get something back for it. No
question.
Mr. Neal. Thank you.
Let me ask you a question that Ms. Johnson touched upon
earlier, and I think it is individually and collectively on the
minds of the Members of this Committee and most of the Members
of Congress. The hospitals in Massachusetts are really
hemorrhaging. They are really hurting. They do not seem to get
much satisfaction in the conversations that they have with
HCFA. Some of the comments that I have even heard Secretary
Shalala offer do not seem to me to indicate that there is any
relief on the horizon. Are you looking for a legislative fix?
Are you suggesting that your interpretation of the Balanced
Budget Act is the only one that is correct? What can we expect
in a place like Massachusetts for our hospitals?
Ms. DeParle. Mr. Neal, I have met with hospital executives
in Massachusetts as recently as last week and I have spent a
lot of time talking to them, for that matter, from hospital
executives from all over the country. And, yes, you are right,
the hospitals believe that they need more money and that their
profit margins are not what they should be.
I am not aware of what comments of the Secretary you are
referring to. But I do know that she has said to me----
Mr. Neal. She has said in the past there is no problem.
Ms. DeParle. I think what she said, at least what my
discussions with her have been, is that she wants us to monitor
the situation and let her know if there are problems with
beneficiary access. That is the issue, are beneficiaries having
trouble getting access to the hospital care they need. We have
said all along we will be happy to work with the Congress if
you believe there need to be changes. I am not aware of
situations where the hospitals believe that we are not
interpreting the law correctly. I think that they think we are.
Mr. Neal. Mr. Thomas has argued that you are in a position
to grant them immediate relief. I have heard Mr. Thomas make
that argument.
Ms. DeParle. I do not believe that is correct. I would love
to know what that is.
Mr. Neal. I guess it comes down to interpretation of what
we did in the Balanced Budget Act, right?
Ms. DeParle. Well, sir, the main----
Mr. Neal. Most of us believe that we overshot the mark.
Ms. DeParle. Spending has been lower in many areas than
what the actuaries and the CBO analysts projected would occur.
You cannot relate that to just one cause though, sir. It is a
lot of different factors. I think even the hospitals would tell
you that. There have been a lot of things that have happened
over the last 2 years. The Balanced Budget Act is certainly a
major factor but it is not the only one.
I do not believe I have the ability to change the update
for hospitals on my own. That is something that is written into
the law. That was done for very explicit reasons, to achieve
savings in order to extend the solvency of the Medicare Trust
Fund, which it has done. So I am not aware of anything that I
have the ability to change.
Mr. Neal. When you met with the hospitals from
Massachusetts last week what did they tell you?
Ms. DeParle. They told me that they would like to get a
full market basket update next year, which is not what is in
the law. They told me that their profit margins are lower than
they have been in the past. A couple of them told me that
managed care is also killing them. In the past, Medicare rates
were higher and they could negotiate lower rates with managed
care plans, and now they do not feel they can do that anymore.
It was consistent I am sure with what you have heard from them.
They would like relief from the Federal Government. They would
like Medicare to pay more.
Mr. Neal. If you have a chance and you talk with Secretary
Shalala, would you point out to her that there are Members of
this Committee, or at least singularly there is a Member of the
committee who was upset with the comments that she has made
that there really is no problem with what happened with the
Balanced Budget Act. Because most of us here feel earnestly
that there is a very serious problem and that some relief has
to be granted in the near future.
Ms. DeParle. I will certainly pass that along. We have
looked at all the information the hospitals from the various
States have provided us. What we are looking at, again, is what
is happening to Medicare beneficiaries. When you look at things
like the profit margins, they are not as high as they have been
in the past and I am sure that that is a concern when you have
been expecting a certain profit margin. But what we see is that
they are still generally around 10 percent. I hear you though,
and I will certainly pass along your comments to the Secretary.
Mr. Neal. Thank you.
Thanks, Madam Chairman.
Mrs. Johnson. Ms. Thurman.
Ms. Thurman. Thank you, Madam Chairman.
Let me say this to my colleague, Mr. Neal, and it relates
to something that you may all want to look at. There was an
amendment offered by Mr. Tanner last week when we were doing
the budget issue that actually was going to take whatever
Medicare savings dollars that was believed to have put us on
this road to a balanced budget and put it back into the
Medicare Trust Fund and that could be used to make up some of
these dollars. So that might be something for you all to look
at.
Nancy, you were here this morning, but I am a little
concerned that we have gone down a path on this Medicare choice
issue that is going to lead us into an even more difficult
problem if we do it with a pharmaceutical benefit. Just last
week, as I have said, we have a health plan who has made the
determination that they are pulling out of some of our
counties. It basically says there are three major reasons for
this decison--Government payments that are inadequate to meet
the demand for health care services and medications; the
uncontrolled and increasing financial demands of physicians,
hospitals, and pharmacies, especially in counties where there
is little competition; and significant losses in the three
counties over the past 2 years which were the results of
financial investments, while trying to make its Medicare plan
work.
I think the thing that concerns me right now in the
conversation is that it seems like it is just our fault because
the reimbursements are so low. And I would suggest, and if you
can help me here, it is maybe the pharmaceutical costs which
have gone up dramatically for these plans, about 18 percent or
somewhere around there, not something that we had any
jurisdiction over.
The other thing, and maybe you can help me, is what I
looked at what the numbers were in the areas that they are
dropping out. One is Osceola County, which is not one of my
counties, there was $548 for reimbursement; Hernando County was
$543 reimbursement; Pasco County is $572. However, they say
they are going to stay in Miami, Broward, Palm Beach. Now Palm
Beach only gets $542; Hillsboro County, $460; I think Alachua
County is $466. And they stay in these counties that are
getting as little as $460. Now here we are talking about
putting a pharmaceutical benefit through these same companies.
That is not adding up to me. We have some counties that have
less reimbursement and some counties that have more
reimbursement, but they are all pulling out anyway. So that
makes no sense.
Last year when we did the budget issue, in order to try to
bring some more money back into Medicare and into
Medicare+Choice, we put an incentive program in there to
provide 5 percent for any plan that would go back into a
county, first come first serve. Have we had any takers on that?
Ms. DeParle. I just checked on this a couple of weeks ago
and I was told there were maybe a couple of plans that had come
in. There is also a new private fee-for-service plan that has
just come in. You also put some incentive payments in if they
would go into areas where there were no other plans. They do
not appear to have attracted many plans to come back in. I was
told only a couple.
Ms. Thurman. So if you have this fall back provision, or
potentially a fall back provision when we get this legislation,
we do not have any idea or belief that this would bring people
back into the plans or into a Medicare+Choice plan or through
private insurance. We are not seeing that now, are we?
Ms. DeParle. No. It is too early yet to figure out what the
trend is and the withdrawals. But it does seem, as you say,
that they are staying in some counties that you would wonder
why. But when I talk to the executives, what they tell me is it
is not just the base payment amount, it is also whether they
have a network in place, what their loss ratios have been, in
some cases they stay in an area because it is adjacent to a
county where they intend to make a commitment, and there are
other things at work. But it is a business decision that they
make on a yearly basis.
My concern is I do not want to have the entire Medicare
prescription drug benefit rest on that. I want this to be a
guaranteed benefit.
Ms. Thurman. I do not want a two-tier program. I do not
want it in some areas where we have HMO and some where we do
not have these services for Medicare. We actually are just
breaking Medicare down under these conditions.
I need to go to something that Ms. Johnson said, because
this is what is happening in my counties on the prescription
drug issue, at least this is what I have been told. Because of
lower payment, my constituents would have to pay a $95 premium.
It has gone from about $45 to $95. So they are paying about
$1,140 a year. They are probably getting about an $800 of
actually prescription coverage. That varies because they get a
$5 copayment if they get a generic drug, they get a $10
copayment if they go up a little higher, if they do not stay
within the formulary then they have to pay 50 percent of the
drug cost and on top of that, at the end of that cap part that
they have, they would get used to the idea of paying 50 percent
of what they have as their negotiated price. So I do not see
where they are getting a great benefit under the programs that
we seem to be trying to push everybody into.
Mrs. Johnson. If you would answer very briefly, because we
have two more questioners and another panel yet. So we are
concerned about what we are doing to the other panelists'
schedules.
Ms. DeParle. I share your perplexity I guess about this.
There are cases where it does not appear to be a very good deal
for beneficiaries. But, unfortunately, in some of those cases,
even though it is not a great deal, it might be slightly less
expensive than buying Medigap policies in that area.
Mrs. Johnson. Mr. Doggett.
Mr. Doggett. Thank you very much.
That, in fact, leads right into my line of inquiry. I read
your written testimony which indicates that the administrative
costs of Medigap insurance is about ten times as much as the
administrative costs for Medicare. Is that correct?
Ms. DeParle. Yes. That has been our experience.
Mr. Doggett. And so if our goal is to have the most cost-
effective program to try to get prescriptions to our seniors
need, relying on a Medigap-type system is going to be not the
best choice.
Ms. DeParle. That is one of our concerns. As Mrs. Johnson
said earlier, the devil is in the details. We do not know where
the administrative costs for these Medigap plans are going to
be.
Mr. Doggett. It would not appear to be in the taxpayers'
interest to use a system that is ten times less efficient than
the one we have now for Medicare.
Ms. DeParle. I would be very concerned about that.
Mr. Doggett. And then, as you know from my inquiries this
morning, I am very concerned that we will simply shift the
burden of outrageous prescription drug prices from seniors to
the taxpayer. Let me ask you, as a preliminary question, and I
know this is not what is contemplated, but is there any way
that we could sustain a program where the government paid the
same retail prices that uninsured seniors have to pay now for
their prescriptions?
Ms. DeParle. That would be terribly expensive.
Mr. Doggett. Terribly expensive.
Ms. DeParle. I would not propose to do that, no.
Mr. Doggett. And we know now that some seniors just do not
get the prescriptions they need because they cannot pay retail.
And you would not reasonably propose that the taxpayer pay
retail.
Ms. DeParle. No, sir, I would not.
Mr. Doggett. You have already had in your work some
experience, in fact some fairly recent experience, with this
so-called average wholesale price, have you not? What has been
your experience with the way the pharmaceutical industry
sometimes handles its prices for Medicare and Medicaid?
Ms. DeParle. What we are trying to do is make sure that
Medicare pays a fair price. We think that the law right now
provides that Medicare pays for the drugs that it provides
incident to a physician's services. It is supposed to pay 95
percent of the average wholesale price. For that, we rely on
some industry published data.
Mr. Doggett. Is that the Red Book?
Ms. DeParle. Yes, the Red Book and the Blue Book, which
turns out to be wrong. It turns out to be not what is really
the wholesale price. So what we have been trying to do is work
with the Justice Department to find out what the actual prices
are that are paid at the wholesale level so that we can make
sure that Medicare gets the advantage of paying those lower
prices. But it has been a terribly frustrating and difficult
exercise.
I also want to mention that the President has for the last
four or 5 years now proposed a law to help us to be able to do
this better, to make sure that we get the prices that
physicians actually are paying. With that, we have said we
would like to make sure that we are paying physicians
appropriately for administration of those drugs. That is
something that this Committee has raised. But we want to make
sure Medicare pays a fair price.
Mr. Doggett. What you are saying is that there have been, I
believe, four occasions when the administration has come to the
Republican Congress and said please give us the tools to ensure
that the taxpayer is not being ripped off and that they are
paying the actual wholesale price and not some contrived
wholesale price. And you have been unable on each of those four
occasions to get the tools that you need to protect the
taxpayer and to get reasonably priced prescription drugs?
Ms. DeParle. Unfortunately, yes, that is the case.
Mr. Doggett. You mentioned the Justice Department. What is
the status, at present, of your efforts to see that the
taxpayer, even with the limited tools that you have, is not
being ripped off by outrageous prescription drug prices?
Ms. DeParle. Working with the Department of Justice and its
investigations, we are compiling better information about what
prices wholesalers are actually paying. We intend to get that
out to our carriers, the private insurance companies that pay
Medicare's bills, so that they can start using those prices and
reimbursing at that rate. Then we would still love the
opportunity to work with this Committee and with the Congress
toward a proposal like the President's proposal that we think
will do a better job of ensuring that Medicare pays
appropriately instead of paying these inflated prices that are
not the wholesale price.
Mr. Doggett. Thank you so much.
Mrs. Johnson. Mr. Cardin.
Mr. Cardin. Thank you, Madam Chair.
I do not know why we are making this so complicated, quite
frankly. Medicare does a good job of holding down costs. I
think all of the statistics we have seen show that Medicare
costs have been certainly comparable to what is happening in
the private sector as far as cost-containment. Of course, a lot
of my providers think you are doing too aggressive a job on
cost-containment.
My first question is why would we want to treat
prescription drugs differently than any other necessary medical
service, whether it is a physician, whether it is equipment, or
whether it is a hospital? Why would we want to discriminate
against prescription drug coverage? Why would we not just make
it a part of the basic benefit package and allow a fee-for-
service option and any other options that could come along?
My one complaint about the administration's proposal is
that I do not think you put enough money into the proposal.
Quite frankly, the costs are a lot higher than you are willing
to share, which means our seniors are going to have to incur a
significant part of the cost of prescription drugs.
But what I really want to lead you through and try to get
your response to is this: I do not understand how Mr. Thomas'
numbers add up. Maybe you can help me with this. You made a
point earlier that I thought was very telling, and that is, the
success of a program depends upon a significant number of
people participating so you do not get adverse risk selection.
Ms. DeParle. That is right.
Mr. Cardin. It seems to me that Mr. Thomas' proposal may
work just the opposite; that is, he is fitting his plan into
the dollars that are available by having a lot of people not
participate. We do not know, because it depends upon the
voluntary selection. His subsidy will not be as high. The
premium amount that the individual will have to pay appears to
be a higher percentage than you have in your plan. His proposal
it is going to be dependent upon private insurance so there is
no guarantee that individual will be able to get a defined plan
that is spelled out by statute if there are two private plans
in their community. And we are not sure about the cross-
subsidies between the catastrophic proposal and the basic
proposal, at least we do not know that yet.
So it would seem to me that there is a high risk that part
of the reason why his proposal fits into the $40 billion that
is in the budget resolution is that there are going to be a
significant number of seniors that will not be participating.
And this really gets me back to one of Mr. McCrery's
observations earlier about Senator Kennedy's numbers of 12
million versus 6 million beneficiaries. It seems to me that one
of the factors we should be considering is that this program
will not be successful if we do not entice enough seniors to
participate because we are going to be running the risk of
adverse risk selection. That is why the lack interest of the
private insurance industry in this area was raised earlier--
because of the concern about adverse risk selection.
Mr. McCrery. Would the gentleman yield?
Mr. Cardin. I would be glad to.
Mr. McCrery. Since Mr. Thomas is not here to defend his
plan, which is admittedly not quite public yet. I can assure
the gentleman that all of his questions have been asked to CBO,
to actuaries, and that CBO is taking into account all of those
considerations in assessing the cost of the proposal. I think
the gentleman will be pleased when he sees the results.
Mr. Cardin. I hope so. If I understand, and maybe, Mr.
McCrery, you would like to respond to this, if I understand it,
you are going to have an actuarial equivalent amount of which
part will be paid for by the premium and part of the actuarial
equivalent will pay for a catastrophic benefit. So, therefore,
the individual who is trying to decide to join the plan or not
will be looking at a benefit package that is going to be an
actuarial equivalent of $500 or $600 a year, and paying a
premium of $35 or $40 a month for it. It seems to me that it
will be very difficult to attract a large number of seniors
into that type of program. I just do not think it is rich
enough.
Mr. McCrery. If the gentleman would yield one more time.
Mr. Cardin. Sure.
Mr. McCrery. The actuarial equivalent we expect to be
considerably higher than $500 to $600.
Mr. Cardin. I thought it was $750 or something like that.
Mr. McCrery. Well that is higher than $500 or $600.
Mr. Cardin. But part of that involves the catastrophic,
does it not?
Mr. McCrery. Sure.
Mr. Cardin. Well the individual who is buying the plan,
yes, will be looking at the catastrophic but will be making the
judgement based upon the benefits that they are going to be
getting on an ongoing basis, which will be a very small benefit
or a very high premium.
Mr. McCrery. Not necessarily. If you have a 30 percent
subsidy, that is not a bad deal. If you are now having to pay
the highest prices in the market for pharmaceuticals and you
have no drug plan available to you, then it might look like a
pretty good deal if you can get better prices for drugs and a
30 percent subsidy.
Mr. Cardin. Reclaiming my time, because it is almost over.
It seems like you are rolling the dice on that. Unless you put
it in, and we get back to the same point, unless you make it
part of the defined benefit, core benefit of Medicare, we run a
very, very heavy risk that the actions of private insurance
companies will determine whether our seniors are going to have
adequate coverage in their community.
The one good thing about the fee-for-service program is
that every senior any place in this country can get that fee-
for-service benefit at the same cost. The problem with
Medicare+Choice is it varies around the nation, the private
insurance varies around the nation. We are partially
responsible for that. We all acknowledge that. It is clear that
the approach that you are taking of providing incentives to the
private insurance market will mean there will be different
plans around the nation that have different cost factors
depending on where beneficiaries live. So we are going to have
the same problems we have today with Medicare+Choice.
Mrs. Johnson. Will the gentleman yield?
Mr. Cardin. I would be glad to.
Mrs. Johnson. Actually, it turns out that the premium I
think will shake out in the Thomas proposal to be almost
exactly, maybe slightly under, a few dollars under, what the
premium is in the President's plan plus what the CBO estimate
is for a premium for catastrophic. So I think we are not going
to be way off, frankly, when we begin to talk about premiums
and what they are going to cover.
As for there being national variation, there is going to be
national variation when you negotiate with one regional
pharmaceutical benefit manager in price and what you get.
Mr. Cardin. Just very quickly, if I may. My concern is I
just do not know how the Thomas proposal fits into the dollars
that are available. The Administration is admitting openly that
they cannot do it for $40 billion and include a catastrophic
plan unless there are going to be high premiums for it. I just
do not know how your bill will do it for the $40 billion.
Mrs. Johnson. If you add their bill and the premiums in
their bill plus what CBO estimates for a premium for
catastrophic, you come out roughly where we are. That is what
we are going to be looking at.
I apologize, I do have to call the next panel. I would like
to thank the Administrator for being here. I would mention that
you will be getting a letter from some of us who are very
concerned about your interpretation of the President's
administrative action with regard to cancer clinical trials.
That is that the routine patient costs are being interpreted,
at least we believe they are being interpreted, more narrowly
than they were in our legislation. So we look forward to
working with you on that. Because if your regulation is not
what the cancer community considers satisfactory and what is in
our legislation, then we will have to proceed with estimates
and changing the law.
Ms. DeParle. I look forward to seeing your letter.
Mrs. Johnson. Thank you.
Ms. DeParle. Thank you. We wanted to include in the
practice, the expenses and physician reimbursements of the cost
of delivery of oncology drugs because if not, we are going to
disadvantage particularly rural cancer victims in terms of
treatment options.
Mrs. Johnson. As a matter of fact, that relates to the
issue Mr. Doggett raised with me and I said that I wanted to
talk to the oncology community about what they think is
necessary. I have done a lot of work in that area and I am
anxious to be involved.
Ms. DeParle. You raised this with me a couple of years ago.
Mrs. Johnson. We are going to hear now from the seven
speakers on our last panel: Karen Ignagni, President and chief
executive officer, American Association of Health Plans; Craig
L. Fuller, President and chief executive officer, National
Association of Chain Drug Stores; Judith H. Bello, Executive
Vice President, Policy and Strategic Affairs, Pharmaceutical
Research and Manufacturers of America; Deborah Briceland-Betts,
Executive Director, Older Women's League; Patrick B. Donoho,
Vice President, government Affairs and Public Policy,
Pharmaceutical Care Management Association; Stephen W.
Schondelmeyer, Head, Department of Pharmaceutical Care and
Health Systems, and Professor, Pharmaceutical Management and
Economics, University of Minnesota; and Charles N. Kahn, III,
President, Health Insurance Association of America.
Karen, you may start.
STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN ASSOCIATION OF HEALTH PLANS
Ms. Ignagni. Thank you, Madam Chair.
I would ask that my testimony be submitted for the record.
Mrs. Johnson. All testimony will be included in the record.
Ms. Ignagni. We appreciate this opportunity to testify. I
am Karen Ignagni, President of the American Association of
Health Plans. I would like to make several points.
First, our members support creating drug benefits for
Medicare beneficiaries. In our view, it is long overdue, and it
is a matter this Congress can and should confront. Making
prescription drug coverage available is an essential part of
the effort to bring the 1965 program into synch with the
benefits programs of today. Our sustained economic expansion
and prosperity should allow us to ensure that Medicare
beneficiaries have access to affordable prescriptions over time
and put an end to the draconian challenges that individuals
face in terms of food, fuel, prescriptions and other tradeoffs.
An essential part of achieving this objective will be to
build on what works. To that end, we are encouraged that choice
is a key principle within so many proposals that have been
submitted and discussed today and that there is a growing
recognition about the need to preserve what exists as a
building block for taking the next step. Many health plans that
particpate in Medicare+Choice already provide drug coverage to
millions of beneficiaries who otherwise wouldn't have access.
However, in little over 3 weeks, our plans face the deadline by
which they need to let HCFA know whether they are going to be
forced out of more counties or be able to continue to
particular in the program.
Health plans are facing these difficult decisions for a
number of reasons. One, because of unintended consequences
associated with the Balanced Budget Act and two, the sheer
number of regulations and instability and lack of
predictability in the regulatory environment. To her credit,
the Administrator has begun not only to recognize this
situation but also to take some action toward that end in
addressing it.
We urge you to act now to preserve the Medicare+Choice
program that provides so many low and moderate income
beneficiaries who have few other affordable options with
additional coverage. They receive protection from high, out of
pocket costs; they receive catastrophic benefits and
prescription drugs. Also, I would note that because there has
been discussion this afternoon about rural areas, that the
issue with respect to managed care participation in rural areas
may have more to do with the unwillingness of certain single
provider systems to contract with managed care organizations
versus willingness of plans to participate themselves.
In our testimony, we have offered principles for your
consideration with respect to designing prescription drug
programs. These principles are embedded in many of the
proposals being discussed here today. In our view, they begin
with the concept of universality that all beneficiaries should
be eligible for the benefit, that there should be subsidies for
low income individuals that there should be sustainable funding
over time and that there should be options and flexibility.
We stand ready to work with you to contribute to the
Committee's efforts and support the objective which we know all
of you share of providing affordable coverage for this
beneficiary population.
Thank you.
[The prepared statement follows:]
Statement of Karen Ignagni, President and Chief Executive Officer,
American Association of Health Plans
I. Introduction
I am Karen Ignagni, President and Chief Executive Officer
of the American Association of Health Plans (AAHP--. On behalf
of the more than 1,000 HMO, PPO and other network-based health
plans that are members of our association, I am pleased to
testify this morning on the vitally important issue of
extending prescription drug coverage to this nation's 38
million Medicare beneficiaries.
It bear mentioning that our membership includes the
majority of Medicare+Choice organizations, which collectively
serve more than 75 percent of those beneficiaries who have
chosen Medicare managed care over the traditional fee-for-
service option. As such, we are delighted that Congress is
focusing so much attention on this urgent priority that affects
so many American seniors and their families.
II. Prescription Drug Coverage Critical to Medicare Program
We believe that creating an affordable prescription drug
benefit under Medicare is the single most important piece of
unfinished business this Congress can and should confront. Not
because the issue is important to those who will play a role in
actually delivering a prescription drug benefit, but because it
affects so profoundly the lives of Americans who have given so
much to our nation and to the generations behind them.
We owe it to these millions of Americans--the men and women
that have a eloquently been called the ``Greater Generation''--
to ensure that no Medicare senior in this nation faces the
cruel reality of having to decide between paying for drugs or
the monthly food bill.
Our great economic expansion--which has created so much
prosperity for so many--must now be big enough to accommodate a
simple proposition: that Medicare seniors deserve access to
affordable prescription drugs. And that no one will be left
behind.
When established in 1965, Medicare reflected the state of
the art in health care delivery and benefits design. At that
time, few people with private health insurance had coverage for
prescription drugs. Today, most commercially-insured
individuals receive care through managed care plans, and
prescription drug coverage is the norm, not the exception.
Prescription drugs have transformed the treatment of
innumerable illnesses and conditions and have improved the
quality of life for millions of Americans. Access to
prescription drugs is particularly crucial for Medicare
beneficiaries. Although the elderly comprise 12 percent of the
population, they account for 34 percent of total prescription
drug costs (Mueller, 1997). It is estimated that individuals
over the age of 65 use four times as many prescription items as
those under 65. Prescription items are common treatment
regimens for chronic conditions, which are highly prevalent
among the elderly. Health plans and disease management
companies have pioneered programs to help individuals with
chronic conditions, such as congestive heart failure and
cancer, among others, to maintain their health, and
prescription drugs are a central component of these programs.
III. Medicare+Choice Programs Is Critical to Ensure a Strong
Foundation for Prescription Drug Coverage
We believe that Congress can deliver a prescription drug
benefit to America's seniors through a bipartisan effort, and
that members can create a system that is faithful to Medicare
seniors and indeed all Americans.
The job won't be simple. And the choices won't be easy. But
the first step is to listen closely to what seniors really want
from their Medicare system, and to build upon what's already
working in the marketplace.
First and foremost, seniors are telling us that they want
control over their health care to rest with them, not with
Washington. That means preservation of choice...so that
Medicare seniors can choose a prescription drug benefit that's
right for their unique needs and wants, and that no one gets
locked into a one-size-fits-all system.
Second, we can't find common ground by, in essence,
throwing out a coverage option that has proven to be effective.
Managed health care has played a significant role in providing
an affordable prescription drug benefit to most of the 6
million seniors who have chosen the Medicare+Choice option. The
simple fact is that managed health care has already played a
role in expanding a prescription drug benefit under Medicare to
millions of Americans who otherwise would not have had access
to it.
Building on that success--instead of allowing
Medicare+Choice to remain in a state of crisis--is the first
significant step we can make to answering the Medicare
prescription drug challenge that has been laid before us.
AAHP's member plans have had a longstanding commitment to
Medicare and to mission of providing beneficiaries high-
quality, comprehensive services and lower out-of-pocket costs.
Many of our member plans have served beneficiaries since the
inception of the Medicare HMO program as a demonstration
project. Recent studies highlight Medicare beneficiaries' high
levels of satisfaction with their Medicare health plans. HCFA
data show that, among beneficiaries who identified themselves
as having strong preferences, HMOs have a larger proportion of
very satisfied enrollees than fee-for-service Medicare.
Beneficiaries's satisfaction with the program was further
demonstrated last month, when ore than one hundred
beneficiaries who have chosen a Medicare+Choice plan over the
fee-for-service delivery system came to Washington to talk
about the importance of having a choice of coverage, having
additional benefits, and having protection from higher out-of-
pocket costs.
Health plans participating in the Medicare+Choice program
have long recognized the importance of prescription drugs in
meetings their members' health care needs. In fact, almost 70
percent of plans and most of the more than 6 million
beneficiaries enrolled in a Medicare+Choice plan have a
prescription drug benefit. A recent AAHP analysis of HCFA data
showed that many of these beneficiaries are ``unsubsidized''--
meaning they do not receive any third party assistance from,
for example, a former employer or through Medicaid, in
purchasing supplemental coverage for prescription drugs.
Specifically, AAHP found that a majority of unsubsidized
beneficiaries with coverage for prescription drugs were
enrolled in health plans (see attachment: ``Financially
Vulnerable Medicare Beneficiaries Rely on HMOs for Prescription
Drug Coverage''). Without this option, these financially
vulnerable beneficiaries undoubtedly would be forced to forego
medication therapies that would help maintain their health and
improve their quality of life. This is why we believe it is
critically important to assure that Medicare+Choice
beneficiaries maintain the important benefits they currently
receive through their Medicare+Choice plans.
The promise made to beneficiaries in the 1997 Balanced
Budget Act (BBA) of a stable Medicare program that offered a
wide array of choices all over the country to allow
beneficiaries to meet their health needs in the most effective
way possible has yet be fulfilled. Unintended consequences of
the BBA have resulted in beneficiaries who chose to join a
health plan losing benefits, facing sharp premium increases,
and, in many instances, losing the option of even remaining in
the plan of their choice. Since enactment of the BBA, nearly
700,000 beneficiaries have had their Medicare+Choice coverage
disrupted. Already, a number of plans have announced that they
will be forced to exist the program effective January, 2001
because of inadequate funding and excessive regulatory burdens.
Last year, this Congress, in passing the Balanced Budget
Refinement Act of 1999 (BBRA), took the first steps to correct
the BBA's unintended consequences. The phase-in of HCFA's risk
adjuster was slowed in order to minimize its impact on
Medicare+Choice enrollees. Among other changes, Congress
expressed its intend that the risk adjuster be budget-neutral
rather than used to reduce total payments on behalf of seniors
and individuals with disabilities who choose a Medicare+Choice
plan; and user fees for the beneficiary information campaign
were fairly apportioned. We appreciate the work of members of
this Committee in recognizing the importance of Medicare+Choice
and in advancing proposals to further stabilize the program. We
strongly urge you to take bold measures this year to preserve
beneficiary choices and avoid any further disruptions in
coverage. These efforts are crucial to ensuring a strong
foundation for the effort to expand prescription drug coverage.
IV. AAHP Principles and Issues for Consideration in Expanding
Access to Affordable Prescription Drug Coverage
Again, AAHP member plans favor expanding access to
prescription drug coverage. This topic was central among those
discussed by our Board of Directors last winter. AAHP's Board
believes that beneficiaries deserve a wide variety of coverage
choices. Recognizing that all beneficiaries do not have the
same needs and that many have already exercised their choice of
coverage, our Board committed to conveying the importance of
respecting choices currently available and minimizing any
disruption of these choices. Our Board approved the following
principles on prescription drug coverage:
Enhance Coverage of and Financial Support for
Prescription Drugs: Any proposal to expand prescription drugs
coverage should reflect Medicare's underlying philosophy of
universality. All beneficiaries should have equivalent
financial support for affordable prescription drug coverage.
Additional financial support should be made available for those
with special needs.
Sustainable and Actuarially Sound Funding that is
Equivalent Across All Funding Options: Expanding prescription
drug coverage will increase total Medicare spending. The
additional costs should be supported by a responsible and
sustainable financing mechanism, not on a discretionary basis.
Any sustainable initiative should be designed with the
incentives needed for a stable private sector delivery system.
Federal contributions should be equivalent across all coverage
options. New funds dedicated to prescription drugs coverage
should include options that have previously provided
prescription drug coverage.
Allow Beneficiaries a Range of Options So They Can
Select Coverage That Best Meets Their Needs: Any proposal
should recognize various existing coverage options and other
potential innovative solutions and should retain
beneficiaries's ability to select the option that best meets
their coverage needs.
Meet Beneficiaries' Needs through Flexibility in
Benefit Design and Effective Delivery Strategies: Flexibility
in benefit design and strategies that promote the effective use
of prescription drugs are critical features of effective drug
coverage. Should an initiative link financing to a minimum
benefit, entities that offer coverage should be allowed to
structure benefits that meet or exceed this minimum according
to an actuarial equivalence or similar standard. Likewise,
strategies--such as formularies, generic substitution, and
programs to prevent problems associated with use of multiple
prescriptions--are essential to high-quality coverage for
beneficiaries. Permitting flexibility in structuring coverage
will promote broader choices and better care for beneficiaries.
Minimize Disruption of Benefits Among
Beneficiaries Who Currently Have Coverage By Ensuring Equity
and Value in the Government's Contribution: Recent reductions
in government funding have forced many Medicare+Choice plans to
reduce the scope of their prescription drug benefits or to
increase beneficiary cost-sharing. Stabilizing the
Medicare+Choice program is crucial to prevent the further
erosion of benefits and coverage choices. Although the Balanced
Budget Refinement Act of 1999 (BBRA) was a good first step
toward this end, much work remains to ensure that the promises
made to beneficiaries with the passage of the BBA will be
fulfilled.
Preserve Access to Integrated Health Care
Benefits: Health plans that offer prescription drug coverage
have sought to fully integrate this benefit into coverage that
Medicare enrollees receive. For example, medication therapy is
a central component of health plans' disease management
programs, which coordinate the delivery of health care services
to beneficiaries with chronic conditions. Any proposal should
preserve health plans' abilities to incorporate prescription
drugs into an integrated benefits package.
In addition, proposals to expand prescription drug coverage
for Medicare beneficiaries must address the difficult issue of
adverse selection. To be viable, a program must strongly
encourage beneficiaries to begin purchasing coverage when they
are using few prescription drugs, rather than when they need or
anticipate the need to use many prescription drugs. Failure to
address this issue could jeopardize the Committee's efforts by
undermining every organization's long-term ability to offer
affordable prescription drug coverage.
To expand on the issue of flexibility in benefit design and
management, we urge the Committee to consider the implications
of state requirements governing prescription drug coverage.
Simply stated, the application of state mandates or
restrictions limits plans' abilities to design affordable
prescription drug benefit packages that best meet
beneficiaries' needs. Although the BBA preempts state benefits
mandates, HCFA has interpreted the BBA preemption to exclude
state cost sharing standards related to those mandates. The
consequences is that a Medicare+Choice plan that offers
benefits beyond the fee-for-service benefits package, such as
prescription drug coverage, may be bound by the cost sharing
requirement in state law. Another concern involves state
requirements related to benefits management and administration.
We support clarifying the preemption language so that state
requirements so not prohibit health plans from managing
benefits effectively and achieving the goal of maintaining the
affordability of coverage over the long-term. A federal benefit
will not remain affordable if state law requirements still
restrict flexibility.
V. Conclusion
The American Association of Health Plans (AAHP) and its
member plans stand ready to contribute as the Committee
continues its deliberations on the best way to expand access to
affordable prescription drug coverage. We have tried today to
contribute to the Committee's dialogue and pledge any further
assistance on the issues of expanding prescription drug
coverage, broader Medicare reform, and the need to preserve the
Medicare+Choice program as an important building block toward
these objectives.
As you move forward with specific legislative proposals, we
urge you to allow beneficiaries a range of options so they can
select coverage that best meets their unique needs and
circumstances. At the same time, please assure that
beneficiaries maintain control over their health care choices
and do not lose any of the coverage options they currently
enjoy. Any legislation Congress enacts this year should place a
high priority on protecting the benefits and choices of
Medicare beneficiaries who currently receive prescription drug
coverage through Medicare+Choice plans.
AAHP is pleased that Congress is addressing this critical
issue of prescription drug coverage for Medicare. As described
today, our health plans have significantly contributed to the
ability of beneficiaries to access prescription drugs. We thank
you for the opportunity to testify.
Mr. McCrery [Presiding]. Thank you.
Mr. Fuller?
STATEMENT OF CRAIG L. FULLER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL ASSOCIATION OF CHAIN DRUG STORES, ALEXANDRIA,
VIRGINIA
Mr. Fuller. Thank you, Mr. Chairman and Members of the
Committee.
My name is Craig Fuller. I represent the National
Association of Chain Drug Stores. We have 150 retail chain
members, approximately 32,000 chains, filling about two-thirds
of the three billion prescriptions written every year. I have
submitted a statement for the record and I would like to just
hit a few of the highlights very briefly.
We have been at work for several months on a plan we call
Senior Rx Goal because we were concerned that in the time
remaining, this Congress would not be able to come together on
a plan to provide prescription benefits for needy seniors. Our
plan is a State-based plan, forward-funded which would amount
to a cost of about $41 billion over 5 years, $30 billion of
which would be required from the Federal Government.
We think it is a way to provide those seniors at 200
percent of the poverty level and below who do not now have
prescription coverage with coverage. It would sunset in 5 years
and it would give the Congress the time and the administration
time to sort out both major Medicare reform as well as the drug
benefit.
Having said that, we apply three important tests to our
plan and other plans we look at. Perhaps we are at the same
disadvantage as everyone else today which is working off a
document that might be 36 hours old but I would like to make a
few comments about the plan that we have seen.
Our first test is that we really believe something has to
happen this year for needy seniors. So the first test is really
doing something with a sense of urgency that would produce
results this year. The kinds of issues you have had discussed
with you throughout the day are ones that concern us. Certainly
the issue of insurance is one that concerns us and the
availability of the kind of plan that is envisioned. That is
for this Committee to debate.
The second test is really very critical. It is that any
successful plan, in our view, must enhance patient safety and
improve patient outcomes. We must not settle for an approach
that fails to safely care for seniors who generally have a more
intense need for prescriptions as well as medication
management. We know the Members of Congress are concerned about
this. We think this needs to be an important consideration as
you look at these plans.
The proposal that has been outlined by Mr. Thomas today
would involve a `drug only' insurance program that Medicare
beneficiaries could purchase in the private marketplace. These
policies would likely be administered by pharmaceutical benefit
managers or PBMs as they have been discussed and described
today.
We have a high degree of respect for what PBMs do for their
clients, but at the end of the day, it is not insurance
companies and it is not PBMs that provide patient care. It is
the community pharmacist, and a one-on-one relationship with
that patient.
We do think because seniors need more intense care,
medication management, disease management, refill reminders and
consistent monitoring, that they need the active involvement of
a pharmacist in the community pharmacy setting. We are not sure
that a drug only insurance plan would provide that, at least as
it has been outlined to us at this date.
We believe that any new Medicare prescription drug plan
should assure that these important programs are a part of the
standard benefit package, just like the prescription drug
product, especially for seniors most at risk for potential
medication-related, adverse events.
We also believe it is important that legislation assure
that pharmacists have adequate time and proper incentives to
deliver these important quality improvement services for
Medicare beneficiaries.
This brings me to the third point and final test, which is
that there is a fair return for pharmacy, and that any
successful plan should assure that the highly efficient,
community pharmacy infrastructure which operates on a 2 percent
net profit margin today, remains viable to serve the health
care needs of all Americans.
I am not suggesting that the entire issue of pharmacy
reimbursement for public health care programs can be tackled by
this Committee, at least in this session, but I do want to
point out that PBMs and the marketplace process that is in
place today tends to focus most of the cost containment on
pharmacy providers. This has resulted in a steady reduction of
margin at the pharmacy level.
I want to just touch upon a point, and I know we are
working off an outline that may or may not be current, but
there is an element in there that brings on price controls on
pharmacies that I want to single out. The plan, as we have seen
it, would allow PBMs to mandate a certain price that pharmacies
could charge Medicare beneficiaries for prescriptions after
their coverage has reached the cap. In other words, once that
coverage is exhausted, the outline we have seen suggests that
the pharmacy would still have to provide payments at this
negotiated lower price.
Again, we think that is an element of price control that
would we would be concerned about. We would like to work with
the Committee in an effort to resolve that particular issue.
I will close by saying we commend this Committee for the
work it is doing. This is a critical issue. We really would
like to see a resolution that provides relief this year for
needy seniors. We think with the press of time, a broader plan
cannot pass; a State-based plan could be funded along the
parameters that have been laid out by this Congress that would
be made available and would give you the time to work on a
broader, more comprehensive plan.
Thank you.
[The prepared statement follows:]
Statement of Craig L. Fuller, President and Chief Executive Officer,
National Association of Chain Drug Stores, Alexandria, Virginia
Mr. Chairman and Members of the Committee. I am Craig
Fuller, President and Chief Executive Officer of the National
Association of Chain Drug Stores (NACDS). I appreciate the
opportunity to appear before you today to discuss various
legislative proposals to cover prescription drugs under
Medicare, and their impact on Medicare beneficiaries and
community retail pharmacies.
NACDS represents more than 150 chain pharmacy companies
that operate over 32,000 community retail pharmacies in the
United States. The NACDS membership base fills about 62 percent
of the approximately 3 billion prescriptions that are dispensed
each year in the United States. We employ approximately 94,000
pharmacists in our stores.
First and for the record, let me say that NACDS and its
members applaud the significant time and effort that you have
contributed to the debate about the best way to expand
prescription drug coverage to Medicare beneficiaries. We
understand and appreciate the need to improve prescription drug
coverage for seniors. Every day, we see the impact on people
who too often must choose between the food they need to sustain
them, and the medication they need to treat an illness.
As many of you know, NACDS has been working for several
months on a state-based plan that would fund a prescription
benefit plan for needy seniors that we call SenioRxGold.
SenioRx Gold is supported by a coalition of groups, including
the American Pharmaceutical Association, the American Society
of Consultant Pharmacists, the Food Marketing Institute, and
the National Consumers League.
While the specifics of ``The Medicare Prescription Drug and
Modernization Act'' are new to us, because of our work on
SenioRx Gold, we have a pretty clear idea of the critical
elements that must be considered if real prescription drug
assistance is going to reach those who need it most. Indeed, we
have attempted to apply three important tests that we believe
should be applied to any proposal designed to enhance
prescription drug coverage for seniors.
Sense of Urgency
First, we need a national sense of urgency about reaching
needy seniors across America this year with a program that
allows them to receive the prescription medication they and
their doctor agree they need. Frankly, the leadership in
Congress has repeatedly stressed the importance of meeting this
challenge, and with these hearings today, your committee is
expressing an urgency, which we fully commend.
However, as you are aware, the insurance industry has
expressed concerns about the viability of private-market
``drugs only'' insurance proposals, calling them ``unworkable''
and raising serious questions about whether they would amount
to nothing more than ``unfulfilled'' promises to needy seniors.
We also know from experience that the Balanced Budget Act
of 1997 created various other types of health insurance and
provider options for Medicare beneficiaries, which have not
come to fruition. We are concerned that ``drugs only'' policies
would meet the same fate.
Enhance Patient Safety/Improve Patient Outcomes
Second, any successful plan must enhance patient safety and
improve patient outcomes. We must not settle for an approach
that fails to safely care for seniors, who generally have more
intense prescription medication management needs than non-
senior populations. We know that Members of Congress are truly
concerned about structuring a benefit that provides medication
management programs for seniors.
The House leadership proposal would create ``drugs only''
insurance policies that Medicare beneficiaries could purchase
in the private marketplace. These policies will likely be
administered by pharmaceutical benefit managers--or PBMs. As
you know, community retail pharmacy has a significant amount of
experience in dealing with PBMs.\1\
---------------------------------------------------------------------------
\1\ According to IMS Health, almost 75 percent of prescriptions
filled in a community pharmacy were paid for with cash outside of a
plan in 1990. Now, almost 85 percent of all prescriptions are paid for
by plans--most with a prescription benefit manager involved.
---------------------------------------------------------------------------
For the record, let me state that, with all due respect,
insurance companies and PBMs do not manage care--pharmacists
do--and we have helped manage health care for years. The role
of the pharmacist in reducing the risk of conflicting
medications and in assisting patients with proper dosage and
usage requirements is a well established, critical element of
healthcare delivery.
But seniors need more intense care--medication management,
disease management, refill reminders, and consistent
monitoring. Will ``drugs only'' insurance plans be structured
so that we are providing both prescription drugs and important
medication therapy management programs to seniors?
We believe that any new Medicare prescription drug plan
should assure that these important programs are part of the
standard benefit package--just like the prescription drug
product--especially for those seniors most at risk for
potential medication-related adverse events.
We also believe that it is important that legislation
assure that pharmacists have adequate time and proper
incentives to deliver these important quality improvement
services for Medicare beneficiaries.
Fair Return for Community Pharmacy
Which leads me to my third point: any successful plan
should assure that the highly-efficient community pharmacy
infrastructure--which operates on 2 percent net profit
margins--remains viable to serve the health care needs of all
Americans. I'm not suggesting that the entire issue of pharmacy
reimbursement for public health care programs be tackled by
this committee (at least in this session), but I do want to
point out that PBMs tend to focus most of their cost
containment on pharmacy providers. This has resulted in a
steady reduction of margin at the pharmacy level. I want to
point out that language currently in the proposal allows PBMs
to aggressively negotiate discounts from pharmaceutical
manufacturers, you should be aware that a 1998
Much of the savings that PBMs achieve appear to come from
the lower prices paid to pharmacies rather than from the
rebates offered by drug manufacturers.\2\
---------------------------------------------------------------------------
\2\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry, July 1998, p. 8. The study found that 50 to 70 percent of the
drop in the plans' spending on prescription drugs resulted from lower
retail prescripton proices. Only 2 to 21 percent of the savings
resulted from manufacturers debates that the PBMs shared with the
health insurance plans.
---------------------------------------------------------------------------
Moreover, the plan before us today would allow for ``price
controls'' on retail pharmacies. That's right--the plan before
us today would allow PBMs to mandate a certain price that
pharmacies could charge Medicare beneficiaries for
prescriptions after they have reached their coverage cap. We
are unsure why Congress would impose price controls on a highly
competitive industry that operates on a 2 percent net profit
margin. We urge Congress to reject price controls on retail
pharmacies.
Conclusion
Mr. Chairman, I'd like to conclude by saying we recognize
that these are serious and difficult issues and we appreciate
your leadership and that of members of your committee for
bringing this important legislative proposal forward for review
and discussion. You, members of your committee and your staffs
have encouraged us to be frank and candid during this entire
process. We would be pleased to work with you in addressing
some of the concerns I have outlined in my testimony. We think,
as I suggested earlier, that there are several reasons we can
provide an important perspective.
Finally, I will end by saying that we also remain committed
to the notion that if the Medicare Prescription Drug and
Modernization Act cannot be advanced in the shortness of time,
we hope given the sense of urgency you and others have shown
for the millions of needy seniors and their families, that you
would consider turning to the state-based program we call
SenioRxGold. It is not perfect and it is not the long-term
solution. However, it does, in our view, meet the three
critical tests I outlined to you today and would provide
meaningful benefits, effectively and safely to those seniors
with the greatest need.
This program is designed as an interim, or stopgap
approach. By providing federal assistance to states that
voluntarily elect to develop prescription assistance programs,
SenioRx Gold builds upon the 15 states that already have been
successfully operating these programs. It gives the states the
flexibility to meet the needs of 64 percent of those Medicare
beneficiaries without prescription drug coverage. In fact,
SenioRx Gold would provide a more comprehensive benefit than
other proposals. With no premiums, no annual deductible and
lower copays, needy seniors would not be deterred from
participating.
Whichever course you pursue, we thank you for the
opportunity to share our views and remain committed to working
with you to address this and other issues.
Thank you very much.
Mr. McCrery. Thank you, Mr. Fuller.
Ms. Bello?
STATEMENT OF JUDITH H. BELLO, EXECUTIVE VICE PRESIDENT, POLICY
AND STRATEGIC AFFAIRS, PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA
Ms. Bello. I am pleased to be here this afternoon on behalf
of Americas innovative pharmaceutical industry to discuss an
issue vitally important to all of us, prescription drug
coverage for elderly and disabled Americans.
In the nineties, we developed 370 new medicines for
patients. Today, we have over 1,000 medicines in development to
treat hundreds of serious illnesses such as Alzheimer's,
Parkinson's, cancer, arthritis and depression. The 21st century
hailed as the golden era of biology brings even greater
promise. As the mapping of the human genome nears completion,
our targets for drug innovation will be multiplied six to
twenty times over from about 500 drug targets today to 3,000 to
10,000 in the near future.
We want to ensure that America's seniors have access to the
medicines we have already developed without discouraging the
discovery and development of many more medicines for all
patients. I hope we all can agree on at least four points.
First, expanded drug coverage for seniors will happen. If
we work together, it can happen in this Congress.
Second, expanded drug coverage for seniors will be a
positive development. We all care so much about the subject of
today's hearing because many prescription drugs increasingly
are the most effective therapy for many patients and the most
cost effective therapy for the Medicare Program in our society.
For example, when a senior named Francis Wagner suffered a
stroke, his doctor prescribed an innovative clot-busting
medicine. Thanks to his medicine only 12 days later he was
dancing with his wife on their 50th wedding anniversary
celebration. An NIH study demonstrates that Medicare saved on
average over $4,000 by treating Mr. Wagner with the medicine
which reduced his hospital and rehabilitation bills and also
avoided his admission to a nursing home.
Third, as we expand drug coverage for seniors, we must
sustain the industry's ability to develop new medicines for all
patients and their families.
Finally, we need to put the interest of patients first and
to help both Medicare patients who need access today to
medicines already developed and patients of all ages and their
families who depend on the industry because they need new
medicines and hopefully cures not yet developed.
Since February 1999, we have strongly supported
strengthening and modernizing Medicare, including expanded
coverage of prescription drugs. We support the views expressed
by Mr. Thomas and Senator Breaux amongst others this morning
that the current program needs to be preserved and
strengthened.
As we also heard from both sides of the aisle, the Congress
is now pursuing interim expansion of drug coverage through
private insurance using choice and competition to ensure
quality and contained costs. PhRMA can support an incremental
approach if it would improve opportunities for future
comprehensive reform and meet the following key principles:
Give all beneficiaries the voluntary ability to enroll in a
private insurance coverage plan of their choice among a range
of operations; provide Federal subsidies for the low income
beneficiaries so they can afford coverage; provide coverage for
beneficiaries with high pharmaceutical expenditures; give
beneficiaries access to all medicines; provide for oversight of
plans by a new government entity; ensure that the new program
would be consistent with needed comprehensive modernization of
the Medicare Program; and offer coverage through competing,
private insurance plans that rely on marketplace competition to
improve quality and contain costs.
Government price controls, in our view, are unacceptable
because they would inevitably harm the industry's ability to
develop new medicines for all patients.
Finally, some skeptics voice concerns about adverse
selection and claim that a private insurance program cannot
work. We have consulted with experts, actuaries and also
economic firms who have advised us that adverse selection is an
important challenge in any private insurance product involving
individual choice but that if a program is properly designed,
it can work.
They recommend the following tools to minimize the impact
of adverse selection, including limiting election opportunities
for enrollment, providing low income subsidies for premiums and
deductibles, establishing a high risk pool for enrollees with
very high expenditures, requiring up front cost sharing such as
an annual deductible and also allowing insurers to negotiate
with manufacturers and distribution networks to reduce costs.
In conclusion, the industry supports expanded drug coverage
for seniors and disabled Americans done the right way. The
pharmaceutical industry remains committed to finding a
bipartisan solution that will help seniors have access to the
medicines they need while also allowing thousands of our
dedicated scientists to continue the search for new medicines
and hopefully cures to help all patients and their families.
Thank you.
[The prepared statement follows:]
Statement of Judith H. Bello, Executive Vice President, Policy and
Strategic Affairs, Pharmaceutical Research and Manufacturers of America
INTRODUCTION
Mr. Chairman and Members of the Committee, I'm pleased to
be here on behalf of America's innovative pharmaceutical
industry to discuss an issue that is vitally important to all
of us--prescription drug coverage for seniors and disabled
citizens. Across America, 40,000 scientists in our research
labs work day and night in hopes of finding the next cure or
the next treatment to allow individuals to live long, healthy,
and productive lives (see Attachment 1). On average, it takes
12 to 15 years and $500 million to develop a new drug and bring
it to market.
Today, industry has more than 1,000 new medicines in
development to treat hundreds of serious illnesses including
Alzheimer's and Parkinson's diseases, cancer, stroke,
arthritis, and depression. We are confident that, in time, we
will find the cures for these and other conditions that are so
prevalent among our aging population (see Attachment 2).
The 21st century brings even greater promise. As the human
genome is mapped, many new targets for pharmaceutical
innovation will be identified. Today's 500 or so targets for
drug interventions are expected to increase to 3,000 to 10,000
targets in the near future. When these treatments and hopefully
cures are brought to market, we want to ensure that seniors
have access to them--without discouraging the discovery and
development of new medicines.
In our discussions, I hope that we all can begin by
agreeing on at least four key points:
First, expanded drug coverage for seniors will happen. The
question is not whether it will happen, but when, how, and with
what effects on the quality of health care for seniors and
disabled Americans and on drug discovery and development. If we
work together, it could happen in this Congress. Most Medicare
beneficiaries have prescription drug coverage through their (or
their spouse's) current or former employer, a Medicare
supplemental insurance (or Medigap) policy or a Medicare+Choice
plan, or by qualifying for Medicaid or other governmental
programs. But many of those who do not have the coverage they
need require additional assistance. The pharmaceutical industry
wants to be part of a sound, market-based solution that will
help all patients today and into the future.
Second, expanded drug coverage for seniors will be a
positive development. Prescription drugs are increasingly the
most effective and cost-effective therapy with which to treat
diseases or conditions. Some Medicare beneficiaries are in need
of prescription drug coverage and our medicines provide
extraordinary value to them.
Third, as we expand drug coverage for seniors, we must
sustain the American pharmaceutical industry's worldwide
leadership. The industry has developed new medicines that
benefit all patients--young and old--and their families. We do
not want to harm the environment in the U.S. that has allowed
our industry to thrive. In the1990s alone, 370 prescription
drugs, biologics, and vaccines developed by industry were
approved for patients' use with a physician's prescription.
Almost half of the globally important new medicines in the
world are discovered by the U.S. industry (see Attachment 3).
We are the world's leader in pharmaceutical research and
development (see Attachment 4).
As we work together to expand access to prescription drug
coverage, we must remember that Medicare beneficiaries want
access to new medicines because they were invented
Finally, we need to always remember to put the interests of
patients first. In an environment where we discuss 10-year
forecasts, adverse selection, risk pools, and premium
calculations, we must not forget that the real focus is on
patients. Our goal should be to expand Medicare drug coverage
in the way best for patients, their children, and their
grandchildren--who need access today to medicines already
developed, and who also depend on the pharmaceutical industry
to continue to lead the way in developing new medicines and
hopefully cures that exist today only in our dreams.S6631
THE PHARMACEUTICAL INDUSTRY SUPPORTS EXPANDED PRESCRIPTION DRUG
COVERAGE FOR ELDERLY AND DISABLED AMERICANS
Since February 1999, the pharmaceutical industry has
strongly supported strengthening and modernizing Medicare,
including expanding Medicare coverage of prescription medicines
(see Attachment 5). We believe that the best way to expand
prescription drug coverage for Medicare beneficiaries is
through comprehensive Medicare reform. The current program is
based on a 1960s-style, one-size-fits-all model that relies on
centralized price controls and complex regulations. The result
is a program that is confusing for patients and providers,
difficult to administer, and inadequate to meet the health care
needs of the 21st century.
If the Congress decides to pursue instead interim expansion
of drug coverage through private-sector insurance (using choice
and competition to ensure quality and contain costs), PhRMA can
be supportive so long as the interim measures would improve,
rather than impede, opportunities for future comprehensive
reform (see attachment 6).
With respect to the delivery system for any proposal, law
and policy makers need to ask:
Should the drug benefit be delivered by the
government or the private sector?
Should the benefit be a single, one-size-fits-all
program, or should seniors and disabled beneficiaries have a
range of choices?
We believe several principles are key components of any
interim proposal. As Congress continues to grapple with this
complex issue, we will support proposals consistent with these
key principles:
All beneficiaries would have the ability to enroll
in a private insurance coverage plan of their choosing, ranging
from private fee-for-service to HMOs and various private-sector
options in between.
Federal subsidies would help low-income
beneficiaries afford coverage.
Plans would provide coverage for beneficiaries
with high pharmaceutical expenditures.
Beneficiaries would have access to all medicines.
Plans should be overseen by a new government
entity.
The new program would be consistent with, and a
step toward, needed comprehensive modernization of the Medicare
program.
Coverage would be offered through competing,
private insurance or health plans that rely on marketplace
competition to control costs and improve quality.
Government price controls are unacceptable because they
would inevitably harm the industry's ability to develop new
medicines for patients. We urge you to say ``no'' to price
controls in any form, not direct price controls, not indirect
price controls, not by design, not by accident, not by stealth,
not by baby steps.
A PRIVATE INSURANCE INCREMENTAL APPROACH WILL BEST SERVE PATIENTS TODAY
AND TOMORROW
The pharmaceutical industry believes that if Congress
decides to provide an incremental prescription drug benefit,
the best approach would be to provide seniors access to private
insurance products. This approach would fit easily into the
current marketplace, since well over 150 million people get
their drug coverage through private entities. In delivering
drug coverage, these private entities would do more than simply
pay the claims. They could provide disease management programs,
drug utilization review, patient education, and help to reduce
medical errors. We in the research-based pharmaceutical
industry believe that seniors and disabled beneficiaries would
benefit greatly by having access to these private insurance
products, with the government providing subsidies for those in
need.
Skeptics point to complex issues, such as ``adverse
selection,'' and claim that a private insurance program will
not work. Adverse selection can occur because individuals
purchase insurance only when it is in their best interest. If
an individual could purchase insurance at any time, it would be
perfectly rational for them to wait until they were sick.
Consequently, insurers often place limits on when individuals
can purchase insurance and under what conditions.
Recognizing that adverse selection is an important issue,
we asked the experts for assistance. We turned to leading
actuarial and economic firms including Milliman and Robertson,
Abt Associates, and Towers-Perrin and commissioned analyses
(see Attachments 7, 8, and 9). These actuaries and economists
note that a private prescription drug insurance program can
work if designed properly. They also note that adverse
selection is ``one of the most difficult issues in designing
any insurance program involving individual choice.'' Actuaries
and economists have several tools to minimize the impact on
adverse selection. These include:
Limiting election opportunities for enrollment;
Providing low-income subsidies for premiums and
deductibles;
Establishing a high-risk pool for enrollees with
very high expenditures;
Requiring up-front cost sharing, such as an annual
deductible; and
Allowing insurers to negotiate with manufacturers
and distribution networks to reduce costs.
We believe that a properly designed prescription drug
insurance benefit would attract many Medicare purchasers and
many private market sellers. Why are we so confident? In the
market today, there are private health insurance policies for
cancer, sports accidents, emergency room visits, pregnancy
complications, and campers. There are private insurance
products for goats, carriage rides, and the weather on the day
of your daughter's wedding (see Attachment 10). We believe that
there are similar opportunities for private-market solutions to
increase access to prescription drug coverage for the elderly
and disabled Americans.
CONCLUSION
In my testimony today, I've tried to highlight the
pharmaceutical industry's support for expanded drug coverage
for seniors and disabled Americans--done the correct way.
Some say that this issue is life or death for the
pharmaceutical industry, America's premier high-technology
industry. After the debate is over and the dust settles, we
will still have a pharmaceutical industry--but depending on
what you do, the industry could be profoundly different, and
the results for patients could be demonstrably less.
As the debate unfolds, I hope you'll remember the millions
of Americans and their families waiting impatiently for new
treatments and hopefully cures. We can provide quality health
care for seniors and the disabled, including better
prescription drug coverage, but we need to do it the correct
way. If we do it the wrong way, the industry and the patients
we serve will undoubtedly suffer the consequences.
ATTACHMENT 1
THE RESEARCH-BASED PHARMACEUTICAL INDUSTRY: FACTS AT A GLANCE
A Strong Commitment to Research and Development
This year, research-based pharmaceutical companies
will invest $26.4 billion in research and development (R&D) on
innovative new medicines. This represents an increase of 10.1
percent over research spending in 1999. Since 1980, research-
based companies have multiplied their R&D investment 13-fold.
Domestic R&D is expected to increase by nearly 12
percent in 2000.
R&D conducted abroad by U.S. based companies will
grow only 1.2 percent--a clear sign that the American system
nurtures innovation and discovery.
Over the past two decades, the percentage of sales
allocated to pharmaceutical R&D has increased from 11.9 percent
in 1980 to approximately 20.3 percent in 2000, higher than
virtually any other industry. The average for all U.S.
industries is less than four percent.
Approximately 36 percent of pharmaceutical R&D
conducted by companies worldwide is performed in the United
States, followed by Japan with 19 percent.
This U.S. industry investment is very efficient.
Of 152 major global drugs developed between 1975 and 1994, 45
percent are of U.S. origin.
Drug Discovery and Development Are High-Risk
During the 1990s, the average time it took to
discover, test and develop a single new drug increased to
nearly 15 years. This was almost twice the development time in
the 1960s.
Of every 5,000-10,000 compounds tested, only five
enter human clinical trials, and only one is approved by the
FDA for sale in the U.S. Of every 10 medicines in the market,
on average, only three generate revenues that meet or exceed
average R&D costs.
The Boston Consulting Group estimates that the
pre-tax cost of developing a drug introduced in 1990 was $500
million, including the cost of research failures, the
opportunity cost of capital over the period of investment, and
the increasing cost of clinical trials.
Medicines in Development
The research-based pharmaceutical industry
currently has more than 1,000 new medicines in development to
treat hundreds of serious diseases.
There are currently 369 biotech medicines in the
pipeline to combat over 200 diseases. Nearly half the medicines
-175--are for cancer, the second leading killer of Americans.
Biotechnology and new technological tools have revolutionized
cancer research.
Among these drugs and biologics in development are
promising new treatments for cancer, heart disease,
Alzheimer's, AIDS, diabetes, multiple sclerosis, Parkinson's,
stroke, rheumatoid arthritis, and depression.
The Value of Medicines
The estimated life expectancy of an American born
in 1920 was 54 years. By 1965, life expectancy had increased to
70 years. The average American born today can expect to live
more than 76 years, and life expectancy has risen dramatically
for all age groups. Every five years since 1965, roughly one
additional year has been added to life expectancy at birth.
These improvements in life expectancy are due to advances in
medicine and our improved ability to prevent and treat disease:
Antibiotics and vaccines have virtually wiped out
such diseases as diptheria, syphilis, whooping cough, measles
and polio in the U.S.
The influenza epidemic of 1918 killed more people
than all the battles fought during the First World War. Since
that time, medicines have helped reduce the combined U.S. death
rate from influenza and pneumonia by 85 percent.
Over the past 30 years, innovative medicines have
helped reduce deaths from heart disease and stroke by half,
enabling 4 million Americans to live longer, better lives.
Since 1965, drugs have helped cut emphysema deaths
by 57 percent and ulcer deaths by 72 percent.
In a year-long disease-management program for
about 1,100 patients with congestive heart failure run by
Humana Hospitals, pharmacy costs increased by 60 percent, while
hospital costs (the largest component of U.S. health care
spending) declined 78 percent. The net savings were $9.3
million.
A National Institutes of Health (NIH) study showed
that while it initially costs more to treat stroke patients
with a clot-busting drug, the expense is more than offset by
reduced hospital rehabilitation and nursing home costs.
Treatment with the clot-buster costs an additional $1,700 per
patient, but reduced hospital rehabilitation and nursing home
costs result in net savings of more than $4,000 per patient.
According to a study published in the New England
Journal of Medicine, the use of ACE inhibitor drugs for
patients with congestive heart failure reduced mortality by 16
percent, avoiding $9,000 in hospital costs per patient over a
three-year period. Considering the numbers of people at risk
for congestive heart failure, additional use of ACE inhibitors
could potentially save $2 billion annually.
According to a study conducted at the University
of Maryland Medical Center, patients treated with beta-blockers
following a heart attack were up to 40 percent less likely to
die in the two-year period following the heart attack than the
patients that did not receive the drugs. According to another
study, use of beta-blockers resulted in an annual cost savings
of up to $3 billion in preventing second heart attacks and up
to $237 million in treating angina.
Unfortunately, a study published in the Journal of
the American Medical Association found that only half the
people who could be helped by these medicines are getting them.
Estrogen-replacement therapy can help aging women
avoid osteoporosis and crippling hip fractures, a major cause
of nursing home admissions. Estrogen-replacement therapy costs
approximately $3,000 for 15 years of treatment, while a hip
fracture costs an estimated $41,000.
The combination of two drugs, at a cost of about
$140 can eradicate the bacterial cause of most ulcers. Ulcer
surgery costs upward of $28,000.
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PhRMA Medicare Prescription Drug Position
The Pharmaceutical Research and Manufacturers of America
(PhRMA) supports pharmaceutical coverage for Medicare
beneficiaries. We believe that the best way to provide
pharmaceutical coverage to Medicare beneficiaries is through
comprehensive modernization of the Medicare program to provide
beneficiaries a choice of health plans that would also provide
drug coverage. If such modernization does not occur this year,
PhRMA would support federal legislation that would provide all
seniors with access to pharmaceutical insurance coverage,
wherever they live and no matter how sick they are.
Such a proposal would have the following elements:
1.All beneficiaries would have the ability to enroll in any
qualified pharmaceutical coverage plan of their choosing.
2. Federal government subsidies would help low-income
beneficiaries afford coverage.
3. Each beneficiary would be offered a choice of multiple
competing, private insurance plans that rely on marketplace
competition to control costs and improve quality.
4. Plans would provide coverage for beneficiaries with high
pharmaceutical expenditures.
5. Beneficiaries would have access to all medicines.
6. Plans would be overseen by a new, independent government
entity.
7. This new program would be consistent with, and step
toward, needed comprehensive modernization of the Medicare
program.
Several existing proposals embody these elements in whole
or part. We offer our assistance and support in advancing the
goal of enhanced pharmaceutical coverage this year.
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[Attachments 5, 7, 8, and 9 are being retained in the Committee
files.]
Mr. McCrery. Thank you, Ms. Bello.
Ms. Briceland-Betts?
STATEMENT OF DEBORAH BRICELAND-BETTS, J.D., EXECUTIVE DIRECTOR,
OLDER WOMEN'S LEAGUE
Ms. Briceland-Betts. Thank you. I appreciate your
invitation to testify today. I commend you and the Committee
for engaging in the important discussion of updating and
strengthening Medicare for the 21st century.
I can assure you that our members care deeply about this
issue. It is because women are quite literally the face of
Medicare. They are the majority of beneficiaries at every age
level and because of their longer lives, they have more chronic
illness and take more prescription drugs.
Women must purchase those medications from a retirement
income that averages 40 percent of men's retirement income. I
want to be clear here today access to prescription drugs is not
simply a problem for the poor. After premium payments,
prescription drugs account for the single largest component of
out of pocket spending for noninstitutionalized Medicare
beneficiaries aged 65 and older. Consequently, many seniors
with moderate incomes are also finding the high cost of
prescription drugs to be out of their reach. Many of them, as
we have heard today, are sacrificing their future financial
security and sadly, even playing a game of russian roulette
with their health as a result.
Stories abound of seniors trying to stretch their
medications by not taking required dosages and in fact, some
are just not taking their needed medications at all. OWL
strongly believes that the prescription drug coverage for
seniors is needed to modernize and strengthen Medicare.
Further, such a program is best implemented through a defined
benefit package that is voluntary, comprehensive and
universally available to all Medicare beneficiaries.
Co-payments, premiums and deductibles must be affordable
and benefits should be indexed to inflation to ensure that
coverage keeps pace with the cost of prescription drugs.
Last, adequate stop loss protections and catastrophic
coverage are critical components and measures must be taken to
ensure that a new prescription drug benefit does not put
current Medicare benefits at risk.
Both President Clinton and the Republican leadership have
put forward plans that address this critical public health
issue, so allow me to make a few comments in that direction.
While OWL does not endorse legislation, we can provide a
unique age and gender analysis that I hope you will find
helpful. OWL is pleased that the Republican leadership is
taking an active interest in providing affordable prescription
drugs for this Nation's seniors. We are glad to see the 100
percent subsidy for beneficiaries with incomes under 135
percent of poverty with an additional safety net in the form of
a sliding fee scale for assistance to those between 135 and 150
percent of poverty.
Despite this bright spot, and in light of the principles I
outlined earlier, I must admit that we have larger concerns
about the proposed plans' ability to provide meaningful
coverage for all older Americans. OWL was disappointed to see
that the Republican plan or what we know of it does not
represent a defined benefit added to the Medicare Program, but
rather, a private insurance option.
We are concerned that the Medigap type plans being proposed
with insurers getting a subsidy to lower the premiums will not
be affordable for most seniors even in the unlikely event that
an insurer passed on every dollar and subsidy to the
beneficiary.
Further, the notion of permitting insurers to offer a
standardized benefit or its actuarial equivalent may cause
adverse selection problems and could further erode the benefit.
Given that many insurers will probably not offer a standalone
prescription drug policy in light of the relatively small
subsidy, OWL was interested to note that the plan provides for
a Medicare-run policy for areas where private options don't
exist. I suspect this option will actually represent the bulk
of the coverage if the plan were enacted. If so, why not just
create a defined benefit within the Medicare Program right from
the start?
OWL is also extremely concerned that the private plans will
be quite restrictive in their application of formularies. This
would be especially troubling for the older women who more
often require the higher end, cutting edge drugs to treat their
chronic illnesses.
OWL is also worried that the plan apparently only pays for
50 percent of the beneficiary's drug costs after a deductible
requirement is met. Given the financial constraints of many
older women, 50 percent copayments could well be out of reach.
Frankly, this is a concern that OWL has with both the
Republican and Democratic plans. We must remember that the
median income for women over 65, the majority of Medicare
beneficiaries, is $14,820. This figure is above the magic
bullet of 150 percent of poverty and is by no means a healthy
income. A 50 percent copay is quite likely to be out of reach.
Realistically, someone who cannot afford a $250 prescription
will probably still struggle to afford a $125 prescription.
Affordability also goes to premiums. We have been told that
the Republican plan will average about $37 a month but it could
vary widely by plan and region. Again, with the economic
constraint of the majority of Medicare recipients, this becomes
a critical factor.
OWL would also like to see both plans firm up their
catastrophic coverage.
In conclusion, with the respective legislative plans aside,
I must also say whatever prescription drug coverage is
discussed, we must acknowledge that we are here today because
America's seniors cannot afford the high cost of prescription
drugs. We have yet to hear an adequate explanation as to why,
for instance, from 1980 to 1998, the Consumer Price Index rose
98 percent, prescription drugs rose 256 percent or why the
pharmaceutical industry continues to lead the Fortune 500 in
profits.
OWL has been advocating for prescription drug coverage in
Medicare for 20 years but we are not so anxious that we feel
Congress should rush the process. We need a bipartisan plan
that works for America's seniors, one that provides meaningful
cover for people, not one that just provides political cover.
We look forward to working with Congress and the
administration to assure whatever measures are finally adopted,
truly work for older people.
Thank you.
[The prepared statement follows:]
Statement of Deborah Briceland-Betts, J.D., Executive Director, Older
Women's League
Mr. Chairman and distinguished Members of the Committee:
I appreciate your invitation to testify today on the timely
issue of developing a prescription drug benefit for Medicare.
OWL commends you and the Committee for engaging in the
important discussion of updating and strengthening Medicare for
the 21st century.
As the Executive Director of OWL, the only national
grassroots membership organization dedicated exclusively to the
unique concerns of women as they age, I can assure you that our
members are fired up about this issue. Many of the healthcare
hurdles facing older women have not changed since OWL's 1999
Mother's Day Report, The Face of Medicare is a Woman You Know,
and its addendum Medicare: Why Women Care were published. And
just last month, OWL released its first Mother's Day Report of
the new millennium, Prescription for Change: Why Women Need a
Medicare Drug Benefit. Based on this research and the longtime
leadership of OWL on this issue, I am pleased to share with you
some concrete suggestions that both would modernize Medicare
and truly help those who use the Medicare program the most:
older women.
Women are quite literally the face of Medicare. Let me
paint you a picture of the typical Medicare recipient:
She is 58% of the Medicare population at age 65
and 71% at age 85; as you know, the fastest growing portion of
our population is age 85 plus;
She is managing more than one chronic illness at a
time. At age 65, 9 in 10 women have at least one chronic
illness; 73% have two or more chronic illnesses;
She has outlived her spouse, she's divorced or,
increasingly, she's never been married; and because she's
alone, she is five times more likely to be poor; older women
are 75% of the elderly poor;
and she is paying an average of 20% of her annual
income for out-of-pocket health expenses such as prescription
drugs and supplemental health insurance. This compares to 17%
for male Medicare recipients.
And though she may be living in her own home today, her
poor health and the lack of help in managing her daily affairs
will probably require her to seek long-term care--paid for by
Medicaid--tomorrow.
Because older women are more likely to be poor, they are
more likely to face financial barriers to health care and thus
spend a greater portion of their income on such costs. Except
for those individuals enrolled in managed care programs,
Medicare does not cover prescription drugs unless they are used
in a hospital or other health care institution. Yet almost
eight of ten women on Medicare--that's 17 million women--use
prescription drugs regularly, and thus many pay for these
medications out-of-pocket.\1\ All told, because of our greater
longevity and tendency towards more chronic illnesses, women on
Medicare spend 20% more on prescription drugs than their male
counterparts.\2\
---------------------------------------------------------------------------
\1\ Kaiser Family Foundation/Commonwealth Fund, Survey of Medicare
Recipients.
\2\ National Economic Council, Domestic Policy Council, Disturbing
Truths and Dangerous Trends: The Facts About Medicare Beneficiaries and
Prescription Drug Coverage, July 22, 1999.
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We must remember that this financial burden is being placed
on women who are, at every age, at a greater risk for poverty
than their male counterparts. These disparities are
particularly pronounced in old age. Women's retirement income
is almost less than half of men's. More than half of women age
65 and over have personal incomes of less than $10,000 a year,
and three out of four have incomes under $15,000.\3\ Research
shows that beneficiaries with high or very high out-of-pocket
drug costs are those with modest incomes. One recent study
found that beneficiaries with the highest average out-of-pocket
drug expenses are those with incomes between 135 and 200
percent of poverty.\4\
---------------------------------------------------------------------------
\3\ Stone and Griffith, Older Women: The Economics of Aging,
Women's Research & Education Institute, 1998
\4\ Gibson and Brangan, Out-of-Pocket Spending on Health Care by
Women Age 65 and Over in Fee-for-Service Medicare: 1998 Projections,
AARP Public Policy Institute, 1998.
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But I want to be clear here today. Access to prescriptions
drugs is not simply a problem for the poor. While older
Americans comprise only 13 percent of the U.S. population, they
account for one-third of all prescription drug spending.\5\ In
fact, after premium payments, prescription drugs account for
the single largest component of out-of-pocket spending for non-
institutionalized Medicare beneficiaries' age 65 and older.\6\
Consequently, many seniors with moderate incomes are also
finding the high cost of prescription drugs to be out of their
reach; many of them are sacrificing their future financial
security and, sadly, even playing a game of Russian roulette
with their health as a result. Stories abound of seniors trying
to stretch their medications by not taking the required
dosages, and in fact some are not taking needed medicines at
all.
---------------------------------------------------------------------------
\5\ Statement of Beatrice Braun, M.D., Testimony Before the
Subcommittee on Health of the House Committee on Ways and Means Hearing
on Senior's Access to Prescription Drug Benefits, February 15, 2000.
\6\ Statement of Beatrice Braun, M.D., Testimony Before the
Subcommittee on Health of the House Committee on Ways and Means Hearing
on Senior's Access to Prescription Drug Benefits, February 15, 2000.
---------------------------------------------------------------------------
A new international health care survey of the elderly by
the Commonwealth Fund reported 7% of adults ages 65 and over
did not even fill a prescription.\7\ Why? Because they can't
afford them, and there is no comprehensive benefit that
provides the medicines they need at a reasonable cost. We even
hear of how this financial burden is trickling down through the
generations, with working families paying for parents'
prescriptions and thus limiting what they can save for their
children's education or their own retirement. So I must stress
that these catch-22 decisions are not limited to the poor.
Middle-income seniors are finding their retirement security
undermined by the high cost of prescription drugs. The barriers
are very real, and a simple Medicaid enhancement will therefore
not solve the full scope of the problem.
---------------------------------------------------------------------------
\7\ Commonwealth Fund
---------------------------------------------------------------------------
In fact, limiting a Medicare drug benefit to only those
with low incomes would exclude many of the people most in need
of assistance, including those with modest incomes (135-200% of
poverty). Research suggests that beneficiaries at all income
levels experience high or very high drug spending and out-of-
pocket costs.\8\ Another study found that fully half of women
on Medicare without any drug coverage at all have incomes above
150 percent of poverty.\9\ A means tested program would also
exclude those in poor and fair health, or with severe
functional limitations, who have incomes or assets too high to
qualify for Medicaid coverage. Clearly, then, this is as much
an affordability issue as it is a coverage issue. That's why
its important to design a program that provides all
beneficiaries with access to an affordable prescription drug
benefit.
---------------------------------------------------------------------------
\8\ AARP, ``How Much are Medicare Beneficiaries Paying Out-of-
Pocket for Prescription Drugs?'' September 1999.
\9\ Actuarial Research Corporation, unpublished data, 1999.
---------------------------------------------------------------------------
Ironically, Americans who pay for all or part of their
prescriptions out-of-pocket are charged far more than either
insurance companies or HMOs. In fact, uninsured seniors often
pay twice as much for their prescription drugs than more
favored customers, such as those in big HMO plans or the
federal government.\10\ And those costs are rising. From 1981
to 1999, prescription drug prices increased by 306%, while the
Consumer Price Index, on which Social Security's cost-of-
living-adjustments are based, rose 99%.\11\ Given this lopsided
increase, we should not be surprised that the high cost of many
prescription drugs are out of reach for many seniors,
regardless of income.
---------------------------------------------------------------------------
\10\ Prescription Drug Task Force, US House of Representatives,
October 28, 1999.
\11\ Bureau of Labor Statistics, 1999.
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This is a universal problem that requires a universal
solution. Outpatient prescription drug coverage is one of the
last major benefits still excluded form Medicare, and the
elderly are the last major insured consumer group without
access to prescription drugs as a standard benefit. With the
technological revolution that is taking place in the
development of safe and effective drug therapies, the absence
of such a benefit is a critical barrier to providing
comprehensive, effective treatment to our rapidly aging
population. And, quite frankly, a prescription drug benefit is
logical. Medicare was designed to cover the medical costs for
seniors--and prescription drugs are the name of the game in
21st century medicine.
In some cases, prescription drugs can be a substitute for
surgery; in others, it can postpone institutionalization. Yet
one in eight seniors cannot afford the cost of prescription
drugs.\12\ Those individuals not only put their health at risk,
but also ultimately cost the Medicare system more in costs for
additional treatments and hospitalizations that might have been
avoided through proper medication.
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\12\ National Committee to Preserve Social Security and Medicare,
``America's Quiet Crisis: Prescription Drug Costs for Seniors,'' 2000.
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It's also obvious that existing approaches to this issue
are not enough. Medigap coverage is limited and spotty, HMO
coverage is decreasing and often unreliable, and employer-
sponsored coverage is just plain declining. One in every three
Americans over age 65 has no prescription drug insurance.
Millions more have only limited coverage, which is slipping
away as HMOs and company retirement plans cut back or drop
altogether their drug benefits.\13\
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\13\ National Committee to Preserve Social Security and Medicare,
``America's Quiet Crisis: Prescription Drug Costs for Seniors,'' 2000.
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Frankly, the existing coverage options are inadequate,
limited, expensive, and unstable. For instance, a new study by
the Commonwealth Fund reports that most Medicare beneficiaries
do not have continuous prescription drug coverage. In 1996,
just 53 percent of beneficiaries had prescription drug coverage
throughout the year.\14\ Thus, while low-income Americans would
certainly benefit from a prescription drug benefit, targeting
only low-income beneficiaries would leave millions of seniors
without affordable, dependable coverage. Now is the time for a
Medicare prescription drug benefit--OWL strongly believes that
we must work to fix this particular roof while the sunshine of
the surplus warms the debate.
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\14\ Commonwealth Fund, January 2000.
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Keeping in mind these pictures I've painted for you--both
of the typical recipient and the scope of the problem--OWL
would like to put forth several suggestions for your
consideration as you deliberate the prospects for a Medicare
prescription drug benefit package.
OWL strongly believes that prescription drug coverage for
seniors is needed to modernize and strengthen Medicare.
Further, such a program is best implemented through a defined
benefit package that is voluntary, comprehensive, and
universally available to all Medicare beneficiaries. Co-
payments, premiums and deductibles must be affordable, and
benefits should be indexed to inflation to ensure that coverage
keeps pace with the cost of prescription drugs. Lastly,
adequate stop-loss protections and catastrophic coverage are
critical components, and measures must be taken to ensure that
a new prescription drug benefit does not put current Medicare
benefits at risk.
Let me briefly elaborate on each of these principles.
The benefit should be part of the defined benefit
package of a modernized Medicare program, and must be
universally available to all Medicare beneficiaries, regardless
of income. A means-tested program, or a simple expansion of
Medicaid, will still leave millions of older Americans at risk.
The benefit should be voluntary, allowing
beneficiaries to keep their current coverage if they choose to
do so. The plan should also consider incentives that will
encourage those plans with retiree prescription coverage to
maintain that benefit.
The benefit needs to be affordable, with premiums,
co-pays and deductibles that are within the reach of all
seniors. This is an important element in avoiding the dangers
of adverse risk selection. Also, the government contribution
towards such a benefit must be sufficient to produce a premium
and benefit design that is accessible to low income seniors.
The benefit must assure access to medically
appropriate drug therapies, including the high-end, cutting
edge drugs that many older women need for common chronic
illnesses. While we recognize that formularies are an important
cost-cutting mechanism, alternatives must be in place to assure
that beneficiaries have access to whatever prescription drugs
most effectively treat their conditions.
The benefit should be indexed to inflation to
ensure that coverage keeps pace with the rising cost of
prescription drugs. Further, drug purchasing strategies that
enable the Medicare program to leverage of the purchasing power
of the Medicare population should be explored.
Proposals to increase cost-sharing and deductibles under
Medicare would likely discourage many women, for whom out-of-
pocket health care expenses are already a hardship, from
seeking the health care they need. Proposals to provide a set
amount of money to purchase Medicare coverage--a voucher, if
you will--would unfairly disadvantage women who could not
afford the high cost of comprehensive coverage. Further, both
approaches could lead to adverse risk selection within the
plans, thereby inflating costs and endangering coverage.
Frankly, if prescription drug coverage is available but not
affordable, it just doesn't work. Medigap is an excellent
example of this concept; it's available, but most people don't
buy it because they can't pay the bill.
Both President Clinton and the Republican Leadership have
put forward a plans to address this critical public health
issue, so allow me make a few comments in that direction. While
OWL does not endorse legislation, we can provide a unique age
and gender analysis that I hope the subcommittee with find
helpful.
OWL is pleased that the House Republican Leadership is
taking an active interest in providing affordable prescription
drugs for this nation's seniors. In looking at the Republican
proposal, we are glad to see the 100% subsidy for beneficiaries
with incomes under 135 percent of poverty, with an additional
safety net in the form of a sliding fee scale for assistance to
those between 135 and 150 percent of poverty. But despite this
bright spot, and in light of the principles I outlined earlier,
I must admit that we have larger concerns about the proposed
plan's ability to provide meaningful coverage for all older
Americans.
Based on the relatively few details we have seen of the
Republican proposal, OWL was disappointed to see that the
Republican plan does not represent a defined benefit added to
the Medicare program, but rather a private insurance option. We
are concerned that the Medigap-type plans being proposed, with
insurers getting a subsidy to lower the premiums, will not be
affordable for most seniors--even in the unlikely event that an
insurer passed on every dollar in subsidy to the beneficiary.
Further, the notion of permitting insurers to offer a
standardized benefit or its actuarial equivalent may cause
adverse selection problems that could further erode the
benefit.
Given that many insurers will probably not offer a stand-
alone prescription drug policy, in light of the relatively
small subsidy, OWL was interested to note that the plan
provides for a Medicare-run policy for areas where private
options don't exist. I suspect this option will actually
represent the bulk of the coverage if the plan were enacted--if
so, why not just create a defined benefit within the Medicare
program right from the get go?
OWL is also extremely concerned that private plans will be
quite restrictive in their application of formularies. This
could be especially troubling for older women, who more often
require the high end, cutting edge drugs to treat their chronic
conditions. Remember, women have more chronic conditions than
men, and they live longer with those conditions.
OWL is also worried that the plan apparently only pays for
50 percent the beneficiaries' drug costs, after a deductible
requirement is met. Given the financial constraints of many
older women, 50 percent co-pays could well be out of reach.
Frankly, this is concern that OWL has with both the Republican
and Democratic plans. We must remember that the median income
for women over 65--the majority of Medicare recipients--is
$14,820.\15\ This figure is above the magic bullet of 150% of
poverty, but it is by no means a healthy income. A 50 percent
co-pay is quite likely going to be out of reach--realistically,
someone who cannot currently afford a $250 prescription will
probably still struggle to afford a $125 prescription.
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\15\ OWL, Prescription for Change: Why Women Need a Medicare Drug
Benefit, May 2000.
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This affordability concern carries over into the areas of
premiums. We have been told the Republican plan will average
$37 per month--but it could vary widely by plan and region.
Again, the economic constraints of the majority of Medicare
recipients becomes a critical factor.
We note again that this is yet another area where a defined
benefit, as part of Medicare, would be most appropriate--
providing a consistency in premiums regardless of region, and
stability in terms of coverage.
OWL would also like to see both plans firm up their
catastrophic coverage. While we understand that the size of and
start date for such coverage is very much dependent on the
budget, an out-of-pocket cap in the neighborhood of $3000 seems
reasonable. This protection would go a long way to ensuring
that the retirement security of our country's seniors is not
undermined by the skyrocketing costs of prescription drugs.
Let me illustrate OWL's concerns with the proposed plan by
telling you the story of an OWL member. Diane Rudolph, 60, of
Cleveland, OH, has worked hard to create a stable retirement
for herself. She has an IRA, a small pension, and had arranged
it so the mortgage on her home would be paid off when she
retired at 65.
Diane never planned on a permanent disability, but that is
exactly what happened. Chronic conditions such as diabetes,
high blood pressure, and degenerative disc disease have been
compounded by severe arthritis. In many ways Diane is
fortunate; her COBRA insurance covers her many prescriptions
for a manageable co-payment, she has disability insurance, and
has saved for her retirement. But Diane's COBRA insurance will
run out in less than two years, at which point she will go on
Medicare--and lose her prescription drug coverage.
Diane currently takes 14 prescriptions, valued at almost
$1,100 per month. Based on past inflation rates for
prescription drugs, Diane's monthly prescription tab could
climb to $1,400 per month in the next two years. Without
adequate catastrophic coverage, Diane worries that her $33,000
annual income will be cut in half by the time she pays her drug
bills, undermining the retirement security she has worked her
entire life to achieve. And, in Diane's case, a 50 percent co-
pay on top of premiums and deductibles could still result in
her paying over a third of her income for prescription drugs--
under either plan.
Given the principles I outlined, I would counter that the
President's Plan represents the better starting point.
President Clinton proposes to create a new benefit that is part
of Medicare's defined benefit package, and would maintain the
voluntary nature of the program--a Medicare Part D. There is no
deductible and the monthly premiums are fairly affordable. OWL
applauds the President's Plan for making appropriate use of
pharmacy benefit managers (PBMs) as a cost containment measure.
It is high time we applied the clout of a growing aging
population to leverage better prescription drug prices for all
seniors.
OWL was also very pleased to see that the President plans
to increase the maximum benefit limit from $1000 to $2500 over
the 6-year phase-in period. This is a realistic estimate given
that the price of prescription drugs continues to increase at 2
and sometimes 3 times the rate of inflation. Starting in 2009,
the President proposes to index this benefit to the cost of
inflation. We respectfully submit that this element may need to
be reevaluated at that time; if pharmaceutical prices continue
their typical pattern, raising benefit limits to correspond
with the Consumer Price Index will probably not be adequate,
perhaps resulting in an erosion of the value of the benefit
over time.
OWL would also like to see more specific details for
catastrophic and stop-loss coverage in the President's plan,
but we are pleased to see the President has recognized the
problem and has reserved funds to address the issue. All in
all, President Clinton's plan is a healthy start, and OWL
applauds him for developing a solid proposal that advances this
important debate.
The respective legislative plans aside; I must also say
that whenever prescription drug coverage is discussed, there is
always an 800-pound gorilla in the room--the issue of price
controls. The American consumer is understandably upset that
prescription drug costs in the United States are the highest in
the world. It seems reasonable that, despite arguments about
negatively impacting research and development as well as the
potential profit losses for pharmaceutical companies, there is
room to explore models that would insure that Americans paid
only their fair share for these necessary and beneficial
therapies.
Truthfully, we all know that this cat is already out of the
bag. As representatives of the American people, I know that
Congress is struggling to give their constituents an answer to
these simple questions: Why do Americans pay more? And, what
can be done to reduce this disproportionate burden on American
consumers? Any reform measures you adopt should also address
these key public concerns.
OWL looks forward to working with Congress and the
Administration to ensure that whatever measures are finally
adopted truly work for all older people, including those like
Ms. Rudolph. In closing, I respectfully urge all of our policy
makers to develop a program that reflects this simple fact:
women are the face of Medicare. A Medicare prescription drug
benefit may be the single most important improvement Congress
can enact for America's retirement health. But if the
prescription drug benefit you design doesn't work for women, it
just doesn't work.
Mr. McCrery. Thank you.
Mr. Donoho?
STATEMENT OF PATRICK B. DONOHO, VICE PRESIDENT, GOVERNMENT
AFFAIRS & PUBLIC POLICY, PHARMACEUTICAL CARE MANAGEMENT
ASSOCIATION, ARLINGTON, VIRGINIA
Mr. Donoho. Mr. Chairman, Mr. Rangel, Members of the
Committee, my name is Patrick Donoho and I am Vice President of
government Affairs and Public Policy for the Pharmaceutical
Care Management Association. I am pleased to be here to
represent their views before you today on this important issue.
PCMA represents managed care pharmacy and organizations
that as a substantial portion of their businessmanage pharmacy
benefits. Our members are often referred to as PBMs. We are
pleased to provide our association's view on providing coverage
for prescription drugs for those individuals enrolled in the
Medicare Program.
Our members currently provide drug benefits to more than 10
million Medicare beneficiaries through employer-sponsored,
retiree plans or through Medicare-plus Choice plans.
Collectively, PCMA members manage prescription drug programs
for over 150 million Americans. We are pleased that many of the
pending proposals recognize that it would be more efficient to
use existing benefit managers in an expanded drug benefit
program than to attempt to recreate these capabilities in HCFA.
As the Committee examines various proposals for expanding
access to medications for Medicare beneficiaries, we urge you
to consider six principles that we believe to be critical to 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 pay for the cost of
drugs, but also protects the health of seniors. Some drugs are
inappropriate for use with the elderly. Others should be used
at different dosing levels than are appropriate for younger
populations.
Seniors without prescription drug coverage currently do not
benefit from the safety of drug interaction screening mandated
by OLGRA 90 for Medicaid recipients and present and virtually
all third party programs.
Second, legislation should provide the benefit to the
private sector. Competition among private sector PBMs delivers
significant cost savings and has spurred innovation in the use
of advanced technologies for administering drug benefits. A new
drug benefit should embrace and promote competition among these
entities and ensure the vitality and innovation through
competition.
From prior testimony I have heard the concern about rural
Americans. Through drug benefit managers today we contract with
most the pharmacies throughout the United States in the mandate
given to us by our clients.
Third, legislation should retain flexibility and cost
controls within the private sector. Prescription drug coverage
for Medicare enrollees must permit pharmacy benefit managers to
continue to use such programs as pharmacy network management,
formulary development and management, mail service pharmacies,
disease management, prescription adherence programs,
utilization review and provider profiling for adherence to best
medical practices.
Fourth, legislation should encourage continuation of
current prescription benefit plans. A new prescription drug
benefit for seniors should contain incentives for employers to
continue to provide prescription drug coverage to their
retirees.
Fifth, a plan should be designed to protect beneficiaries
against catastrophic liability.
Sixth, the goal of any agency overseeing the administration
of a prescription drug 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 several proposals that have been announced
or introduced as legislation, we see much commonality in
meeting the goals we seek. In particular, most proposals
appropriately focus on PBMs, encouraging or mandating the use
of the latest tools to improve health outcomes and eliminating
medical and medication errors.
Where proposals differ is on whether we as PBMs will have
the flexibility we need to control costs. Any legislation that
does not empower us as PBMs to negotiate discounts and other
pricing concessions from drug manufacturers and pharmacies as
we do today in private drug plans will not deliver the
anticipated cost savings. Our members are strongly united on
this point.
We share the concerns expressed by both the Congressional
Budget Office and the General Accounting Office that the
political pressures on policymakers and 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.
In conclusion, Mr. Chairman, as an industry we are ready,
willing and able to provide our expertise and experience in
providing drug benefits to all Medicare beneficiaries.
Thank you for the opportunity.
[The prepared statement follows:]
Statement of Patrick B. Donoho, Vice President, Government Affairs &
Public Policy, Pharmaceutical Care Management Association, Arlington,
Virginia
Mr. Chairman, Mr. Rangel, members of the Committee, my name
is Patrick Donoho and I am Vice President of Government Affairs
and Public Policy for the Pharmaceutical Care Management
Association (PCMA). I am pleased to appear before you today to
testify on behalf of the PCMA.
PCMA represents managed care pharmacy and pharmacy benefit
management companies (PBM). Members are organizations that, as
a substantial portion of their business, manage pharmacy
benefits. PCMA's member firms are an extremely diverse group,
including both publicly traded companies and divisions or
subsidiaries owned by other healthcare organizations. While
many of our members serve broad national populations, some
focus on the needs of specific communities such as patients
with HIV/AIDS, organ transplants, or cancer.
We are pleased to provide our association's views on
providing coverage for prescription medicines for those
individuals enrolled in the Medicare program. Our members have
a deep interest in the subject of this hearing. Already today,
our member companies provide quality, affordable pharmaceutical
benefits to more than ten million current Medicare
beneficiaries who receive these benefits through their or their
spouse's former employers or through Medicare+Choice plans.
Collectively, PCMA's members administer prescription drug
programs for more than 150 million Americans. All of the major
legislative proposals for expanding prescription drug coverage
propose using PBMs to deliver these benefits. We are pleased
that all of these 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 those
capabilities within HCFA.
As an industry, we have been successful in not only
managing the cost of these benefits but also in managing the
quality. We know how important good pharmaceutical care is to
the elderly and disabled. Therefore, PCMA supports legislative
efforts to ensure that all seniors have access to prescription
drug coverage. Any program to provide prescription drugs to
seniors should rely on the demonstrated drug management
experience of the private sector to operate an efficient and
cost effective program.
PCMA's Principles
As the Committee examines various proposals for expanding
access to medicines for Medicare beneficiaries, we urge you to
consider six principles that we have agreed to as an
association of member companies to whom much responsibility
will be placed by any legislation.
First, the benefit should be delivered in a manner that
enhances the health of seniors and the disabled. It is
therefore essential that the program not simply help pay for
the cost of drugs, but also include pharmacy benefit management
services to ensure that seniors obtain, and remain compliant
with, clinically appropriate and cost effective drug therapy.
Many drugs are inappropriate for use with the elderly,
others should be used at different dosing levels than are
appropriate for younger populations. Seniors without
prescription drug coverage do not currently benefit from the
safety of drug interaction screening mandated by OBRA'90 for
Medicaid recipients and present in virtually all third party
programs.
Second, legislation should provide the benefit through the
private sector. Competition among private sector PBMs deliver
significant cost savings and spurred innovation and the use of
advanced technologies for administering drug benefits. PBMs
develop and administer disease and wellness management programs
specifically designed for elderly populations. A new benefit
should embrace and promote competition between these entities
and ensure the vitality of innovation through competition.
Third, legislation should retain flexibility and cost
controls within the private sector. Innovation and creativity
in pharmaceutical care has resulted in a number of programs and
services that have improved care and managed costs.
Prescription drug coverage for Medicare enrollees must permit
pharmacy benefits managers to continue this development and use
such programs as pharmacy network management, formulary
development and management, mail service pharmacy, disease
management, prescription adherence programs, utilization
review, provider profiling for adherence to best medical
practices, and other such programs to manage the benefit.
Fourth, legislation should encourage the continuation of
current prescription benefit plans. In order to encourage
employers to continue to provide prescription drug coverage to
their retirees, a new prescription drug benefit for seniors
should contain financial incentives to compensate employers
for, and recognize the financial impact of, their efforts.
Fifth, a plan should be designed to protect beneficiaries
against catastrophic liability. Recognizing that many seniors
have limited incomes and that major or chronic illnesses can
impose significant drug costs in a single year, any new
Medicare prescription drug benefit should endeavor to include
an out-of-pocket expenditure cap.
Sixth, the goal of any agency overseeing the administration
of a prescription drug benefit should be to foster innovation
and competition for improving pharmaceutical care and the
provision of a cost-effective program. PBMs must be able to
create financial incentives to encourage Medicare beneficiaries
to help control the cost of the benefit. Moreover, the
legislation should not freeze in time the management techniques
used today by PBMs. To do so would cause the drug benefit to
lose the opportunity for innovation and improvement, which has
been the hallmark of the pharmacy benefits management industry.
Review of Current Proposals
In examining the several proposals that have been announced
or introduced as legislation, we see much commonality in
meeting the goals we seek. In particular, most proposals
appropriately focus on PBMs, encouraging or mandating use of
the latest tools to improve health outcomes and eliminate
medical and medication errors. Most proposals also seek to
ensure that those Medicare beneficiaries who today have good
private sector coverage can keep that coverage by rewarding,
through financial incentives, employers that have served well
the interests of their retirees by covering prescription drugs
within their health benefits. And, importantly, most proposals
would address the issue of providing protection against
catastrophic costs.
Where proposals differ is on whether we as PBMs will have
the flexibility we need to control costs. Any legislation that
does not empower us as PBMs to negotiate discounts and other
pricing concessions from drug manufacturers and pharmacies--as
we do today in private plans--will not be able to deliver the
anticipated cost savings. Our members are strongly united on
this point. Restrictions on the use of common, private-sector
cost containment tools, as we see in some legislation, will
deny our members the ability to do what we do best in terms of
providing a cost effective benefit in the interests of patients
and the taxpayers who will pay for this program.
We share the concerns expressed by both the Congressional
Budget Office and the General Accounting Office that political
pressures on policy makers and PBMs might limit the tools
available to a PBM, making it more a transaction processor than
a robust benefit manager. Such tools as managed pharmacy
networks and negotiated reimbursements, formulary development
and management, and beneficiary cost sharing are examples of
areas which may be restricted by a program that is less private
sector oriented, and therefore less competitive.
Proposals also differ on the administration of the program.
We 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 benefit.
In conclusion Mr. Chairman, as an industry we are ready,
willing and able to provide our expertise and experience in
providing prescription drug benefits to all Medicare
beneficiaries. Our support of the various proposals will be
based on the authority and flexibility granted PBMs to
implement all of their programs to effectively manage costs,
foster innovation, and enhance the quality of pharmaceutical
care for seniors. We will assess the probability of regulatory
limitations, de jure or de facto, on the ability of PBMs to
perform this role. We again appreciate your seeking PCMA's
views and look forward to your questions.
Mr. McCrery. Mr. Schondelmeyer?
STATEMENT OF STEPHEN W. SCHONDELMEYER, HEAD, DEPARTMENT OF
PHARMACEUTICAL CARE AND HEALTH SYSTEMS, AND PROFESSOR,
PHARMACEUTICAL MANAGEMENT AND ECONOMICS, UNIVERSITY OF
MINNESOTA
Mr. Schondelmeyer. I am Stephen W. Schondelmeyer. I am a
Professor of Pharmaceutical Economics from the University of
Minnesota.
I have studied this marketplace, the pharmaceutical
marketplace and its structure and economics for about 25 or 30
years. I had the privilege in 1988 to be appointed to the
Prescription Drug Payment Review Commission when catastrophic
was passed. I was on that 6-month long commission established
by Congress and had the privilege of working with folks like
Alice Rivlin and others who began attacking these issues.
Also, I have had experience in working with the Health Care
Financing Administration evaluating their Medicaid Rebate
Program, I have worked with the Pennsylvania PACE Program,
Senior Drug Program for the Elderly, probably the oldest and
best program in the country.
From that perspective, I bring you my experience and my
comments on what I am aware of with respect to the plan that
has been proposed at this point, although the details are still
somewhat sketchy.
I would comment that we need to be careful with using words
like available to all and universal. Technically, all
prescription drugs are universally available today if you can
afford to pay for them. This document sort of opens that this
plan will be available to all if you can afford to pay for the
plan and if looks like a good deal for you. So we have to say
what does it really mean to say that it is universally
available and available to all. I mean that to be serious, what
does it mean to call something universal, available to all?
Second, I wish that adverse selection was not a problem but
I do have concerns it will be with this particular plan. In my
State of Minnesota, we happen to be one of the States where the
managed care organizations get such a low payment from HCFA
that they cannot afford to offer drug benefits for seniors. The
seniors in the State of Minnesota have available to them the
three Medigap defined benefit policies that are out there on
the marketplace but in Minnesota something less than 10 and
maybe less than 5 percent of the seniors ever sign up. The ones
who do sign up are the ones who have extremely high drug needs.
That sounds like adverse selection to me. So the insurance
plans in the area are reluctant to offer those drug plans
because it puts a heavy tax on them as well.
With respect to the issue of affordable, I noted in the
press release and information about this plan, there is a
comment about a savings of 30 to 39 percent over something. It
doesn't define what. To my knowledge, the Lewin study that is
based on has not been released publicly or is available for
others to evaluate.
I would caution to say we must remember that currently no
private plan in the country can get a better price than the
Medicaid Rebate Plan by law. That is the law you as Congress
established and no matter what we talk about in terms of
competition in private plans, by law, there is no plan that
gets a better price than the Medicare Rebate Program today.
I think that is one marker we need to measure against and
we need to ask how does that 30 to 39 percent compare with the
Medicare Rebate Program and what is that 30 to 39 percent off
of. To someone who knows the market, that number doesn't quite
balance. We need to examine what is the real and realizable
savings from that.
I would comment that you have to deal in a very serious way
with inflation adjustment, not just adjusting with the CPI all
items of inflation, the one that goes up 2 to 3 percent a year.
You have to realize we are talking about a prescription drug
plan and prescription drugs have historically gone up faster
than inflation, sometimes two or three times.
Just this last year in 1999, prescription drug inflation as
measured by the Consumer Price Index was 5.7 percent and it is
on its way up. Actually, the December 1999 value compared to
December the previous year was up 6.1 percent and the slope is
going up right now rather than down.
I think it is partly manufacturers having a sense that
maybe something is going to pass with Medicare and we had
better raise our prices while we can, much like we saw back
with the Medicaid Rebate law. There was a flurry of price
increases just before and just after the rebate law but then
the market leveled out after that time.
The point I would make there is if prescription drug prices
continue to go up at 5 and 6 percent a year and your inflation
adjuster goes up at 2 percent a year, that means the value of
the benefit over time continually declines. That leads me to
the next point.
I am very concerned about the use of an actuarial value as
the basis for offering this benefit. I think it would be
confusing to the consumer. The task for a consumer with an
actuarial value is basically it means the premium will be the
same to everyone and then the consumer has to figure out of all
these benefit designs and plans that are offered, which one
looks like it is going to give me the most.
From the plan's perspective, what a plan would do with an
actuarial value is say, what can I do to attract people but
deliver the least amount of benefit so I can still make a
profit on this. So it is almost a perverse incentive for the
plan to take the fixed amount of money, find ways to attract
people to the plan but deliver the least amount of benefit so I
can make a profit on it.
I think it is much better to have a defined benefit.
However, I am not telling you how to define the benefit at this
point. I can pick defined benefit A, B, C or D and then my only
choice is figuring out. There may be variations in those plans
and you can allow some variation within defined benefit plans
but then the consumer's choice is how much is the premium for
Plan A from this company and this company and which one of
those. It is much easier for a consumer to make a choice based
on economic value than to try to figure out the structure of
the benefit.
I say that with great confidence because just last week I
sat down with my mother-in-law whose husband passed away
several months ago and she was faced with continuing her health
and prescription drug insurance because of the COBRA
legislation. She had to make a choice of going to a private
insurance outside, continue with the plan my husband had, do I
go to a Medigap policy. It was very confusing for her to sort
out all of that.
I would tell you I think you need to be very realistic and
look at the actual cost structures. We need private health
plans, we need PBMs, and they serve valuable roles for us. PBMs
have not shown a great record of being able to produce any
greater savings than the Medicaid Program. To my knowledge,
most managed care benefits, most PBMs have also had 15 to 18-
percent increase in prescription drug expenditures in the last
several years. I don't see much difference in their performance
in the marketplace.
We need PBMs, they are very important. They have the skills
that are necessary to run these programs but I am not sure they
have done a better job of running them.
I would say if we honestly look at the Medicaid Program
versus private plans and ask which is most restrictive, the
Medicaid Program is probably the least restrictive compared to
most private plans in the marketplace today. Every drug when it
first comes on the market is covered by Medicaid. That is not
true of most private plans. Private plans have closed
formularies, Medicaid cannot do that. Private plans have more
extensive prior authorization programs, Medicaid can have prior
authorization but under very strict criteria.
So when we ask which type of program really provides the
most restrictive or limited benefit, it may be the private
plans in today's market more so than a Medicaid type benefit.
I am not telling you which way to go with that but do an
honest evaluation of what types of restrictions you are willing
to accept.
I would close by saying to be honest and provide fair
balance, to get any benefit whether from a government program
or a private program, you are going to have to allow that
program to implement restrictions because in this marketplace,
you negotiate and get better prices on drugs not by volume but
by restrictions and by limiting access in one way or another.
Unless you are willing to delegate that authority either to
a public or private agency, you won't get better prices by
volume.
Mr. McCrery. Thank you.
Mr. Kahn?
STATEMENT OF CHARLES N. KAHN III, PRESIDENT, HEALTH INSURANCE
ASSOCIATION OF AMERICA
Mr. Kahn. I am Chip Kahn, President of Health Insurance
Association of America.
As you know, over a decade ago, I worked on the last
attempt by this Committee to provide a drug benefit for seniors
through the Medicare Catastrophic Act. Later, I staffed
Chairman Archer in the repeal of that law. So I have a deep
personal understanding of how truly difficult it is to make
Federal policy to assist seniors in purchasing drugs.
It is critical, I believe that you make sure seniors
understand what they are getting if you legislate on this
matter. This and other lessons of the debate are important to
draw upon as the Committee examines this complex issue.
I also worked closely with you as well as the other Members
of the Committee in the development of Medicare Plus Choice and
share your concerns about the future of this program. I believe
the future of market oriented approaches to preserving Medicare
depends on keeping Medicare Choice viable now.
I believe there is a consensus today that seniors need help
with purchasing 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 have 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's spending for prescription drugs will increase by 15 to
18 percent annually over the next 5 years. This will mean more
than a doubling of annual drug costs to $212 billion by 2004.
These growing drug costs are particularly a hard squeeze on our
Nation's elderly.
We all agree on the goal of helping seniors with drugs but
as you and the Committee consider solutions, I urge you to
carefully weigh the consequences of the policy alternatives.
The lessons of unintended consequences were learned all too
well in 1988 and 1989. I will be happy to comment specifically
on the drug coverage plan to be marked up by the Committee when
the legislative details are made available.
I can say from what I understand of that 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 maintains its strong conviction that
a private drug only option is unworkable and will not fulfill
the expectations of seniors. In my written testimony, I have
provided a detailed critique of why our companies believe this
and you can read it there.
As you consider options, because of the expensive nature of
drug coverage, we are equally concerned that simply mandating
that private Medicare Plus Choice plans or Medigap plans cover
outpatient prescription drugs will also not serve beneficiaries
well.
The proposal recognizes that Medicare Plus Choice plans are
severely underpaid and action is needed now to save this
important option that so many seniors depend on. Most Medicare
HMOs now offer coverage for prescription drugs. However,
sustaining this benefit will be difficult since payment
inequities and regulatory burdens are major hurdles. Medicare
Plus Choice plans cannot continue to offer even the basic
Medicare benefits if the status quo remains.
Therefore, for a seniors 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.
The proposal for a new Medicare Board to replace HCFA has
great potential. Our experience indicates that HCFA has had a
difficult time implementing the program and that a fresh start
is needed.
Last week, HIAA released a white paper by Bruce Fried, the
former director of HCFA's HMO Office. The paper well documents
the problems that have caused many HMOs to throw up their hands
and exit all or part of Medicare. I urge you to review the
Fried report and consider his recommendations.
I would like to reiterate if Congress and the
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. I will be happy to answer any questions.
[The prepared statement follows:]
Statement of Charles N. Kahn III, President, Health Insurance
Association of America
Introduction
Chairman Archer, distinguished members of the Committee, I
am Charles N. Kahn III, President of the Health Insurance
Association of America (HIAA). Before joining HIAA, I devoted a
significant portion of my professional life to working on
Medicare policy in service to this Committee. I was involved in
the first real attempt to provide seniors with access to
prescription drug coverage through the Medicare program through
enactment of the Medicare Catastrophic Act over one decade ago.
I also worked with you, Mr. Chairman, and other members of this
Committee on its subsequent repeal. As Staff Director to the
Subcommittee on Health, I also played a major role in the
development of the Balanced Budget Act of 1997.
HIAA is the nation's most prominent trade association
representing the private health care system. Its 294 members
provide health, long-term care, dental, disability, and
supplemental coverage to more than 123 million Americans. HIAA
also is the nation's premier provider of self-study courses on
health insurance and managed care. We represent companies
offering a broad range of insurance products to our nation's
seniors, including Medicare+Choice, long-term care insurance,
Medicare Select, and Medicare Supplemental plans.
I am very pleased to be here today to speak with you about
how best to increase access to affordable prescription drugs
for our nation's seniors.
Seniors Should Have Expanded Access to Needed Pharmaceuticals
Clearly, pharmaceuticals have become a critical component
of modern medicine. Prescription drugs play a crucial role in
improving the lives and health of many patients, and new
research breakthroughs in the coming years are likely to bring
even greater improvements. With older Americans becoming an
ever-increasing percentage of the overall United States
population, the need for more medicines for this sector of the
population is becoming equally urgent. There is continuing
emphasis on new pharmaceuticals to treat diseases typically
associated with aging. Over 600 new medicines to treat or
prevent heart disease, stroke, cancer, and other debilitating
diseases are currently under development. Medicines that
already are available have played a central role in helping to
cut death rates for chronic and acute conditions, allowing
patients to lead longer, healthier lives. For example, over the
past three decades, the death rate from atherosclerosis has
declined 74 percent and deaths from ischemic heart disease have
declined 62 percent, both due to the advent of beta blockers
and ACE inhibitors. During this same period, death rates
resulting from emphysema dropped 57 percent due to new
treatments involving anti-inflammatories and bronchodilators.
Prescription Drug Expenditures are Rising at a Rapid Rate
These advances have not come without their price. Rapid
cost increases are putting prescription drugs out of reach for
many of our nation's seniors. Because of both increased
utilization and cost, prescription drug spending has outpaced
all other major categories of health spending over the past few
years. For example, while hospital and physician services
expenditures increased between 3 and 5 percent annually from
1995 through 1999, prescription drug expenditures have
increased at triple that rate, averaging between 10 and 14
percent. According to projections by the Health Care Financing
Administration (HCFA), prescription drug spending will grow at
about 11 percent a year until 2008, more than double the rate
of spending on hospital and physician services.
A study for HIAA and the Blue Cross and Blue Shield
Association by the University of Maryland's School of Pharmacy
found that drug spending will increase at an even faster pace
than the government is predicting. University of Maryland
researchers project that the nation's expenditures for
prescription drugs will increase at a rate of 15-18 percent a
year over the next five years, more than doubling annual drug
spending from $105 billion in 1999 to $212 billion by 2004.
According to the lead author of the study, C. Daniel Mullins,
Ph.D., 60 percent of those expenditures will be caused by
increases in the price and use of drugs already on the market
today, while 40 percent will be attributable to the cost of
drugs still under development--so-called ``pipeline''
pharmaceuticals. I have attached a copy of the executive
summary and slides from that study, and ask that it be made
part of the record of this hearing.
Many Seniors Have Some Drug Coverage, But Benefits Often Are
Limited
About two-thirds of seniors have some type of insurance
coverage for pharmaceuticals--either through employer-sponsored
retiree health plans, private Medicare+Choice plans, Medicaid,
or individual Medicare Supplemental (Medigap) policies. But
this coverage often provides limited benefits for prescription
drugs, and it is likely to decline over time as cost pressures
mount for employers, insurers, and individual consumers. For
example, recent surveys indicate that employers are
contemplating several changes to their retiree health care
plans over the next several years, including increasing
premiums and cost-sharing (81 percent of respondents to a 1999
Hewitt Associates survey sponsored by the Kaiser Family
Foundation) and cutting back on prescription drug coverage (40
percent).
Also, unrealistically low government payments to
Medicare+Choice plans are having the effect of reducing drug
coverage for many seniors enrolled in these plans. Increases in
per capita payments on behalf of beneficiaries enrolled in
Medicare+Choice plans from 1997 to 2003 are projected to be
less than half of the expected increases during the same period
for those individuals in the Medicare fee-for-service program.
In fact, the President's Fiscal Year 2000 budget projected
five-year medical cost increases of 27 percent for the original
Medicare fee-for-service program and 50-percent increases for
the Federal Employee Health Benefit Program, while
Medicare+Choice payment increases during the same period will
be held to less than 10 percent in many counties. The toll
these lower payments are taking on drug benefits is already
apparent-only three years into the new Medicare+Choice payment
scheme. Some beneficiaries now face higher out-of-pocket costs,
lower maximum benefits, and higher co-payments on brand name
drugs.
Adding to the problems is the fact that most seniors live
on fixed incomes and their purchasing power will continue to
erode over time as drug expenditures increase more rapidly than
their real income. In terms of current dollars, seniors' income
has increased very little over the past ten years. From 1989 to
1998, the median income of households with a family head 65
years of age or older increased from $20,719 to $21, 589. This
represents an increase in real income of less than 5 percent
over the entire decade.
HIAA Has Developed a Solution to Help All Seniors
It is important to recognize that we all share a common
goal--to improve drug coverage for seniors. The fact that
Members of Congress have chosen different routes to achieving
this goal is a testament to the magnitude and complexity of the
task.
As this Committee begins to weigh options for expanding
pharmaceutical coverage to seniors, we want to bring to your
attention several important policy considerations that draw
upon our member companies' considerable experience providing
health insurance coverage in the private market and through
government programs such as Medicare.
In particular, we believe that the potential effects of any
new proposal must be carefully examined to ensure that
unintended consequences do not erode the private coverage
options that beneficiaries rely on today to meet their health
care needs. I want to emphasize that, although it has proven
difficult to provide affordable prescription drug coverage
through the private options available to seniors today (and I
will discuss the reasons for that later in my testimony), the
private coverage seniors rely on to supplement Medicare is
extremely important to them. Medicare covers just one-half of
beneficiaries' health care costs and provides no coverage for
truly catastrophic illness. Supplemental insurance and
Medicare+Choice coverage protect seniors from financial ruin
and is highly valued by them for that reason.
Before I outline some of the concerns we have about aspects
of several drug coverage plans that have been proposed, let me
first make clear that HIAA believes strongly that the status
quo is unacceptable. Reforms clearly are needed to expand
access to prescription drugs for the nation's seniors. My
belief is that the most rational and responsible way to
accomplish this is in the context of overall Medicare reform
and restructuring. HIAA agrees with many Members of this
Committee that broad reforms are necessary and that a
sustainable long-term solution to providing affordable drug
coverage for seniors is best accomplished in the context of
securing Medicare for the baby boom generation--and beyond.
However, we also recognize that significant steps can be
taken in the short term to provide relief to seniors. Last
year, HIAA's Board of Directors approved a three-pronged
proposal developed by our member companies that would help
seniors better afford prescription drugs. The HIAA program
would: (1) help lower-income seniors through a federal block
grant to expand drug assistance programs; (2) provide a tax
credit to help offset out-of-pocket drug costs for all other
seniors; and (3) ensure fair payments to private
Medicare+Choice plans that are struggling to provide
prescription drug coverage for seniors despite unrealistically
low government payments that will not keep pace with medical
inflation and the projected increases in drug costs.
Nineteen states already have drug coverage programs for
low-income seniors; several more are considering such programs
in the current legislative session. We believe a federal block
grant, with no requirement for state matching funds, would give
needy seniors additional support in these states and encourage
other states to adopt such programs. Each state would receive a
per-capita payment sufficient to cover the equivalent of drug
coverage with a $1,500 annual maximum for eligible
beneficiaries. States would have considerable flexibility under
our approach, and could use the funds to expand existing drug
assistance programs or create new ones. We estimate that about
10 million lower-income seniors would be eligible for this
subsidy.
The HIAA program also would provide a tax credit to offset
out-of-pocket prescription drug expenses for those seniors who
file tax returns. A single Medicare beneficiary with income
above about 200 percent of poverty (about $16,300) would have
been eligible for a tax credit worth up to $1,000 a year, after
incurring $500 in out-of-pocket expenses. A couple with an
income above approximately 250 percent of poverty (about
$28,000) could access a tax credit worth up to $1,500 per year
after they jointly paid $500 in out-of-pocket drug expenses.
The value of this credit would grow over time to keep pace with
inflation. We estimate that nearly 22 million beneficiaries
would be eligible for this federal tax credit.
Finally, the HIAA proposal includes a number of measures to
assure that seniors choosing to enroll in Medicare+Choice plans
are not disadvantaged by unrealistically low government
reimbursements. As members of this Committee know, the vast
majority of Medicare+Choice plans provide some coverage for
prescription drugs and this has proven to be a very popular
benefit for seniors. However, inequitable government payments
are undermining the Medicare+Choice program and harming seniors
who depend on these plans for their health coverage. In effect,
the growing disparity between payments to Medicare+Choice plans
and per-capita payments for seniors enrolled in traditional
Medicare fee-for-service disadvantages the former, forcing them
to shoulder an increasing out-of-pocket burden for prescription
drugs.
The Balanced Budget Act of 1997 (BBA) reduced payments to
Medicare+Choice plans by $22 billion over five years and HCFA
plans to reduce payments by another $9.9 billion through ``risk
adjustment.'' The Balanced Budget Refinement Act of 1999
restored less than $1 billion of the cuts made through the BBA.
Clearly, additional steps are needed: (1) HCFA should be
required to implement risk adjustment in a budget neutral
manner and the current phase-in should be halted at its current
10 percent level; (2) HCFA should not expand encounter data
collection beyond the hospital inpatient setting and should
replace the planned universal encounter data-based risk
adjustment scheme with a less burdensome approach; and (3)
Medicare+Choice payments should be linked more closely to local
medical inflation trends.
The HIAA proposal represents an immediate and workable step
that will provide meaningful relief for seniors, while avoiding
the disruption and confusion for beneficiaries that surely
would result were Congress to make changes in seniors' private
benefit options before addressing needed changes in the
underlying Medicare program. Equally important, it would not
foreclose the integration of drug coverage into broader
Medicare reform.
Concerns About Private Drug-Only Insurance and Private Sector
Mandates
As you work to develop a solution to this very difficult
issue, we hope that you will draw upon the HIAA proposal. We
recognize, however, that Congress is weighing various Medicare
drug coverage initiatives that do not involve block grants or
tax credits.
Some of the proposals we have examined that rely on
``stand-alone'' drug-only insurance policies simply would not
work in practice. Designing a theoretical drug coverage model
through legislative language does not guarantee that private
insurers will develop that product in the market.
Other proposals seek to assure seniors drug coverage by
mandating that private health plans--either Medigap or
Medicare+Choice, or both--provide enhanced coverage for
pharmaceuticals. While this option has the perception of being
virtually cost-free from a federal budgetary standpoint, it
would be far from inexpensive for seniors who, according to our
estimates, would experience premium increases for Medigap
products of between 50 and 100 percent. It also would result in
many seniors dropping the supplemental coverage they depend
upon, possibly creating new public policy challenges. Seniors
in rural areas, in particular, rely heavily on Medigap coverage
to help them meet their health care needs. If coverage that
consumers cannot afford is mandated, the result will be
unsustainable premium increases, limited choice, and reduced
coverage.
Why a ``Drug-Only'' Benefit Is Unlikely to Meet the Goal of
Universality
Some have proposed that seniors' drug coverage needs could
be met through new private insurance coverage options.
Theoretically, these ``drug-only'' policies would be offered
either as stand-alone policies, or sold in conjunction with
existing Medigap coverage. However, the evidence suggests that
it would be extremely difficult to ensure the universal
availability of drug coverage to seniors through this type of
proposal.
Creating a new form of insurance is not easy. As with any
new product, start-up efforts are costly and time-consuming.
Adding to the difficulty is that such insurance policies would
have to meet existing (and possibly new) dual state and federal
requirements before they could be sold. Thus, before making its
entry into the marketplace, a ``drug-only'' policy would have
to clear a multitude of economic and regulatory hurdles. Our
members have told us these hurdles are likely insurmountable.
Economic Barriers and Adverse Selection Problems
Insurance carriers attempting to bring this type of product
to market would face many barriers, including the costs of
development, marketing, and administration. Premiums for the
policy would have to reflect these costs. Adding to these
administrative expenses is the inherent difficulty of
developing a sustainable premium structure for a benefit that
is so widely used and for which costs are rising so
dramatically.
Volatility in pharmaceutical cost trends also will make a
stand-alone ``drug-only'' policy difficult to price. While
there has been relative stability in the rate of increase of
hospital and physician costs during the past two decades,
pharmaceutical costs have been more difficult to predict. In
March 1999, for example, HCFA estimated that prescription drug
expenditures would reach $171 billion by 2007. Just six months
later, in September, HCFA was forced to revise these
projections and now predicts that prescription drug spending
will reach $223 billion by 2007, a 30 percent increase over the
previous estimate. Since the Administration first offered its
Medicare drug benefit proposal just last year, it has had to
revise cost estimates for the program upward by more than 30
percent due largely to greater-than-expected increases in the
costs of prescription drugs.
For many reasons, ``drug-only'' policies would be very
expensive to administer. Adding to the economic liabilities of
these policies are the expense margin limitations insurance
carriers must meet under Omnibus Budget Reconciliation Act of
1990 (OBRA), which are likely to be too small to support
separate administration of drug benefits.
The most difficult factor driving up premiums, however,
will be ``adverse selection.'' Adverse selection occurs because
those who expect to receive the most in benefits from the
policy will purchase it immediately, while those who expect to
have few claims will hold off purchasing coverage until they
believe it is needed. When people with low drug expenses choose
not to enroll in coverage while those with high costs do
enroll, insurance carriers are forced to charge higher premiums
to all policyholders. Higher premiums over time will price many
seniors out of the supplemental market. As beneficiaries drop
their coverage, premiums invariably will rise yet again--
creating what insurers call a rate ``death spiral.'' Moreover,
the more opportunities there are for enrollment, the greater
the risk of adverse selection.
Adverse selection would be a very real problem for this
type of product. Projections indicate that one-third of seniors
(even if all had coverage for outpatient prescription drugs)
will have drug costs under $250 in the year 2000, with the
average cost estimated at $68. These seniors are unlikely to
purchase any type of private drug coverage, given that the
additional premium for such a policy would be at least 10 times
higher than their average annual drug costs. Of the two-thirds
who might buy the coverage, many would be doing little more
than dollar trading. Some may actually end up much worse off: a
person with $500 of drug expenses could have premium,
deductible, and coinsurance costs equal to over 200 percent of
the actual costs of drugs. Consequently, many seniors are not
likely to purchase the product, resulting in further premium
increases for those that do.
Limiting the sale of these policies to the first six months
of Medicare eligibility would help in theory only, given
legislators' demonstrated proclivity to expand on ``guaranteed
issue.'' The Clinton Administration's Medicare drug coverage
proposal seeks to avoid adverse selection by limiting
enrollment in a government-provided drug coverage plan to the
first six months when beneficiaries initially become eligible
for Medicare. While this type of rule theoretically helps, the
concept seldom works in practice because legislators and
regulators expand guaranteed issue opportunities over time in
response to political pressure. For example, the ``first time''
guaranteed issue rule originally in place for Medigap policies
has been greatly expanded over time--both through new federal
rules in the Balanced Budget Act of 1997 (BBA) and through
state law expansions.
Regulatory Hurdles
Even if such insurance policies were economically feasible,
they would face significant regulatory barriers. The National
Association of Insurance Commissioners (NAIC) would likely have
to develop standards for the new policies; state regulators
would have to approve the products before they could be sold,
as well as scrutinize their initial rates and any proposed rate
increases. Even relatively straightforward product changes
based on proven design formulas can take several years to
progress from the design stage through the regulatory approval
process and, finally, to market.
Because insurers would be required to renew coverage for
all policyholders (as they are required to do with Medigap
products), policies could not be cancelled if new alternatives
were authorized by subsequent legislation or regulations. This
would exacerbate adverse selection problems for these plans,
since people with the greatest drug needs would retain them
while others may seek out less costly alternatives. It also
would dampen interest in offering the product in the first
place, as insurers would be locked into offering these policies
once they were issued.
Guaranteed renewability also would exacerbate pricing
problems for these ``drug-only'' products. While many in
Congress have said that they oppose government price controls
for pharmaceuticals, private insurers offering ``drug-only''
coverage are sure to face premium price restrictions on their
products at the state level (all states have adopted either
rate bands, modified community rating, or full community rating
for Medigap as well as medical insurance coverage options
available to non-seniors). Even when proposed premium increases
are consistent with state law parameters, state regulators are
likely to be resistant to the magnitude of increase it would
likely take to sustain a ``drug-only'' insurance policy as drug
prices grow over time.
If the NAIC did standardize these policies, as some have
proposed, it could impose unworkable limitations on insurers.
If insurance carriers were prevented from adjusting co-payments
and deductibles as drug costs continue to skyrocket, effective
cost management would not be possible without significant
premium increases over time. On the other hand, allowing needed
flexibility would destroy the standardization of Medigap that
Congress and the NAIC have worked so hard to achieve during the
past decade.
High-Deductible Options Introduce Additional Practical
Limitations
Various suggestions have been made to render these policies
economically viable. One suggestion that flies in the face of
historical reality is to design the policies with very high
deductibles--a feature that has never been popular with
seniors. Comprehensive high-deductible Medicare+Choice medical
savings account plans authorized under the Balanced Budget Act
of 1997 (BBA) are not available because no company believes it
can develop sufficient market size to make offering such a
product worth the effort. It is also notable that the high-
deductible Medigap policies with drug coverage authorized under
the BBA 97 have not gained market acceptance, largely out of
the knowledge that this product would not be attractive to a
large enough block of seniors to make it viable. Primary
carriers have not entered this market and, as far as we are
able to determine, only a handful of these policies, if any,
have been sold. The most common reasons for this cited by
insurers are: (1) lack of consumer demand; (2) consumer
confusion; and (3) unworkable systems change requirements and
regulatory barriers (e.g., states will not approve policy forms
for 2000 or 2001 because of the federal government's delay in
publishing allowable deductible levels). The $1,500 deductible
in those BBA Medigap policies is considerably lower than some
of the deductible levels proposed by advocates of the new drug-
only policies.
Government-Funded ``Stop-Loss'' Coverage Is Unlikely to
Make Such Policies Affordable
Some have discussed providing government-funded ``stop-
loss'' coverage as a way to help those beneficiaries with
catastrophic annual drug costs and reduce the cost of private
drug-only insurance. While this proposal would no doubt help
seniors with extremely large annual drug expenses, it would do
little to make drug-only insurance affordable. Nearly nine out
of ten Medicare beneficiaries have annual drug costs under
$2,000 (see Figure 1). Moreover, stop-loss coverage provided to
beneficiaries with drug expenses in excess of $2,500 a year
would cover just 16 percent of annual drug costs (see Figure
2). Stop-loss protection would cover just four percent of
annual drug costs if offered to beneficiaries with
pharmaceutical expenses above $5,000 per year (see Figure 3).
[GRAPHIC] [TIFF OMITTED] T1459.010
Source: National Academy of Social Insurance, 1999;
estimates of 1999 expenditures by Actuarial Research
Corporation based on data from the 1995 Current Beneficiary
Survey. HIAA estimates for distribution above $2,000.
---------------------------------------------------------------------------
\1\ Expenditures include out-of-pocket spending and third-party
payments. Figures are for all non-institutionalized Medicare
beneficiaries except those enrolled in Medicare+Choice plan at any
point during the calendar year.
[GRAPHIC] [TIFF OMITTED] T1459.011
Source: National Academy of Social Insurance, 1999;
estimates of 1999 expenditures by Actuarial Research
Corporation based on data from the 1995 Current Beneficiary
Survey. HIAA estimates of amounts within each category.
---------------------------------------------------------------------------
\2\ Expenditures include out-of-pocket spending and third-party
payments. Figures are for all non-institutionalized Medicare
beneficiaries except those enrolled in a Medicare+Choice plan at any
point during the calendar year.
[GRAPHIC] [TIFF OMITTED] T1459.012
Source: National Academy of Social Insurance, 1999;
estimates of 1999 expenditures by Actuarial Research
Corporation based on data from the 1995 Current Beneficiary
Survey. HIAA estimates of amounts within each category.
---------------------------------------------------------------------------
\3\ Expenditures include out-of-pocket spending and third-party
payments. Figures are for all non-institutionalized Medicare
beneficiaries except those enrolled in Medicare+Choice plan at any
point during the calendar year.
---------------------------------------------------------------------------
In short, a ``drug-only'' policy is unlikely to meet the
promise of guaranteeing all seniors access to expanded
prescription drug coverage.
A Drug Mandate Is Also a Bad Idea
Another bad idea is mandating drug coverage for
Medicare+Choice plans or Medicare supplemental insurance. (More
than 20 million Medicare beneficiaries have Medicare
supplemental coverage, with about 9 million policies purchased
individually and 11 million through the group market.)
HIAA is strongly opposed to proposals that would require
Medicare supplemental insurance or Medicare+Choice plans to
cover the costs of outpatient prescription drugs without the
addition of prescription drug coverage as a Medicare covered
benefit. The growing cost of pharmaceuticals would force plans
with mandated drug coverage to raise premiums, increase
enrollee cost-sharing, or reduce other benefits, all of which
would be counterproductive as seniors dropped their
supplemental or Medicare+Choice coverage. Mandated drug
coverage could also lead to overly-restrictive government
limitations on private plans, such as prohibitions on the use
of formularies or mandating certain levels of coinsurance.
Today's Medigap marketplace is convenient and flexible,
offering many choices to seniors. Of the 10 standard Medigap
policies (A through J) sold, three (H, I, and J) provide
varying levels of coverage for outpatient prescription drugs.
Largely because of the increased costs of the policies with
drug coverage, only a relatively small number of seniors have
chosen to enroll in them. Of the 9.5 million Medicare
beneficiaries with individually purchased Medigap policies,
HIAA estimates that only 1.3 million have drug coverage through
the standardized H, I, or J plans.
Several studies show that adding a drug benefit to Medigap
plans that currently do not include such coverage would
increase premiums dramatically. Seniors who today have chosen
to purchase Medigap policies that do not provide a drug benefit
would end up paying $600 more a year (assuming a $250
deductible for the policy), according to HIAA estimates.
If Congress were to require more comprehensive drug
coverage, those premiums could double. According to a May 1999
study by HIAA and the Blue Cross Blue Shield Association,
requiring all Medigap plans to include coverage for outpatient
prescription drugs would raise Medigap premiums by roughly
$1,200 per year, an increase of over 100 percent.
Premium increases of 50 to 100 percent would result in many
seniors dropping their Medigap coverage, leaving them without
protection against the high out-of-pocket costs of the hospital
and physician services not covered by Medicare. Moreover,
increases of this magnitude would discourage employers (who are
also purchasers of supplemental coverage) from offering such a
benefit at all.
It is doubtful, then, that requiring all Medigap policies
to include a drug benefit would be popular with seniors--who
would experience diminished choice of policies, higher prices,
and in some cases, loss of coverage.
Initial Comments on House Republican Drug Plan Concept
Mr. Chairman, while the press has reported over the past
several days about aspects of the developing House Republican
Medicare drug coverage proposal, HIAA has not had an
opportunity to review the details of this proposal. We applaud
those members of Congress that have worked hard to address this
problem; however, we must reserve final judgment until we have
had the opportunity to review the final legislative language.
Moreover, from what we do know, the House Republican plan
continues to develop.
First, it appears that the proposal will not rely solely on
private health plans to meet its goal of offering universal
drug coverage to seniors. The ``fallback'' mechanism that has
been reported in the press is a contribution to the debate that
we expect to examine more fully in the days ahead.
Second, there appears to be a recognition that
Medicare+Choice plans are severely underpaid and that more
needs to be done in the short run to save the important private
health plan options that many seniors now enjoy.
The vast majority of Medicare+Choice plans now offer
coverage for prescription drugs and view this is an important
benefit for seniors that they would like to continue offering.
However, to the extent Medicare+Choice plans are required to
cover prescription drugs, we need to ensure payments are
adequate. Under the BBA payment rules, payments to
Medicare+Choice plans serving the vast majority of
beneficiaries have increased only 2 percent per year, while
medical inflation is increasing at 8 percent or more.
Medicare+Choice plans cannot continue to offer even the
basic Medicare benefits if this underpayment is not addressed.
And as you know, prescription drug costs are increasing at a
much greater rate than overall medical spending. Therefore, for
this program to be successful, the government must make a firm
commitment to provide payments to private plans that will keep
pace with escalating medical costs, including those for
pharmaceuticals.
Finally, we view the new Medicare board as a potentially
positive development. It is clear from our experience that
HCFA's implementation and management of the Medicare+Choice
program has been difficult. The new Medicare board may allow
for a fresh start.
Last week, HIAA released a white paper by Bruce M. Fried,
the former director of HCFA's office of health plans and
providers, which oversaw the Medicare+Choice program. The paper
finds that a combination of inadequate payments and the
crushing cost of excessive government regulation are causing
HMOs to withdraw from the Medicare program ``at an alarming
rate.''
This is an important point, Mr. Chairman and members of the
Committee. In the short term, whether or not Congress is able
to pass a Medicare prescription drug benefit this year,
immediate steps need to be taken to resuscitate the
Medicare+Choice program. Mr. Fried's paper suggests a course of
action that includes:
Congress must increase payments to Medicare HMOs
to keep up with medical inflation.
HCFA should take immediate steps to reduce the
administrative burden and expense of prescriptive government
regulation, and Congress should exercise its oversight
authority to ensure that this occurs.
Congress should require HCFA to implement risk
adjustment in a budget neutral manner and direct HCFA to
explore more cost effective--and less administratively
burdensome--methods of assessing health risk status. Until a
less burdensome system is developed, HCFA should (1) halt plans
to collect multiple site encounter data, and (2) freeze the
phase-in approach so that no more than 10 percent of an
Medicare+Choice Organization's capitated payment amount would
be based on the current risk adjustment method.
Congress should engage in increased scrutiny of
the level and type of administrative burden imposed on
Medicare+Choice Organizations and the impact and cost of such
burden.
The Secretary of the Department of Health and
Human Services (HHS) should consolidate HCFA's responsibility
for overseeing the Medicare+Choice program in one division.
We commend this paper to you, and we urge this Committee to
take immediate action to rescue this troubled program. If
Congress and the Administration ignore the pressing problems
and developments in the Medicare+Choice program, the program
will die a slow and painful death, and it will be difficult--if
not impossible--to generate industry support for, and
involvement in, future market-oriented approaches to delivering
Medicare services.
Comments on the Democratic Drug Coverage Proposal
The Democrats' plan to extend drug coverage to Medicare
beneficiaries relies primarily on an expansion of the
traditional Medicare fee-for-service program. While it avoids
some of the problems that would be associated with the creation
of private ``drug-only'' insurance policies, it would create a
costly new benefit entitlement without substantive programmatic
reforms that are so desperately needed to ensure that the
program remains on solid footing for the baby boom generation
and beyond.
Moreover, it is far from clear whether payments to
Medicare+Choice plans competing with the traditional fee-for-
service program to provide prescription drug coverage would be
adequate under the Democratic proposal to ensure the long-term
survival of the Medicare+Choice program. If these payments
indeed prove inadequate, seniors could lose the private health
plan options that provide them with high quality coverage
today.
Conclusion
The plight of seniors who are struggling to make ends meet
and are finding it difficult to pay for medicine is very real.
But the immediacy of the problem should not lead to short-term
fixes that would do much more harm than good. We believe
Congress should step back and examine a broad range of
proposals--such as financial support for low-income seniors,
tax credits, and fair payments to Medicare+Choice plans, most
of which offer drug benefits. We believe there are workable
solutions that can meet the needs of our seniors without
undermining the coverage they currently rely upon. HIAA stands
ready to work with the members of this Committee, and all in
Congress and the Administration, to ensure that all seniors to
have access to affordable prescription drugs.
Mr. Thomas. Thank you very much.
I think your last statement may have discovered somebody's
motivation for the current structure.
One prescription drug plan used the Consumer Price Index as
its inflater multiplier. The other plan used inflation of drug
costs as its inflater. From what I understood, the one using
the drug costs would be the better plan in terms of staying
with the increasing costs versus diminished benefits over time
and perhaps being virtually worthless over a decade given
difference between the CPI and drug costs. Is that accurate?
Mr. Schondelmeyer. That is true in terms of how much
benefit would be delivered and how much you increase the
funding for that benefit.
Mr. Thomas. Would you be surprised if I told you the
President's plan uses CPI and the bipartisan plan uses the drug
index inflater?
Mr. Schondelmeyer. I hadn't seen what was in the bipartisan
plan.
Mr. Thomas. At least on that one comparison, it would be
better?
Mr. Schondelmeyer. Yes. The caveat I would have though is
if you do use the CPI for Rx drugs, then it may diminish the
incentive for some attempt to hold down price inflation of
prescription drugs which I think is a concern also.
Mr. Thomas. One of the ways you could do that would be to
use some of the tools that Mr. Donoho's folk have developed
like formularies and tiered pricing and moving toward generic
substitution in cooperation with doctors and the rest.
Ms. Briceland-Betts, you indicated you had some fear of the
bipartisan plan controlling formularies. How could you also say
that one of the criticisms of the plan was that it was
basically the private sector being allowed to structure the
formularies versus then saying they were going to be somehow
limited or restricted? You are either going to be given more
freedom to do what you believe is necessary or less freedom but
you probably wouldn't be given more freedom to structure and
then your fear of not being able to offer a kind of formulary
that makes sense.
Ms. Briceland-Betts. I think the point we are trying to
make is that there is give and take in every option. While we
look at plans that restrict formularies, women have more
chronic illness, there is a lot of research as my colleague
from PhRMA pointed out on chronic illness which is bringing new
and leading edge medications, they tend to be very expensive
and she can't buy those out of pocket, she has to have a way
within that plan. If the plan has a restrictive formulary to be
able to go off the formulary and have access to those.
Mr. Thomas. If the doctor were to recommend it, there is no
plan that wouldn't allow it.
On page four you say ``Adequate stop loss protections and
catastrophic coverage are critical components in a prescription
drug program.`` I can understand why you wouldn't be familiar
with the bipartisan plan since frankly it hasn't yet been in
print. What is the President's first year, 2003, catastrophic
coverage in his plan?
Ms. Briceland-Betts. I don't think I commented on that in
my testimony.
Mr. Thomas. On page four you said ``adequate stop loss
protections and catastrophic coverage are critical
components.''
Ms. Briceland-Betts. They are of any plan.
Mr. Thomas. What is the President's catastrophic plan in
the first year of its implementation, 2003?
Ms. Briceland-Betts. I don't know the answer to that.
Mr. Thomas. The answer is there isn't a catastrophic plan
in the President's proposal in 2003. What is his plan in 2004?
Ms. Briceland-Betts. The point I was trying to make is that
because women have lower incomes and higher out of pocket costs
and take more prescription drugs, they have to have
catastrophic coverage. It doesn't matter whose plan it is, sir.
Mr. Thomas. I agree with you completely, but if you have
one plan that doesn't have catastrophic coverage and the other
does, wouldn't you say the plan that has it from day one is a
better plan?
Ms. Briceland-Betts. Since I have only seen one of the
plans, I was doing my best, sir.
Mr. Thomas. Which had you seen?
Ms. Briceland-Betts. I have seen the more structure on the
President's plan.
Mr. Thomas. What is the President's catastrophic proposal
for the year 2004?
Ms. Briceland-Betts. Maybe not all of the details are in
the President's plan but we have seen much more detail.
Mr. Thomas. The answer is there is no catastrophic proposal
in the President's plan. That is the point I am trying to make
to you. There is none.
Ms. Briceland-Betts. I know, sir, but the point I was
trying to make is how important catastrophic coverage is.
Mr. Thomas. I know the point you were trying to make. All I
am saying is don't put in your testimony that catastrophic
coverage is a critical component and not know that the
President's plan doesn't have it.
Ms. Briceland-Betts. I was talking about what older women
need.
Mr. Thomas. I agree, older women need catastrophic. That is
why the bipartisan plan built in from day one of the proposal a
catastrophic coverage, a stop loss for seniors who through no
fault of their own have very high drug costs. That is critical
to any plan. We put it in from day one. I just thought you
might like to know the President's doesn't have it.
Ms. Briceland-Betts. With all due respect, I think what we
were trying to do here, and we were very clear, was provide
leadership about what older women need as the majority of
beneficiaries. Since we haven't had an opportunity to your
plan, we were saying one of the things we hope you consider is
the importance of catastrophic coverage.
Mr. Thomas. I agree with you and have you delivered that
message to the President since his plan doesn't have
catastrophic coverage?
Ms. Briceland-Betts. Yes, sir, we have.
Mr. Thomas. What was their response? Are they going to do
it in 2003?
Ms. Briceland-Betts. They are still examining that, sir.
Mr. Thomas. Does the gentleman from New York wish to
inquire?
Mr. Rangel. I am just glad you treat the witnesses the same
way you treat the Democrats. I yield.
Mr. Thomas. I can assure you that if a Republican answered
the same way, they would get the same treatment. We are here to
try to remove partisanship, to try to move a program forward
and try to understand what seniors need. I agree, seniors need
catastrophic coverage but when one plan doesn't offer it, I
think you have to say you are right, it falls short, it doesn't
offer it.
Does the gentlelady from Connecticut wish to inquire?
Mrs. Johnson. I have several questions. Mr. Schondelmeyer,
having been here through catastrophic and seen the reaction, I
am interested in your comments about Medicaid. I am not
familiar with Medicaid reimbursement rates for pharmaceuticals
but I know the real problem for all providers is
catastrophically low Medicaid reimbursements for hospitals,
doctors and every other provider. They are actually bringing
down the system. That comes from a progressive State that does
better than most. Are there reimbursements for drugs
sufficient?
Mr. Schondelmeyer. The reimbursements to pharmacies are not
necessarily sufficient because those are ratcheted down over
time and actually pharmacists get about one-fourth less today
than they did 20 years ago under Medicaid.
For the drug product component, for single source or
innovator drugs, there has never been any price control or
limitation on those. It is exactly what the manufacturer sets
the price at.
Mrs. Johnson. Presumably if we use the Medicaid system to
distribute, we would end up distributing drugs at a very low
price. I am concerned about the small pharmacist because in
many of the rural towns I represent, they are it and there is
one of them. We have done so much to put them under already, so
this idea of a single pharmaceutical benefit manager that the
government would contract with, do you think that will preserve
the small pharmacist and do you think their price, if we did it
through Medicaid, would be adequate?
Mr. Schondelmeyer. Medicaid has been as good a payer as
many of the private plans. In fact, some of the private plans
have been more aggressive or more damaging to rural pharmacies
than Medicaid has.
Mr. Fuller. I would add the CBO report suggests a lot of
the reductions as stated have come out of pharmacy. The margin
in pharmacy is very, very small. You are right, the small,
independent pharmacies for many years have been in decline,
although that has leveled off some. A system that puts more
pressure on community pharmacy is not only going to detract
from the service they should be providing to the patient but is
going to financially make it more difficult for them to
survive.
Mrs. Johnson. One of my concerns is I don't see any plan
out there on the table that sufficiently recognizes that people
with certain advanced diseases, advanced stages of heart
disease or diabetes, not everyone but some portion of those
groups will have much lower medical costs if they are in a
disease management program that includes not only
pharmaceuticals but other components.
What would be the incentive for a pharmaceutical benefit
manager to put people in those programs since the
pharmaceutical benefit manager isn't going to get the cost
savings that accrues to that and yet the public interest is
that anyone getting those benefits should be in a disease
management protocol.
Mr. Donoho. I would respond to that by saying if you look
at my statement when I said we need the tools, I think when you
start looking at defining what kind of tools we have, that is
one of our principal concerns.
Mrs. Johnson. How would you answer my concern that you
wouldn't be motivated to do that because you have to provide
the same pharmaceuticals but unless you were a managed care
choice plan, you wouldn't get the benefit of lower hospital
costs, lower physician visits?
Mr. Donoho. Because we do those kinds of programs today in
the private sector, those are the kinds of programs that we
have innovated, developed and we are developing. If you look
into the future in terms of where this whole industry is going.
Taking silos away is going to be very important in terms of how
prescribing and dispensing practices occur. That is what our
industry is evolving into. We are an evolutionary industry.
It is in our best interest to take care of the patient.
That is why in my statement I said we have to look beyond
focusing on product cost and look at health care.
Mr. Kennedy. A procedural question. We have less than 10
minutes left on a vote and we have six votes on the House
floor. Is it your intention since you are the only majority
party member to recess the Committee so we can come back?
Mrs. Johnson. I didn't realize I was the only one. Can we
get it all in?
Mr. Kennedy. In less than 10 minutes, I doubt it, not with
six votes.
Mrs. Johnson. How many of you can come back? Can the
members come back too? We will just proceed.
Mr. Fuller. The senior Rx goal proposal we have put forth
would require payment for pharmacy services. We think there is
plenty of research that indicates that these services improve
the patient; health as well as reduce cost to the program.
Mrs. Johnson. Do you think most pharmacists can participate
in some kind of contract with an insurer or with a reinsurer? I
don't want the small pharmacists to be closed out while a big
pharmacist takes over through this contracting mechanism. How
do we get the small pharmacists into it?
Mr. Fuller. The APHA which represents all pharmacists
supports our plan and, I think the kind of proposal we are
putting forth they as being workable.
Mrs. Johnson. Mr. Stark will inquire and we will recess for
the vote.
Mr. Stark. Are your members in California comfortable with
the Medi-CAL Program for reimbursement which would be Medicaid
in any other State?
Mr. Fuller. I think we have some concerns because much of
the burden of reducing costs falls on community pharmacy there.
Mr. Stark. But if we didn't have it, none of those people
would be able to buy any pharmaceuticals. In my discussions
with the Longs and others, it has been my sense they would be
more than happy to continue providing the drugs. They are happy
to serve the Medi-CAL or Medicaid community.
Mr. Fuller. It is certainly the desire of community
pharmacy to serve that community.
Mr. Stark. I haven't heard that they are complaining as
loud as the physicians in terms of their reimbursement, that it
is now the law that Medicare beneficiaries must get the same
discount as Medicaid beneficiaries in California. I am not so
sure that is saving a lot of money for the Medicare
beneficiaries, but it seems to be moving all right in
California. Do you know anything to the contrary?
Mr. Fuller. I will share with you that the desire to serve
the community is great. The ability to continue to do it with
the kinds of pressures and low reimbursements they are seeing
and the razor thin margins that exist at pharmacy put the
future of this in some jeopardy. So proposals that further
reduce margins and try to find more savings at the pharmacy
level are ones that we have opposed as an organization.
Mr. Stark. I would agree. I think Mr. Schondelmeyer, what
you were suggesting is that the Medicaid regulations probably
provide for the best purchase price for pharmaceuticals today,
correct?
Mr. Schondelmeyer. Right now, they do by law.
Mr. Stark. So by law, we have established the best price
anybody in the general public can get for pharmaceuticals. It
could be that someone like Kaiser Permanente gets a better deal
because they have bigger purchasing power.
Ms. Briceland-Betts, we shouldn't be beating up on you for
you not knowing plans that I haven't introduced yet.
Mrs. Johnson. If the gentleman will yield, I would just
announce that the members will return.
Mr. Stark. In purchasing drugs under Medicaid, is there
anything that we could do differently that would get us any
better price. Is there anything inherently wrong with setting
that rate? We have a government set rate and it gets all the
Medicaid beneficiaries the pharmaceuticals they need, correct?
Mr. Schondelmeyer. That is true. Medicaid represents about
12 percent of the prescriptions in the country; Medicare, if it
covered all elderly drugs, would represent somewhere between 35
and 40 percent of the drugs in the country. There is every
reason to think if you have an even larger volume being paid
for by the government, you should get an even better price. So
you may set a Medicaid type rebate as the floor and then tell
the private plans you work with you are welcome to negotiate
better prices and if you do, we will exempt it from Medicaid.
Mr. Stark. Wouldn't it stand to reason that fewer larger
pharmaceutical benefit managers could get a better discount?
Mr. Schondelmeyer. In terms of getting better price,
probably yes. In terms of implementing the plan and getting the
benefit to meet the needs of populations in certain areas, most
of our PBMs are nationwide in scope and can address national
structures as well as they could regional.
Mr. Stark. Roughly how many nationwide pharmaceutical
benefit manufacturers are there, Mr. Donoho?
Mr. Donoho. Nationwide PBMs, I would guess over a dozen. We
have 36.
Mr. Stark. How many wholesale distributors of
pharmaceuticals are there roughly in the country?
Mr. Donoho. That, I wouldn't know.
Mr. Schondelmeyer. At least 100 actual companies and then
they have far more.
Mr. Stark. So we have a dozen nationwide benefit plans.
They ought to be big enough to get a decent volume discount. If
you start to deal with very small ones, they would be at a
disadvantage, would they not, in getting a good price?
Mr. Donoho. I think what you are getting at is the
difference between a negotiation over class of trade or market
versus setting a price. You as a Congress can set prices.
Mr. Stark. I am. I am just saying wouldn't we be better off
with a dozen, as opposed to a couple hundred plans
administering these benefits, because the smaller number of
large beneficiary plans would have a better bargaining power?
Is that a fair assumption?
Mr. Donoho. I guess it would be. It depends on the terms.
If that is the sole criteria for cost savings. That is one.
Mr. Stark. I guess my time is up.
Thanks for your testimony.
[Recess.]
Mrs. Johnson. I apologize to my colleagues. There was a
mixup as to who we thought was coming back, so I am sorry to
have kept you waiting. I thought you were going on this time.
Mr. McDermott, you are recognized, unless you want to--or
you can let Mr. Kleczka go or Mrs. Thurman go.
Mr. Kleczka. I don't have any questions at the moment,
although I might have some after Mrs. Thurman is done.
But the reason that I asked for the Committee to return was
so that I could publicly apologize to Ms. Betts for the
intemperate remarks of Mr. Thomas.
I think at times some people on this Committee, and maybe
in Congress, forget who the boss is, who pays their salary, and
to ascertain more knowledge on issues that we're talking about,
we ask the public to come here. And if we get to the point
where we don't agree with what they say and publicly embarrass
and chew them out, I think is wrong.
And so, Ms. Betts, I would like to apologize not only on
behalf of this Committee, but on behalf of the entire Congress.
That conduct should not be condoned. That is not the way I want
this Congress to be viewed, and I don't think it should act as
a deterrent for you to say anything you damn well please,
whether it be in opposition or in support of my proposal or
anyone else's.
So I do apologize on behalf of the Committee.
Mrs. Johnson. Before I recognize Mrs. Thurman, I would like
to say that I think Mr. Thomas was trying to make a very simple
point----
Mr. Kleczka. But you don't shout at a witness who comes
here to try to enlighten this august body.
Mrs. Johnson. Mr. Kleczka, I recognized you for your
statement and now I'm going to make mine.
I don't condone the tone of voice of Mr. Thomas, but he was
trying to make a very simple statement and get a very simple
answer. The fact is, the President's proposal never did have a
catastrophic component to it. The Republican proposal has
always had a catastrophic proposal to it. The later proposal
that was generically laid out by Democrats also had a
catastrophic proposal to it, and a catastrophic proposal is
very, very important.
Now, tempers do get high and voices do get harsh, and I am
sorry about that. But frankly, Mr. Kleczka, I have seen--like
the colleagues on the other side of the aisle on this very
Committee, and I won't name any names--be extraordinarily rude
to witnesses when they weren't even trying to make what I
considered to be a legitimate point.
So I apologize if anybody's feelings were hurt on the
panel, but I certainly would not agree with my colleague, Mr.
Kleczka, that somehow Mr. Thomas was way out of order. I have
heard far more inappropriate language, tone of voice, and
comments from colleagues when they also were not at their best,
at least as I would claim it.
But let's turn to Mrs. Thurman now.
Mrs. Thurman. I would yield to Mr. McDermott.
Mr. McDermott. I have the question that I wanted here.
I don't know who it is on this panel that should talk about
it, but as we said over and over again, we don't have the bill
in front of us, but the concept that there would be one premium
all the way across the country, everybody pay the same thing.
Is it your belief, as a panel, that the insurance companies
would charge the same premium everywhere in the United States,
that the premium would be the same in Seattle as it would be in
New York or New Hampshire? I raise that because in looking at
the Medigap policies, you see tremendous variations--the H
policy goes from $1,137 in Hawaii to $2,509 in Florida. And
what I don't understand is how you're going to have this one
premium that's going to cover the whole country.
I would like to hear from those of you who think this idea
will work, that it could be done through the private insurance
industry.
Mr. Kahn. I think there's a reason that rates vary, and
that's because there is some experience that ultimately is used
to calculate the rates by actuaries. So I think to the extent
possible, insurers and health plans would want the flexibility,
based on whatever regional basis was allowed under a law that
was ultimately written, to vary their rates. I mean, there's a
lot of complaint--I'll give you an example about the AAPCC as a
payment mechanism. You know, I will get in line with the people
who complain about it. But it does reflect the actual spending
on a county-by-county basis on the fee-for-service side of
Medicare of what is spent, and there is great variation. Now,
some of that variation can be explained, and some of it is
mystical. But the fact is that there is such variation, and if
you're going to set a premium for an insurance policy, if you
don't recognize that variation or if you don't have a pool that
is so big that the variation won't affect the ultimate outcome,
you're going to have problems with the rates.
Mr. McDermott. Isn't that an argument, though, for having
one plan, so that you get all the benefits of insurance pooling
from the whole United States and put them in one bag, and then
you can have one? But if you're going to have these regional
benefit managers, it seems to me that once you go to regional
benefit managers, you're going to have regional programs and
you're going to have real problems in having the same premium.
What I struggle with is--I can understand the AAPCC; that
is, doctors' pay. Doctors charge $1,000 for an appendectomy in
one place and $1,500 in another place. OK, so you've got a
variation across the country. But the cost of Kumadin or the
cost of antibiotics or anything else ought to be the same,
shouldn't it?
Mr. Kahn. You're talking about the price of a particular
drug. But the use and the volume and the cost may vary from
region to region based on things other than simply the price.
Mr. McDermott. So the doctors in Florida give more Prozac
than the doctors in New Jersey?
Mr. Kahn. It's true with every other procedure; we know
that from Wenberg's work.
Mr. Schondelmeyer. And it's not just that. It could also be
the types of consumers that enroll in the program and seniors
that enroll in the program. If in one area, if in Minnesota you
get this heavy adverse selection and you just get the people
that have more than $3,000 worth of drug expenditures a year,
you're going to have real high costs for the program. But if in
Florida you get almost everybody to sign up, then the average
cost is going to be much lower just because of the mix of
people who signed up for the program.
So there are things other than the cost of the drug that
will cause variation in the cost of covering the population
that is enrolled.
Mr. McDermott. Cost control--doesn't that argue for having
a mandatory program, everybody signs up, everybody's in, so
that you get the benefit of pooling and get away from adverse
selection?
Mr. Schondelmeyer. There are definite benefits to pooling
and avoiding the adverse selection.
Mr. McDermott. But you wouldn't go the next step?
Mr. Schondelmeyer. I don't know. It depends on how you do
it. I mean, there are ways--and I don't know what's been
proposed here--there are ways to do it, either a design way to
attract more people in, or a mandatory way. There are
variations on how you can get larger populations in, and that's
a function of benefit design.
Ms. Ignagni. Mr. McDermott, what I understand is that in
Mr. Thomas' proposal--and we are looking forward to seeing the
details--there would be a specific deductible coinsurance
catastrophic set, so that any plan participating would have to
meet that basic level. Then, depending upon how efficient the
plan was at, for example, disease management, that could be one
way that in that sense, by charging the same premium, you could
still deliver more benefits. If you were very efficient at
disease management and had all the infrastructure in place to
do that, you might be able then to reduce the deductible. You
might be able to improve on the cost-sharing, or do better on
the catastrophic. As I understand it, that is what's being
contemplated.
Now, I am not familiar enough with the details of the
President's program to know if that would be the case, but in
Medicare+Choice, for example, across the board we're allowed to
do that. You hit the basic benefits, and then if you're able to
improve them because of your ability to coordinate care, and so
forth., then you can do that, and that goes to the benefit of
the beneficiary.
So it may be common to both.
Mr. McDermott. So you think it would not work if we
mandated that there be a drug benefit of x for every plan,
every HMO?
Ms. Ignagni. Well, I think that what we're talking about--
and again, I may be misinformed--but what I understand is that
there is a basic requirement. There would be a basic
deductible, coinsurance, and catastrophic, and then if you are
able to do better than that for the beneficiary, similar to the
way we work in Medicare+Choice, then you would be allowed to do
that. You would be allowed to reduce the deductible. You would
be allowed to try--every incentive would be to make your
offering as competitive as possible, to try to recruit the
largest number of beneficiaries, as I understand it.
Mr. McDermott. Thank you, Madam Chairwoman.
Mrs. Johnson. Mrs. Thurman?
Mrs. Thurman. Thank you, Madam Chairwoman.
Chip, let me ask you a question, because I want to be sure
to reiterate this because this is important; I think this is
where the differences are. We've all talked about where we have
similarities, but we do need to talk about the differences.
In your testimony on page 10 you specifically mention that
``Some of the proposals we have examined that rely on 'stand-
alone' drug-only insurance policies simply would not work in
practice.'' And you stand by that statement?
Mr. Kahn. Yes. The companies that I represent feel very
strongly that this is not a type of insurance that would work
if there is risk-bearing involved.
Mrs. Thurman. OK.
Karen, let me ask you a question as it deals with what you
know of the plan that we don't have in front of us. And you've
heard this kind of line of conversation with me today.
Today you have Medicare Choice plans based on what they get
as reimbursement. Today you have a situation where there are
some Medicare Choice programs that in fact provide a
prescription drug benefit, as well as other benefits, without
any kind of premium. And then you go into----
Ms. Ignagni. Very few left now.
Mrs. Thurman. Right, Okay, Maybe very few now, but even so,
even that premium differs from one region to another.
Ms. Ignagni. That's right.
Mrs. Thurman. So what we have then, if you would agree with
me, is that we actually have a discrimination issue going on in
the entire Medicare Program, because those who have the ability
to have Medicare+Choice in their region might have a benefit;
it might be a prescription drug benefit; it could be
eyeglasses; it could be dental coverage. And then there are
other Medicare recipients in this country who have no
Medicare+Choice plan that provides them prescription drugs
other than in-hospital coverage. Is that correct?
Ms. Ignagni. That's right. And the philosophy of this
program, Medicare+Choice, as you know, grew out of the Medicare
Risk Program. A number of our plans, in fact, have been
participating in it for more than 15 years.
The idea was, in exchange for selecting a panel of
providers and being in a coordinated care system, along with
the ability of our plans to manage the traditional benefit
better and more effectively then the exchange with
beneficiaries--the ``compact,'' if you will--is that in fact
the beneficiaries got more benefits.
Mrs. Thurman. So the big issue for us right now is the two-
tier system. I mean, we basically have done that to the
recipients of Medicare who have paid into the system, just like
everybody else has in this country.
Ms. Ignagni. I don't see it that way, and let me tell you
why. We may disagree, but let me tell you why I don't see it
that way.
I think that what you have established--and it's long
before the Balanced Budget Act of 1997--what you've established
is a compact with beneficiaries. There is a basic benefit that
the public sector guarantees. Then you say to private sector
plans, ``If you can improve on that and deliver more benefits
for beneficiaries, they will be the ones who will benefit from
that,'' and that's a good thing in the system.
So for the same resources, we can do more.
Mrs. Thurman. Well, we don't have the same resources going
into that.
Let me go to you, Dr. Schondelmeyer. You made a comment--I
believe this was your comment--that if we had a prescription
drug benefit, that volume purchasing gives us our best price.
Is that what you said?
Mr. Schondelmeyer. No. Volume isn't what gives price. It's
leverage in being willing to switch patients from drug A to
drug B, or being able to move patients to a different drug,
which essentially tells the drug company, ``If you give me a
better price, I'll use yours; if you don't, I'll use the other
one.''
Mrs. Thurman. Okay. And you have some research that shows
what PhRMA and others have been doing in trying to persuade
patients in the marketplace, which has really created a problem
out there for our programs, is that correct?
Mr. Schondelmeyer. Are you referring to research related to
direct-to-consumer advertising, things like that?
Mrs. Thurman. Yes.
Mr. Schondelmeyer. I think that is an issue that needs to
be examined, because often direct-to-consumer advertising is
for products that may not be on the formulary in a specific
area, and so a drug company can target the ads to that market
and create a whole lot of doctor visits in the HMO where those
patients participate. Certainly it may bring some patients into
the market who need the drug and didn't know about it.
Mrs. Thurman. In this conversation can you also talk about
what the difference is between the EEU and the United States
and those dollars in trying to make that market there?
Mr. Schondelmeyer. Well, I'll try.
One aspect of this is, though, that you may get the patient
who needs therapy and didn't know about it, but you may also
get in the ``worried well'' or people who, ``Oh, I heard about
this drug and I called the doctor''--actually, most of the
folks I talk to in managed care, while they are concerned about
the increased drug expenditure from direct-to-consumer
advertising, they are even more concerned about the increased
physician visits that these generate. And it is basically that
these ads that had another purpose, that create increased costs
to the managed care system that they have to cover and work
through and pay for and straighten out their patients.
Other countries--the EEU, for example, does not allow
direct-to-consumer advertising, and in most of the European
countries they regulate either price or profit; and in their
regulation process, they determine an amount that they will
allow for advertising expenses. The United Kingdom, I think, is
in the range of 10 to 12 percent. France is around 15 to 16
percent, although they're trying to squeeze that down to 10
percent. But in the U.S., the amount spent on advertising,
marketing, administrative fees, the same category, is much
higher, maybe two or three times as much.
Mrs. Thurman. And what about research and development?
Mr. Schondelmeyer. About the same amount is spent on
research and development as a percent of the dollar, but what
you have to realize is that the product that costs $1.00 per
tablet in the U.S., made by the same company, that product in
the U.K. may only cost $0.65 per tablet. So if research and
development is 20 percent of the dollar in the U.S., that would
be $0.20 spent on R&D. The same tablet bought in the U.K., it
would only be 20 percent of $0.65, so it would be about $0.125
or $0.13 spent on R&D from the same product.
Mrs. Johnson. I will recognize Mr. Doggett and then I will
resume my questions.
Mr. Doggett. Well, just continuing along that same line of
questioning, in this country, we're paying, or rather, the
uninsured are paying the highest prices for pharmaceuticals of
anyplace in the world, aren't they?
Mr. Schondelmeyer. As best I can tell.
Mr. Doggett. And we also have the largest amount of
resources devoted to direct advertising of pharmaceuticals of
any country in the world?
Mr. Schondelmeyer. Yes.
Mr. Doggett. As well as a large amount devoted to issue
advertising to convince us that paying more for drugs is good
for us. And that's one of the things those high drug prices pay
for, isn't it? For example, the issue ads put out by Citizens
for Better Medicare, FLO, and the like are all paid for with
our high drug prices, aren't they?
Mr. Schondelmeyer. I presume so, yes.
Mr. Doggett. If we were not paying the highest prices in
the world for drugs, do you believe that we would have a
substantial reduction in research and development?
Mr. Schondelmeyer. Well, I don't think that's where a drug
company would start. I think they would maybe cut their
marketing and advertising budget first. I don't think you start
by cutting the R&D because that's the ultimate lifeblood of the
company, and you want to keep that producing new products, even
when you're squeezed a little bit.
So I think it would probably come more from marketing and
advertising, and then maybe in other areas.
Mr. Doggett. Why is it that consumers in Great Britain and
some of the other EU countries and Canada--your neighbor there
in Minnesota--pay significantly less for the very same quality
of pharmaceuticals?
Mr. Schondelmeyer. Well, you may need to ask that of other
people on this panel. I don't know the exact reasons. What I
know is that in the U.S., what we call a ``free market'' really
isn't. While it is a ``free from regulation market,'' certainly
pharmaceuticals are unique. They are essential. Often, when I
go to meet with senior citizen groups, I will ask the question,
``Is there anybody in this room who has never used a
prescription drug in your life?'' And rarely does anybody raise
their hand. Occasionally one or two might.
But the point is, prescription drugs--there is universal
demand for prescription drugs, and they affect the very life
and health of the person, so they are essential. I would argue
that prescription drugs are an essential good, or a public
good, much like water or electricity or gas are essential goods
to us; and while economics is a great science, and I've spent a
lot of time studying it and working with it, what we find out
is that the basic principles of economics work when all the
assumptions are met. But most of the assumptions in normal
economic models are violated in the pharmaceutical market
because of the unique nature of the market. It's a life-and-
death drug. It's a monopoly situation. It's something you can't
live without. If you find out Mrs. Thurman has epilepsy and you
have diabetes, and her drug is cheaper, you can't start taking
the epilepsy drug for your diabetes just because it's cheaper.
So it's very unique. It's a very different market than any
other market in our society.
Mr. Doggett. Is there any reason to believe that if we use
a Medicare benefit instead of whatever is in the secret
Republican plan, that it will necessarily lead to less drug
research than if we go with the secret plan?
Mr. Schondelmeyer. That's hard to guess because I don't
know all the secret plan.
Mr. Doggett. I don't either. None of us do.
Mr. Schondelmeyer. I don't think any approach--as a matter
of fact, I think any meaningful coverage of prescription drugs
for the elderly through Medicare will likely result in
increased revenue to drug companies. And at this point, realize
that when you cover prescription drugs, you have what's called
this ``insurance effect'' or this induced demand that occurs.
And most of that is necessary drugs that are used that people
couldn't afford previously, so they begin using those drugs.
And that will increase the volume of sales to the industry.
Remember, they have already made their plans assuming--I don't
think they're planning on a drug benefit this year, even though
they're talking about it--they have made their plans, so
everything that is additional sales because of this is marginal
cost sales; that is, it is sales that they make a very high
gross margin on. I think Merrill Lynch did a study that
suggested that with the increased volume that they have, even
if there was substantial pressure on prices, either from the
private market or a Medicaid rebate-type program, that they
would still be ahead in terms of both revenue and profit and be
able to continue increasing R&D as they have, no matter which
way you do it.
Mr. Doggett. Thank you, and thanks to all of you for
staying so long today.
Mrs. Johnson. Dr. Schondelmeyer, what percentage of the
drugs developed in the United States in the last 3 years are
available in Canada?
Mr. Schondelmeyer. I have not looked at that specifically.
Some things go in the market quicker in Canada; some go in the
market in the U.S. I haven't looked at it.
Mrs. Johnson. Do you see any discrepancy between the rate
at which our designer drugs move into Canada, versus the older
types of drug developments?
Mr. Schondelmeyer. Canada's system is probably a little bit
slower at approving drugs. Probably a better way to say it is
that the U.S. system has accelerated in the last two or 3 years
and Canada's has kind of stayed where it was.
Mrs. Johnson. Well, the reason I asked the question is
this. A lot of the drugs that have been developed--and maybe
it's not three, maybe it's five--are much more expensive than
the drugs that we used to development because they are the
development of whole new molecules, whatever. I'm not very good
in this area, but I've seen it done. And one of the things that
I have read is that those drugs, only about 50 percent of those
drugs are going to Canada because the Canadian government will
pay quite a lower price because they set their prices at the
government level, and no company can afford to take that kind
of loss on drugs. So the information I have is that, ``Well,
drugs are cheaper in Canada, but many of them aren't
available.''
Now, would you have any comment on that? Or could you
provide any research that would give me any indication----
Mr. Schondelmeyer. I would be glad to evaluate research
that you have seen or been provided.
The comment I would make, though, is that prices are about
the same or even less in Europe, and these same drugs end up on
the market in the United Kingdom and in Germany----
Mrs. Johnson. But, see, that's exactly--what I'm being told
is that it is true, that drugs here are cheaper there. But what
you're not seeing is the drugs that don't flow over there
because a company can't take a loss--in a sense, a loss
leader--in all of these. So I think we need to look at the
whole market, and particularly in the area of the expensive
pattern drugs.
Mr. Schondelmeyer. I'm not aware of very many drugs that
are on the market in the U.S. that aren't in the United Kingdom
or Germany.
Mrs. Johnson. OK. I was given some material that showed 50
percent.
Mr. Schondelmeyer. I would be glad to examine that, but I
haven't seen it.
Mrs. Johnson. Mr. Donoho, Mr. Kahn has said that the
insurance industry wouldn't want to offer the kind of product
that is envisioned in the Republican bill, the bipartisan
bill--they are variations of the same thing. But I've had
people in my office that are in your business who had
reinsurers with them who were excited about offering this
product. Would you have any comment on that? Do you believe
that pharmaceutical benefit managers, allied with reinsurers,
will jump into this market?
Mr. Donoho. Well, let me be clear about this. We're not in
the insurance business today. Most of our members are not
insurance agents and don't belong to----
Mrs. Johnson. Well, I appreciate that. But they brought a
reinsurer along with them to testify to the fact that they were
excited about working together on this.
Mr. Donoho. Right. And I think there are a portion of
them--without the correct details before us right now--there is
a portion of them that are looking at this as a new way of
doing business and they are excited about looking at a new
business venture. There is another group of them that are very
worried about entering into a new business venture, because it
truly is a new business venture for them. But there is a group
there looking at new business ventures.
Mrs. Johnson. Then I would like to ask any of you who have
had a chance to examine the President's plan, which of course
has been out there for quite a long time now, he envisions one
regional pharmaceutical benefits manager. So instead of
insurers, he would set up now, in a sense, a different--in
Medicare we have, in every region, someone who manages
payments. And when we change people, when there is a
competitive issue and we change people, or a service issue, it
can be catastrophic to a region, absolutely catastrophic, and I
can attest to that. Bills don't get paid. Things go screwy for
years.
Now, the President is envisioning only one pharmaceutical
benefits manager in each region, and that they would negotiate
with this pharmaceutical benefits manager. Now, given the fact
that drug prices do vary and patterns of usage do vary, it
seems logical to me that people will get different benefits in
different parts of the country as a result of the negotiations.
Am I wrong to think that? Or right to think that? What do you
think, Mr. Kahn?
Mr. Kahn. Well, I think that if we look back in history to
the development of part B, we see there that books of
regulations were written that set criteria, and then carriers
interpreted those, and carriers on part B paid for very
different things depending on their interpretation, and there
was great latitude given by HCFA to carriers and intermediaries
in some cases. So part of the variation in expenditure has come
from the varying interpretation of HCFA's rulings, and I think
that would happen in this case, too.
Mrs. Johnson. I think it's fair to say that the regional
variations in Medicare are real. They are not as great as the
regional variations in Canada in the National Health Plan which
are very great, both in what's covered and in the cost of
coverage. Would you agree with that, Mr. Schondelmeyer?
Mr. Schondelmeyer. Yes, because in Canada it's provincial
plans. It would be like State-run plans.
Mrs. Johnson. So there is going to be variation, whether
you go with the President's plan or whether you go with our
plan, because that's going to be the nature of the beast. So I
think it is important to get that on the record.
I do think we look back on a time when so much advertising
wasn't a part of the pharmaceutical business, and I think there
is some good reason to be thinking of whether or not the
government should pay for advertising for prescription drugs
since it isn't something that you have a choice about; it's
something that your physician makes a determination about,
related to your symptoms.
So I am very sympathetic to that approach as one among many
possible cost-containing efforts.
But I do thank you for your extraordinary patience today.
This is a very difficult area. It is fascinating to me to hear
where the administration's thinking has bogged down, having
been a part of the development of this bill and knowing sort of
why you don't have the legislative language. I do hope that the
legislative language will be out there a long time and that
those who really want to work with us, whether they are Members
from both sides of the aisle on this Committee or whether they
are people in the private sector, will give us their best
thoughts. There are so many elements in common from all the
plans that it would really be a tragedy if we missed this
opportunity. But there are also some terrible problems, and
Chip Kahn, almost more than anyone sitting there at the table--
except maybe former Chairman Rostenkowski--knows the wrath that
went with it.
And I hope, Ms. Briceland-Betts, that you will be prepared
to work with your organization, because half of all seniors
have less than $200 in pharmaceutical costs. Every one of those
people is going to pay more in premiums, and they're going to
benefit from this program. Without a catastrophic benefit, they
get nothing except more expense. With a catastrophic program,
they won't pay $24 a month; they will pay at least $44 a month,
or $37 a month, or something like that.
But your organization is going to have to be prepared to be
prepared to tell them that this is a good thing, because last
time we lost the opportunity to have pharmaceutical benefits
because the 50 percent of all seniors who have very few drug
costs--and my mother just died at 101; all she had was
diuretics and aspirin and stuff like that.
So we have to remember that there are a lot of seniors on
very limited income, and we have to be very careful what costs
we impose on them, because they aren't going to benefit from
this plan. So your organization has to be ready to step up to
the plate and say, ``This is wonderful, but you're all going to
pay more.''
Ms. Briceland-Betts. Well, I understand the point you're
trying to make, but women spend 22 percent of their income, on
average, out-of-pocket.
Mrs. Johnson. I appreciate that. But, see, that is on
average, and on average, Medicare beneficiaries pay $974 a
year. But you're talking about people who have $15,000 drug
costs, and then when half pay less than $200, your organization
had better have its heels firmly in the ground, its hands
firmly on the reins, to get out there and say to people, ``We
know this is going to cost a lot of you more, but we believe
it's going to be good for you,'' because if you can't say that,
then you have to think this through differently.
But that's exactly why we came to the conclusion that
without catastrophic benefits, there isn't enough in this for
two-thirds. You take the half that are under $200, and then you
take those that have better coverage through their employers,
and you have to be very careful that you don't rob people of
good plans and impose costs they can't afford for a very small
slice of people who will benefit.
Mrs. Thurman. Will the gentlewoman yield?
To Ms. Betts, let me just say this. In talking to the
constituents that I have who have had a variety of experiences
over the last couple of years, and I can go back to the
Medicare Choice stuff, but the fact of the matter is that
they've been switched in and they've been switched out; they've
done that. What they're saying to me is, ``You know what? We
don't mind paying the extra cost because of the cost of drugs
and how much they've gone up'' and how much they're paying,
``but give us a plan. If it's going to cost us $24, if it's
going to cost us $36, or $45, give us a plan under Medicare. We
understand the program, we know the program, we're comfortable
with the program, let us have it.'' And quite frankly, they
want that; with all of the Medicare benefits that potentially
they are paying for outside--with Medigap or whatever other
plan they've got out there to cover other benefits, including
catastrophic. They want an all-inclusive program. I have to
tell you, I think that's the problem. If we go out there and
shove this stuff at them, with so many different things going
on, we're going to confuse them and they're going to be even
madder at us than they were in 1986. I wasn't here, but I can
tell you, I was in the State Senate and I got the phone calls,
saying, ``What have you done to our health care system?''
You've got to keep it simple. I mean, we heard these words
back in 1992 on an economic plan, ``keep it simple, give us a
benefit, make it something we can understand. We understand
it's going to cost us, but by God, we're tired of paying at a
retail price when everybody else is getting it at a preferred
customer price.''
Mrs. Johnson. Of course, as is always the case, simple is
mandatory, and there are certain economies when you make it
mandatory. But there isn't a lot of support out there, either
among Members or seniors, for a mandatory program.
Even with the Administrator's program, it's voluntary. And
it could easily get into what you brought up earlier, that only
those that had over $3,000 costs in drugs would choose it, and
then the costs will be very different than the estimates.
Thank you very much for your patience, as it is extremely
difficult. I hope we can come out with something that not only
helps seniors, but keeps all the small pharmacies in business.
Thank you.
The hearing is adjourned.
[Whereupon, at 6:32 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of James L. Martin, President, 60 Plus Association,
Arlington, VA
Mr. Chairman.
On behalf of the 60 Plus Association, I commend you and the
Ways and Means Committee for holding this hearing on a topic
very important for all seniors, a prescription drug benefit
under Medicare.
The 60 Plus Association is a national, nonpartisan senior
citizens advocacy group with 500,000 members nationwide, an
average of 1,000 per Congressional District. We are supported
by the voluntary contributions of our members. We have never in
the past nor presently receive federal grants or contracts and
we have a policy that we do not seek or would we accept federal
grants or contracts.
As senior citizens are living longer and healthier lives,
the issue of prescription drugs becomes a major issue for their
health and their budget. Years ago seniors lived into their 60s
and 70s; now we have seniors living beyond those years, with an
increasing population in their 80s, 90s, and even 100 years and
beyond. The rational TV weather forecaster, Willard Scott, has
a growing number of individuals each year from whom to select
to honor on their 100th birthday.
I am not here to endorse any specific piece of legislation
but mainly to highlight important principles, which should be
included in any prescription drug plan.
First of all, we are very concerned with the proposal
pushed by President Bill Clinton. The president's plan is a big
government, ``one size fits all'' proposal that will enlarge
government, promises much but delivers little, places decision-
making in the hands of federal bureaucrats, and will do little
to meet the diverse needs of our senior citizens. The proposal
may have great political appeal in this election year but
little common sense appeal to those of us who have studied it.
A closer study of the proposal demonstrates that it is a bad
program for senior citizens and for the American taxpayer. If
we believe we have problems with financing Social Security and
Medicare, let us adopt this Clinton proposal and we will have
an even bigger financial disaster down the road.
We at the 60 Plus Association are pleased that a bipartisan
group is working in the House and the Senate to put forward a
proposal, which will really help seniors.
We believe that the essential features of any successful
proposal must be a rejection of a big government role and
especially one that will lead to price-fixing or price controls
by the federal government. Throughout history, price controls
have led inexorably to rationing. That's the major reason the
Canadian health system is considered by 80 percent of seniors
to be in a state of crisis. Rationing leads to long lines in
emergency rooms and prompted the Canadian Minister of Health to
travel to the United States a few years ago for treatment of
his heart ailment.
The United States has one of the greatest pharmaceutical
industries in the world. Billions are being spent to develop
new drugs, many of which help our seniors live a life with less
pain, a higher quality, a longer life, and assist in avoiding
surgery. Price controls, especially from an entity with the
power of the federal government, could bring such research
progress to screeching halt. We would be killing the goose that
lays the golden egg. Seniors in order to receive a lower price
on a drug today would be risking the opportunity for
pharmaceuticals to develop other significant drugs which may
help them not only in years ahead but other seniors in future
years.
Speaking of the American pharmaceutical industry, it is
often used as a whipping boy. For those who participate in this
approach, I would like to cite an article that appeared in
magazine, September 12, 1998 authored by former House and
Senate member Paul Simon. He noted that a heart scan had
revealed that he was headed for a heart attack or stroke, even
though he had not the usual symptoms of a heart problem such as
chest pain or shortness of breath. He underwent a six-way heart
bypass operation. He noted that the heart scan developed by
research was responsible for him being alive today. He added
``Pharmaceutical companies do an excellent job in research''
and noted that they had increased their spending from $2
billion in 1980 to $20 billion in 1998. Senator Simon
attributed his survival to that research performed by
pharmaceuticals.
Seniors are a diverse group. We believe assistance should
be provided to those seniors, namely low-income seniors, who
need such assistance. We oppose any program that will encourage
companies or other health plans to drop their current
prescription drug coverage for seniors, a clear and distinct
possibility under the Clinton plan. We will be risking some of
the great benefits in our current health system for a real shot
in the dark by a very risky federal health initiative.
And finally, we should consider the element of choice. We
must give seniors this option, and not pass the entire
decision-making and funding process on to federal bureaucrats.
Seniors must be able to make their voices heard and their
decisions known in the marketplace. Seniors will lose this
voice if it stifled by a federal bureaucracy under the control
of a plan, which has great political appeal (such as the
president's) but dire consequences for the financial health of
our country and the best interests of our senior citizens.
I urge the Ways and Means Committee to adopt a bipartisan
plan, which will really help seniors, and not penalize them
with new government entitlement programs of dubious benefits,
costly mandates, and excessive regulations.
Thank you.
Statement of American Society of Health-System Pharmacists, Bethesda,
MD
The American Society of Health-System Pharmacists (ASHP)
supports the work of the House Committee on Ways and Means, to
construct a workable Medicare prescription drug benefit. ASHP
is the 30,000-member national professional association that
represents pharmacists who practice in hospitals, health
maintenance organizations, long-term care facilities, home
care, and other components of health care systems.
ASHP has followed the debate surrounding the outpatient
prescription drug benefit for many years, and applauds the
Committee's initiative in working to ensure that this much
needed benefit is achieved this year. ASHP believes, however,
that a critical facet of the debate has not received the
necessary attention to ensure that the expenditure provides for
a high quality and cost-effective outpatient prescription drug
benefit to meet the needs of Medicare beneficiaries. As the
Committee moves forward in considering this benefit, ASHP asks
that you remain cognizant of the critical role pharmacists play
in ensuring safe and effective drug therapy management, and
include provisions for compensating pharmacists for these vital
professional patient care services.
The pharmacists' professional patient care services require
pharmacists to work in collaboration with physicians, nurses,
and other health care professionals to ensure that medications
are used appropriately to improve a patient's health status,
improve the patient's quality of life, and contain health care
costs. Such activities include, but are not limited to,
services that result in the change, correction or elimination
of a drug from a patient's drug regimen; initiating drug
therapy; training and educating patients on the effective use
of their drug therapies; and identifying, resolving, and
preventing potential and actual drug-related problems. While
other health care providers' services are recognized for
compensation, the professional care services of pharmacists
currently go unrecognized under Medicare.
This restriction inhibits the pharmacist's unique ability
to ensure the proper use of medication therapy. ASHP members
understand that providing adequate compensation for these
patient care services will save Medicare dollars by ensuring
that beneficiaries properly comply with drug regimens, thus
preventing adverse reactions and unnecessary readmissions to
the hospital. Compensating pharmacists for patient care
services ensures that money and resources expended on providing
the outpatient drug coverage will yield maximum benefit to the
patient and the Medicare program. As the pharmacists' role in
the entire drug use process expands, the opportunities for cost
control are increased. Significant costs are associated with
inappropriate drug choice, adverse drug reactions, and sub-
therapeutic treatment. By working with the patients and other
health professionals, pharmacists can influence the decision to
use a drug. Pharmacists also influence drug selection and
patient use throughout therapy duration, assess drug
therapeutic effect, and adjust treatment regimen. This
integrated approach can reduce the total cost of drug therapy.
Recent studies have also recognized that the professional
patient care services of pharmacists reduce costs. A July 1999
article in the Journal of the American Medical Association
presented the results of a study that concluded that the
inclusion of a pharmacist on medical rounds in a hospital's
intensive care unit contributes to a decreased number of
adverse drug events (ADEs) caused by prescribing errors.
Indeed, the study found that the rate of preventable ADEs in an
intensive care unit decreased by 66 percent and projected
$270,000 per year related to ADEs could be saved when
pharmacists were included on patient rounds in large, urban
teaching hospitals. In the ambulatory setting, a 1995 study in
the Archives of Internal Medicine showed that drug-related
morbidity and mortality among patients cost the U.S. economy
approximately $76 billion annually in direct costs alone. The
largest component of this cost was associated with drug related
hospitalizations. Pharmacists' patient care services could
reduce that cost significantly.
In spite of the clearly positive role pharmacists'
professional care services play in improving the quality and
cost-effectiveness of drug therapy programs, Medicare law and
current legislative initiatives do not allow for pharmacists to
be compensated for these services. Efforts to expand on the
Medicare program to include an outpatient prescription drug
benefit must include a provision for compensating for
pharmacists' professional care services. By utilizing the
maximum value from the services of our nation's pharmacists, a
high quality and cost-effective outpatient prescription drug
benefit can be structured to serve the needs of Medicare
beneficiaries.
As has become well known since the publication of the
Institute of Medicine's report, To Err is Human: Building a
Safer Health System, medication-related problems are a primary
source of medical errors in the United States. These errors
result in an inordinate expense, both financially and in the
quality of care provided, and result in dissatisfaction with
the overall health care system. Seniors are particularly at
risk for medication-related problems due to physiological
changes associated with aging, as well as their greater
consumption of prescription and over-the-counter medications.
Adding a new Medicare prescription drug benefit without
including a simple, cost-effective safeguard to minimize these
medical errors would unnecessarily add to this problem. An
effective prescription drug benefit, therefore, would not cover
merely the cost of the prescription drug but also measures to
enhance the quality and cost-effectiveness of medication
therapy. Pharmacists, with their educational background and
expertise in drug therapy management, play a critical role in
providing essential patient care services that result in a
decrease in medication-related problems.
ASHP urges the House Committee on Ways and Means to advance
legislation to extend an outpatient prescription drug benefit
to Medicare beneficiaries that recognizes the vital patient
care services provided by pharmacists.
Statement of Mae O'Dell, as presented by Betty J. Boucher, Reston, VA
I am Betty Boucher speaking for Mae O'Dell #518,
Fibromyalgia Osteoarthritis Chronic Pain Syndrome, Multiple
Chemical Sensitivity Syndrome
She says Compounded medicine is not covered by Medicaid--If
the doctor puts two medicines in the same prescription Medicaid
will not pay for it. Alternative health care therapies have to
be covered as regular and conventional medicines and methods
are not working.
Owes in prescriptions and alternative medicines not covered
by Medicaid more than twice her annual income.
She can't afford the monthly payments, she has to borrow,
she says Nutritionists need to be covered--they balance our
bodies' vitamins, minerals, and give intestinal and digestive
help.
These practices do work.
This is only 1/10 of what is wrong as the problems she has
cause more problems.
Freda Weltman #524, Takes Calen SR--Blood Pressure,
Premeran, Nitroglycerin Baby Aspirin--heart, desperately needs
a doctor--any doctor--to prescribe something for her dizziness.
This horrible problem has been going on for years. This is not
right.
Mrs. Weltman says Kaiser Permanente pays $1,000 a year for
all medication and if you need more you have to pay for it.
Another lady has Osteoporosis and Spinal Stinosis--
narrowing of the spinal column thus pinching the nerves--
sending continuous pain signals to the brain.
Her bones are too fragile for an operation.
She takes $2,000 a year for Oxycontin, Percocet Calcium
Supplements Falsomax
The very minimum she pays per year is $3,000--probably much
more.
No matter how much money she spends she cannot ever be pain
free.
These medications are eating up her resources.
There is a need for research on the continuous pain
problem.
Valarie Marizita #513 A tiny, frail lady with terrible
asthma, spent five weeks in HCR Manor Care, MCHS Arlington 527,
550 S. Carlin Spring, Arlington, Virginia 22204 (703) 379-7200
Mrs. Marizita stated the young girls from Africa were
extremely rude to her. They would slap a towel on her bed and
order her to get up and take a bath. They would wake her up in
the middle of the night to weigh her. She said she had never
been treated so rudely anywhere and has been in many hospitals
before. She said she has tried to call their number many times
and has never gotten anybody to answer.
Mr. Nevyl Francis, Stroke victim, 11605 Vantage Hill Road,
Reston Virginia 20190, was denied ambulance transportation to a
hospital and when he did get there was only kept one day!
Rationing Health Care! He later died. It was a tragedy!
We need to elect people who will pass the ``Right to High-
Quality Health Care Act'' and fight for a New Bretton Woods
financial system. For until we replace the present bankrupt
system with a system oriented toward the general welfare (that
includes everybody) we are going to be Hitler and have the same
``inadequate provision of surgical and medical services'' that
Hitler provided.
The ``inadequate provision of surgical and medical
services'' that has become a trademark of the HMOs in America,
has been absolutely deliberate, as ``shareholder value'' was
placed at a higher priority than human life!
The 1940s to 1960s--Hill-Burton Principle--facilities and
care were deliberately built up, with the goal of providing
access to care for all citizens. 1946 Hospital Construction
Act, 1954 chronic care facilities, 1956 Research against major
diseases--Salk's polio vaccine, my own niece had polio, 1963,
anti-measles vaccine developed.
How paid for? If the economy was generally growing in the
right was, both physical (industry, agriculture,
infrastructure) social services (science, education, health
care, culture) the tax base, real purchasing power of citizens,
philanthropy, community efforts, etc.
During the Nixon Administration (1968-74) a group in 1973
connected with Wall Street and City of London financial circles
made sweeping changes--D Senator Patrick Moynihan, R Elliot
Richardson, and Henry Kissinger.
In 1971 ``wage-price controls,'' ``workfare,'' welfare 1972
Hospitals receiving Hill Burton funds for 20 years released
from obligation to care for the indigent. In 1973 community
assets, built for decades bought up for a nickel-on-the-dollar-
stripped down, and closed. Privatization in action. HMO Law
deregulated hospital care, and opened it up for looting.
All manner of ways to restrict and deny care were approved.
The destruction of medical care was deliberate. The rhetoric
was to ``contain costs,'' ration ``scarce resources'' and
restrict care. The poor, elderly, and non-white were ``not to
be cared for'' just like Hitler's ``useless eaters,'' and
``lives not worthy to be lived.''
1999 Medical errors are the leading cause of death and
injury in America. Between 444,000 and 98,000 people die in
hospitals every year due to preventable medical errors more
than breast cancer, highway accidents, or AIDS between 1994-
1999.
Almost 1,000 state laws are passed in 48 states to protect
patients, doctors, hospitals from managed-care policies.
Managed care plans denial, or delay or diagnostic care or
treatment result in needless amputations, patient deaths,
suicides, invasive cancers and infections.
2000 New York hospitals are offered a ``choice'' take
reimbursement rates that don't cover costs or drop out of the
plan.
\2/3\ of Massachusetts hospitals face 13th quarter in the
red. HMOs refuse to pay for billions of dollars of services.
4 out of 5 Pennsylvania hospitals surveyed cannot cover
operating costs with patient revenues.
10,000 Michigan hospital jobs have been lost in 18 months.
With 7,000 jobs lost in related industries. Non-profit
hospitals are forced to reduce/eliminate services and program;
some are closed.
AIDS is officially declared by the U.S. government a
national security threat. It could easily been stopped.
Statement of Annette Guarisco, Honeywell
Blister Drug Safety Packaging
We appreciate the opportunity to present the views of
Honeywell on the important issue of medical errors in the
health care system.
As policymakers consider ways to reduce medical and
medication errors, such as adverse drug effects, modernize the
Medicare system and promote safety for children and adults, the
promotion of unit dose/unit of use (known as blister packs)
should be considered:
Blister packs are inherently child resistant
Blister packs are tamper-resistant and tamper-
evident
Drugs packaged in unit dose formats are protected
against cross-contamination
Efficacy of the drug is maintained for a longer
period of time without being compromised when unit dose formats
are used
Special labeling, color coding, is available to
designate when and if the drug has been taken when unit dose
formats are used
Blister packaging provides for greater individual
product barrier protection against moisture, light and oxygen
The rate of compliance with unit dose packaging is
significantly higher, resulting in fewer and less serious
adverse health consequences:
Contraception--2% compliance rate, vs. 70% for
anticoagulants, 82% for organ transplant rejections drugs, 60%
for hypertension medication, 80% for asthma, 50-70% for
epilepsy, 50-60% for diabetes and 53% for estrogen deficiency
drugs
It was estimated in 1990 that nearly 10% of
hospital admissions were the result of pharmaceutical non-
compliance and up to 23% of nursing home admissions were
primarily due to an inability to manage medications at home.
When drug regimens are not taken as prescribed,
taxpayer dollars are wasted on drugs paid by Medicare,
Medicaid, and VA programs, and unnecessary and longer hospital
and nursing home stays.
Unit dose packaging takes less pharmacist time to
prepare and reduces the chance for errors, leaving them more
time to consult with patients on the proper use of medications.
The recent Institute of Medicine Report, To Err is Human:
Building a Safer Health System, called for implementing unit
dosing:
If medications are not packaged in single doses by the
manufacturer, they should be prepared in unit doses by the
central pharmacy. Unit dosing--the preparation of each dose of
each medication by the pharmacy--reduces handling as well as
the chance of calculation and mixing errors. Unit dosing can
reduce errors by eliminating the need for calculation,
measurement, preparation, and handling on the nursing unit and
by providing a fully labeled package that stays with the
medication up to its point of use.
Unit dosing was a major systems change that significantly
reduced dosing errors when it was introduced nearly 20 years
ago. Unit dosing has been recommended by the American Society
of Health-System Pharmacists, JCAHO, NPSF, and the MHA in their
``Best Practices Recommendations.'' As a cost-cutting measure,
unfortunately some hospitals have recently returned to bulk
dosing, which means that an increase in dosing errors is bound
to occur. Page 166-167.
Honeywell urges the Committee to consider ways to encourage
drug manufacturers, hospitals, nursing homes, and other
inpatient facilities to utilize unit dose formats, and to
promote unit dosing in the Medicare and Medicaid systems as
well as in the federal employee health benefit system.
We appreciate the Committee's consideration of these
recommendations and applaud the Committee for deliberating on
the important subject of reducing medical errors.
Annette Guarisco
Statement of National Association of Health Underwriters, Arlington, VA
Mr. Chairman and members of the Committee, my name is
Michael Matznick, and I am the President of the National
Association of Health Underwriters (NAHU). I am grateful for
this opportunity to present our views for your consideration
regarding a Medicare prescription drug. NAHU represents more
than 16,000 professional health insurance agents and brokers
from around the country who service the needs of millions of
Americans. NAHU is headquartered in Arlington, VA.
Medicare beneficiaries make up 14 % of the population and
are responsible for about one-third of total health care
spending.\1\ The National Institute on Aging has found that, as
a group, older people tend to have more long-term illnesses--
such as arthritis, diabetes, high blood pressure and heart
disease--than do younger people,\2\ and the latest survey data
indicate that 86% of Medicare beneficiaries are taking
outpatient prescription drugs.\3\ The sheer volume of this
market should render it a powerful force, yet many Medicare
beneficiaries are forced daily to go without needed
prescription drugs because their market presence has not
provided them with any pricing advantage. The inability to pay
for needed drugs, at a minimum, dramatically reduces quality of
life, interfering with the ability to have a reasonable
lifestyle, the ability to maintain a home, and in some
instances means the difference between life and death.
---------------------------------------------------------------------------
\1\ Senate Special Committee on Aging, Developments in Aging: 1996,
105th Cong., 1st Sess. 35 (1994) (S.Rpt.403).
\2\ National Institute on Aging (NIA), NIA Age Page (1997) (online
at www.nih.gov/nia/health/pub/medicine.htm).
\3\ AARP Public Policy Institute and the Lewin Group, Out of Pocket
Health Spending by Medicare Beneficiaries Age 65 and Older: 1997
Projections (Feb. 1997).
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Even though Medicare covers drugs provided while a person
is in the hospital, it does not cover outpatient prescription
drugs, and one-third of America's seniors either have no
insurance coverage at all to assist with the cost,\4\ or their
insurance plan does not cover outpatient prescription drugs.
According to the Senate Special Committee on Aging, this group
includes those who are not poor enough to receive Medicaid, do
not have employer-based retiree prescription drug coverage, and
cannot afford any other private prescription drug insurance
plans. Because of this, many seniors must pay the ever-
increasing cost of outpatient prescription drugs entirely on
their own, and some dangerously limit or eliminate their use of
them in order to afford the cost.
---------------------------------------------------------------------------
\4\ Health Care Financing Administration, Office of Strategic
Planning, data from the Medicare Current Beneficiary Survey, cited in
Margaret Davis, John Poisal, George Chulis, and others, ``Prescription
Drug Coverage, Utilization, and Spending among Medicare
Beneficiaries,'' Health Affairs, Vol. 18, No. 1 (January-February 1999)
pp. 231-243, exhibit 1.
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Are there solutions to the problem? Some have suggested new
government regulation of the pharmaceutical manufacturing
industry, although over-regulation of any industry has a
serious, harmful impact on access and affordability. The proper
pathway to making outpatient drugs more affordable for
America's seniors can better be achieved through the following:
Coordinated educational initiatives
Government assistance to low-income individuals
Fair payments to Medicare+Choice plans
Free-market initiatives to increase competition
and lower prescription drug costs for all Medicare
beneficiaries
Industry self-regulation
IDENTIFYING ROADBLOCKS TO AFFORDABLE ACCESS
Before offering recommendations for solutions, it is
important to understand the current situation regarding
prescription drug pricing and marketing.
Drug Price Comparisons in Other Countries
It is difficult for America's seniors to understand the
huge price disparity for identical prescription drugs in
neighboring countries such as Canada and Mexico where price
controls and the ability to pay (based on average per capita
income) determine retail costs.\5\ Most seniors are now aware
of this fact, thus explaining the popularity of excursions
across the border to take advantage of lower prices. To expand
access to the favorable prescription drug pricing available in
these and other countries, a number of senior advocates have
called for legislation to allow reimportation of prescription
drugs shipped under FDA safety guidelines to other countries. A
number of logistical and safety questions about this process
exist, and it again raises the question--why can't we have
affordable prescription drugs for seniors here in the United
States? Is there some way we can change the current lopsided
arrangement where U.S. citizens bear the burden for the entire
cost of research and development, while other countries pay
only the cost of manufacturing, a small amount of profit, and
little else? Do we really have to reimport our own products
just to get a fair price at home?
---------------------------------------------------------------------------
\5\ Congressional Research Service, Prescription Drug Price
Comparisons: The United States, Canada, and Mexico (January 1998)
---------------------------------------------------------------------------
Drug Price Comparisons in Humans vs. Animals
In addition, recent studies indicate that there is
disparity, even within the United States, for identical drugs
prescribed for humans vs. animals. In a recent study done on
eight brand name drugs, same dosages by the same (or related)
companies were on average 106-151% more when the drug was
intended for human use than when the drug was intended for
animal use. In dollar terms, the price differential is
substantial. A popular arthritis medicine used in the same
dosages by both humans and dogs, Lodine, is $108.90 for a one-
month supply when the drug is to be used by humans, but only
$37.80 when the drug is to be used by dogs. Another drug with a
large price difference is Vasotec, a high blood pressure
medication that was the 14th most frequently prescribed human
drug in the United States in 1998. Merck charges $78.55 for a
one-month supply when the drug is to be used by humans, but
only $51.30 when the drug is to be used by dogs. These and
other identical drugs are on average twice as expensive when
prescribed for humans than they are when prescribed for
animals, a differential that cannot be adequately explained by
quality differences or research costs.\6\
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\6\ Minority Staff, Special Investigations Division, Committee on
Government Reform, U.S. House of Representatives, Prescription Drug
Price Discrimination in the 7th Congressional District in Maryland:
Drug Manufacturer Prices are Higher for Humans than for Animals,
February 16, 2000.
---------------------------------------------------------------------------
Drug Price Comparisons between Uninsured Consumers and
Large Purchasers
The Congressional Budget Office (CBO) has also confirmed
that different buyers in the United States pay different prices
for brand-name prescription drugs, and purchasers who have no
insurance pay the highest prices.\7\ According to the Federal
Trade Commission, a notable example of differential pricing is
the ``two-tiered pricing structure'' under which pharmaceutical
companies set lower prices to large buyers like hospitals, HMOs
and pharmacy benefit managers, and charge higher prices to
other buyers that include the uninsured and independent and
chain retail pharmacies.\8\ Because preferred buyers buy in
bulk, some difference between retail prices and ``favored
customer'' prices would be expected. However, the differential
for prescription drugs is much higher than for other consumer
items purchased in bulk. A recent study showed that the average
price differential for five commonly prescribed prescription
drugs was 133%, while the price differential for other consumer
items was only 22%.\9\ Compared to manufacturers of other
retail items, it appears that manufacturers are taking full
advantage of the ``life and death'' necessity of the items they
manufacture and market, and are charging ``what the market will
bear'' in each of the markets in which they operate. Therefore,
in Canada and Mexico, they charge less because (a) some price
controls exist and (b) the per capita income of citizens is
such that they would be unable to pay higher prices. In the
case of animals, what an individual can and will pay for
treatment of a pet or other domestic animal may be far less
than if the treatment were required for themselves or a family
member. In the case of large purchasers, the high amount of
competition among manufacturers for their drug to be included
on the ``preferred list'' of large purchasers results in
manufacturers offering large discounts to large purchasers in
order to win their business.
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\7\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry, xi (July 1998).
\8\ Federal Trade Commission, The Pharmaceutical Industry: A
Discussion of Competitive and Antitrust Issues in an Environment of
Change, 75 (Mar. 1999).
\9\ Minority Staff Report, Committee on Government Reform, U.S.
House of Representatives, Prescription Drug Pricing in the 7th
Congressional District in Maryland: Drug Companies Profit at the
Expense of Older Americans, April 21, 1999
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Direct-to-Consumer Advertising
As with other commodities, the law of supply and demand has
a dramatic impact on price. When demand is influenced by
outside factors, such as advertising directed to consumers for
prescription drugs, patients demand that their physicians
prescribe these medications. These consumers have additionally
been led to believe that only the ``name brand'' medication
will successfully treat their condition, thereby making generic
drugs seem inferior and less effective. Physicians are
reluctant not to prescribe the medication requested by their
patient if they determine that it will do the patient no harm
and may, in fact, help them. If demand is high enough, the
volume of sales should result in greater profits for
manufacturers and the ability to lower prices, although this
rarely happens today. If demand is too high, the supply of some
medications may be inadequate to meet demand, and, as in other
markets, the cost of the prescription drug will increase.
Direct-to-consumer advertising also increases overall
prescription drug utilization. Many medications prescribed as a
result of direct-to-consumer advertising are new prescriptions
for the patient, as opposed to a replacement of an existing
prescription, and are added to the medications a consumer may
already be taking.\10\ This increase in overall utilization
increases total out-of-pocket spending on prescription drugs
for these seniors, many of whom live on fixed incomes. This is
part of the reason that spending on outpatient prescription
drugs has increased 11% per year for the past five years.\11\
Some would argue that these new prescriptions will replace more
costly surgeries, but although the medication may delay the
need for surgery, the surgery may ultimately be needed anyway
as the prescription drug loses its efficacy over time. Although
we would not argue that quality of life is improved in the
interim, the fact is that, ultimately, insurers and consumers
may have borne the cost of both the surgery and the medication.
---------------------------------------------------------------------------
\10\ Direct to Consumer Prescription Drug Advertising: Trends,
Impact, and Implications, Health Affairs, March/April 2000, Volume 19,
Number 2
\11\ Health Care Finance Administration, National Health
Expenditures (1999) (online at www.hcfa.gov/stats/nhe-oact/tables/
t10.htm).
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A further concern with direct-to-consumer advertising is
lack of consumers' understanding of direct-to-consumer
advertising regulation. Recent surveys indicate that fewhealth
professionals and even fewer members of the general public
understand the regulations surrounding drug promotions. Half of
the respondents of the survey believed that ads had to be
submitted to the government for prior approval, and 43%
believed that only ``completely safe'' drugs could be
advertised, even though advertising for prescription drugs is
not subject to this type of federal oversight. Thus, a large
number of consumers believe that prescription drug advertising
directed to consumers carries the endorsement of the federal
government.\12\
---------------------------------------------------------------------------
\12\ Health Affairs, supra, note 10.
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RECOMMENDATIONS
Coordinated Educational Initiatives
The first step in this process needs to begin with the
physician. A physician education process should be initiated by
physicians' organizations, such as the American Medical
Association and other physician specialty organizations, on
drug efficacy, interaction and the differences and similarities
between name-brand and generic drugs. Although physicians
depend on drug manufacturers to help them stay abreast of the
latest treatments, their dependence on drug manufacturers may
also mean that physicians will have somewhat limited and biased
information about prescription drugs. An educational campaign
from their own professional association would be well-received
by physicians and would provide the balance and continuing
education they need to do what is best for their patients.
Additionally, studies have shown that many physicians do
not like direct-to-consumer advertising because it encourages
demand for treatments that may not be medically indicated and
boosts inappropriate requests for specific medications. The
medical community would be well served to develop a systematic,
ongoing medical literacy campaign of its own to inform
consumers of the promotional nature of direct-to-consumer
advertising, as well as the regulatory context in which it is
designed. For example, clinic waiting areas, hospitals and
other healthcare locations could be used to disseminate
reminders to consumers that advertisements in the media are
promotional and do not necessarily represent the most objective
advice.\13\
---------------------------------------------------------------------------
\13\ Health Affairs, supra note 10.
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A recent survey by Merck-Medco found that 76% of those
surveyed would choose generic medications if their doctor
assured them that the generic drug is a safe and effective
alternative to the brand-name drug.\14\ Consumers should be
educated about FDA requirements as to pharmaceutical and
therapeutic equivalence and that buying and using a generic
drug is much different than buying a generic can of peaches. In
fact, according to Jane E. Henney, MD, commissioner of the Food
and Drug Administration in JAMA, December 1, 1999:
---------------------------------------------------------------------------
\14\ Merck-Medco, L.L.C. Survey of adults 18 years or older in
order to determine their knowledge and opinions of and experience with
generic prescription drugs. Survey performed by Bruskin & Goldring
Research, March 1999.
---------------------------------------------------------------------------
``Questions have been raised recently about the ethics,
safety and effectiveness of generic substitutes for brand-name
products... practitioners and the public may be assured that if
the FDA declares a generic drug to be therapeutically
equivalent to an innovator drug, the two products will provide
the same intended clinical effect.''
To assist physicians with patient education, a special
consumer-education campaign needs to be undertaken. The
campaign should emphasize the cost components in prescription
drugs, how formularies, mail order and drug discount plans
work, and how consumers can bring down the cost of medications
through the use of these programs and appropriate product
selections, including selection of generic medications.
Included in this campaign would be a special educational piece
that physicians can give patients who request a specific name-
brand medication This piece, as well as other educational
materials, would be available in different formats, including
print, Internet, video and public service announcements in all
mediums. Educational materials would be developed as a joint
effort of provider organizations, consumer groups, insurance
carriers, brand-name and generic drug manufacturers, health
insurance agents and the government, and would be designed to
place in the unique context of patient care why a prescription
drug advertised on TV or in print may or may not be
appropriate. Consumers would be provided with accurate
information discussing the proper use of prescription drugs,
and safe ways to lower their costs, including the proper use of
generic medications, or when a name-brand drug might be the
best treatment choice. This would not mean a recommendation
that consumers always purchase generic drugs, but that they
have balanced information to help them make wise purchasing
decisions.
Another way to provide consumer education would be through
pharmacists. Merck-Medco's study indicated that consumers rely
heavily on the advice of their pharmacist, and that two out of
three adults indicate that they have purchased generics on the
advice of their pharmacist. Current law requires pharmacists to
offer consumers a choice between a name-brand drug and a
generic medication when the physician has not restricted the
prescription to the name-brand drug. NAHU would like to see
this expanded to require that the pharmacist also verbally
advise the patient of the cost difference between the two
choices. If the pharmacist's question is ``Would you like the
name brand or a generic?'' the implications of that choice are
not as clear as if the question were ``Would you like the name
brand for $200 or the generic for $68?'' This cost comparison
is critical, and the majority of adults categorize this as a
major reason for choosing a generic drug, if they are aware of
the cost differential.
Finally, the consumer-education campaign should also stress
the importance of lifestyle changes such as a low-fat diet,
exercise, stress management and allergen avoidance, rather than
a reliance on a ``pill for every ill,'' contributing to
medicalization of trivial ailments and an even more
``overmedicated'' society.
Government Assistance to Low-Income Individuals
NAHU recognizes that more efficient buying habits alone
will not provide needed medications to everyone, and we
strongly encourage Congress to address overall Medicare reform
as quickly as possible to remove current inefficiencies and
outmoded programs and practices to bring Medicare into the 21st
century. Even before this is accomplished, however, we strongly
recommend that the problem of outpatient prescription drug
coverage for low-income Medicare beneficiaries who are not
already eligible for Medicaid be addressed incorporating and
using the cost-effective purchasing strategies and patient
incentives described elsewhere in this paper. This could be
accomplished in the following ways:
Expand information on the subsidies already
available at the state and federal level for low-income
beneficiaries (QMB, SLMB, state programs).
Provide additional federal subsidies through block
grants to states to expand existing programs (non-Medicaid) for
low-income beneficiaries or to begin new state programs for
low-income Medicare beneficiaries. These federal subsidies
would not require a state match as is required through the
Medicaid and Children's Health programs and would allow
flexibility to states to use the resources available in their
own areas. If used in conjunction with pharmacy benefit
managers using formularies, rebates, therapeutic substitution
and incentive pricing to encourage the use of the most cost-
effective medications, coverage for prescription drugs could be
extended to many low-income beneficiaries who have no
assistance with these costs today.
Fair Payments to Medicare+Choice Plans
One of the best ways to ensure that seniors have access to
affordable prescription drugs is to increase Medicare+Choice
plan reimbursement rates, so that all Medicare+Choice plans can
provide pharmacy benefits, not just those in the higher
reimbursement regions. There is a large disparity among regions
of the country in the government's payments for seniors
enrolled in Medicare+Choice plans. As a result, some concerns
have been raised about the financial viability of
Medicare+Choice plans. Many Medicare+Choice plans already
provide some coverage for prescription drugs, and they have
been able to use many of the cost-effective strategies
described elsewhere in this paper. A growing trend in payment
disparities, however, will cause seniors enrolled in private
Medicare+Choice plans to be clearly disadvantaged due to
underpayment to plans forcing them to reduce or eliminate their
prescription drug coverage and, in some instances, withdraw
from areas altogether. Prescription drug coverage is one of the
most popular benefits offered by Medicare+Choice plans today.
Adequate compensation and flexibility in plan design to meet
market demand will enhance the accessibility of drug benefits
for seniors.
Free-Market Initiatives to Increase Competition and Lower
Prescription Drug Costs for All Medicare Beneficiaries
Price negotiation for prescription drugs already occurs
regularly in the marketplace through managed care arrangements
such as HMO plans, PPO plans and pharmacy benefit managers, to
name a few. Some people point to these negotiations as an
indicator that price controls can work in the belief that if
private industry can negotiate prices, the government can, too.
On the contrary, these negotiations in the private sector are
negotiations among equals. Price controls that attempt to
replicate such discounts for everyone would undermine the
incentive for negotiating the discounts in the first place.
Price controls would actually undermine existing pricing
competition by substituting federally mandated discounts for
the play of market forces.
While many other countries have passed laws limiting the
cost of drugs, the United States has not. Since prescription
drugs are significantly more expensive in the United States
than in other countries, some have suggested that Congress
should legislate price controls similar to those used in other
nations to eliminate cost shifting to the United States. While
this ``quick fix'' sounds tempting, this approach could
seriously undermine the system that has worked in most other
American markets--competition.
The idea that price controls really ``control price'' is
based on the theory that government can allocate resources
better than consumers and providers in the marketplace. If
prices are not free to go up and down according to market
conditions, seniors could face shortages of some current and
future medications due to insufficient research and development
resources. In addition, price controls in health care are
blatantly inconsistent with government strategies to spur
competition in other industries, where the government has
attempted to break down monopolies, deregulate price and foster
healthy competition in a variety of ways by assuring a fair
playing field.
It is undisputed that the current development process of
new drugs is an expensive, lengthy process. Only one in 10 new
drugs successfully makes it to the market. The price consumers
pay for successful products helps pay the cost of the many
failures. Price controls could discourage the development of
drugs and biotechnology products for older Americans. The
development of new products for seniors, for example those
afflicted with Alzheimer's, would be severely impacted by price
controls and manufacturers would very likely respond by
allocating funds for research and development to products
designed to be used by other populations, to assure a more
profitable return on their investments. Why should they focus
on drugs for the elderly if they cannot recoup the cost of
research?
Managed Prescription Drug Care
Managing the cost of prescription drugs in health plans
works the same way as managing care for doctors and hospitals.
Consumers must give up some of the choice they would otherwise
have, but in exchange, they are assured of getting the
pharmaceutical care they need. To manage the cost of
prescription drugs, most HMOs and many other managed care plans
establish a formulary--a preferred list of drugs eligible for
coverage under their plan for reasons of efficacy and cost.
These drugs have the same therapeutic effect of other non-
formulary drugs, but by giving them preferential purchasing
status, volume discounts can be negotiated.
Virtually all health plans today that offer outpatient
prescription drugs to their insureds through a ``prescription
drug card'' use pharmacy benefit managers to help them
negotiate discounts, even when they don't use a formulary.
These pharmacy benefit managers are extremely successful in
negotiating volume discounts, which decreases the cost of
medications to the health plan.
The group buying power that Medicare beneficiaries could
have goes largely unused because it is too unorganized today to
leverage its potential strength. Medicare beneficiaries often
pay retail prices in spite of their large numbers, even though
drug discounts for HMOs and hospitals can be as high as 40
percent. Those who get discounts based on their age for other
services, such as when they go to the movies or ride public
transportation, are naturally upset at the disparity when it
comes to buying prescription drugs. So, how can we implement a
similar strategy for Medicare beneficiaries capitalizing on
their private-market purchasing clout? Rather than imposing new
government mandates that would require a certain level of
discount for seniors, NAHU again suggests that we look to the
successes of the private sector for a solution. Employers,
business coalitions, unions and state and federal agencies all
take advantage of group purchasing and many of these entities
purchase through pharmacy benefit managers. These arrangements
have produced savings, better quality, more education and
enhanced benefits for their members, not through mandates, but
through market forces in the private sectors.
Some health plans, such as some Blue Cross organizations,
have begun to extend the discounts they have negotiated through
the pharmacy benefit managers, with whom they contract for
their under-65 insureds, to their Medicare Supplement
policyholders. This allows policyholders to purchase their
outpatient prescription drugs at significantly discounted
rates, even though outpatient drugs are not specifically
covered by their Medicare supplement plan.
Utilizing competing pharmacy benefit managers to negotiate
discounts for Medicare beneficiaries would give them a choice
among several pharmacy benefit managers in their area, making
them eligible for a ``prescription drug card'' that would
guarantee them the discount negotiated on their behalf. This
could be done with little or no cost to the federal government
and the free-market competition among competing PBMs would
ensure the best possible discounts for seniors. This discount
system would be available to all seniors, regardless of income,
and could also be used in conjunction with state programs for
low-income seniors. These entities would make full use of
formularies and other incentive pricing programs to encourage
seniors to use the most cost-effective medications. Rebates
would be used to reduce the cost of drugs to seniors, ensuring
seniors the best possible price. Since this would not be an
``insured'' program, there would be no assignment of ``risk,''
and adverse selection would not be an issue. Seniors could
select freely from the PBM offering them the best combination
of convenience, cost and education on pharmaceutical issues and
disease management. To ensure maximum patient safety and offer
the maximum level of protection against medication errors,
competing PBMs would have the ability to transfer patient
records if a beneficiary moved or otherwise changed his choice
of PBM.
We also recommend that Congress move towards greater price
equity in the cost consumers pay in the United States for
prescription drugs vs. the prices paid in other countries. This
can be done by simplifying the ability of consumers, health
care coverage companies and others to buy legally prescribed
drugs from other countries when they are identical to the same
medication available in this country, and when they are
manufactured, stored, and shipped according to Federal Drug
Administration guidelines. Additionally, to promote greater
equity among nations, and to provide the most affordable access
to consumers, the Federal Drug Administration should consider
converting to over-the-counter status any drug that the
manufacturer is selling on an over-the-counter basis in at
least five developed countries.
Finally, we recommend that Congress consider the use of
non-refundable tax credits for persons without prescription
drug coverage through either Medicare+Choice or a Medicare
supplement plan for middle income beneficiaries between 200%
and 400% of poverty. This would provide assistance to
individuals who pay taxes and file tax returns but still have
difficulty in making their income stretch to cover outpatient
prescription drugs in addition to housing, food and other
necessities.
As we have illustrated throughout this paper, price
controls are not the answer to the current high cost of
prescription drug coverage for America's seniors. The
pharmaceutical industry must do its part in making prescription
drugs more affordable for all consumers, including Medicare
beneficiaries. For many years, physicians, hospitals and other
healthcare providers have negotiated the prices they charge for
their services based on volume purchasing by government,
employer, union and other health plans. Drug manufacturers and
pharmacy benefit managers have participated in these negotiated
discounts resulting in reduced prescription drug costs for
those covered by the plans. While this participation has been
helpful, it has not benefited those not covered by these plans,
many of whom are Medicare beneficiaries, and it has not
produced low enough costs even for those covered by managed
care plans, regardless of the population covered by the plan.
With profit margins averaging 28.7 %, compared to 10.5 % for
other successful industries, and consumer outcry at an
unprecedented level, the pharmaceutical industry should wisely
elect to self-regulate to avoid new government mandates. This
self-regulation needs to include:
implementation of clear cost reduction for name-
brand medications at the end of the patent period;
development of consumer education that focuses on
proper usage of both name-brand and generic drugs without
focusing on one particular drug;
initiation of voluntary reduction of prescription
drug prices to state prescription drug programs for low-income
individuals;
re-allocation of dollars currently designated to
physician entertainment to providing new technologies to
physicians to assist them in prescribing accurately. An example
of this, in states where it is allowed, would be a computer
program or device based on the Physicians Desk Reference that
would actually result in a legible printed prescription for the
patient. This interactive program requires input of a diagnosis
and would prevent prescribing errors as a result of confusion
over similar drug names, dosage errors and the inability of a
pharmacist to read the physician's handwriting. In states where
actual electronic prescribing is prohibited, the educational
components of this system could still be provided to the
physician. An essential element of this system would be its
universal nature, with information provided on products
produced by all manufacturers, and clear disclosure of the
names of generic equivalents and their availability;
assurance that product package inserts are written
at a level and type size appropriate for most readers;
attention in product promotions as much to side
effects as to treatment effects;
less or no emphasis on technical graphs and charts
or pseudoscientific jargon in product promotions, ensuring less
confusion to the consumer;
advertisements to consumers that are less centered
on the medication and more on the disease or condition to be
treated;
advertising and promotional marketing to
practicing physicians and medical students that is balanced and
should include information on prevention of pharmaceutical
errors.
CONCLUSION
The problem of access to affordable prescription drugs for
America's seniors is a serious and growing concern. It is critical that
all Americans should have affordable access to the rapid advances being
made in medicine, including pharmaceutical products. The best way for
seniors to truly have this type of control over their health is:
education on issues related to obtaining all types of
health care, including the options available for prescription drugs;
government purchasing assistance for the needy;
market force buying power to obtain better outpatient
prescription drug prices for all seniors to allow them to take
advantage of their numbers for the drugs they need to maintain a strong
and healthy lifestyle;
responsible self-regulation by pharmaceutical
manufacturers.
A united and dynamic force that includes private industry, medical
professionals and government can bring the gift of empowerment to our
senior population rather than new and costly dependence on government
programs.
Thank you for considering our views. NAHU and its members look
forward to working with Congress in addressing the pharmaceutical needs
of America's rapidly expanding segment of Medicare beneficiaries.
Statement of Tom A. Wilkins, Reston, VA
Good morning Mr. Chair and members of the House Ways and
Means Committee. My name is Tom Wilkins and I am a resident of
Reston, Virginia. I appear before you this morning to share my
views on the economic impact of the high cost of prescription
drugs.
Prescription drugs are not a luxury for me. They are a must
and essential to me to stay alive. Admittedly, my quality of
life is somewhat reduced due to my multiple chronic illnesses.
I, like you and most people, wish to live a full and productive
life--one that is free of undue emotional strain caused by an
inability to purchase medications to treat my multiple
illnesses.
I am a disabled veteran and a former combat soldier. I was
left with permanent physical injuries and resultant
psychological and emotional scars. I am also a cancer survivor.
Unfortunately, the list goes on. I contracted a rare, serious
illness that completely changed my lifestyle to the point that
I was placed on a daily regimen of powerful and potent
prescription medication. The medication had devastating
secondary effects on my body by creating other chronic
illnesses. More specifically, medication designed to treat my
diagnosis of acute ``polymyositis'' which had gone undiagnosed
for six months, led to my contracting lupus, another life-
threatening illness. There is no known cure for either
polymyositis or lupus. The cost of needed medication is almost
prohibitive. Yet, I must take the medication to maintain some
semblance of a quality of life, albeit a reduced quality of
life.
Superimposed on those dreadful illnesses were the secondary
effects of the medication prescribed for those illnesses. The
medication prescribed induced the onset of diabetes, high blood
pressure and other associated illnesses. I merely mention my
personal experiences to illustrate the need for affordable
medications, especially for those of us who suffer from
multiple illnesses and who find it virtually impossible to
purchase needed medications.
I find the cost of needed medications prohibitive even
though I participate in the Medicare program and I also
subscribe to a major health care plan. Even with both of these
medical plans available to me, I find myself spending a high
percentage of my disposable income to purchase prescription
medication, just to stay alive. This ought not be the case.
Something should be done to address this critical national
problem. I commend you for your efforts in addressing this
troubling economic matter to millions of fellow American
citizens.
Thank you
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