[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
PRESCRIPTION DRUGS: MODERNIZING MEDICARE FOR THE 21ST CENTURY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HEALTH AND ENVIRONMENT
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 14, 2000
__________
Serial No. 106-110
__________
Printed for the use of the Committee on Commerce
------------------------------
U.S. GOVERNMENT PRINTING OFFICE
65-804CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health and Environment
MICHAEL BILIRAKIS, Florida, Chairman
FRED UPTON, Michigan SHERROD BROWN, Ohio
CLIFF STEARNS, Florida HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia PETER DEUTSCH, Florida
RICHARD BURR, North Carolina BART STUPAK, Michigan
BRIAN P. BILBRAY, California GENE GREEN, Texas
ED WHITFIELD, Kentucky TED STRICKLAND, Ohio
GREG GANSKE, Iowa DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma LOIS CAPPS, California
Vice Chairman RALPH M. HALL, Texas
RICK LAZIO, New York EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING, (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Davenport-Ennis, Nancy, founding Executive Director, Patient
Advocate Foundation........................................ 111
DeParle, Hon. Nancy-Ann Min, Administrator, Health Care
Financing Administration................................... 26
Donoho, Patrick B., Vice President of Government Affairs and
Public Policy, Pharmaceutical Care Management Association.. 87
Feder, Judith, Dean of Public Policy Studies, Georgetown
University................................................. 83
Fuller, Craig L., President and Chief Executive Officer,
National Association of Chain Drug Stores.................. 69
Ignagni, Karen, President and Chief Executive Officer,
American Association of Health Plans....................... 65
Kahn, Charles N., III, President, Health Insurance
Association of America..................................... 73
Pollack, Ronald F., Executive Director, Families USA......... 90
Material submitted for the record by:
Martin, James L., President, 60 Plus Association, prepared
statement of............................................... 154
(iii)
PRESCRIPTION DRUGS: MODERNIZING MEDICARE FOR THE 21ST CENTURY
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WEDNESDAY, JUNE 14, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Health and Environment,
Washington, DC.
The subcommittee met at 10:10 a.m. in room 2322, Rayburn
House Office Building, Hon. Michael Bilirakis (chairman)
presiding.
Members present: Representatives Bilirakis, Upton,
Greenwood, Deal, Burr, Bilbray, Whitfield, Ganske, Norwood,
Coburn, Cubin, Shadegg, Bryant, Brown, Waxman, Pallone,
Deutsch, Stupak, Green, Strickland, Barrett, Capps, Hall,
Towns, and Eshoo.
Staff present: Carrie Gavora, majority professional staff;
Tom Giles, majority counsel; Kristi Gillis, legislative clerk;
Bridgett Taylor, minority professional staff; Karen Folk,
minority professional staff; and Amy Droskoski, minority
professional staff.
Mr. Bilirakis. The topic of today's hearing is Prescription
Drugs. Modernizing Medicine for The 21st Century.
I believe that this title is especially appropriate because
we must examine broader reforms to preserve Medicare for the
future as we consider adding a prescription drug benefit to
this already financially troubled program.
In three prior hearings we discussed both prescription drug
plans which had been introduced at that time and more general
concepts. Today we will hear more about the specific details of
different coverage options.
As most of you know, our committee colleagues, Congressmen
Bliley, Burr and Hall yesterday announced a bipartisan plan
called ``Medicare RX and Modernization 2000,'' a plan to help
senior citizens by expanding access to prescription drugs in a
context of Medicare modernization.
As our panelists and members of this subcommittee are
aware, in any effort to add a prescription drug benefit to
Medicare the devil truly is in the details. The path to a
sensible, salient plan is riddled with potential land mines and
we must tread carefully and cautiously.
Among the issues we will discuss today, this hearing will
shed light on the possibilities for disease management
services, the role of pharmacies, and the fate of
Medicare+Choice.
As July 1 approaches we are beginning to hear about more
Medicare+Choice plans withdrawing from the program. An
important part of the Medicare RX and Modernization Plan 2000
would put the administration of the Medicare+Choice Program
under the purview of the Medicare Benefits Administration, the
same new agency that would administer the new prescription drug
benefit.
I look forward to hearing the view of the insurance
industry represented by our witnesses, Karen Ignagni and Chip
Kahn, about how this proposal could help stabilize the
Medicare+Choice Program.
As I have continued to examine the issue of prescription
drug coverage under Medicare, the role of pharmacies and
pharmacists is an issue we all have carefully considered:
What is the appropriate role and function for pharmacists
and organized pharmacies, and how can they help in the
administration of prescription drug benefit?
I hope that Craig Fuller from the National Association of
Chain Drug Stores can shed some light on these questions.
Today's hearing will again underscore the need for
prescription drug coverage for Medicare beneficiaries. I am
hopeful that it will also help us better understand all aspects
of the new prescription drug benefit, including administration,
pricing, choice, and costs. I would also like to welcome all of
our panelists. Our first witness is Nancy-Ann Min DeParle,
Administrator of the Health Care Financing Administration. It
has been some time since she last appeared before a
subcommittee, and I know that my colleagues join me in
extending our congratulations on the birth of her child. I look
forward to hearing from all of our witnesses, and I would like
to thank them for their time and effort in joining us today.
In the interests of time, after the opening statement of
the Ranking Member Mr. Brown, I would encourage my fellow
subcommittee members to limit their opening statements to 3
minutes. I know that we all want to hear what our witnesses
have to say and still have ample time for questions. Thank you.
The Chair now yields to Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. I would first ask
unanimous consent to enter into the record Mr. Dingell's
statement and statements of any other Members.
Mr. Bilirakis. Without objection, the statement of Mr.
Dingell and all members of this subcommittee will be made a
part of the record.
Mr. Brown. Thank you, Mr. Chairman.
I would like to thank Nancy-Ann and other distinguished
witnesses for joining us today.
Mr. Chairman, I am glad we have been given the opportunity
to discuss the need for Medicare prescription drug coverage
today. I am concerned, however, that the Republican proposal
that prompted this hearing is being taken seriously when,
frankly, it should not be.
How can you try to convince seniors that you are helping
them when the only thing you have promised to them is a low-
income subsidy. You are not helping seniors above 150 percent
of poverty by subsidizing insurers; you are helping the
insurers.
Your plan guarantees nothing other than some assistance for
the lowest-income seniors. In my district, prescription drugs
are not just a low-income problem. Seniors who thought they
were financially secure are watching their savings go straight
into the pockets of drug makers.
You are trying to tell seniors that there will be a choice
of reliable, affordable private prescription drug insurance
plans available to them. Based on what? Certainly not history.
Even the insurance industry is balking at this idea. It
should tell us all something that insurers do not sell
prescription drug coverage on a stand-alone basis today even to
young and healthy individuals. That is because it simply does
not make sense.
Medicare is reliable. It is a large enough insurance
program to accommodate the risks associated with prescription
drug coverage. Individual, stand-alone prescription drug
policies are not.
You are actually trying to convince seniors who stand
firmly behind the Medicare program that expanding the current
benefit package is less efficient and more onerous than
manufacturing a new bureaucracy and conjuring up a new
insurance market.
Seniors are too smart for that.
I do not want to ask seniors in my district and across the
country to rely on a market that does not want the business, to
provide a benefit not suited to stand-alone coverage to a
population that, let's face it, has never been well served by
the private insurance market.
I do not want seniors in my district and across the country
to be coerced into managed care plans in order to avoid dealing
with three different insurance plans. Medicare, Medigap, and
individual prescription drug coverage.
I do not want seniors in my district or across the country
to receive a letter from their employers telling them the
retiree prescription drug coverage has been terminated on the
premise that ``the government is offering private insurance
now.''
I do not want to forsake volume discounts and economies of
scale by segmenting the largest purchasing pool in this country
and then waste Trust Fund dollars on insurance company margins
and on insurance company marketing expenses.
And I do not think the individual health insurance market
is a reasonable model for Medicare prescription drug benefits.
In fact, as anyone who has had to purchase or sell coverage
in that market will tell you, the individual health insurance
market is not even a good model for individual health
insurance. It is the poster child for selection problems, for
rate spirals, and for insurance scams.
The very fact that the drug industry backed Citizens For A
Better Medicare supports the private-plan approach is a giant
strike against it. The drug industry and their puppet
organization clearly feel that undercutting seniors' collective
purchasing power, relegating seniors to private, stand-alone,
you're-on-your-own prescription drug plans is the key to
preserving discriminatory, outrageously high prices.
My office has been deluged by FAXes and postcards, as we
all have, from Citizens For A Better Medicare warning us, ``not
to force seniors into a Federal Government run one-size-fits-
all prescription drug plan.'' But Medicare itself can be
characterized as a Federal Government run one-size-fits-all
insurance program. It is also the most popular and successful
public program in our Nation's history.
Medicare came into being because half of all seniors were
uninsured--not by their choice. Medicare, a nationwide plan
with a risk pool over 30 million strong, is a stable, reliable
way of insuring coverage for our seniors.
Medicare works because it guarantees the same basic
benefits to all beneficiaries regardless of where they live,
regardless of their income, regardless of their health status.
Simply put. It is equitable.
The Republican proposal leaving seniors to search for
private coverage means varying premiums and varying levels of
restrictiveness on access to prescription drugs.
One other thing, Mr. Chairman. The subsidy to insurers
means completely unpredictable liability for the Federal
Government. The single most important objective we can fulfill
this year is to secure a meaningful prescription drug benefit
for Medicare beneficiaries.
Let us not make a mockery of that objective by focusing on
an option that is neither responsible nor realistic.
I thank the chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Deal for an opening statement.
Mr. Deal. Mr. Chairman, I will yield my time in an effort
to expedite the testimony of the witnesses.
Mr. Bilirakis. I appreciate that.
Mr. Waxman for an opening statement.
Mr. Waxman. Thank you very much, Mr. Chairman.
I welcome this hearing. I think a drug benefit for seniors
under Medicare is long overdue, but I am disturbed by the
evident intention of this subcommittee to use this hearing to
justify moving through our committee and taking to the House
floor a Republican bill that has not yet been made available to
the public, that our witnesses have not even seen, that has
been explained only in vague and contradictory terms, and that
apparently fails to meet critical conditions for effective,
available, and affordable prescription drug coverage.
In my view we can only meet our obligations to Medicare
beneficiaries if we make coverage of prescription drugs a
benefit that all Medicare recipients are entitled to, a benefit
that covers all medically necessary drugs, a benefit that is
available in every part of this country, a benefit that is
accessible and affordable to seniors in fee-for-service
Medicare as well as Medicare+Choice plans, and a benefit that
assures Medicare beneficiaries will no longer face the
discrimination in drug prices which has resulted in their
paying the highest prices out of their own pockets. But that is
not the approach of the Republican bill.
It tells seniors that they can purchase a private insurance
drug policy patterned on Medigap policies which already fail to
deliver an affordable drug benefit. That is a cruel hoax.
Except for the poor, the Republican bill does not help
seniors pay their premiums. It subsidizes private insurance
companies and tries to claim that that will help seniors. What
that really does is mislead and confuse people about the help
that is available.
The Republican bill shifts the responsibility to insurers
to try to provide a benefit when they know there is going to be
an adverse selection that almost certainly will make their
product unaffordable and unavailable. That is not a responsible
choice.
The drug companies might like it. It will pay what the drug
companies want to continue to be paid. But seniors will not
like this plan.
I know that the Republicans have a public relations
consultant, and we have a document that came out of their
consultant's distribution to the Republican Members. They
suggested to the Republicans that they tell the American people
that:
I care. It's easier to say I care.
And then the consultant told Republican Members. It is more
important to communicate that you have a plan as it is to
communicate what is in the plan.
Well that approach results in a bill that tells seniors
they can purchase this policy, but it is not going to really be
available to them. The Republican bill does not help seniors
pay their premiums. It subsidizes private insurance companies,
and then tries to claim that seniors will have a benefit.
The drug companies might like this bill. It is rhetoric but
it is not reality. I think the cynicism is breath taking.
Seniors do not need us playing politics with their health
care. Seniors need real coverage for prescription drugs. They
cannot afford the high price of drugs, and they cannot afford
to pay twice what the big buyers pay. They do not need another
Medigap. They need a Medicare drug benefit.
Let's join together in a bipartisan way and in a
responsible way to do exactly that.
I yield back the balance of my time.
Mr. Bilirakis. Dr. Norwood for an opening statement. Three
minutes, please, for members other than the chairman and the
ranking member.
Mr. Norwood. Thank you, Mr. Chairman.
I want to begin by thanking you very much for holding this
hearing. As we move forward on this issue, it is important to
express our gratitude to you for the series of hearings which
you have held which I believe makes us far better equipped to
address a drug benefit for seniors.
Now from my perspective I believe there are many critical
issues that we must address in any bill we consider, but I will
mention just two.
If there is one thing we can be absolutely certain of it is
that a 3-week stay in the hospital typically is far more
expensive than taking medications that have been prescribed for
you.
When seniors are forced to ration drugs, or stop taking
drugs because of the expense, they incur the likelihood that
they will end up in the hospital, which in the long run draws
down on the Medicare Trust Fund.
Any drug benefit proposal we consider must be targeted to
help those seniors who can least afford expensive medications.
Ultimately we know those seniors are most at risk to face the
consequences of not taking their medication.
As I have discussed these issues with seniors in my
district, I have heard again and again and again that seniors
are most concerned about the seemingly endless cost of
prescription drugs.
The one thing we can do to help all seniors most I believe
is to provide a drug benefit that gives them some peace of
mind; that makes clear that there is only so much a senior will
have to pay out of pocket.
Providing seniors with stop-loss coverage for their
prescription drugs will frankly ease that concern.
Mr. Chairman, I am very pleased to read that my colleagues
have addressed these two key issues in Medicare Treatment 2000.
I am actually looking forward to reading the bill.
It would certainly make a real difference in the concerns
expressed by my constituents, and I appreciate the attendance
today, Mr. Chairman, of our witnesses and look forward to their
testimony.
Mr. Bilirakis. I thank the gentleman.
Mr. Pallone for a 3 minute opening statement.
Mr. Pallone. Thank you, Mr. Chairman.
Mr. Chairman, I cannot help but express my frustration this
morning over the fact that the Republicans apparently have put
together some sort of proposal on prescription drugs which we
have not really had a copy of, which is not in legislative form
but the points have been put out there and, frankly, from what
I can see this Republican proposal is just an imaginary drug
benefit that does nothing for seniors and is just political
cover and empty promises.
As Mr. Waxman has pointed out, the House Republican
Conference put out a presentation by Glen Bolger on June 8 that
basically talks about this from a communications point of view.
I have to say that that is all this is. There is nothing
here. It is just an effort to try to pretend that they are
doing something which will never pass, will never go any place,
but will be used to try to show that somehow they are trying to
address this issue for the next campaign in November.
From what I can see, the Republican proposal is not a
defined benefit. It is a premium support bill. It gives people
whatever the insurance companies can provide. You know, we do
not know what the insurance companies will give them, and they
leave it up to the insurance companies to decide what kind of
benefit it is going to be.
It is very cumbersome. It is ineffective. It is almost
nutty, I would say. What this should be--and the Democrats have
proposed--is this should be a benefit plan.
I do not understand the whole concept of saying that
somehow we are going to have drug-insurance-only policies
because we know that insurance is risk-oriented. This is
something that everybody is going to take advantage of.
Everybody is going to need prescription drugs at some
point. So it should not be used in the insurance model; it
should be a benefit program under Medicare. It should not vary
from State to State or from region to region; it should be
defined.
Also, from what I can see about the Republican proposal it
does nothing to put any pressure on price. Price discrimination
is the main thing that most of the seniors talk about today.
Now rather than proposing a prescription drug benefit that
is part of the Medicare Program itself, the Republicans want to
force the insurance industry to offer prescription drug-only
policies outside of Medicare's umbrella that the insurance
itself says will not get the job done.
Indeed, just yesterday Chip Kahn, the head of the Health
Insurance Association of America, told the Ways and Means
Committee that the likelihood is that the people most likely to
purchase this coverage will be the people anticipating the
highest drug claims and would make drug-only coverage virtually
impossible for insurers to offer to seniors at an affordable
premium.
The insurance industry's opposition to a Republican plan
that proposes to pump billions of Federal dollars into its own
coffers is very telling.
This is in my view a clear reason why the Majority once
again seems poised to offer a proposal on a pressing health
issue that it knows has no chance of going anywhere. And, Mr.
Chairman, I have to say it is just like the Patient's Bill of
Rights.
We know the Conference got bogged down. The Republicans
have no intention of passing a Patient's Bill of Rights, or
addressing HMO reform, just like they have no intention today
or any time between now and the end of the year of addressing
Medicare prescription drugs.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Pallone. I thank the chairman.
Mr. Bilirakis. Thank you.
Mr. Whitfield for an opening statement.
Mr. Whitfield. Mr. Chairman, thank you very much.
I am glad we are having this hearing. I find it interesting
that our friends on the other side complained about not seeing
the bill and then yet are very specific in their criticism of
the bill.
Most of us on this side have not seen it either, but the
importance of this hearing is simply to start addressing this
issue. It is complex and we look forward to hearing the
testimony of our witnesses as we work to fashion an effective
prescription drug benefit plan.
Mr. Bilirakis. Mr. Towns for an opening statement.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me say, I think this is a very serious matter and we
should not be playing games with it. I think that we have a
third of our seniors out there who are without coverage of any
sort. I think that we owe them more. I think they need to have
coverage, and I think that this is an opportunity to do it.
But to move forward with this kind of legislation that we
have got ideas and going forward in the dark to me just does
not make a lot of sense if we are serious about doing what is
right on behalf of our seniors.
Our seniors in many instances of course they have paid a
tremendous debt, and of course to come to this time in their
life and have to worry about whether or not they will be able
to pay for their medication to me does not make a lot of sense.
So I am hoping that we get very serious here and begin to
look at this. Because when I look at New York City, or New York
State I should say, New York as 2.3 million seniors who rely on
Medicare. In about 2025 that number will rise approximately to
3.3 million. Only 24 percent of New York firms offer retirees
health insurance.
The monthly premium for Medigap Insurance, including
prescription drugs, average $159, which is out of reach for
many seniors in New York. Medicare enrollment in New York in
the coming years is increasing while at the same time access by
retiree health insurance and Medicare managed care is
decreasing or inadequate.
This situation is not unique to New York. Other States also
fall into this same pattern.
The economy is doing well. With our budgetary surpluses, it
is time we start addressing our seniors' concerns about
affordable prescription drug coverage.
I think we should do it. We should do it now.
Mr. Chairman, on that note I yield back. And I say to you
that we need to make certain that information is shared among
all Members because this is a very serious issue and I am
hoping that this is not being used for any kind of political
maneuver.
I yield back.
Mr. Bilirakis. I thank the gentleman.
Mr. Ganske for an opening statement.
Mr. Ganske. Thanks, Mr. Chairman, and thank you for having
this hearing.
I certainly think some seniors in particular need help with
their pharmaceuticals. There is a group that do not qualify for
Medicaid if they are in the QMBY or SLMBY groups, the groups
that are just above the requirement for Medicaid, then they get
help with their premiums and in some cases with their
deductibles but they cannot get into the Title XIX, the
Medicaid Drug Programs.
And they definitely have a problem. I also think that all
Americans are concerned about the high cost of the drug prices.
I hear this from employers who are having to deal with 18
percent increases, annual increases in their prescription drug
costs, and from individual citizens.
I hear from seniors that they are concerned, and from
others, that they are concerned about the cost differential in
drugs between Canada, Mexico, Europe, and the United States.
And they do not think that it is fair.
So I do want to say that I do have a plan, and I do have
some ideas on how we can accomplish this.
I sat through 8 hours yesterday of the Ways and Means
testimony, and I took copious notes on this. Why did I have to
do that? Why did I have to listen to questions to Chairman
Thomas yesterday?
It is because I have not seen a bill. I am told that there
is a bill in Speaker Hastert's office. I am told that
legislative counsel has a bill, and I am told that the CBO has
a bill.
I will not gainsay some of the Members who have worked hard
on this, but this is way, way too important an issue to be
making a decision on the biggest benefits expansion in Medicare
history without fully vetting this process.
I want to put a plea in. This is an issue that should go
through Regular Order, hearings, more than one, a subcommittee
markup, a full committee markup, both in the Commerce Committee
and in Ways and Means.
Why? Not for the benefit of the members of this committee
but for the benefit of our colleagues so that this issue is
fully vetted so that they understand fully what they are going
to be voting on.
It would be a tragedy to put a bill on the floor that most
Members do not understand what the implications would be. I
just cannot support a bill that goes through that kind of
process.
What did I learn from the chairman, Chairman Thomas,
yesterday? I learned that there will be a SOP made to rural
Members with some modest increase in the AAPCC to try to buy
their vote.
It will never be enough to get HMOs into those rural
districts like mine which are composed of elderly citizens that
the HMOs do not want to cover that have medical problems.
I heard yesterday that there will be a whole new separate
bureaucracy set up in the GOP plan. We need to think about
that.
But what is the big problem?
Mr. Bilirakis. The gentleman's time has expired.
Mr. Ganske. Mr. Speaker, could I ask unanimous consent for
1 additional minute?
Mr. Bilirakis. Well now if we start that, Greg, we are
never going to get to the hearing.
Mr. Ganske. I understand that, Mr. Chairman, but how big an
issue are we going to face?
Mr. Bilirakis. Well this is a big issue and we have spent a
lot of time on it and we are going to continue to spend an
awful lot of time on it. I would appreciate it if the gentleman
would withdraw his request.
Mr. Ganske. I can take up this issue in comments later and
I will submit my statement.
Mr. Bilirakis. Ms. Eshoo for an opening statement.
Ms. Eshoo. Good morning to you, Mr. Chairman, and all the
members of the committee, and certainly to the distinguished
individuals who are going to testify at this important hearing
today.
I have of course a fuller statement for the record, but let
me just try to summarize in a brief period of time. There are
time limits around this. I know that that is important. We want
to hear from the witnesses. But as the gentleman just stated,
this is an issue that is not just large, it is a giant issue.
We really have to be devoted to giving the kind of time to
the scrutiny of the ideas and plans that are being placed
before us here in the Congress. We know what the problem is. It
is not an issue of whether we should do something about it, but
rather how to.
I am very proud to have introduced legislation that really
builds upon the President's plan and moves beyond it by
incorporating competition to bring down pricing. Seniors are
paying too much for their prescription drugs. But I think that
we also have to reduce the efficiencies that could be there
relative to the administration of a new benefit.
This legislation, the Medicare Prescription Drug Act of
2000, H.R. 4607, I am very proud to say is originally co-
sponsored by many Democrats on this committee.
Suffice it to say that at least in my view--and I think in
many Members' views--this is a benefit that needs to be
consistent for seniors.
I do not believe that insurance companies hold a great deal
of credibility today with seniors. They did not a couple of
years ago with HMOs. Now it seems to me that there is a move to
HMO/insurance prescription drug benefits.
The insurance industry says that they do not want to insure
this, or that they can't, and today in my district and I think
districts around the country insurance companies are pulling
out of the market.
If there is anything that my mother wants it is some
consistency in her life. You know? She has gone through the
peaks and valleys of life, and there are some things that she
and her peers really want to be able to rely upon.
So I think that the Congress needs to move in the direction
to make a benefit that can be counted on in Medicare, a full
benefit. And if someone has a benefit through their previous
employer as a retiree, so be it. If they want to count on it as
a Medicare benefit, it should be there. But we should not be
backdooring it through some kind of insurance plan.
I too spent a great deal of time yesterday, along with my
Republican colleague and many others at the Ways and Means
Committee testifying on my bill----
Mr. Bilirakis. The gentlelady's time has expired. Please
finish up.
Ms. Eshoo. I think that the direction at least that Mr.
Thomas is taking is really not the most prudent one for
seniors. So I look forward to hearing from our witnesses today,
and I thank you, Mr. Chairman, for holding this hearing.
[The prepared statement of Hon. Anna G. Eshoo follows.]
Prepared Statement of Hon. Anna Eshoo, a Representative in Congress
from the State of California
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.
Our Republican colleagues believe that we should 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.
Some 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. 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.
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. In the words of
Franklin Delano, ``the test of our progress is not whether we add more
to the abundance of those who have much; it is whether we provide
enough for those who have too little.'' It's time that we stop wasting
our budget surplus on tax cuts for the wealthy and use it to provide
our Nation's seniors with a basic healthcare need--coverage of
prescription drugs.
Mr. Bilirakis. Mr. Bryant for an opening statement.
Mr. Bryant. Thank you, Mr. Chairman. I too want to add my
appreciation to both you for calling this hearing and the
panel, the very distinguished panels we will have today.
I think when I came to Washington about 6 years ago I was
an optimist. I felt like we could come up here and work in the
system and both sides wanted to get a solution that would help
everybody.
And over a period of time, that has somewhat eroded as I
have seen partisanship not just on one side but certainly on
both sides.
You know we have a problem in this country on seniors
having access to affordable prescription drugs and we all want
to solve it, I think.
And then I come in today and I hear something about we have
got a public relations guy helping us. Gosh, that is a shock up
here in Washington.
Then I hear this term ``Republican bill'' and Republican
bill, rather than a bipartisan bill. There are some Democrats
on this.
It kind of makes me believe what I read in one of the
papers up here the other day that on the Senate side the
Democrat Senator who is co-sponsoring one of the Republican
bills is facing sanctions over there, punishment for doing that
because he is not playing politics.
Because everybody up here knows, and maybe it is unspoken,
today that some people want this to be the issue in the
election rather than trying to get down to business and solve
the problem.
I think we can do that. I think both sides, when you really
look at it, really are not that far apart, particularly on
dollars. I know our plan we have worked very hard on it. It is
a universal plan. It is a voluntary plan. It is a choice out
there to the citizens. It helps those in financial need. It
helps on the high end to prevent people from having to sell
their homes or use up their savings account if they have a
catastrophic drug bill each year.
It is a good bill. I guess I would like to reach down and
bring back up some of that optimism and hope that we can work
together and not have this as a campaign issue but work
together to get a bill that will truly help our senior
citizens.
I would yield back my remaining time.
Mr. Bilirakis. I thank the gentleman.
Mr. Stupak for an opening statement.
Mr. Stupak. Thank you, Mr. Chairman----
Mr. Bilirakis. And, Bart, our sincere sympathy, publicly.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Chairman, we have really not seen the bill, but the
talking points we have seen reminds me of the old Golden Rule
that seems to be followed in this bill. Do not hurt the
pharmaceutical. Increase the insurance company profits, and
make coverage as complex as possible.
The GOP bill says. ``Trust private insurers.''
Trust the pharmaceutical companies whose profits are $20
billion, whose net operating profit is 28.7 after all the
research, after all the advertising, it is 28.7 percent on
pharmaceuticals when the rate of inflation is less than 3
percent. It is price gouging.
This is a study from my district in October 1998. Take any
drug you want. Zocor for cholesterol. If you are the Federal
Government you pay $42.95. If you are a major wholesaler, you
pay $85.47. The average price is $106.84. If you are a chain
market, it is $101.29. Independent pharmaceutical companies or
stores pay $99.38. The average retail price is $100.33. The
price differential is 134 percent. That is in my district in
northern Michigan. That is price gouging. That is price
discrimination.
Those who can least afford it, who do not have the
insurance coverage, pay 134 percent more.
The GOP plan has more bureaucracy. There are no real
protections. The GOP plan really says to the American people.
Look, each senior, you go out and negotiate whoever you want
with the private insurance companies, with the big HMO plans.
We are not going to help you. You negotiate. We will then give
you some money. Not to the American people but to the insurance
companies and to the HMO. Your pharmaceutical company will reap
the benefits. Government will give you nothing.
This is the same GOP plan. Remember, they are the ones who
want privatize Social Security? Now they want to privatize your
prescription drug coverage. That is the same group that wants
to let Social Security wither on the vine.
If you take a look at it, we privatize Medicare--excuse me,
Medicaid in Michigan. Two years ago, the State of Michigan ran
it. The administrative cost was $28 million. Two years later,
after it was privatized, the administrative cost is $141
million. In 2 years, $141 million.
It is unbelievable what you can do when you can privatize
systems like we did in Michigan. Medicaid. Medicaid?
Unbelievable. Look at those administrative costs, $28 million
to $148 million. That is exactly what is going to happen to our
prescription drug plans.
Look it. The Democrats for 2 years had the Allen bill out
there, the Stark bill. We had the President's plan. Give us
some hearings on it. Universal coverage. That's what we need.
Stop and think. We need universal coverage so that all seniors
are covered.
Stop the price gouging. If you do not, the profits will
remain at 28.7 percent. No problem with profits. But if it is
going to continue to price gouge, we will all be in trouble.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Stupak. Most Americans after this is over will not be
able to afford any type of drug coverage.
Mr. Bilirakis. Mrs. Cubin for an opening statement.
Mrs. Cubin. Thank you, Mr. Chairman.
I would like to begin by associating myself with the
remarks of several of my colleagues, Mr. Bryant and Mr. Towns,
stating that this issue is far too important to politicize.
What we need to look out for are the best interests of our
senior citizens. I do not think anyone here at all
underestimates the value and the importance of drafting a
prescription drug proposal program for our seniors.
We all want the life-saving drugs to be available, and no
one should go without food to get them. Our intentions are
good, and our expectations are very high. That makes crafting a
drug plan all that much harder.
Seniors are looking to us to help make a difference in the
quality of their life. They are not looking to us to
politically attack one another and to try to find grounds to do
that.
Today we are going to be considering some very pointed
aspects of the issue:
How do we administer a prescription plan?
Should it be voluntary?
Should it be market based?
Or should it be government run?
What kind of benefits are to be offered?
How much will the government subsidize?
How does it affect Medicaid?
I agree that all of these questions have to be adequately
addressed for any plan to be successful, but I also think there
is one critical component that is not getting the attention
that it deserves. That is, how does any plan affect rural
America?
As most of you know, I represent the State of Wyoming which
is the most rural State in the country. While you may be able
to identify Jackson Hole and Yellow Stone National Park with
Wyoming, I do not think that it is easy for some people to be
aware and grasp the concept of the State's true size and the
amount of vast open spaces.
With approximately 480,000 people covering almost 100,000
square miles, we sometimes have to drive hundreds of miles just
to access medical care. Oftentimes that means going to another
State.
We have to rely almost exclusively on fee-for-service in
Wyoming. And because of that, seniors in Wyoming have less
access to drug coverage than seniors would in California, for
example, where there are many Medicare HMOs.
Programs within the present Medicare system, such as
Medicare+Choice, have not been beneficial to rural areas as
originally envisioned due to a lack of customer base in these
areas.
So as a result, options for rural populations of our
country are often very limited, or many times nonexistent.
Having said that, I worry that a similar problem may occur
in any prescription drug plan benefit that does not adequately
address the needs of rural Americans.
I urge all of my colleagues on the committee to keep that
in mind because there are a lot of people who live in rural
America that could be very adversely affected by any program
that does not take these elements into consideration.
Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Green for an opening statement.
Mr. Green. Mr. Chairman, I thought Mr. Strickland was here
earlier.
Mr. Bilirakis. Well I don't know. I am taking you by order
of seniority.
Mr. Strickland. I am very generous. Go right ahead.
Mr. Green. Okay. Thank you, Mr. Chairman.
Mr. Bilirakis. That is unusual.
Mr. Green. I will be glad to take my time from my colleague
from Ohio.
Mr. Chairman, I want to thank you for calling this hearing
today. I appreciate the number of hearings we have had on the
prescription drug initiative and hopefully we will have
legislation to look at to actually mark up.
Sadly, it appears, that what I see in the press is the
effort is not as bipartisan as I would like it to be. We see a
press release that gives some ideas but not actually
legislation.
Hopefully, by our committee working together, as is the
tradition of the Commerce Committee, we can come up with a plan
that a majority of Americans will support.
A plan that actually puts money into the pockets of seniors
for prescriptions and not necessarily insurance carriers.
Working together we can put together a plan. Unfortunately,
what I have seen up to this point we have not been able to, and
I hope our subcommittee can do that.
And again, all we are working from today is a press
release, so that is what I will base my remarks on. Medicare
was created in 1965 because private-sector insurance could not
provide coverage for senior citizens.
Everyone was a claimant. Everybody had a claim. So profit
and loss would not work. We are having the same example today
with prescriptions. Every senior citizen has prescriptions. In
fact, sometimes half a dozen of them. That is why the private
sector cannot work.
Except in this press release we are using it shows that
that is what it will do. The proposal is a new drug-benefit-
only policy that the experts say will be ineffective and
inexpensive.
The drug-only benefit will have adverse selection for
seniors. Even worse, it allows the insurance companies to
select what drugs they will cover and how much they will
charge. There is no guaranteed standard benefit.
Allowing insurance companies to set the benefit and price
is like letting the wolf guard the chicken house. And any
savings would not go to those seniors.
Some in the insurance industry will be able to set the
prices. I wonder why, instead of using taxpayer dollars wisely,
the proposal we have is to create a new bureaucracy: the
Medicare Benefits Administration, or MBA, which duplicates what
HCFA and our committees already do.
So we are going to take money straight out of the Medicare
Trust Fund to pay for this new bureaucracy.
Medicare has the most efficient administration. It is less
than 1 percent, and I think that can be comparable to any other
insurance plan.
America's seniors need prescription drugs. They are sick
and tired of the Medigap policies. The Medigap policies we have
now, the costs are going up so substantially and this would add
just another Medigap policy to seniors who are already having
to pay upwards from $200 to $300 a month in some cases.
So, Mr. Chairman, hopefully we will see a bill. And
hopefully the press release I have seen and the guidelines is
not what our committee is going to be looking at.
Thank you.
Mr. Bilirakis. I thank the gentleman.
Mr. Bilbray for an opening statement.
Mr. Bilbray. Thank you, Mr. Chairman.
Mr. Chairman, I would really like to echo the words of my
colleague from New York, Mr. Towns, and also my dear friend
from Wyoming.
The partisanship sounds great in Washington, and the
bickering between Republicans and Democrats may play well to
the afternoon news, but I think the American people are
sophisticated enough to see that not only is this issue
important enough to be able to ignore partisan lines, but they
are sophisticated enough to know when people are trying to
manipulate issues for political reasons on both sides.
I think they will hold us both accountable if we approach
this issue from a partisan point of view. I would just ask that
my colleagues understand that as we snipe across the aisle we
do not make the other person look bad, we make ourselves look
bad.
I would just ask us to consider the fact that there is a
lot of common ground that we have here, not just political
differences. We have parents that need to leave healthy. We
have children that need not to be taxed to death to support
their grandparents health care.
We have the challenge of how we are going to administer the
next level of service to our seniors in this country.
Now there has been some sniping about the creation or the
alternative way of administering this new benefit. The fact is
that Democrats and Republicans agree in many instances that
HCFA is not the agency to administer this program.
I want to commend my colleagues on the other side of the
aisle who have been brave enough to say we not only can do
better than HCFA, we have to do better than HCFA.
Now we may disagree with the President, and I think
Democrats and Republicans can convert the President over to our
way of thinking that there needs to be a better way than the
traditional HCFA way.
I want to thank my colleagues on the Democratic side for
being brave enough to say that.
I just ask us to really, let's listen to the facts. Let's
not find reasons to snipe. Let's look at these issues where we
have common ground. We can build on this common ground and
build a foundation that not only makes us look good in the eyes
of the voters but also is going to provide the service that is
going to make us look good in the pages of history in the
future.
I would ask you to consider the fact that we are going to
be making decisions that are not only going to affect us, they
are going to affect our parents and they are going to affect
our children and our grandchildren.
I think that come November we are going to be judged by how
well we work together, not how quickly we found excuses to
fight.
I yield back, Mr. Chairman.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Strickland.
Mr. Strickland. Thank you, Mr. Chairman.
My colleague from Tennessee said a few moments ago that
some would like for this to be an election issue. I do not know
if that is true, but I do know that it is true that it is going
to be an election issue.
It is going to be an election issue because this issue is
important to the American people. They are paying attention.
When I hear my friend, Dr. Ganske, talk, I realize that it
is not a totally Democrat/Republican controversy, but it
involves political philosophy, and it involves each Member
deciding who it is that we were sent here to represent.
I think we will be held accountable district by district,
Member by Member.
This bill, as we have read about it, has nothing that I can
see on the cost side. In my district, just as in Representative
Stupak's district, my senior citizens are paying twice as much
for these life-saving medications as are large HMOs or large
insurance companies or the Federal Government.
As far as I can tell, this bill does nothing about that
problem. The American people are rightly outraged--outraged--
that American tax dollars are used to develop medications that
are being sold in Canada, and Mexico, and everywhere else
around the world for one-third to one-half of what the American
senior citizen has to pay for that very same medication.
They are outraged.
They are not going to tolerate it anymore, and we have got
to do something about that.
For one, I am just tired of going to my district and seeing
senior citizens stand in these public meetings with trembling
voices, quivering hands, and talking about their problems.
We are Representatives. Our response to this issue will
decide who it is that we represent. Yesterday in the House of
Representatives there was a vote. It was fairly simple. It said
that if tax dollars are used by pharmaceutical companies to
develop drugs, those drugs should be then sold to the American
consumer at a reasonable rate. And it failed to pass.
I think that says something about why we sometimes talk
about this issue in partisan terms. It is not totally Democrat/
Republican. But as I said before, Mr. Chairman, it does reflect
our political philosophies and our value systems.
I yield back my time.
Mr. Bilirakis. Ms. Capps for an opening statement.
Ms. Capps. Good morning, Mr. Chairman, and thank you for
holding this hearing on one of the most pressing health care
issues facing our country today, which is prescription drug
coverage.
The creation of Medicare in 1965 found seniors more likely
to undergo surgery for major health problems than to use
prescription drugs. Today it is the opposite. Prescription
drugs are often the only method of treatment for many illnesses
and diseases.
In fact, 77 percent of all seniors take a prescription drug
on a regular basis and yet nearly 15 million Medicare
beneficiaries have no insurance coverage at all for
prescription drugs.
Most of us today would agree that Medicare's most glaring
problem is the lack of drug coverage. Clearly, no one would
design a health insurance program for seniors today that does
not include a drug benefit.
I do not think anyone here would voluntarily choose a plan
for their family that did not cover this. And Medigap policies,
which were designed to fill this need, are too often expensive
and inadequate.
We hear again and again about seniors on modest fixed
incomes choosing between food on the table and life-saving
medication. At this time of prosperity and strength, we really
can and should do better than that for older Americans.
This problem is getting worse. According to Families USA
the price of prescription drugs most often used by seniors has
risen at double the rate of inflation for 6 years in a row.
Congress can no longer sit idly by. As we consider
different plans to tackle this problem, I believe that any
worthy proposal will provide certain key elements.
A strong plan would be universal, voluntary, affordable,
accessible to all, and based on competition. It must also
address the issue of catastrophic coverage.
Many worthy legislative proposals have been raised. For
example, the Allen bill, the Stark-Dingell bill, the Pallone
bill. Most recently, I have co-sponsored H.R. 4607, Medicare
Prescription Drug Act of 2000 introduced by our colleague, Anna
Eshoo.
Like the President's proposal, the Eshoo bill creates a new
voluntary Part D prescription drug benefit in Medicare that is
optional and available to all beneficiaries regardless of
income.
It includes a defined stop-loss benefit to prevent any
individual beneficiary from being bankrupted by a single
catastrophic event that causes unusually high drug costs, and
it uses proven market-based approaches to promote competition
and drive down prices.
The Office of Personnel Management would administer the
plan in coordination with HCFA.
Mr. Chairman, Democrats have offered many different
approaches to this problem, but I am disappointed that we do
not yet have a finalized bill from the Majority. It would be my
hope that we could work together in a bipartisan fashion as we
craft the best possible legislation for older Americans.
As I think about the countless seniors in the district I
represent on the central coast of California that have shared
their personal stories with me about crushingly high drug
prices, I know in my heart the prescription drug coverage is
not a political issue.
It is simply the right thing to do as we seek to honor our
seniors and care for them as they move into their golden years.
And so I thank you, Mr. Chairman, for holding this hearing.
I hope we can move legislation as soon as possible on this most
pressing issue for our country.
Mr. Bilirakis. I thank the gentlelady.
Mr. Shadegg for an opening statement.
Mr. Shadegg. Thank you, Mr. Chairman.
I will be brief. With your consent, I will insert my entire
opening statement in the record.
Mr. Bilirakis. Without objection.
Mr. Shadegg. I simply want to thank you, Mr. Chairman, for
holding the hearing on this very, very important subject. I
agree with many of the comments that my colleagues have made.
Clearly no one in our society, and certainly not a Member of
Congress representing a State like Arizona with many senior
citizens, can not be concerned about the cost of prescription
drugs for our seniors today.
So I think it is important, and indeed essential, that this
Congress look at the issue and address it and do so in a
thoughtful and bipartisan fashion.
I think it is clear, however, that as we proceed that we
make sure that we do not do more harm than good. And I think
that is one of the injunctions that we have to be aware of. Our
efforts have to make sure that we do not unduly burden the
current Medicare system; that we do not create for it a
financial obligations that it cannot fulfill and burden its
ability to do the other tasks that it has to pay for the other
parts of health care.
This is indeed I think one of the toughest challenges we
face in this Congress. I think it is also important in focusing
specifically on the drug issue that in what we do we do not
cause the cost of drugs to go up.
I compliment you, Mr. Chairman, and the other Members of
this Congress on both this committee and others that are
looking at the reasons behind the dramatic increase in drug
prices and examining whether or not the drug industry is in
fact abusing the American marketplace in some fashion, and if
there are not other things that we need to be doing to ensure
that drug prices are not going up in this country in an unfair
fashion. So I think we have to keep those issues before us. I
think we have to act thoughtfully. I think it is appropriate
that we hold this hearing, and I am anxiously awaiting seeing
the full proposal that will be before us I guess early next
week, if not sooner.
And again, Mr. Chairman, I compliment you for holding this
hearing. I look forward to working with you, and I do urge all
my colleagues that we look at whatever costs we incur and
whatever obligation we place on future generations in what we
do through this legislation.
Thank you, Mr. Chairman.
[The prepared statement of Hon. John Shadegg follows.]
Prepared Statement of Hon. John Shadegg, a Representative in Congress
from the State of Arizona
Thank you Mr. Chairman for holding this important hearing. I share
my colleagues' concerns about segments of our elderly population that
are truly in need when it comes to the prescription drug issue. At the
same time, I also realize the tremendous political pressure that has
developed behind providing a Medicare prescription drug benefit. Before
we discuss the positives and negatives of such proposals, I wanted to
highlight concerns about the current solvency of the Medicare system.
When I first came to Congress in 1995, the Medicare Part A Trust
Fund was expected to be insolvent by 2002. As a result of Republican
leadership and tough choices we made in the Balanced Budget Act of
1997, the outlook for Medicare has improved significantly. In fact, the
March 2000 report by the Social Security and Medicare Board of Trustees
shows that we have pushed out the projected insolvency date for the
Hospital Insurance Trust Fund to 2025. I do want to caution all of my
colleagues, however, not to get lulled into a false sense of security.
No matter what we do, we still cannot redirect the demographic freight
train bearing down on Medicare. It bears repeating that when the baby
boom generation begins to reach retirement age in 2010, there are
expected to be 3.6 workers per Medicare beneficiary. This ratio shifts
to 2.3 in 2030 as the last of the baby boomers reach age 65, and
continues to decline thereafter. Based on the intermediate assumptions
of the Medicare Board of Trustees, income in the Hospital Insurance
Trust Fund is projected to exceed expenditures for the next 17 years,
but is projected to fall short by steadily increasing amounts in 2017
and later. Furthermore, Medicare spending will continue to grow by an
average of nearly 7 percent over the next 10 years, doubling current
Medicare spending of $200 billion to more than $400 billion in 2010.
These are the sobering realities of Medicare's current fiscal
health. And they do not take into account any new prescription drug
benefit. Does this preclude us from considering a Medicare drug
benefit? No, and in fact, I am glad to see that the House Bipartisan
Prescription Drug plan takes a step in the right direction by involving
the private sector. But, as we examine the prescription drug issue in
Medicare, let us not lose sight of the overall Medicare picture. If we
don't do it right, it could have disastrous consequences on our
nation's and children's future.
Mr. Bilirakis. I thank the gentleman.
Mr. Barrett.
Mr. Barrett. Thank you very much, Mr. Chairman. And thank
you for holding this hearing. I appreciate the work that you
have done on this issue.
I sense from the comments of some of my colleagues on the
other side of the aisle that there is a frustration or a
feeling that this has become a partisan issue.
I would simply ask them, and those who are listening, to
re-examine this and understand the frustration felt by the
Members on this side of the aisle because over 2 years now,
sometimes as long as 4 years, we have been talking about this
issue, introducing bills, trying to get hearings, trying to get
this Congress and this Republican Party to focus on this issue.
We have been met time and time again with nothing but
roadblocks. I am extremely pleased that finally this logjam has
broken and we are able to move forward.
I do think, and I think probably most of us recognize, part
of the reason for that is every single person at this panel
knows that this issue is literally off the charts when it comes
to seniors in this country.
This is a real-world issue. And I would bet anybody on this
panel who has held a town hall meeting in the last 6 months has
heard about how serious a problem this is for real people in
our districts.
It is democracy working at its best when we respond to it.
So I am delighted to have the conversion--the pre-July 4 recess
conversion--that we are seeing here that is allowing us to at
least consider the merits of a bill.
I think, having said that, we can move to the next level.
And the next level is. Where do we go?
Here I think we can have a legitimate debate over what the
best course of action is. I do not buy into the notion that
somehow we are going to create a new insurance industry for
prescription drugs.
I think that if there were a market for prescription drugs
that could be handled by the insurance companies that would
have occurred long ago. I compare it, coming from Wisconsin, to
saying well let's create a market for snow insurance. Anybody
who doesn't want to get snowed upon can buy snow insurance.
Well nobody wants to get snowed on, but everybody is going
to get snowed on. In the same vein, nobody wants to buy
prescription drugs but everybody needs prescription drugs,
especially when you are elderly. So no one in Wisconsin is
going to sell snow insurance, and my guess is no insurance
company voluntarily is going to come and say, oh, sure, we will
start selling prescription drugs knowing every single person
who buys this policy is going to make a claim. It is just not
realistic.
So we have to focus on the benefit. And I think that the
plan that the Democrats have developed is one that rightfully
recognizes that this is a benefit program and of course we are
going to pay for it. Of course, we have to pay for it. But to
somehow suggest that the laws of economics which for decades
have prevented the creation of this industry will somehow be
translated shortly before an election because we pass a piece
of legislation I think defies economic logic.
It is just not going to happen. And I think we are trying
to sell people a pig in a poke if we are telling them that that
is what we are going to do.
So again I look forward to the debate on the merits. I
think the American people deserve this benefit. I think the
American people need this benefit. And I think it is our
obligation to provide it to them.
And I would yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman.
Mr. Deutsch for an opening statement.
Mr. Deutsch. Thank you, Mr. Chairman.
You know I think Congressman Barrett made some points that
I think are really worthy of a follow-up.
I believe most of us have probably had town meetings within
the last 6 months, and for any of my colleagues who have not
they should. Because this is an issue, if you are having a town
meeting and you are opening up the floor, people are going to
talk about.
If you are in your office and you are looking at your mail,
it is the thing you are going to hear about.
We did a town meeting, an electronic town meeting, where we
sent follow-up letters where we had 9000 people in my district
send specific proposals, specific incidences of problems that
they have had in terms of Medicare coverage for prescription
drugs.
That is off the charts in terms of any response that we
have had on any other issue. We had another electronic town
meeting recently with the same type of overwhelming, real
response we have had physical town meetings with people, and
the stories that you hear are what our job is about.
The personal suffering, the personal tragedies, the things
that are disheartening because each of us on this committee
know that we can do something about it. And we can do something
about it within a policy context with only doing good.
The tradeoffs that exist are really not there. It is a
question of the political will to make this happen. Several
colleagues, and my colleague Ms. Capps, pointed this out, and I
think this is also something that we need to really focus on,
if we were sitting here in 1965 and creating Medicare there is
no chance we would not have included prescription drug coverage
like we as Democrats and the President are proposing.
The whole concept of Medicare as a national insurance
program for seniors is illogical in a sense without
prescription drug coverage. And that is what we are proposing.
I think it is important to understand that there is a
fundamental distinction between at least the drafts and the
press accounts of what the Republicans are proposing.
The Republicans are, at least by press accounts, are in
fact proposing a fundamental change in the concept of Medicare.
One of the reasons why Medicare has existed so well, and I
think that sometimes we need to pinch ourselves to remind
ourselves that at one point in time Medicare did not exist, and
it does not exist by an Act of God; it exists because of an act
of people in the U.S. Congress in passing legislation, but
the----
Mr. Bilirakis. The gentleman's time has expired. Please
finish up.
Mr. Deutsch. Thank you, Mr. Chairman.
I will just close by saying that the Republicans--in at
least the proposals we've been able to read about--are changing
the fundamental concept of universality within Medicare. It is
an attempt to really change Medicare in an incredibly and I
think long-term negative way, and----
Mr. Bilirakis. The gentleman's time has expired----
Mr. Deutsch. [continuing] I urge debate to continue to
openly we will vote on the floor on a proposal that----
Mr. Bilirakis. Dr. Coburn for an opening statement.
Mr. Coburn. I thank you, Mr. Chairman.
Mr. Chairman, I find myself in the peculiar position of
being opposed to any Medicare drug benefit simply because we
are fixing the wrong problem.
We have this tremendous rise in drug prices and we need to
ask ourselves why that price rise is there. And I honestly
believe that it is there because there is a lack of competition
in the drug industry, and I plan on demonstrating that on
prices that have been surveyed throughout this country on
competing drugs that have been introduced in the last years.
And if there is no competition, there certainly is
collusion among the drug industry as they introduce new
products.
So I find it ironic that no matter whose program we put
forward, the Republicans or the Democrats, we are putting
forward a program that is going to spend too much for existing
drugs because there is way too much collusion within the
industry.
I hope in the next 6 weeks to prove that to the American
people.
I think the other thing is that Medicare is actuarialy
unsound. There has never been a time where this government has
correctly estimated the costs of any new benefit to Medicare.
As a matter of fact, the closest they have come that my
staff can find is they have missed it 700 percent. So if you
take the conservative estimates of both the Democrats and the
Republicans you are talking about $280 billion over 5 years
added to Medicare.
That is something that will sink it within about 6 years.
We must not forget that once we add a benefit we are not going
to be taking it away, as what we saw in the last 1989-1990.
The other thing that is important is the distribution by
MedPak of the total prescription drug expenditures in this
country. Six percent of the Medicare patients spend over $3000,
14, $1500 to $2999.
Fourteen percent do not spend any money on drugs. So
whatever plan we devise, what we have to do is to make sure
that the price that is paid for the drug is based on a
competitive model that most properly allocates the scarce
resource in this country.
It is my contention that that does not exist in this time,
and no matter what we do in terms of Medicare benefit we are
not doing a good job for the public until we have assured
ourselves that there is in fact competition in the drug
industry.
With that I would yield back.
Mr. Bilirakis. Mr. Burr for an opening statement.
Mr. Burr. Thank you, Mr. Chairman.
It is difficult to listen to just the opening statements of
members of this subcommittee, and probably Members from the
House of Representatives at large, and not get a feel for how
difficult this task is.
This is the most difficult thing I have ever worked on
since I came to this institution. Mr. Deutsch hit on a very
good thing, but there is--we ought to look at people that have
looked at the entire situation and look at the advice they gave
us.
Gosh, as it relates to Medicare, I think it is the Medicare
Commission who spent over a year looking at every aspect and
said. not only should there be drugs, there should be
comprehensive modernization of the Medicare system. Our seniors
deserve the best.
Well, politically we all know that the reality is we cannot
do it. In the absence of that, we try an approach that
addresses the most severe need of 38 million seniors and
disabled who qualify for Medicare, to make sure that a benefit,
a benefit designed within the limits of the financial tools
that we have got available, exists.
Now we have a fundamental difference between those on the
left side of the dais and those on the right side. It is an
argument over whether government controls this new benefit or
whether in fact we use the competition of the private sector to
monitor and to hopefully make it successful and cost effective.
That is a huge difference. It is a huge difference, and it
may in the end defeat this effort. But I am confident that if
we can put words aside like ``nutty,'' ``cruel hoaxes,'' if we
can take consultants out of it at a time that we are out-
purchasing $25 million worth of TV ads for the fall to hit on
this issue, that we can take politics out of the debate on the
Medicare drug benefit; that we can work with Democrats,
insurance companies, PBMs that Mr. Pallone's impression of
insurance companies will be the same as the day he introduced
his bill which was insurance based and not today where
insurance companies are bad. But we have got to get past this.
Mr. Chairman, I am hopeful that we will get on the words
``accessible,'' ``affordable,'' ``voluntary,'' but that also
every Member will get in their vocabulary ``security.'' That
without a stop-loss we have done nothing for seniors.
Without the ability to say to a senior here is a dollar
amount that you will not be responsible for one penny after
that point, that we have fallen short of the predictability
they need to plan in a time of their life where their incomes
are limited we can help to make their futures predictable.
I am hopeful that this hearing today, which is not about
our bill, Ms. Eshoo's bill, Mr. Pallone's bill, Mr. Allen's
bill, or the President's bill; it is here to educate us as to
what should be part of a bill for seniors and disabled in
America.
I hope that we can move forward not only today but before
the end of this session of Congress. I yield back.
Mr. Bilirakis. I thank the gentleman.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for holding today's hearing to examine
alternatives for crafting a prescription drug benefit for Medicare
beneficiaries. I am deeply concerned about the burden borne by many
individuals who do not have insurance coverage for prescriptions. No
senior citizen should be forced to forego needed medication, take less
than the prescribed dose, or go without other necessities in order to
afford life-saving medications.
I read and sign all of my mail, and I have seen a dramatic increase
over the past several years in the number of Medicare beneficiaries
writing to me about the struggle they are having with rising
prescription drug costs. These are not form letters I am referring to.
They are hand written letters--often with their bills enclosed. We are
fortunate in Michigan to have a state prescription drug program, but
this covers only low-income individuals with high monthly drug costs.
Further, we have no Medicare managed care plans in our district because
Medicare's payment rates are too low to attract plans. Thus, my
constituents are denied access to coverage through this route. Yet they
have paid the same Medicare payroll taxes into the system over the
years and pay the same monthly premiums as beneficiaries who do have
this choice. This is a matter of fairness, as well, for my
constituents.
Because of my keen interest in addressing this issue, I am very
glad to be serving with you the House Leadership's prescription drug
task force led by our Chairman. Our nation leads the world in the
development of new drugs and medical devices that enable us to
effectively treat diseases and conditions. But if people cannot afford
to buy these drugs, their benefits are lost to many in our population.
I share the task force's goal of and commitment to ensuring that
every Medicare beneficiary has access to affordable coverage and has
protection from unusually high out-of-pocket costs. I am committed to
crafting a plan that is senior friendly-one which avoids the often
complex, complicated bureaucracy of the current Medicare program.
Our goal in crafting this plan must also be one of ensuring that
our nation continues to lead the world in the development of life-
saving new drugs. Over the past decade, we have seen so many
breakthroughs in drug therapy, from a new, much more highly effective
treatment and perhaps preventive for breast cancer, to anti-virals for
AIDS and other diseases, to treatments for cystic fibrosis. As we
continue to map the gene and understand more fully the link between
genes and disease, think of the possibilities. We are perhaps within
reach of preventing or curing diabetes, Parkinson's, Alzheimer's, and
other debilitating and terrible afflictions. As our population ages, we
need to encourage further breakthroughs in the prevention, treatment,
and management of chronic, debilitating conditions such as arthritis
and osteoporosis, for that is the only real hope of controlling health
care costs. Crippling the incentives and resources needed for new drug
discovery and development would dash these hopes, leave these promises
unfulfilled, and condemn many to suffering and premature death.
The task before us is daunting. It will take all of us, Republicans
and Democrats, Ways and Means and Commerce, House and Senate and
Administration, working together to pull this off and plug a huge hole
in the Medicare program with a common-sense, workable, comprehensive
drug benefit. We need to put aside partisanship and short-term
political considerations and do what is right for our constituents and
for the future of health care in America.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
I'm pleased that the Subcommittee is holding this hearing today.
This is the fourth hearing this Committee has held on the topic of
senior citizens access to prescription drugs.
I've been studying this issue closely for a long time now and it is
a tough one. It is clear that too many seniors have trouble affording
their medications. It is equally clear that many seniors have drug
coverage today that they like and don't want threatened by anything we
do in Congress.
Americans have the best health care in the world. My first goal in
helping seniors afford medicine is to preserve what is good about our
health system today. We are on the edge of remarkable breakthroughs in
new drug therapies to treat and even cure diseases that just ten years
ago were considered death sentences. We don't want to do anything to
jeopardize this work.
Yet, America's role as the world leader in drug research has its
costs. Our challenge is to find ways to make sure seniors have access
to needed medication without resorting to price controls or big-
government drug purchasing schemes.
Many folks under 65 years old are fortunate to have health
insurance to cover the costs of their prescription drugs. But Medicare
does not pay for most drugs for seniors. In my view, Medicare does not
reflect how modern medicine is practiced and delivered.
This is why I truly want to explore a way to give seniors access to
coverage options available to Americans under the age of 65. Every
Member of Congress has coverage options. Let's give seniors the same.
My colleagues and I have been working on legislation that provides
all seniors access to affordable, private drug coverage. We will be
introducing legislation soon. We have a good bill which can and will
draw bipartisan support. I hope to work with our Democratic colleagues
and the Administration on this proposal.
We share many common goals--that all seniors get access to a
voluntary benefit and that low-income seniors get extra assistance in
purchasing their drugs. We want to get a level of security for those
seniors with the highest costs, so no one has to choose between food or
medicine. What's more, no senior should be locked into a one-size-fits-
all benefit.
Again, I want to thank the Chair for holding this hearing and look
forward to the witnesses testimony.
______
Prepared Statement of Hon. Henry A. Waxman, a Representative in
Congress from the State of California
Mr. Chairman, I welcome this hearing on the critical issue of
providing prescription drug coverage for Medicare beneficiaries. The
time to enact legislation to provide this critical service is long
overdue.
I am disturbed, however, by the evident intention of this
Subcommittee to use this hearing to justify moving out of Committee and
to the House floor next week a Republican bill that has not been made
available to the public, that our witnesses haven't seen, that has been
explained only in vague and contradictory terms, and that apparently
fails to meet critical conditions for effective, available and
affordable prescription drug coverage.
In my view, we can only meet our obligations to Medicare
beneficiaries if we make coverage of prescription drugs
--a benefit that all beneficiaries are entitled to,
--a benefit that covers all medically necessary drugs,
--a benefit that is available in all parts of the country,
--a benefit that is accessible and affordable for seniors in fee-for-
service Medicare as well as Medicare+Choice plans, and
--a benefit that assures Medicare beneficiaries will no longer face the
discrimination in drug prices which result in them paying the
highest prices out of their own pockets.
But that's not the approach of the Republican bill. It tells
seniors that they can purchase a private insurance drug policy,
patterned on MediGap policies which already fail to deliver an
affordable drug benefit. That is a cruel hoax.
Except for the poor, the Republican bill doesn't help seniors pay
their premiums. It subsidizes private insurance companies and tries to
claim that helps seniors. What that really does is mislead and confuse
people about the help that's available.
And the Republican bill shifts the responsibility to insurers to
try to provide a benefit when they know adverse selection is almost
certainly going to make their product unaffordable and unavailable.
That is not a responsible approach.
The drug companies might like it, but seniors will not.
I know the public relations consultants have told our Republican
colleagues that ``it is more important to communicate that you have a
plan as it is to communicate what is in the plan.'' That sounds
suspiciously like saying it's the rhetoric that's important, not the
reality of putting a decent drug benefit in Medicare. The cynicism is
breathtaking!
Seniors don't need us playing politics with their health care.
Seniors need real coverage of prescription drugs. They can't afford the
high prices of drugs. They can't afford to pay twice what the big
buyers pay. They don't need another MediGap, they need a Medicare drug
benefit.
Let's join together in a responsible way and do it right.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
I am delighted that the Commerce Committee is having another
hearing on a Medicare prescription drug benefit. My delight that we are
continuing to explore this issue in Committee is surpassed only by my
delight that the House Republican Leadership is finally unveiling a
proposal to provide prescription drug coverage for Medicare
beneficiaries.
We have not had the opportunity to review the details of the
Republican plan, but we understand there are some key differences
between it and the proposals put forward by the President and House and
Senate Democrats. If, and as, we attempt to bridge those differences,
we should try to respect certain principles.
First, we should preserve choice of drugs and choice of pharmacies
for seniors.
Second, we should offer a defined, meaningful benefit for all.
Third, we should minimize the ability of health plans to attract
only the healthy and the wealthy and ensure an affordable benefit for
all.
Fourth, we should provide incentives to achieve price discounts and
spend taxpayer dollars wisely. The skyrocketing cost of prescription
drugs is a serious matter that is not properly addressed by giveaways
to HMOs or drug companies.
Fifth, the program should benefit the people who need it most and
not the insurance industry who doesn't.
Unfortunately, the majority's plan at this point seems to offer an
illusory drug benefit that people can't afford. I am hopeful that we
can address these shortcomings through the committee process, and I
look forward to further exploration of this issue and a coming
Committee mark up.
Mr. Bilirakis. Well, waiting patiently is our first
panelist, the Honorable Nancy-Ann Min DeParle, Administrator of
the Health Care Financing Administration.
Madam Administrator, welcome. As per usual, we will set the
clock to 10 minutes for you, and you of course may take
whatever time you feel you might need. Obviously, your written
statement is a part of the record.
If we can have order before the Administrator starts.
STATEMENT OF HON. NANCY-ANN MIN DePARLE, ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION
Ms. DeParle. Thank you very much, Chairman Bilirakis and
Congressman Brown, and other distinguished subcommittee
members.
I appreciate the opportunity to be here today to discuss
prescription drug coverage for 39 million Medicare
beneficiaries who need it.
I am glad to be with you and, Mr. Chairman, I appreciate
your kind words.
Your subcommittee has been very interested in the topic of
Medicare prescription drugs. I sit here and look at many
Members who have themselves introduced bills to try to deal
with this subject.
The administration welcomes this opportunity to further our
bipartisan dialog. As you indicated, I have submitted written
testimony for the record that goes into much more detail about
the President's proposal and why we hope this committee will
view it favorably.
But I want to say this morning that we are encouraged by
the growing commitment embodied in the new proposal announced
yesterday by Congressman Burr, Congressman Thomas, Congressman
Peterson, and others to address this issue.
We want to continue working with you to enact legislation
that meets the key principles that President Clinton has laid
out for a Medicare drug benefit.
The drug benefit should be voluntary and it should be
accessible to all beneficiaries.
It must be affordable for beneficiaries and to the Medicare
program.
It should be competitive and it should have efficient and
effective administration.
It should ensure access to needed medications and encourage
high-quality care.
And it should be consistent with broader reform.
We have said many times that we are flexible on the details
of how a Medicare drug benefit is provided as long as the
design ensures that we meet these key principles.
The plan that was announced yesterday appears to mark some
important progress toward those principles, but as you pointed
out in beginning the hearing, Mr. Chairman, the devil is truly
in the details.
We need to see the details and then engage in a serious
discussion and dialog about our differences as well as the
places where there are similarities.
Unfortunately, from what little we know about it so far the
plan does not appear to meet the President's test of a
meaningful prescription drug benefit that is affordable and
accessible for all beneficiaries. And I want to talk about why.
Key among our concerns is the plan's heavy reliance on
participation by private insurers who have made clear that
stand-alone drug policies are not feasible.
Our concern is that even if some insurers do offer
coverage, they would likely come in and out of the market. They
would be likely to move to more profitable areas. And they
would be likely to significantly modify benefit design from
year to year based on the prior year's experience.
We have seen this before and it is not a good thing for
beneficiaries. We are concerned that it would result, this kind
of structure would result in the same instability and the same
pullouts and uncertainty that we see in managed care today.
The new proposal's suggestion of a fallback mechanism
whereby the government--and here I am speculating but
presumably the traditional Medicare program would step in--
seems to acknowledge the difficulties inherent in trying to
guarantee access through a drug-only program.
The fallback mechanism also raises, I think from a health
policy perspective, serious risk-selection issues. These are
very, very difficult issues and we need to have a serious
discussion once we have seen the details.
We continue to believe that the new prescription drug
benefit must be integrated into the Medicare Program, and that
Medicare should provide drug coverage the same way that
virtually all private insurers do, by contracting directly with
pharmacy benefit managers in each region of the country.
That is what our proposal does. And Mrs. Eshoo also has a
proposal that is slightly different but also relies on pharmacy
benefit managers.
This will ensure that all beneficiaries have access and
that Medicare gets the best prices through the pharmacy benefit
managers who will negotiate the best prices on behalf of
beneficiaries.
Another critical concern that we have with what we have
seen so far about the new plan that was announced yesterday is
that it does not appear to provide direct premium subsidies to
individuals with incomes above $12,600 a year.
Instead, it relies on indirect subsidies to the private
insurance plans to lower premiums. And I heard one person today
refer to this as a sort of a form of premium support, and I
thought that was interesting because I think it is sort of
analogous to that.
It is unclear whether that amount of subsidy would ensure
that affordable coverage is available to all and would be
equally affordable in all regions of the country, but I can
tell you that we looked at this very closely, this idea of what
level of subsidy is necessary, and I believe it would need to
be substantially more than 25 or 30 percent to avoid risk
selection problems.
We have additional questions that are outlined in my
written testimony and we look forward to discussing them with
you.
I also want to say that I think Congressman Burr is right.
This is a terribly difficult issue, and it is important that we
see the details. I do not want to be speculating about what is
in their plan because it I believe has changed from the first
version I saw and I want to provide you with the best answers I
can about what we are talking about here.
But I do think the most critical question of all--and I
heard many of you raise this question but it bears repeating--
is how does this plan, the one that was announced yesterday,
the President's plan, whatever the plan is, how does it really
meet the needs of Medicare beneficiaries, the 39 million
Americans who are depending on us to try to do something here?
Is the plan really a defined benefit that is guaranteed?
Can Medicare beneficiaries depend on it being affordable
and accessible?
Will the new plan really result in more efficient and
effective administration of Medicare?
These are important questions. They are difficult
questions. While all of these critical concerns remain, I do
think the good news is that we appear to have broad consensus
that a Medicare drug benefit is needed.
It is now time to get into the all-important deeper and
very, very, very tough details of how to make sure the benefit
can succeed; that it can succeed for the Medicare beneficiaries
and that it can succeed for the Medicare Program.
We look forward to getting the details of this new plan
because it is obvious that a great deal of work remains, and it
is time to sit down and get it done.
I look forward to continuing to work with you as we enter
the next phase on this critical issue.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Nancy-Ann Min DeParle
follows:]
Prepared Statement of Nancy-Ann DeParle, Administrator, Health Care
Financing Administration
Chairman Bilirakis, Congressman Brown, distinguished Committee
members, thank you for inviting me to discuss Medicare prescription
drug coverage. This Subcommittee's previous hearings on this issue have
been highly constructive, and we are grateful for the opportunity this
hearing provides to make further progress. We are encouraged by the
growing commitment embodied in the new Medicare Rx 2000 proposal
presented by Congressmen Thomas, Burr, Hall, and Peterson yesterday 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 believe the Medicare Rx 2000 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 Medicare Rx 2000
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 Medicare Rx
2000 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 Medicare Rx 2000 proposal's reliance on a ``fall back''
mechanism, in which the government would ensure availability everywhere
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 Medicare Rx
2000 plan does not provide direct premium subsidies to individuals with
incomes above $12,600 a year. Instead, it relies on indirect subsidies
of 25 to 30 percent to lower premiums. It is unclear that this amount
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 Medicare Rx 2000 plan. These include:
Is it a defined benefit? The Medicare Rx 2000 plan allows
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
Medicare Rx 2000 plan requires 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 requires 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 Medicare Rx 2000'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 Medicare Rx 2000 plan relies 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? The Medicare Rx 2000 plan would create a
Medicare Benefits Administration (MBA) to administer the drug
benefit and Medicare+Choice program. It appears to be adding a
new layer of bureaucracy since many MBA 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.
Mr. Bilirakis. Thank you, Madam Administrator.
You are of course correct. The legislation in terms of its
specificity is still not out there. But one thing that seems to
be relatively specific is the establishment of the new entity
to manage the program.
And of course you state in your testimony that establishing
a new entity to manage a direct benefit program would simply
be, using your words, ``adding a new layer of bureaucracy.''
And I am not sure that anybody would disagree with that. Yes,
it does add that.
But clearly the Bipartisan Medicare RX 2000 Plan is not the
only proposal, as you know, which suggests that the management
of the drug benefit be administered by a separate entity
outside of HCFA.
Ms. Eshoo's plan proposes that OPM manage the benefit, as I
understand it.
Mr. Pallone's plan establishes a board outside of HCFA, as
does the Breaux-Frist bipartisan proposal in the Senate.
So I would ask you this question: Do you believe that all
these bills seek to establish redundant beneficiaries? But more
importantly, why don't you just respond to the fact that so
many plans feel it should be managed outside of HCFA?
Ms. DeParle. Well I think the one thing I believe I have
heard this morning is that we all agree that a new prescription
drug benefit, if it is added to Medicare, should be
administered in an effective and efficient way.
I think over the past 2 years that I have been at HCFA I
have probably talked to every single member on this committee
about concerns you have about Medicare's administration. Some
of them are very specific about providers in your districts.
Certainly we can do better, and I would like to have the
opportunity at some point to show you all the things we have
done to improve the way we are administering Medicare.
One of the Members--I think it was Mr. Green--pointed out
that we are very efficient in our administration, and that is
true. Our administrative costs hover around 1.5 percent. I do
not think there is any insurance company in the country that
would attempt to run a program as complicated and as important
as the one we are running with as many beneficiaries and more
than $200 billion of taxpayer dollars with that kind of
administrative expenses.
In my view sometimes we are a little too efficient. I want
to thank the committee because I have made this point with many
of you and you have helped us in the past with our budget to
make sure that we got the resources we need to do a better job.
But I think we have to go back to the question that Dr.
Coburn posed, which is we have to think carefully about what is
the problem we are trying to fix here?
I think what you want is an efficient and effective
administration. I think it is possible to do that the way the
President's plan proposes using private pharmacy benefit
managers like private insurers do, and having us contract with
them.
What I would say to you is, we are eager to get into that
discussion with you. If you give us the authority and the
resources to do that job, I can promise you that we will do a
good job of it.
Mr. Bilirakis. Well I expect there will probably be others
who will explore the area you mentioned about the private drug
benefit managers and how its usage is intended under the
President's plan, but I would go to an area that I think
practically everybody's opening statements referred to. That
is, the need to help those with real high drug costs with a
stop-loss benefit, the catastrophic, if you will, a word that
we do not like to use up here for obvious reasons.
The President's plan did not provide for that. Afterwards
of course, sometime afterward, he decided to set aside funds
for patients with high out-of-pocket costs to begin in 2006.
Not to begin now, or even close to now, but in 2006.
So I guess I would ask you--and I think we all wonder
because we have not seen anything in that regard--how would you
propose those funds be spent? Has HCFA or the President come up
with a plan that would use those funds in order to help those
people with very, very high out-of-pocket cost?
Ms. DeParle. Well, Mr. Chairman, we did not propose the
stop-loss benefit, the catastrophic coverage, in our original
proposal 2 years ago.
The President did propose it in this year's budget, but he
said we had set aside $35 billion to start in 2006 and we
wanted to sit down and work with the Congress to talk about the
details of that.
We have been looking at various benefit designs. There are
a number of proposals up here already looking at various
benefit designs, and we are ready to sit down with the Congress
whenever you all are ready to talk about how best to design
such a program.
Mr. Bilirakis. All right, my time is about to expire so I
am just going to go ahead and yield to Mr. Brown at this point.
Mr. Brown. Thank you, Mr. Chairman.
In light of your comments about the devil being in the
details, and Administrator DeParle echoing the same thing and
going through a very dispassionate, well thought through
analysis of some of the strengths and weaknesses of this
legislation and other proposals, and Dr. Ganske's point of how
serious a matter this is and how we do not have the legislation
yet and need to learn more, I was shown a letter to Chairman
Bliley from Speaker Hastert saying it is his intention to have
legislation addressing prescription drugs on the House floor
the week of June 19, I would just hope that we would be able
to--I would hope we could go through the process on this
subcommittee and this full committee with markup both places
prior to that date, if possible, so we really do have a better
understanding of this issue.
We have not seen the bill yet. I mean Members on this side
certainly have opinions and have seen outlines and have heard
rumors and everything else. We know about the bill, or we think
we know about the bill, but I think it is important that we
have that opportunity, this subcommittee, on an issue that is
so enormously complex as this and is so important for so many
people in this country.
I would like to talk about the PBMs that the chairman
mentioned, Administrator DeParle. The President's plan proposes
using these private entities as pharmaceutical benefit managers
to provide the benefit to seniors.
How do you ensure that these private-sector entities are
actually providing the care that they promise?
Ms. DeParle. Well we would have quality standards. It would
not just be competitive bidding based on price, Congressman.
And we would do a competitive bidding in various areas of the
country.
We have met with pharmacy benefit managers who currently
provide this kind of service to other private insurers, and I
believe they would be able to do a good job of doing it with
Medicare.
We would have to be very specific with them about what we
wanted. We might want them to do some disease management. We
might want them to do utilization review and provide us with
data about that kind of thing. We would just have to be very
specific in contracting with them and telling them what we
expect.
Then we would have to make sure they got it done.
Mr. Brown. The Republican plan relies on the private sector
to administer the Medicare drug benefit. In this proposal,
private insurance companies would be in charge of running the
program.
How does that plan assure that these private-sector plans
are providing the care that they promised to seniors?
Ms. DeParle. Well I suppose the new Medicare Benefits
Administration that is referred to in the document that I saw
yesterday would be in charge of contracting with private
insurers.
It sounds to me almost like a Medigap model, although
yesterday I did attend a hearing in Ways and Means and I heard
some of the sponsors of the bill say that it is not supposed to
be that, but it sounds like a Medigap model.
In that model our oversight is quite limited. It is not
clear how much ability the Medicare Benefits Administration
would have to oversee the provision of prescription drugs by
these plans.
I would add another thing, too, which is that there is a
real tension in here between what I heard yesterday from the
sponsors who talk about wanting to provide seniors with as many
different choices as possible.
That is a philosophical view, and it is something I have
talked to Congressman Burr and others about, that they would
like to see lots of different kinds of plans out there I think.
There is a tension between that and the thing that Mrs.
Eshoo talked about earlier, and that I hear when I talk to
seniors, which is their desire to have a reliable, guaranteed
benefit and to know what their costs are going to be from year
to year.
That is something that is going to be a very difficult
issue for this committee and for your colleagues to grapple
with. How much do you go in the direction of choice? And what
does that do in terms of risk selection?
It enables plans then to ``cherry pick'' the healthier
seniors. What sort of oversight would you need to have over
that kind of thing? And what are the results of that?
And one of the results would be much higher premiums for
everyone, if the seniors are ``cherry picked'' into certain
private plans. And then what happens in the areas where these
plans do not go in.
There are a lot of questions here, and it is unclear to me
how we would ensure that the private insurers, if they exist
and if they come into the market, are providing what they are
supposed to be providing.
There is not a defined benefit, as I understand it, in this
plan.
Mr. Brown. You mentioned Medigap. One of the major
criticisms of Medigap is that it is simply not affordable to a
large number of people.
In a private plan model such as the Republicans have
suggested, talk about the affordability for seniors there.
Would they be affordable for most seniors?
Ms. DeParle. Well again we have to see the details. As I
understood it yesterday from Mr. Thomas, there would be an
indirect premium subsidy to the plans. So that would indirectly
subsidize individuals who chose those plans, if they were
available.
There are a lot of ``if's'' here. My concern is the level
of the subsidy as he described it at around 25 or 30 percent,
from my discussions with the independent actuaries who work for
the Medicare Program and the Medicare Trustees, as well as with
private insurance company executives, what they have suggested
is that that level of subsidy will not be enough to attract
most seniors to join.
So then you would end up with the same problem Medigap has,
which is the problem I guess that Congressman Barrett described
where they are trying to provide health insurance for the
sickest people, or drug insurance coverage for the sickest
people who are going to use the most drugs.
It starts a spiral that our actuaries call a death spiral
in terms of the premium getting higher and higher and fewer
people being able to afford it. This is a complicated issue
that we really would have to spend time analyzing.
Mr. Brown. I thank the chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Burr to inquire.
Mr. Burr. Nancy-Ann, welcome.
Ms. DeParle. Thank you.
Mr. Burr. It is a long, difficult process but the one thing
that we can feel confident in is that at some point we will get
to the end of it. The question today is will we get it right?
Let me ask you. From the plans that you have read, or read
about, is there anybody that is not aspiring to the belief that
every plan has to be voluntary?
Ms. DeParle. No.
Mr. Burr. So we can take one of those four things that we
talked about and say everybody agrees that ``voluntary'' is an
absolute necessity?
Ms. DeParle. Yes, but--if I could----
Mr. Burr. Sure.
Ms. DeParle. The first principle is it should be a
voluntary benefit accessible to all beneficiaries.
Mr. Burr. So----
Ms. DeParle. The voluntary part--Yes, sir.
Mr. Burr. [continuing] But it has to be accessible?
Ms. DeParle. Accessible, I'm not so sure about. Yes.
Mr. Burr. You mentioned yesterday in the Ways and Means
hearing that it had to be voluntary but we had to guarantee.
Could you distinguish between the two? What do you mean?
Ms. DeParle. When I talk about guarantee, I mean that, just
like a Medicare beneficiary today knows they have physician
coverage. They have coverage if they need to go to their
doctor.
And just like they know they have coverage if they need to
go to the hospital, they need to know they really have drug
coverage.
I do not think it can be something that is contingent on
whether a private insurance plan comes into their area.
Mr. Burr. So as long as there is a provision in a bill that
one would see in the absence of everything that could exist,
nothing exist, here is the answer, as long as that exists, then
the guarantee exists for all eligible?
Ms. DeParle. Well I would have to see the language, but I
believe, as I understood yesterday from the description, there
has been a change, and that, yes, the plan that I heard
described is attempting to say that there will be something
provided for everyone; that a drug benefit will be available if
there is not a private insurance plan. That is what I heard.
Mr. Burr. Given the approach that you are familiar with to
a large degree, to have more than one option, or more than one
choice for seniors in a given market, whether it is a benefit
manager or whether it is an insurance product or whether it is
a new entity that we have not even discovered yet, is it
beneficial to the eligible beneficiaries out there?
Ms. DeParle. Well, you know, I would like to give you a
``yes'' or ``no'' answer but I really cannot. It can be
beneficial. The problem is, it also--every time you segment the
market more you introduce more likelihood of risk selection.
Mr. Burr. Why doesn't OPM only allow a small number of
health plans for Federal employees, then? Why is the list in
North Carolina some 30 people that I have to pick from? Does
that help people negotiate?
Ms. DeParle. I assume because the law--well, I think you
would have to ask them. I think--so your contention is it helps
them to negotiate better prices somehow?
Mr. Burr. Yes.
Ms. DeParle. The problem is, it may help you some on the
negotiating side but it also hurts you some in that you segment
the market. You introduce risk selection. So plans can----
Mr. Burr. We spread the risk out.
Ms. DeParle. Not as much as you do if you have only a
couple of plans. If you had just--under the President's plan,
for example, you can go to an HMO and we would reimburse them
directly for providing prescription drugs which we don't today,
because it would be a Medicare-guaranteed benefit, and then you
could also be in the fee-for-service plan.
When you go beyond that, you start introducing in more and
more risk selection by segmenting the market. And you get--
plans will be smart enough to design benefit packages that
could end up excluding some people and picking out the
healthiest people.
Now if your desire is to provide as much choice as
possible, you may see that as an advantage. My concern is it
raises the premium costs for beneficiaries.
It can result in the people being left in a plan that is
more expensive, and then as I said you start this sort of death
spiral with the premiums.
Mr. Burr. If I understand you correctly, the more people
who might join a plan the cheaper the premium gets because of
volume?
Ms. DeParle. In general, yes, sir. In general, that is what
insurance is. You spread the risk over as many people as
possible because then you lower the chances that you are going
to get just sick people who are going to need to really heavily
use the benefit.
Mr. Burr. Aren't we both----
Ms. DeParle. So you have to weigh that against your desire
to have choice. And as I said, you and I have discussed this,
and I know why you like that.
The other thing, though, I would raise is what Mrs. Eshoo
raised about her mother and what she wanted. And when I talk to
seniors--maybe we talk to different ones--some of them may like
choice, but the main thing I hear is I need to know what my
costs are going to be.
Mr. Burr. It needs to be predictable, doesn't it?
Ms. DeParle. Yes, sir, it does.
Mr. Burr. That is an important aspect. Let me just----
Mr. Bilirakis. The gentleman's time has expired.
Mr. Burr. I thank the chairman.
Mr. Bilirakis. Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
What is so frustrating to me about this hearing is that we
do not have a bill before us. We have some concepts on the
piece of paper, really just a couple of pages, and we are
asking very specific questions which you cannot answer because
you cannot see the proposal.
We are being told this proposal may be on the House floor
next week, so you wonder what a committee is supposed to do and
why we have witnesses here if we cannot get testimony about a
specific proposal.
But we have a Communications Document that the Republicans
have put out. I want to ask you about what you understand that
proposal in that document to mean.
Is it correct to say that there is no defined benefit in
the Republican plan? In other words, you do not know what you
are actually going to get if you are in Medicare if you are
able to buy an insurance policy for prescription drugs.
Do we know, in any way, from their communications how much
people are going to have to pay out of their pockets for these
pharmaceuticals? Or even for their premiums?
Ms. DeParle. Well I do not know it from the paper I saw
yesterday. I did hear discussion at the Ways and Means
Committee of I think the sponsors are still in active
negotiations and deliberations with the Congressional Budget
Office trying to get the premium numbers down.
But I did not see a defined benefit in what I looked at
yesterday.
Now I will say, the President's bill has been up here since
March. We spent a lot of time drafting it. So I would be happy
to discuss that. And of course when the other bill does come
out, if we can provide any technical assistance we will.
Mr. Waxman. Well could it mean that if you are on Medicare
and you need certain kinds of drugs you might not have an
insurance policy to provide those drugs that you need?
Ms. DeParle. It could mean that, if there is not a defined
benefit.
Mr. Waxman. And if all they are saying is you have a chance
to buy some insurance, could it mean that there is no insurance
really available for you to buy, or affordable for you to buy?
Could it mean that you are only going to have a chance to
have some drugs covered if you sign up at a managed care plan
and that is it? Maybe you have a choice of two managed care
plans?
Ms. DeParle. If there is no defined benefit, there could be
lots of variation about what is provided. It would be very
important for people to know, I believe, what is in the plan,
how much they are going to be expected to pay, and that cuts
against some of the arguments about having lots of choices.
Mr. Waxman. Well choices are great if everybody wants you
to choose them. But when you are a real sick elderly person who
is going to represent a huge cost to an insurance company, they
are not anxious to have you sign up with them. They would like
you to choose someone else.
When we adopted the Medicare Program, we said that no
matter how sick you are, no matter how wealthy or poor you
might be, you are going to be guaranteed coverage for your
doctor bills when it is medically necessary, your hospital
bills when it is medically necessary, and a lot of other
services.
Shouldn't we say that you are going to be guaranteed
coverage for prescription drugs? Isn't that what this is all
about? Isn't that what the American people really want?
Ms. DeParle. Well I believe that is what we should do. I
believe that that is consistent with Medicare's principles.
And I do believe it is different from the way the Federal
Employees Health Benefit Program has been structured under the
law. There, there are choices. And it is more a defined
contribution program.
Medicare has been a defined benefit. There is a discussion
in the materials I saw yesterday about an actuarial equivalence
in dollar terms, but it is not, as I understand it, a defined
benefit as Medicare has traditionally had.
Mr. Waxman. The most peculiar thing to me about this
proposal is we do not give anybody anything. We just tell them,
we are going to give you a chance to buy private insurance. But
since private insurance companies do not now have affordable
plans for drug coverage, we are going to give the money to the
insurance companies--not to the beneficiaries--in hopes that
they will lower their prices and make a plan available, and
maybe some people can afford it.
Is there any beef there? Where is the beef in all this? If
a senior is watching this hearing, can they feel that if this
plan is adopted they will know their drugs are going to be
covered and they are going to be able to buy any policy
wherever they may live in this country?
Ms. DeParle. Well I do not know that yet. I think that, as
I said, we have questions based on what we have seen about the
affordability and accessibility of the plan that we are
discussing today.
We are eager to see the details. We heard from the sponsors
that they intend to provide a fallback mechanism so that there
will be something available. But we need to see the details on
that.
Mr. Waxman. Well I think you are right. We have to see the
details. But this may be the only hearing this committee, which
has jurisdiction over these issues, will ever have on this
proposal. So when the details come out, we may just see them
when the bill is already on the House floor and we are told you
vote ``yes'' or ``no,'' and if you vote ``no'' there will be
nothing. But if we vote ``yes,'' we may not have anything that
is really worth it when all is said and done.
Thank you, Mr. Chairman.
Mr. Bilirakis. the gentleman's time has expired.
Mr. Whitfield.
Mr. Whitfield. Thank you, Mr. Chairman.
Mr. Burr was focusing on the importance of choice and using
the Federal insurance plan for Federal employees as an example.
Of course philosophically one of the reasons that any of us
advocate a choice is we feel like the competition can keep
prices in line.
And as Dr. Coburn mentioned earlier, we know that in the
long term there are some real financial difficulties facing the
Medicare Program, its solvency.
Do you agree that choice is a way to promote competition,
and in doing that can maybe keep the costs down of a
prescription drug benefit?
Ms. DeParle. Well choice can be a way to promote
competition. But what we have seen in the past is that the
competition has really not been on price in the same way that
you would expect.
You referred to the Federal Employees Health Benefits
Program. In our discussions with the Office of Personnel
Management--and they actually testified with me in front of the
Senate Finance Committee--they made the point that you have to
take into consideration that the two programs and the
populations they serve are really very different in that
Medicare serves an elderly population with much more intense
and predictable health care needs than the Federal employees
program does.
And again, when OPM negotiates with plans, under the
statute it is pretty much open to any plan that meets a certain
requirement. There is no defined benefit package, really. It is
more of a defined contribution system.
So I am not sure. I just don't think the incentives are the
same. Now in our plan, we want seniors to get the best prices
possible. We want Medicare to get the best prices possible for
drugs and we want to do it in a way the private insurance
companies do it, that some of these same insurance companies
that participate in FEHBP use pharmacy benefit managers to
negotiate with the drug companies to keep the prices lower.
So we want to get the benefits of competition. I am just
not convinced that competing among the plans with the senior
population is the right way to go.
Mr. Burr. Mr. Chairman, I think the microphone system has
gone out.
Mr. Whitfield. How legitimate is the----
Mr. Bilirakis. I think it has gone out.
Mr. Bilbray. The gentleman from Kentucky will rise to the
occasion.
Mr. Whitfield. How legitimate is the concern that for
senior citizens the more choices you have in trying to
understand the different plans the more it is difficult and
confusing for them? Do you think that is a legitimate issue?
Ms. DeParle. I am glad you asked about that issue because I
would like to, at some point if the committee is interested,
provide you with some more details about that.
As a result of the National Medicare Education Program that
we have been doing to provide seniors with information about
Medicare and about their Medicare choices, we have done a lot
of focus groups around the country about what do they
understand.
What we are told is, even the information about basic
Medicare and the Medicare+Choice Plans that are available in
some areas of the country, despite all of our efforts at
getting that to be really understandable, it is still something
that is difficult to convey to seniors.
I am not saying it is impossible, but it is very difficult
to do. And what we find is, they tell us things like--we want
to provide them with quality information, and they tell us,
gee, this is like homework. It is very difficult to get through
all of this.
So I do hope the committee will be sensitive to that in
looking at how to structure this.
Mr. Whitfield. Would you review for me, there were a few
Republicans--and I was one of them--at the White House when the
President revealed his plan back in March. Would you just go
over quickly the cost structure and what he was proposing for
costs for senior citizens?
Ms. DeParle. Yes. Is my mike out, too? I will do the best I
can.
The President's proposal would provide a prescription drug
benefit that in the first year would be worth around $2000 to
beneficiaries. The government would share in 50 percent of the
cost up to $2000. The beneficiary would pay a premium of about
$26 a month, our actuaries estimate. Then they pay 50-50 up to
the $2000.
We would phase in our benefits so we would get up to $5000
in about 2010, I believe. And at that point, the premium would
be around $50 and the co-insurance would still be 50 percent.
During that time, after that time, the cap, the $5000,
would grow at the rate of inflation. So there would be some
increase in it, and the President announced in March that he
had set aside $35 billion to be used for stop-loss coverage for
beneficiaries with usually high costs, and he has not laid out
the details of that piece of the plan yet.
We want to sit down and work with the Congress to come up
with what would be a good proposal there for stop-loss
coverage. But that is the basic parameters of the plan.
Mr. Whitfield. So over----
Mr. Bilirakis. We are well past the 5-minute time limit.
Mr. Pallone.
Mr. Pallone. The microphones are not working.
Mr. Bilirakis. We will have to speak up a little bit.
Mr. Pallone. Thank you, Mr. Chairman.
I want to go back to what Mr. Waxman was mentioning about
the difference, if you will, between the President's proposal
and what we believe is the Republican Thomas proposal, I guess,
is in terms of the lack of a defined benefit.
The way I understand the President's proposal, we have
access to medically necessary drugs in the language, and that
seems to me basically a decision by a physician, or a
pharmacist, or whoever, about what is medically necessary. So
that is a defined benefit.
On the other hand, under the Republican proposal we are
getting language--again I am looking at what apparently Thomas
described--the benefits have to equal an actuarial value of
$740 or an actuarial equivalent to a certain dollar amount.
I guess my concern is, I think the way the Thomas proposal
is is essentially a voucher that limits a certain dollar amount
because of the language about actuarialy equivalent.
On the other hand, the President says ``medically necessary
drugs.''
Would you just comment on this distinction there? I know
you have sort of gotten into this, but I think there is a big
difference there. One seems to be targeted to a dollar amount,
and one is to a specific description about what is medically
necessary.
Ms. DeParle. As I understood the plan yesterday, it offered
an unspecified benefit. It does talk about an actuarial
equivalent benefit. I think the $740 number you heard is what I
heard as well, but as I understand it only the stop-loss amount
is really specified.
So insurers could then set deductibles and co-pays. That is
the issue we have been discussing about whether we really think
seniors want and need all of those different choices, or
whether that structure would guarantee adverse selection and
then difficulties with unaffordable premiums and access.
I do want to add, though, that it mentioned something about
covering major therapeutic classes of drugs. We are not sure
how that is defined. It is different. The language is different
than saying all medically necessary medications, but we do not
know whether that is intended to signify a term of art, or
whether some will be covered and others not, or whether someone
put an adjective in that they really didn't mean.
So I can't tell you at this point what exactly would be
covered in terms of the drugs.
Mr. Pallone. It varies from day to day and year to year.
Theoretically there might be some selection that gives you some
idea of what you get, but on the other hand what is to stop you
from varying depending on what the costs are, because this
leads to some kind of fixed dollar.
Ms. DeParle. That would be a mistake. I would hope that the
language would specify a definition for this and would say it
is not up to each insurance plan to decide what is a
therapeutic class of drugs. I imagine, frankly, that that will
be necessary to get it scored.
Mr. Greenwood. Would the gentleman yield for 5 seconds?
Mr. Pallone. I will give you 5 seconds.
Mr. Greenwood. It is true that in both cases there is a
formulary? Is that not correct? There is a formulary in the
President's plan? There is a formulary in the Republican plan
and caps in each plan?
Mr. Pallone. My understanding is you don't have the
formulary.
Mr. Greenwood. Caps in each plan.
Mr. Pallone. I'm glad you raised that, because it is my
understanding you do not have the formulary.
Ms. DeParle. Well I do not think I am clear, Mr.
Greenwood----
Mr. Greenwood. PMBs would establish formularies in both
instances.
Ms. DeParle. They are permitted to, although in the
President's plan if a physician says a drug is needed a
beneficiary is allowed to get that drug.
In the plan that I heard about yesterday, it does make
mention of a formal appeals process that a beneficiary can go
through to get off formulary drugs. So therefore I assume a
formulary must be in there, but I have not seen the details
about that.
Mr. Pallone. I just want to take back my time.
Mr. Bilirakis. You can use a mike now, I think.
Mr. Pallone. The way the President defines this in terms of
medically necessary I think is very important. There is a big
difference there in terms of what the President's proposal says
in saying it is medically necessary drugs.
Ms. DeParle. The President says this has to be a defined
benefit that ensures access to all medically necessary
prescription drugs. And that means that if there is a drug that
a beneficiary needs according to their physician, but it is not
on a formulary that a PBM has, that the beneficiary can get
that drug. The physician's medical judgment is what would rule.
Mr. Pallone. Thank you.
Is my time up?
Mr. Bilirakis. Your time is up. Thank you.
Mr. Pallone. Thank you, Mr. Chairman.
Mr. Bilirakis. Let's see.
Dr. Ganske.
Mr. Ganske. Thank you, Mr. Chairman.
I hope that our electrical problems this morning are not
indicative of how the grid will work after electric
deregulation.
Well, Ms. DeParle, I want to first start out with a comment
that is a follow-up of a question that Chairman Archer asked
you yesterday. You have already alluded to it in some of your
answers.
I will be bipartisanly critical of both plans as I have
seen them so far. I would point out that when we are talking
about bipartisanship on these bills it will take more than 2 or
3 members of the other side of the aisle, as much as I love
Ralph Hall, to make a bipartisan bill and be able to move a big
issue like this.
But this is what I see as the big problem with both the
President's proposal and what I am seeing coming out of the
Republican plan. It relates back to 1988 when Congress passed a
catastrophic bill that had prescription drugs in it.
That applied to all senior citizens. It involved a premium
increase. I want to read what Chairman Rostenkowski said
recently about that experience. He said:
We adopted a principle universally accepted in the private
insurance industry. That is, that people pay premiums today for
benefits they receive tomorrow. Apparently the voters did not
agree with those market principles.
So what has been the lesson in Washington on that
experience? The lesson has been. Well, by George, we better
make this voluntary. This has to be a voluntary benefit. But
this is the problem. And we were able to get some of this
information from the hearing yesterday.
Chairman Thomas, when he testified, pointed out that the
Republican bill will cost somewhere between $450 to $500 a year
in premiums plus a 50 percent co-pay, and we know that the
President's plan I think originally costed out at something
like $25 per month, but that you are willing to talk about
stop-loss so it will be higher than that.
Congressman Burr in a previous hearing very aptly pointed
out that under the President's plan for this to be a cost-
effective maneuver by a Medicare beneficiary they are going to
have to have out-of-pocket expenses somewhere around $1200.
It will probably be somewhat similar to that with the GOP
plan. And this is the problem. If you look at the data for
MedPak, they show that of current Medicare beneficiaries--this
is 1999 data--14 percent of Medicare beneficiaries today spend
nothing on prescription drugs; 36 percent spend from $1 to
$500.
So you have got 50 percent of Medicare beneficiaries today
with less than $500 out-of-pocket expenses. Now if you are a
senior citizen and you are looking at having to have expenses
of greater than $1000 for either the GOP plan or the Democratic
plan, to make signing up for this voluntary program cost
effective for you, why on earth would you do that? Why on earth
would 50 percent of people do that?
The answer is. They won't.
They won't.
So that gets into the adverse risk selection of those who
will. These are going to be the seniors, you know, that 6
percent, or 14 percent, who have expenses of more than $1500.
What do we know happens from the current program under that
scenario? Well, we know what happens because there already are
Medicare supplemental programs that provide that drug benefit.
And the only people who sign up for them are those who have a
lot of expenses.
And what happens? The premiums are very high for those
programs. So unless we take a huge amount of extra dollars from
the General Fund to cushion that shock for those who will sign
up for it, I think we are looking at significantly higher
expenses.
This is what I think the solution should be. And I think
that is the fundamental problem with both. I happen to agree
with Mr. Kahn on this. Here is what he said. He represents
insurance:
I am happy to say this because not always do I agree with
the insurance industry. I've got Karen Ignani here, too. He
said, private-drug-only coverage would have to clear
insurmountable financial, regulatory, and administrative
hurdles simply to get to the market.
Assuming that it did, the pressures of ever-increasing drug
costs, the predictability of drug expenses, and the likelihood
that the people most likely to purchase this coverage will be
the people anticipating the highest drug claims would make
drug-only coverage virtually impossible for insurers to offer
to seniors at an affordable premium.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Ganske. So I would just finish by saying, you know we
have a big adverse risk problem in both of the plans that have
been presented and I look forward to additional time. Thank
you.
Mr. Bilirakis. Well let's see here. Mr. Stupak.
Mr. Stupak. Thank you, Mr. Chairman.
You were asked some questions by Mr. Burr and Mr. Whitfield
on choice and risk. In the Federal Employees Health Benefit
Package, that basically reflects people like ourselves where
prescription drug risk you are talking about would be people
who are 65 and older, is it not?
Ms. DeParle. I think that in talking to the people at OPM
who run and manage the FEHBP program, they do believe that the
two populations are very different.
Mr. Stupak. And the risks are very different?
Ms. DeParle. The risks are very different for an insurer
facing those populations. And I think the insurance companies
would tell you the same thing.
Mr. Stupak. Okay. I understand that yesterday the President
released a report prepared at the request of Senator Max Baucus
that showed rural elderly are 60 percent more likely to fail to
get needed prescription drugs because of the cost.
Could you please discuss some of the conclusions of that
report, since I have a large rural district myself?
Ms. DeParle. Yes, and I have been to your district----
Mr. Stupak. Yes, you have.
Ms. DeParle. [continuing] and I do know that.
It is the cost, as well as the fact that, if you look at
the Medicare population, the people who are fortunate enough to
have prescription drug coverage have it primarily because they
worked for large employers which are less likely to be in rural
areas. So as retirees they got that coverage from their former
employer. They are less likely to have that.
As well, they are less likely to have access to a Medicare
HMO. In the past----
Mr. Stupak. We do not have any up there.
Ms. DeParle. You do not have any up in the Upper Peninsula.
And in the past, in some areas of the country where those are
available, then beneficiaries go to a Medicare HMO to get
prescription drug coverage.
Mr. Stupak. Well then----
Ms. DeParle. So those two things combined with some of the
factors that you raised in your opening statement about the
price discrimination and the fact that it is harder to
negotiate on behalf of large numbers of beneficiaries in a
rural area means they have less access.
Mr. Stupak. Well how would the President's plan then
address prescription drug coverage in rural areas like mine?
Ms. DeParle. Well under our plan we would have pharmacy
benefit managers in different areas of the country that would
cover a region and would negotiate on behalf of those
beneficiaries who lived in that region to get the best drug
prices possible for them under this defined benefit.
Then when the beneficiary had gotten up to the cap, they
would still get the benefit of those negotiated lower prices if
they needed to go further than that.
Mr. Stupak. From what we know of the Republican plan, and I
understand you were at the hearing yesterday, what does the
Republican plan do to help elderly in rural areas like mine?
Ms. DeParle. Well what I know about that is what I heard
discussed by the Members of Congress who were talking about
their plan.
Mr. Peterson, who is from Minnesota----
Mr. Stupak. That is a rural area.
Ms. DeParle. [continuing] said he believed it would help
rural areas in I guess two ways. One is that he believes there
will be a fallback mechanism whereby the government would stop
in where plans are not available and provide prescription drug
benefit.
As I said, we have a lot of questions about whether that
would really be affordable and accessible and what the premiums
would be, but that is what he said would be there for rural
beneficiaries.
And also I believe the plan includes some additional
payments for Medicare HMOs in rural areas. He thinks that will
entice them to come into some rural areas and provide Medicare
HMO coverage, which they have not in the past.
Mr. Stupak. Okay. So if we do not have an HMO like up in my
district there are no HMOs in my area, then the government
would be the fallback here and negotiate those prices? Is that
your understanding?
Ms. DeParle. That is my understanding of what he said.
Mr. Stupak. Well what would stop, then, the government
being the fallback whether they are in a rural area or an urban
area as insurance companies cherry pick only the healthy
seniors to put in their plan?
Ms. DeParle. That is my concern, is that the more you
segment the market like that, the more it results in adverse
selection and then higher premiums for the people who do not
have other choices, and subsidies for people who do have other
choices. I am just not sure that is the right direction to go
in.
Mr. Stupak. There has been some talk about Medigap policies
and the administrative costs. In fact, I brought up the
Medicare situation in Michigan where the State ran it for $28
million. Now they have turned it over to these private
companies, including private HMOs, and now the administrative
cost is $141 million in Michigan per year.
The Medigap, is that the administrative costs to run the
plan and market it to individuals, is that high, the Medigap
policy, is that low? For example, with Medicare you said you
run it at about 1.5 to 2 percent?
Ms. DeParle. Yes.
Mr. Stupak. That's your overhead. Medigap plans, do you
know what their administrative costs are?
Ms. DeParle. Well on average their administrative costs are
around ten times higher than Medicare's according to the
National Association of Insurance Commissioners.
Mr. Stupak. So that would be about 20 percent as their
administrative cost?
Ms. DeParle. Well, no, I guess it would be 10 or 11
percent, if ours is 1.5 percent.
Mr. Stupak. Right. Okay.
Mr. Bilirakis. Mr. Norwood--Oh, I beg your pardon. Were you
finished?
Mr. Stupak. Just one more.
Mr. Bilirakis. Very quickly.
Mr. Stupak. If the administrative costs are higher than the
20 to 15 percent, then the money that the seniors would be
paying would not go necessarily for a drug benefit but more
money would go for the administrative costs? Right?
Ms. DeParle. Well both the seniors and the Federal
Government would pay because this is a 50-50 proposition in the
President's plan. But I assume some of this would be paid by
the Federal Government in their plan as well. It is not clear.
But, yes, we would be paying for higher administrative
costs.
Mr. Bilirakis. Dr. Norwood to inquire.
Mr. Stupak. Thank you.
Mr. Norwood. Thank you, Mr. Chairman.
Nancy-Ann, how many people are on Medicare?
Ms. DeParle. 39 million-plus, sir.
Mr. Norwood. Could we examine your first sentence in your
statement? You said that 39 million people need drug benefits?
Are you saying that everybody on Medicare needs a government-
run drug benefit plan?
Ms. DeParle. No, sir, I am not saying that because in our
plan----
Mr. Norwood. So it's not 39 million that need drug
benefits?
Ms. DeParle. If I can finish? In our plan, we have proposed
to include some subsidies to encourage employers who are
currently providing coverage to continue providing it, and we
hope they will.
Mr. Norwood. So just let's get to this answer----
Ms. DeParle. But when I say they need it----
Mr. Norwood. [continuing] Do 39 million people need drug
benefits or don't they?
Ms. DeParle. I believe they need a guaranteed Medicare
prescription drug benefit. They don't have that----
Mr. Norwood. All 39----
Ms. DeParle. [continuing] now.
Mr. Norwood. All 39 million?
Ms. DeParle. Yes, sir, because they do not have security
right now that they have a drug benefit. Some of them----
Mr. Norwood. Even the 50 percent that Dr. Ganske referred
to that are very happy with their supplemental drug plans
paying zero or very little, they need it, too?
Ms. DeParle. What I find when I talk to seniors--maybe the
ones in your district are different--but when I talk to them,
they are concerned about the rising costs of drugs and the fact
that they do not have coverage.
Some of them have retiree coverage but they are not sure it
is still going to be there. So what I am talking about here
is----
Mr. Norwood. Well they are not sure Medicare is going to be
there, either, the way we act. But the point is, you can't make
the statement that 39 million Americans need or even want a
government-run prescription drug plan. That is not a true
statement.
Ms. DeParle. I don't want to argue with you, Mr. Norwood,
but what I am trying to say is----
Mr. Norwood. You can't argue with me. I know them in my
district who don't want it. So don't tell me everybody out
there on Medicare wants the government to take over their
medications. They don't. I just want you to be honest before
this committee. You said----
Ms. DeParle. I am being honest, sir.
Mr. Norwood. [continuing] that all 39 million----
Mr. Brown. Mr. Chairman, I----
Mr. Norwood. You may not interrupt, sir.
You said all 39 million Americans can't wait for
government-run prescription drug----
Ms. DeParle. Now that is not fair. That is not what I said.
Mr. Norwood. That is what you said, 39 million people need
a drug benefit.
Mr. Bilirakis. The witness will respond as best as she can,
and then let's just move on.
Ms. DeParle. We obviously have a philosophical difference
here. I believe----
Mr. Norwood. Well, no. I am just trying to find out if you
actually believe that every American wants to have a
government-run medication plan. That's all. You obviously
believe they do. I know they don't.
Now let me go to the next question because my time will run
out.
Mr. Bilirakis. Right.
Mr. Norwood. It seems to me that presently when you are 65
years old you have to go into the government-run health care
known as Medicare. You do not have any choice about that.
If you are a patient over 65 years old and you wish to seek
treatment from a physician for example who maybe does not take
Medicare, or wish to seek--Regular Order--if you wish to seek,
for example, a treatment that Medicare does not cover, we today
as a Congress and as a government say you go to that physician
and that physician treats you, we're going to give that
physician a great deal of pain, whether it's putting them in
jail, or fining them, or whatever. Now that's presently what we
do in Medicare.
If the President's plan were to be put into Medicare, would
that then mean the same thing for seniors in terms of their
prescription medication? Would that mean they would have no
other choices but then to use the two options in the
President's plan?
Ms. DeParle. Well, no, sir. And I do not agree with your
characterization of what happens now. If beneficiaries need or
want treatments that are not covered by Medicare, that would
not be the case.
Mr. Norwood. It is not the case that they can leave then
and go to the physician of their choice, and if the physician
of their choice treats them that the Federal Government comes
down on that physician to take their license or put them in
jail or fine them?
Ms. DeParle. That is not the case.
Mr. Norwood. That's not true?
Ms. DeParle. No, sir.
Mr. Coburn. Will the gentleman yield?
Mr. Norwood. I will yield.
Mr. Coburn. Can I referee here a little bit? The physician
if he gets a disclaimer notifying the Medicare patient that
this is not a covered benefit, the government cannot touch him.
The problem is if your nurse fails to get a disclaimer.
Mr. Norwood. Or if it is a benefit that happens to be
covered where you wish to go to a physician who does not take
Medicare. That is what happens, whether you say it is or isn't,
and that is what we do.
I am asking you if we put the President's plan into
Medicare, does that mean then the senior citizens, half of them
who presently have supplemental plans that they seem to enjoy
and like, would no longer be able to use those but have to
simply use those two offered by the President's plan?
Ms. DeParle. No, sir, it does not mean that.
Mr. Norwood. I will yield back, or yield to Mr. Burr.
Mr. Bilirakis. Well you only have 7 seconds left to yield
to Mr. Burr.
Mr. Burr. Clearly us Southerners cannot even ask one in
that time.
Mr. Bilirakis. Amen to that.
Ms. DeParle. Nor can I answer in that amount of time.
Mr. Bilirakis. Let's see. Mr. Strickland to inquire.
Mr. Strickland. Thank you, Mr. Chairman.
Mr. Chairman, I would like to correct the record on
something I said in my opening statement. Although the
amendment I referenced, Mr. Sanders amendment, did pass the
House, it was opposed by well over 100 Members.
I would like to give you a chance to explain, if you can,
to my colleague what it is that you mean by that sentence that
apparently is in question. If you would, I think you are an
honest person and I do not think you are trying to mislead us,
and so I would like to give you a chance to explain the
difference of opinion that apparently exists between Dr.
Norwood and yourself on that particular statement.
As I read it, it says it includes a voluntary, affordable,
accessible, competitive, efficient quality drug benefit that
will be available to all beneficiaries.
I do not interpret that as you saying that every Medicare-
eligible person would choose, and the fact that it is voluntary
is in there, it seems to me to be rather clear that it is not
something you are wanting to impose on all Medicare
beneficiaries.
Ms. DeParle. That is right. And in fact the President's
plan, as I was trying to explain, includes some subsidies so
that people who are fortunate enough to have coverage through
their employer now as retirees would continue that coverage;
that the employers would find it to be in their interest
financially to continue providing coverage. I think the
philosophical difference I have with Dr. Norwood--and I
actually agree with him on a lot of things--but I think on this
what I am saying is that I believe that beneficiaries need the
same kind of assurance that they are going to have their
physician visits covered, and that they are going to have their
hospital visits covered, about prescription drugs.
Right now, today, they do not have that. Some of them are
fortunate enough to have prescription drug coverage. That is
great. We want that to continue. But unfortunately there are
many seniors who have unreliable coverage, who are losing
coverage, who may have it 1 month and not another, whose
Medicare HMO has left.
So what we are talking about here partly is a philosophical
issue about whether they need that security in insurance or
whether they don't.
Mr. Strickland. Thank you for that clarification.
I have a document that is supposed to be an analysis of the
Republican plan. On the covered drug section it says:
``The proposal will cover all outpatient prescription
drugs, excluding those already covered by Medicare Part B.''
And then it says:
``Individual plans may establish formularies, however, that
may limit beneficiary access to certain drugs.''
And then it goes ahead to say that if your physician feels
like you need a drug that has not a part of the formulary,
there can be an appeal process.
Now one of the reasons many of us want a Patient's Bill of
Rights is that we think decisions are made that are different
than what a physician would choose.
Do you see a problem with setting up a system where the
physicians may have to once again advocate for something that
they think is in the best interests of the patient when we are
finding it very difficult to develop an appeals process even
under a Patient's Bill of Rights?
Is this a problem in your judgment in terms of drugs that
would be available?
Ms. DeParle. I think it is a problem any time we are not
clear about what is covered and what is not covered. And I
think that in working together to design this benefit, we
should try to do everything we can to make sure that a
physician's medical judgment about that is allowed to govern.
Mr. Strickland. And last, I am troubled that under the
President's plan the stopgap measure kicks in in 2006. That is
a long way away. And could you briefly compare what it is you
know about the Republican plan's stopgap measures versus the
Democratic plan? Because quite frankly, I think the President's
plan is very troublesome to me.
Ms. DeParle. Well, as I said, the President's plan, really
the only detail that he specified was that we had reserved $35
billion, set aside that, to work with the Congress to design a
stopgap plan. And his does start in 2006. And frankly, that is
a question of the availability of the dollars that we think
will be necessary to design such a benefit.
The House Democrats announced the outline of a plan a few
weeks ago that has a stop-loss that begins at $3,000 of out-of-
pocket spending for a beneficiary.
And I believe it would start right away, or 2002, anyway,
earlier than the President's plan had talked about. And the
Medicare RX2000 Plan, just looking here, again I believe that
it starts at the same time the House Democrats' plan does.
Maybe I should ask Congressman Burr. And I think it starts
at $6,000. Is that right?
Mr. Burr. Yes.
Ms. DeParle. So there are 2 or 3 ideas on the table. It is
not clear. I think they said their premiums were going to be
$35 to $40, and I guess that includes the catastrophic or stop-
loss protection. That is what we know so far.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Strickland. Thank you.
Mr. Bilirakis. Ms. Cubin--Mr. Bryant is back. Mr. Bryant.
Mr. Bryant. Thank you, Mr. Chairman. Welcome.
I apologize for having to step out to attend a conflicting
meeting here, and I missed--I did hear your statement and
missed most of your examination. As I hear bells ringing, we
may be leaving and have to go vote, but I wanted to pick up on
my friend from Ohio's question, because they are important.
I think one of the key things that makes our proposal
attractive, because many of the bills that are offered today
that are out there do rely on private sector insurance
companies, and management of those outside HCFA. So this is not
an idea unique to the particular bill that the Republicans are
talking about.
But one of the things that makes that bill particularly
attractive is the stop-loss provision. And like I assume so
many of us that buy regular health insurance that are healthy,
we buy that insurance to protect us against that catastrophic
and--apparently we do not like that word around here, I do not
know--but those bad things that can happen to you.
We would envision the same concept at the level of
prescription drugs and senior citizens in this bill. Not every
senior citizen uses prescription drugs, and obviously some use
more than others. But it is that concept that is very
important.
And that is why I want to go back to Mr. Strickland's
questions about the President's plan taking til 2006 and even
then, in reviewing the language--and I hope I am not quibbling
over semantics here, but as I read that particular language he
does reserve that $35 billion from our surplus for either debt
reduction or in the event that the President, he and Congress
agree, whoever the President may be, on a policy that provides
for protections against catastrophic drugs costs for Medicare
beneficiaries or policies that otherwise strengthen the
Medicare program.
So I think there is some probably flexibility in his
proposal that that $35 billion is not specifically dedicated to
the stop-loss type program.
And again I think that is one of the things in ours is. It
is dedicated for that. I mean, it is a guarantee, as much as we
can guarantee anything.
So I would hope that as the administration looks at that
very important piece of this modernization that there is more
of a lock in and more of a guarantee to that rather than
leaving that up to the administration and the Congress at that
time.
Do you follow that?
Ms. DeParle. Yes. I do. And as I said to Chairman
Bilirakis, we clearly need to sit down with all of you and
discuss what the contours of a catastrophic or stop-loss
protection should be.
I think the good news is that everyone here agrees that
that needs to be a component of this, with the possible
exception--I did listen carefully to what Dr. Ganske said about
some of the difficulties in designing this. But I think we
ought to sit down and talk about it.
Mr. Bryant. Well, you know, we have I think a very good
benefit on this committee of having some doctors who really
have first-hand experience and add so much to the committee in
discussions like this. And I think many of us I think, if I
understand on the other side now agree that it is a very
important issue that we have to begin to sort of set partisan
politics aside and continue to work toward solving this problem
together.
But I think any bill that comes up with the underlying
principles that it is going to be universal, it is voluntary
for people to be in or stay in the very good program they might
be in already as far as drug costs, and they are going to have
choices within that, and you have got this stop-loss provision.
So I think as long as we all maintain those concepts that,
again, I am becoming perhaps more of an optimist that we can
work this out and solve a very important problem.
Do you have any comment on that?
Ms. DeParle. Well, I am optimistic too. Thank you.
Mr. Bryant. Thank you. Yield back.
Mr. Bilirakis. Ms. Eshoo to inquire. Anna?
Ms. Eshoo. Yes. Thank you, Mr. Chairman. I am sorry I had
to step out of this all important hearing, but there was an
important bill on the floor on digital signatures. So while
that may not seem so related to everything that is going on
here, we have gone past pen and quill and ink and even wax
imprints. Now in a new century we are going to be able to
transact things in cyberspace. So that is being done on the
floor.
Thank you, Madam Administrator, for your opening statement.
Let me just try to get some socks on this octopus. As I said in
my opening statement, it is no longer a question of whether we
should or should not do this. The reason why this hearing is so
important is because we are trying to flesh out how to do this.
It seems to me that at the heart of this debate of how to
is the benefit package. I know that you touched on that in your
opening statement. I have not had the benefit of some of the
questions and your responses, but could you for the record just
for a moment--because I want to come back in on the coverage
part of this--say why in your view it is so important for
beneficiaries to have a defined Medicare drug benefit?
Ms. DeParle. Well, for several reasons.
First and foremost really is the one that you mentioned in
your opening statement, which is that the seniors I talk to
want to know what they have, how much they have to expect in
terms of their cost. They want it to be predictable, and they
want to know what is covered. And that is one of the I think
very positive things about Medicare today, is they know that
they are covered to go to the doctor, they know that they are
covered to go to the hospital, and they need to have that same
level of assurance about their prescription drug coverage.
I also think that if we do not have a defined benefit that
we introduce a really scary element of additional risk
selection into this. And several of the members on this
committee have talked about that, and I can tell that everyone
is trying to grapple with it. And that is, if you allow plans
to design lots of different benefit packages, that promotes
choice, which is a value that some members want to promote, but
you have to be very careful not to introduce cherry picking of
the healthiest seniors in risk selection and then also Mr.
Whitfield raised the question of confusion for beneficiaries
and the fact that it would be very difficult for them to
navigate among the plans.
Ms. Eshoo. Right.
Ms. DeParle. All those things are things that we are really
going to have to look at carefully.
Ms. Eshoo. Because they are all warning signals in terms of
how we should design this.
Let me just cover two other points, and they both have
placement and direct attention in the legislation that
introduced.
In one area, and there are different ideas out there on
this and that is what we are talking about today, ideas. The
idea of stop-loss--catastrophic insurance--and how it is
designed and how it kicks in.
Now there are different ideas about it. In the bill that I
introduced, the out-of-pocket expenses of the beneficiary are
$2,500; the government, Medicare, picking up the other half. So
once you reach the ceiling of $5,000, then the stop-loss kicks
in.
There are other plans out there that do not work that way.
There is a gap between what is covered, what the beneficiary
pays out-of-pocket, and how long they have to wait until stop-
loss kicks in. And I put this out more as a red flag, because
members are going to have to consider this, because their
constituents will face it.
The reason why I think it is important to have stop-loss is
very obvious. I do not know how many of us would be able to
afford some of these drugs even with our salaries and the
insurance coverage that we have once it goes past the out-of-
pocket. So I say this to this subcommittee that is going to
have something to do with that.
The other thing is the administration of this. With great
curiosity yesterday, I listened to Mr. Thomas talk about the
bureaucracy that he is designing, which, I am assuming, is
going to be in my Republican colleagues' bill. I am issuing a
warning on that. I really do not think we need to do that.
Now, in the bill that I have introduced along with 10
Democrats on the Commerce Committee, I do not have, as you
know, Madam Administrator, your agency administrating the
program. Rather, I put it into OPM.
Now I am the first to admit that many of the problems that
HCFA has are congressionally inspired, but there are problems.
I think that you are already----
Mr. Bilirakis. The gentlelady's time has expired.
Ms. Eshoo. Can I take just 30 seconds so that she can
answer this?
Mr. Bilirakis. Well, not 30 seconds, but a very brief
answer.
Ms. Eshoo. Okay.
Mr. Bilirakis. But you have to briefly ask the question,
too.
Ms. Eshoo. I think that you are understaffed and
overburdened. Do you have a problem with OPM administering
this, or do you feel strongly that HCFA must administer it,
or--maybe you could just answer that.
Ms. DeParle. Well, I feel strongly that----
Ms. Eshoo. I think it is a tough question, but I want to
ask it.
Ms. DeParle. I feel very strongly that this benefit needs
to be integrated into the Medicare program. And I believe that
HCFA can administer it the most efficiently, effectively, and I
would like a chance to convince you of that.
Ms. Eshoo. Thank you. Thank you, Mr. Chairman.
Mr. Bilirakis. Ms. Cubin to inquire.
Ms. Cubin. Mr. Chairman, I yield to Dr. Ganske.
Mr. Ganske. I thank the gentlelady. I will get to a
question.
I think we need to look at will either the Republican plan
or the President's plan work, how much will it really cost. I
have already expressed some reservations about the first. I do
not think we really know the second.
I think we need to think about making sure that we continue
drug research. Drug research companies--or the drug companies
have had basically a flat line in R&D. They have increased
their marketing a lot. But we have got a lot of antibiotic-
resistant bacteria out there that could cause some very, very
significant problems to everyone who flies in an airplane and
is worried about antibiotic-resistant tuberculosis, for
instance.
We need some real dollars going into that, so I do not want
to hurt that.
I think it is fair for me to criticize plans without
offering a solution. So my question at the end of this is going
to be, you know, will the administration think about this if
this is the only way that we can get something done this year?
And this is what I think a partial solution to this could be.
I sat on the bipartisan Medicare Commission for a while. In
the context of comprehensive care, we were looking at expanding
basically the prescription drug benefit, because there is some
prescription drug benefit for dual eligibles; i.e., Medicare
beneficiaries who are so poor they qualify for Medicaid.
There are two groups in Medicare that have enough assets
that they are not quite in Medicaid, but they get some
assistance on their premiums and some assistance on their
copayments and deductibles. They are called qualified Medicare
beneficiaries, QMBYs and SLMBYs. And it is that group, the poor
widow who is existing on her Social Security, who has to make
that choice between her rent, her food, and her prescription
drugs, who is not quite so poor that she is in Medicaid, that I
think we need to significantly look at helping, and sooner
rather than later.
So when we looked at this in the bipartisan Medicare
Commission, we though we can expand the Medicaid prescription
drug benefit to those people and the cost would be about $61
billion over 10 years. And furthermore, to prevent a notch, you
could create a spend-down group, so that if those people,
Medicare beneficiaries who have some additional expenses,
higher expenses, they could deduct that from their income and
then they could get into that qualifying group. That helps the
neediest.
But we also have 40 million people in this country who have
no insurance at all, and I think we need to look at how do we
cover them. And we also have to think about the fact that in a
few years we know that the Medicare program is not going to
have sufficient funds for any of the benefits that it is
offering.
So my solution would be this. Do the QMBY SLMBY with a
spend-down, address the issue of cost in some way for all
Americans, whether you are looking at something like propose a
modification or something proposed by Tom Allen or Gil Gutnick,
or simply saying to the FDA and Customs, you can warn people
who order their drugs from Geneva, Switzerland, but you cannot
intercept an individual's drugs. So it is buyer beware.
I mean, there are many ways that we could look at trying to
get some competition into that market for everyone, not just
looking at a senior citizen.
My question to you, Ms. DeParle, is this. If it looks like
this is just going to be a simply straight line Democratic vote
on a Democratic bill, the President's bill that will go down,
or a straight line partisan vote on a Republican bill that the
President will veto, is the administration interested at
looking at any compromise type of legislation?
Ms. DeParle. Well, Dr. Ganske, you know that your
suggestions are always thoughtful, and you know that I will
listen to them. And I believe--I am from Tennessee like
Congressman Bryant. I am an optimist. So I think we can work
together to get something done.
I would say, I hear you on the low income benefit, and I am
concerned about those people, too, but when I look at our
numbers, as you have done, I see that, you know, 60, 70 percent
of our beneficiaries have less than $16,000 a year, something
in that range. So while I hear you about the very, very low
income, my concern is, if we have an opportunity here to do
something that assures security on prescription drugs for all
beneficiaries, I would like to do that. I do not want to give
up on that.
Mr. Ganske. But we should not forget----
Mr. Bilirakis. The gentlelady's time has expired.
Mr. Ganske. Thirty additional seconds?
Mr. Bilirakis. Well, the gentlelady has the time, and it
has long expired.
Mr. Ganske. I will ask next round, Mr. Chairman. Thanks.
Mr. Bilirakis. Ms. Capps.
Ms. Capps. Thank you. And if you would like, Dr. Ganske,
you can have 30 seconds of my time.
Mr. Ganske. I thank the gentlelady. I think it is fair to
point out, you know, that there are a significant number of
Medicare beneficiaries who do have a drug benefit. They have it
from their employers, and that helps keep their out-of-pocket
expenses down. We have a significant number of Medicare
beneficiaries who have a pretty low out-of-pocket expense. As I
said, from MedPAC, 50 percent have less than a $500 out-of-
pocket expense.
So if we are looking at trying to balance providing some
health care assistance to those who do not even have anything,
much less a prescription drug benefit, would not it be
advisable to take some of--a little bit more global approach to
where we are heading than to try to piecemeal this and have
some unintended consequences for the later fiscal solvency of
the program? Or for that matter, not being able to have
sufficient funds to handle those who do not have any insurance
at all?
Ms. DeParle. Well, if understand your question, if by a
global approach you are referring to covering the uninsured, I
would love to sit down and talk to you about that. And I am
listening to what you have to say.
Mr. Ganske. Thank you.
Ms. Capps. Thank you. And I am going to be brief. I want to
ask you about two different things, and Administrator DeParle,
I thank you for enlightening us and for being willing to go
through this conversation. It is very helpful to me.
I am sitting here as we have been discussing this thinking
about me being, all of us on this subcommittee, being part of
arguably one of the best benefit packages of any employee, the
Federal Government. And there has been a lot of comparison
between the Federal Government benefit plan and Medicare. And
maybe you could articulate--and I know it is repetitive a
little bit--so that we are clear.
We are a very different kind of pool across this country of
employees, working people, hopefully fairly healthy, compared
with the population that Medicare serves. And this issue of the
importance that some would say to giving seniors choices of
their plan, I would like you to contrast that with what I hear
frequently, seniors saying my doctor--I need to take this
particular heart medicine to keep me alive, and my HMO will not
cover it.
Ms. DeParle. Well, you have raised some issues that we have
been grappling with this morning. On the differences between
Medicare and the FEHBP program, I think you are exactly right.
And in speaking with the people who run FEHBP at OPM, they say
the populations are very different, that the insurance
companies who come in to participate in the FEHBP program say
the populations are different, and that the risk that you are
assuming is quite different among the two populations.
Medicare beneficiaries tend to be poorer, sicker. They are
not active employees. There are a lot of factors that lead to
higher expenditures.
Ms. Capps. Now could I raise one caution also about, as we
are entertaining these various plans. I represent a rural
district, one about 100 miles north of Los Angeles, where there
is a great reimbursement rate from HCFA. Ours is about half of
that. Our cost of living is not half of that in Los Angeles.
This disparity that impacts service, whether through
hospitals or providers, is so pervasive. There are no HMOs in a
large part of my congressional district. Seniors have no choice
there.
And any kind of plan that is going to come in in discussion
my district is going meet a jaundiced ear both about HMOs and
people's disenchantment with that form of service for medicine
and also with the pairing of that with delivery of a vital part
of seniors' health care, which is prescription drugs.
That is an enormous hurdle I believe that we have to get
through in this discussion.
Ms. DeParle. I agree that it is a hurdle. And as you know,
the amount that we pay the managed care plans is based on
historical costs under Medicare for fee-for-service, and we
have some--well, one of our doctors left, but Dr. Ganske is
still here, who can talk about why is it that it is so
different in different areas of the country.
But that is what those payment rates are based on. And let
me say too that we are not reimbursing managed care plans right
now to provide prescription drugs----
Ms. Capps. I know.
Ms. DeParle. [continuing] which they tell us they need to
offer to seniors in order to get them to join. So one of the
things we need to do is to reimburse HMOs to provide
prescription drugs, and that is one of the things we want to
do.
Ms. Capps. I turn back the rest of my time. Thank you.
Mr. Coburn [presiding]. Thank you. I am sitting in for
Chairman Bilirakis, and I believe I am the next in order, so I
will recognize myself for 5 minutes.
I believe that is accurate. I wanted to ask you the most
important question today, is how is your baby?
Ms. DeParle. He is great.
Mr. Coburn. Great.
Ms. DeParle. Thank you for asking.
Mr. Coburn. Great. You know, I made some statements in my--
some sentences and statements in my opening statement about the
best way to allocate a scarce resource is vigorous competition.
And I do not know if you are familiar with some of the FTC
actions of late against several drug companies and four others
that are pending on collusion that have cost American citizens
a ton of money, several hundred million dollars in the last
year.
And I just wondered if you had a comment about that,
because no matter what we do--and I am sure we are going to do
something despite my no vote--whatever we do is going to cost
more if we are not sure that there is competition there. And I
just wondered what your thought was about that.
Ms. DeParle. Well, I think you are right. There does need
to be competition. The way we go about it, there are different
ways of doing it. The way we go about it is have pharmacy
benefit managers to negotiate to get the best prices. But it is
a very difficult problem, and I am somewhat familiar with, just
from what I read in the newspapers with what is going on over
at the FTC, and it is a difficult problem to get your arms
around.
Mr. Coburn. Does it surprise you that retail pharmaceutical
prices, not including new drugs, rose 8 percent last year when
the cost increases were about 2 percent?
Ms. DeParle. No. And I have talked to a lot of employers
and managed care plan executives who tell me their costs, their
spending is going up, you know, 17 and 18 percent.
Mr. Coburn. Does the administration have a position as to
allowing the decision made in 1997 for direct television
advertising for prescription drugs?
Ms. DeParle. I do not know, Mr. Chairman. I am aware of the
decision, but I do not know about any position that we have on
that.
Mr. Coburn. Just for the record, it is $1.9 billion this
last year, and that goes straight to the bottom. And I think
Dr. Ganske made note of the fact that the expenditures on R&D,
I think he was in error. The expenditures on R&D in the
pharmaceutical industry are rising. They are not flat line. But
the expenditures for advertising and promotion direct to the
consumer have gone up significantly.
Have you calculated from inside HCFA the increased
utilization rate of Medicare based on television advertising
the pharmaceuticals?
Ms. DeParle. You know, we have not. But our actuaries have
been looking at the kind of data that you and Dr. Ganske have
been discussing in assessing what the cost of this would be,
and I know CBO has been looking at it as well.
I do not think we have looked at whether it has increased
any Medicare utilization. I guess you would be suggesting----
Mr. Coburn. I am suggesting that because of promotional
advertising, demand pull through advertising by the drug
companies, what we are seeing is increased utilization. I am
seeing it in my practice. More people are coming in because the
drug company told them they had to, because they could not get
well without this wonderful drug.
I would like unanimous consent to introduce into the record
the FTC cite listing the consent decrees with two large
pharmaceutical companies and make that a part of the record. No
objection.
There was some discussion made about the efficiency of HCFA
in terms of its cost. I think it is important for the record
for people to know that one of the reasons HCFA is efficient is
the vast majority of the work has been transferred to the
provider in terms of the paperwork and the clearance and
everything else.
So it is important, although the same amount of work is
being done, a large amount of that work now is done in the
provider's hospitals and the physician's offices across the
country.
And it is true. I believe you are very efficient for what
you are asked to do. I do not like the system very well, but I
think you do a great job.
If we were to start all over--and this is the last
question--and you could tell us, how can we go take care of
those people who really are making a choice between necessities
of life and their medicine in this now politicized kind of who
is going to win the next election environment, would you have
any advice for us to solve this problem to really meet the
needs of people without ruining the drug industry, without, you
know, ruining pharmacy benefit providers?
Because I see the same thing happening on pharmacy benefit
providers that happened to the clinical labs. I mean, that is
what is going to happen.
We are going to have 3 or 4 major clinical labs in the
country--I mean, pharmacy benefit providers--and that is it.
And so I just wondered, is there an advice that you could
give us that if we were to start over on this that would take
it out of the political to where we really went to solve the
problems?
Ms. DeParle. You always ask the easy questions. You know,
Medicare is going to be 35 years old next month. So I have
actually, just was watching recently the video of the signing
of Medicare and the speeches that were given. And there is no
question that there have been difficulties and challenges that
Medicare has faced and continues to face, but I think it was a
great thing to do.
I think if you were looking at it today, you would put
prescription drug coverage into Medicare. And I think we should
figure out a way to do it, and I do believe it should be
something that is universal and voluntary. It is going to be
very tough. And I already heard you say that you think the
problem is so tough and the challenges that Medicare faces are
so great already that you would not go there.
But I hope that we can have some conversations and I can
convince you that for our generation and the generations to
follow that it is the right thing to do, because I believe it
is.
Mr. Coburn. I thank you. I just would make one comment
before I recognize Mr. Greenwood is--is Mr. Deutsch next? Is
that we are adding a cost to a program that is technically
bankrupt from an actuarial standpoint. And it is important that
the American people know that. They may want us to do that, but
there is no actuarial that would go out there and say you
should add another cost to this program based on what the
numbers looked like today.
Mr. Deutsch, I would yield you 5 minutes.
Mr. Deutsch. Thank you, Mr. Chairman. I want to give you a
chance at least to respond, because I think to leave a
statement like that open-ended would be a mistake; the system
is not bankrupt. That it is an actuarial system that in the 8
years I have been in Congress we have made changes which have
increased the actuarial stability of the Medicare system.
And a lot of the actuarial problems are high class
problems. High class problems in that part of--the average life
expectancy of Americans has gone up dramatically. I mean, one
of the incredible statistics in that 1965 when Medicare was
created, the average life expectancy of Americans was in fact
65, and now we are talking about it being over 75 years old. So
as a person who administers the Medicare program, if you can--I
want to give you the opportunity to respond a little bit to the
chairman's comments about the system being bankrupt.
Ms. DeParle. Well, and you also highlighted the reasons why
I say Medicare was a great thing and why--you know, I can
remember what it was like when my grandmother did not have
Medicare coverage, and then when it came into effect. And I
know what a difference it has made in the lives of not just
senior citizens but, frankly, our generation. That we have not
had to worry as much about providing for them, and that we have
been able therefore to concentrate on our educations and other
things. So I do think it has been a great thing.
I think what the chairman is talking about is the fact that
while we have made some very tough decisions together up here,
which have been, you know, extremely difficult for all of you
and things that providers in your districts have been very
unhappy about, that have extended the life of the trust fund
through 2025. I think that was the right thing to do. I also
think it was a very, very difficult thing to do. And frankly, I
think it is one of the reasons why HCFA is not the most popular
agency in town these days.
He is right, though, that we face a huge demographic
challenge as all of us in the next 20 years come into Medicare.
Mr. Deutsch. Can I just, again, just to interject and
highlight something you just said. There are two separate
issues. Medicare is an insurance plan where there is an
obligation for it to be actuarially sound. So what you have
just stated is something people need to hear. Until the year
2025 under the present projections, we are actuarially okay out
to 2025, which is 25 years from now. Not to say that we should
not do something about that on an actuarial basis today.
But I think it really is somewhat disingenuous to say the
system is bankrupt today. It is not bankrupt today. There is
the baby boom issue, the demographic issue that we are going to
have to deal with. But a reason not to do a complete Medicare
prescription drug plan under the premise that the system is
bankrupt is just not--it is not credible. The system is
fundamentally sound to 2025.
I wish we did it this year, hopefully we will do it this
year, I doubt we are going to do it this year. We can do it
next year in terms of dealing with the baby boom issue, which
we can do. But that is not a reason not to do prescription
drugs under a universal Medicare program today, which is really
the essence of the final question, which is something also that
you have talked about.
I think--and I mentioned in my opening statement as well--
the fundamental difference between what the Republicans are
proposing and what we are proposing is really that issue. I
think what we are saying, what the President is saying is that
we ought to extend Medicare to include prescription drugs, and
what they are saying is, hey, you cannot do that. You ought to
do it maybe just for people at 135 percent of poverty, or at
poverty or a limitation.
And I think if you can elaborate a little bit more about
that fundamental difference and what type of impact that would
have on Medicare in general or for that matter the stability
that Medicare consisted, I strongly believe that one of the
successes of Medicare is that it has been a universal system.
That if it was funded at 135 percent of poverty when it was
created, it probably would not exist today, because the
political will to push the system, to make the hard choices
that you talked about to change the actuarial dates that we
have done in the last 8 years, I do not think you would have
had the political will to do that if it was a system that only
provided for coverage 135 percent of poverty.
Ms. DeParle. I agree with you, Congressman. I think that
one of the great strengths of Medicare is that it has been a
program that is available for everyone, everyone pays into it,
everyone participates in it, and I think that has been one of
its strengths. And as I said, I believe there is a way to
provide a prescription drug benefit for all beneficiaries, and
I think that is the right way to do it.
Mr. Deutsch. And I guess just because I think it really is
the essence of the difference. I mean, if we are talking about
the Republican proposal, even if it is 135 percent of poverty,
we are really talking about prescription drugs from a welfare
context. And I think, you know, just as a Congress which
collectively and with the President we have eliminated welfare
as we know it, which was a positive thing, I mean, that is
really what they are proposing, effectively.
And I just see, you know, we have just gone through this
process of eliminating welfare as we know it to come back and
sort of create welfare for Medicare beneficiaries.
Mr. Coburn. The gentleman's time has expired. The gentleman
from Pennsylvania is recognized for 5 minutes.
Mr. Greenwood. Good morning--afternoon. You indicated
earlier that you are optimistic that we can get this job done,
and I am optimistic, too, and I think there are reasons for us
to be optimistic. And the President clearly wants to do this. I
think he wants this to be part of his legacy that he leaves
office having accomplished a Medicare prescription drug
benefit.
Clearly, Republicans in the House and the Senate want to
get this done. The Democrats in the House and the Senate want
to get this done. I think we all want to do it this year, and
whether it is the third of the Medicare beneficiaries that have
no coverage, I mean, they certainly want us to do it; and
whether it is the half that maybe have inadequate, either no or
inadequate coverage, they certainly want us to do it. So there
is a huge national consensus I think to get this thing done.
The only thing that would make me pessimistic is the extent
to which partisanship creeps in. Because obviously, you have a
Republican Congress and a Democratic President, and if we do
not--if everyone gets partisan about it, the job will not get
done. The President's not going to sign a bill he does not
like, and we are not going to send him a bill that we do not
like. So it has to be bipartisan.
It seems to me that there are two ways that partisanship
creeps into this debate. The first one is the--and we have
heard it here in the course of this hearing already today. The
first is the what took you so long argument, what is taking you
so long? You do not have a bill yet. Get on the mark and get
this done.
The reality is--and I do not want to sound partisan in
this--but the fact of the matter is that the Democrats
controlled the Congress for 40 years since the birth of
Medicare and did not come up with a prescription drug benefit.
The President's been in office 7\1/2\ years, and it took him
that long to get one on the table, and it is taking us a little
while, too, because it is hard.
But the fact is that the reason it was not done sooner is
because we were in deficit spending for most of that time. And
now because of a lot of things that have gone on in this town
the several years, we have a balanced budget, we have a
surplus, we have taken Social Security off the budget, and now
we have the ability fiscally to do this, and I think that we
can do it.
Another way partisanship creeps in is we accentuate the
differences between the bills. We spend all our time saying,
well, the President's bill does this and yours does not, or
ours does this and the President's does not, and tha is what
the people hate about what happens in this town, because we
accentuate our differences instead of looking at how we can
find commonalities.
But there are more commonalities, it seems to me, than
there are differences if you look at the two plans. The fact is
that both plans are based on the reality that we have finite
resources. We would all love to just say, everyone go get free
drugs and Uncle Sam will pay for it, whatever it is, for
however much money you have. But we do not have the resources
to do that.
We have limited resources, and that is why both of us are
looking at premiums, both of us are looking at copays, both are
looking at deductibles, both are looking at some kind of
limitation or cap on the benefit, and that is because reality
dictates that.
Both the President and the Republican, or I should say the
bipartisan bill actually that we will be introducing later this
week, both want to make sure we do not disincentivize or create
disincentives to the private sector continuing to produce the
benefit. You are for that and we are for that. That is good.
Neither of us wants adverse selection. We have to have a
process that makes sure we do not have that problem. Both of us
see the value of the private sector being involved, whether it
is PBMs or whether it is insurers or both, the private sector
has to be involved, it seems to me, because the pace of change
in the prescription drug world is so fast that it would be
impossible for a bureaucracy to keep adding this drug to the
benefit and that drug to the benefit. You have to have the
private sector out there being able to move at a much quicker
pace so that seniors can benefit from these changes.
Both of us see the need for a stop-loss. You have indicated
today repeatedly that that is something that is not in the
President's plan, but you see the value of it, it is in our
plan, and we need to get there. Both of us agree that it needs
to be voluntary.
So my question is, if you were to sit down with Republican
leaders who have been most familiar with this issue tomorrow,
and you said let's get this compromise done. Let's get a hybrid
bill here between what the President has put on the table and
what Republicans and some Democrats who have joined with us
have put on the table, what would be the areas, maybe 2, 3, 4
areas where you think we would have to work the hardest? Where
are the differences that we need to compromise in order to get
to a plan that we can all happily feel good about?
Ms. DeParle. Well, I would start with whether or not there
is a defined benefit package. And we have had a lot of
discussion about that today, and I think that is very
important.
Mr. Greenwood. And I would say I think that is very
malleable to that kind of work. I think we are pretty much on
the same page there, that we want medically necessary drugs to
be available.
Ms. DeParle. And then I would also want to look at whether
the plan as I have heard it described that Congressman Burr and
others are working on relies too heavily on private insurance
plans.
I believe this needs to be a guaranteed benefit, an
entitlement. There are lots of views about that up here, too,
but that is what I believe. So I would be looking to see, is
this thing really affordable, is it really accessible? And the
question I have there--and frankly, I think it is partly--it
may be malleable, but it is partly governed by what is in the
budget resolution. I am not sure that the subsidy in the way it
is provided, the indirect subsidy, is enough to provide a
benefit package that is attractive enough to attract most
beneficiaries and therefore guarantee access and affordability.
So I would want to spend a lot of time working with you on
those issues.
Mr. Greenwood. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Barrett.
Mr. Barrett. Thank you very much, Mr. Chairman. I want to
talk about the merits of the plan that is being proposed, but
first I have to just address for a moment the comments of the
previous speaker who I think tried or implied that somehow the
Democrats, because we controlled Congress for 40 years did not
address this problem.
As you said in your statement, this was not an issue when
Medicare was created. It was not an issue in 1965. And the
reason it has become an issue in the last 5 years is because
the price of prescription drugs has gone totally through the
ceiling, and that is why people are mad about it, and that is
why it has been an issue for the last 3 or 4 years and why we
have had Democrats in Congress who have tried desperately to
try to move this issue as a national issue.
I thought perhaps one of the most telling indicators was
just the vote we had yesterday, the vote that was the
tripartisan amendment with Bernie Sanders and Republicans and
Democrats, that called for some cooperation with pharmaceutical
companies if they have benefited greatly from NIH grants. And
when we had a vote on that 4 years ago, it garnered 180 votes.
When we had the vote on it yesterday, there were over 300 votes
in favor of the same amendment. You do not need a weatherman to
tell which way the wind is blowing.
And it is clear that the American people are sending a
message through their elected representatives that this is a
problem now, and it is a much more serious problem now than it
was even 4 years ago.
Mr. Ganske. Would the gentleman yield?
Mr. Barrett. I would be happy to yield briefly.
Mr. Ganske. I agree with the gentleman that because of the
price of--the cost of drugs has gone up a lot and the volume,
the usage has gone up a lot, that it is really on the radar
screen. But I think it is also fair to say that, you know, if
you look at the record, 1965, pharmaceutical benefit was
discussed, and it has been discussed many times over the last
30 years. The predominant problem has always been, as Chairman
Rostenkowski has said, where is the money coming from for that?
Mr. Barrett. And I agree, and I would reclaim my time. I
want to get to that point now in terms of the plan that is
being proposed. And specifically, as I understand the plan, and
we have not seen the plan, is that this would rely primarily on
private insurance companies.
My question for you is, is there a market out there right
now? Is there a number of private insurance companies that are
offering prescription drug-only plans? Are companies interested
in doing that? Where is this supply going to come from?
Ms. DeParle. Well, the closest I guess experience that we
have is with Medigap. There are some Medigap plans that are
primarily there because they offer prescription drug benefits,
and the experience there has not been great; partly because I
think the benefit design is not rich enough to attract a lot of
seniors to join it. And therefore--the premiums are very high
and you do not get much for what you pay.
So I do think, as I have said several times today, that
there are some real difficulties inherent in trying to do a
plan that relies so heavily on private insurance plans. Now,
should there be Medicare HMOs offering a prescription drug
benefit? Yes. And we intend under our plan to reimburse them
for doing it. But a drug-only plan, I think the industry has
suggested, is not an attractive risk for them to assume.
Mr. Barrett. In your plan, one of the problems that some of
us have is the Medicare reimbursement rate. And there are wide
geographic disparities in this. How do you address that?
Ms. DeParle. Do you mean the Medicare+Choice plan?
Mr. Barrett. My good friend from Florida, Mr. Deutsch, who
just left, represents what those of us in other parts of the
country call the poster child of Medicare reimbursement rates,
where their Medicare reimbursement rates are much higher in
Florida than they are in Minnesota or Wisconsin.
Mr. Bilirakis. Not in all of Florida, by the way, Tom, only
South Florida.
Ms. DeParle. That is true. It is not in Mr. Bilirakis's
area. There is only, you know, I guess I was talking about
Medicare turning 35 next month, and it is appropriate therefore
to look at the history.
The history of this is that from the beginning, Medicare
reimbursement rates were supposed to be tied to what physicians
were charging or hospitals were charging in a particular area.
That is a heavy part of it. And therefore, the volume and
intensity of what is provided by doctors and hospitals is
reflected in the cost, and Medicare HMO payments under the
statute are tied to those payments. So that is why you have
such dramatic differences around the country in what the
capitation payments are.
Mr. Barrett. And I do think that at some point if the
parties are interested in working something out that there will
be some sort of compromise. But I think that what we are seeing
is in some parts of the country, you can have a generous
prescription drug benefit, and in others you can't.
Ms. DeParle. Right. And that is what I do not think is
fair. I think this is a national program, and all beneficiaries
should have access to an affordable drug benefit.
Mr. Barrett. Thank you. And I would yield back my time.
Mr. Bilirakis. Thank you, Tom. Well, Madam Administrator,
thanks so very much for your patience and for being here, and
you have been very helpful. I do not know what the future
holds, but obviously--I honestly feel that we all want a
prescription drug plan, and hopefully, if we all work together
and put partisanship aside, we will get it done. But we always
say that and then it never really happens, does it? We will do
our best. Thank you very much.
Ms. DeParle. Well, I am optimistic, and I want to thank the
committee for your serious commitment to helping beneficiaries.
Mr. Bilirakis. Thank you. The second panel, if they will
come forward, please, consists of Ms. Karen Ignagni, President
and Chief Executive Officer of American Association of Health
Plans; Mr. Craig Fuller, President and Chief Executive Officer
of the National Association of Chain Drug Stores; Mr. Charles
N. Kahn, President of the Health Insurance Association of
America; Ms. Judy Feder, Dean of Public Policy Studies,
Georgetown University; Mr. Patrick B. Donoho, Vice President of
Government Affairs and Public Policy for the Pharmaceutical
Care Management Association; Mr. Ron Pollack, Executive
Director of Families USA; and Ms. Nancy Davenport-Ennis,
Founding Executive Director, Patient Advocate Foundation of
Newport News, Virginia.
Ladies and gentlemen, your written statement as per usual
is a part of the record, and we will set the clock at 5 minutes
and ask that your oral testimony complement your written
statement.
We will start off with Ms. Ignagni.
STATEMENTS OF 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; CHARLES N. KAHN III, PRESIDENT, HEALTH
INSURANCE ASSOCIATION OF AMERICA; JUDITH FEDER, DEAN OF PUBLIC
POLICY STUDIES, GEORGETOWN UNIVERSITY; PATRICK B. DONOHO, VICE
PRESIDENT OF GOVERNMENT AFFAIRS AND PUBLIC POLICY,
PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION; RONALD F. POLLACK,
EXECUTIVE DIRECTOR, FAMILIES USA; AND NANCY DAVENPORT-ENNIS,
FOUNDING EXECUTIVE DIRECTOR, PATIENT ADVOCATE FOUNDATION
Ms. Ignagni. Thank you, Mr. Chairman, members of the
committee. I would like to make four points in speaking with
you this afternoon.
First, our members support creating a drug benefit for
Medicare beneficiaries. It is a long overdue matter that this
Congress can and should confront, in our view.
Making prescription drug coverage available is an essential
part of the effort to bring the 1965 program in sync with the
benefits programs of today. In fact, a linchpin of effective
disease management strategies is actually the presence of
prescription drugs, and many physicians report around the
country that they have barriers to prescribing the right and
most appropriate procedures for beneficiaries because of the
absence of prescription drugs in this population.
No. 2, in our view, an essential part of ensuring that
seniors have access to affordable prescriptions will be to
build on what works. To that end, we have been encouraged both
this morning, in the Ways and Means committee discussions
yesterday, and indeed in the public dialog, that choice is a
key principle within so many proposals.
And second, there is a growing recognition about the need
to preserve what exists as a building block for taking the next
step.
No. 3. Medicare+Choice is already providing drug coverage
to millions of beneficiaries who otherwise would not have
access. However, in a little over 3 weeks, our plans face a
deadline to let HCFA know whether they are going to be able to
continue to participate in the Medicare+Choice program. We have
seen pullouts, we have seen plans being forced out because of
the unintended consequences of the Balanced Budget Act, which
this committee has spent a great deal of time on, as well as
the sheer number of regulations and instability and
unpredictability within the regulatory environment.
Now to her credit, the Administrator DeParle has recognized
many of these problems as well and has already embarked on a
strategy designed to deal with some of the unpredictability,
but more needs to be done.
You have it in your power to stabilize this program, and we
urge you to act now to preserve the program that has in fact
served so many low- and moderate-income beneficiaries who have
nowhere else to turn for protection from high out-of-pocket
costs in the traditional Medicare benefit, catastrophic
benefits, and prescription drugs.
Also I would like to comment, Mr. Chairman. There's been
some discussion this morning about rural areas and whether
managed care is interested in being in rural areas, and I would
suggest to the committee that plan decisions are very much
influenced by the willingness of single hospital-based systems
in rural areas that in fact contract with our plans.
Finally, No. 4, in testimony we have offered principles for
your consideration in designing prescription drug coverage.
These principles are embedded in many of the proposals being
discussed today, beginning with the concept of universality,
which is that all beneficiaries should be eligible to
participate in this benefit. We believe that that is common to
both proposals as we have heard them discussed.
Subsidies for low-income beneficiaries. That seems to be
common to both proposals.
Sustained funding is a challenge for all proposals in this
area, as it would be for any new benefit, and options and
flexibility. You are having a great deal of discussion about
that. We commend you for that.
And finally, a floor package of benefits, which we
understand the concept of a floor is common to both.
In conclusion, Mr. Chairman, we stand ready to work with
you to contribute to the committee's efforts, and we support
the objective which we know all of you share of providing this
important benefit and this important population with affordable
prescription drug coverage. Thank you.
[The prepared statement of Karen Ignagni follows:]
Prepared Statement of Karen Ignagni, President and CEO, 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 bears 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 national
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 so eloquently been called the ``Greatest 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 program 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 key 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 the 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' satisfaction with the program was further
demonstrated last month, when more 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 meeting 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 to 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
exit 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 intent 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 drug 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 drug 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' 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 other 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 consequence 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 do 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. Bilirakis. Thank you, Karen. Mr. Fuller. And nice to
see you, sir.
STATEMENT OF CRAIG L. FULLER
Mr. Fuller. Thank you, Mr. Chairman, and members of the
committee. It is a pleasure to be here. I have submitted a
statement which you have for the record, and maybe during the
questioning we can address some of the issues there.
I thought that I might reflect a little bit on some of the
comments that were made by the members in their opening
statements as well as some of the questions, because there was
much that we agreed with and many very fine questions raised.
I represent 150 chain pharmacy companies, 32,000
pharmacies. And for many of the seniors that are without drug
coverage today, I sense something of a train wreck coming. I
fear that with thoughtful deliberation which you are having
today and in other places of the Congress--most of us spent 8
hours yesterday at Ways and Means. We are prepared to--and
happily we would spend 8 hours with you today to advance this.
Some of us would.
Because it is--and it is a serious issue. But at the end of
the day, if nothing passes this Congress, there are hundreds of
thousands of Americans who will go into those 32,000 pharmacies
today, they are going to continue for years to face the same
problem.
We worried about this some months ago. And as a result, we
at the National Association of Chain Drug Stores considered an
approach slightly different than what has been talked about
during much of the day, but it relates to some of the issues
that have been raised.
Because if you take the 39 million people on Medicare and
you take out the 70 percent that have some prescription drug
coverage now and you look then, as we have done, at the
individuals that are 200 percent of the poverty line and below,
you could provide coverage for them through the States with a
grant of $30 billion at the Federal level, supplemented by the
States, or you can put $41 billion out there to the States and
cover it all. You might have a copayment at the State level.
You would not have a cap. You would not have a premium.
You could put it into effect fairly quickly, because
somewhere--Chip and I are close. We say 15 and he says 19. We
are approaching 20 States that already offer benefits to
seniors. And you could do it this year. And you could provide
them with the coverage very quickly, so that with all the fine
deliberation that is going on, you would give yourselves next
year with the Congress and a new administration a chance to
really tackle major Medicare reform, which we are all for, and
I think we all believe should have prescription drug benefit.
Mr. Bilirakis. So you would do that outside of the scope of
Medicare?
Mr. Fuller. Pardon me?
Mr. Bilirakis. Your suggestion would be outside of the
scope of Medicare?
Mr. Fuller. It would be provided by the States outside of
HCFA and--yes. Yes, sir. And in fact, it would be similar to a
State-based approach, sir, that you have offered as H.R. 2925
and----
Mr. Bilirakis. That is just coincidental.
Mr. Fuller. It is coincidental. But we find much to
recommend it.
My statement says, and we have really applied three tests
to our plan and to others. We say, look, first of all, there
needs to be a sense of urgency about this. I have addressed
that. It needs to be enacted this year.
Second, it needs to recognize and it ought to enhance
patient care and patient outcomes. After all, at the end of the
day what we want to make sure of is that seniors are getting
the kind of care they need.
You raised, Mr. Chairman, in your opening remarks the
comments about the role of pharmacy. I have great respect for
insurance companies. I have great respect for pharmacy benefit
managers. But frankly, it is pharmacists that manage health
care for patients, working with their doctors. And if we turn
the program over or hope to turn some of these programs over to
institutions that do not recognize the role of the pharmacist--
I am not suggesting insurance companies do not recognize it--
but if we do not recognize the role of pharmacists, clearly,
the kind of problem that Mr. Stupak mentioned where a patient
buys a prescription for $100, whether he agrees or disagrees
with the price, for a drug that has to be used properly or it
is not worth anything, we are going to see a further erosion of
the quality of patient care.
So part of our plan and part of our SeniorRx Gold plan,
would specify the kind of pharmacy services that should be
covered.
And finally, and I will close with this third test--third
question is, a fair return for community pharmacy. You know, 10
years ago, 75 percent of people purchased their prescriptions
at retail. Utilization is increased, the quality of
pharmaceutical medication has dramatically increased. They are
of tremendous benefits to people. Certainly the cost has
increased. But so has the whole process by which--the process
has evolved by which we pay for this medication. So that today
most of the chains that I represent, 90 percent of the
prescriptions are paid for by a third party plan, usually
involving a PBM, which has driven down the price.
A CBO study, which I can provide you with, shows most of
the costs are driven out by attacking costs at the pharmacy
level. But at pharmacy, the margin is about 2 percent or less.
So you are not going to find much more savings there. And you
are in fact making it more and more difficult for community
pharmacy to provide the kinds of services they should be able
to provide. Perhaps I can discuss that more in some of the
questions.
Thank you for the this opportunity.
[The prepared statement of Craig L. Fuller follows:]
Prepared Statement of Craig L. Fuller, President and Chief Executive
Officer, National Association of Chain Drug Stores
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 SenioRx Gold. 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.
Mr. Chairman, you offered a similar state-based approach to
providing prescription drug coverage to low-income seniors in H.R.
2925, ``The Medicare Beneficiary Prescription Drug Assistance and Stop
Loss Protection Act'', which has bipartisan support. We applaud your
efforts in this regard, and believe that, at the end of the day, this
approach makes the most sense this year.
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. 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.
While 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 CBO study said:
``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 prescription prices. Only 2 to 21 percent of the savings
resulted from manufacturer rebates 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 SenioRx Gold. 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. Bilirakis. Thank you, Mr. Fuller. Mr. Kahn.
STATEMENT OF CHARLES N. KAHN III
Ms. Kahn. Thank you, Mr. Chairman. As you know, Mr.
Chairman, over a decade ago, I worked long and hard on the last
attempt by the Congress to develop a drug benefit for seniors
in Medicare Catastrophic. Later I staffed the members who led
the effort to repeal that law also. So I have a deep and
personal understanding of how truly difficult it is to develop
a Federal policy to assist seniors in purchasing drugs.
If nothing else, as has been pointed out today, I think it
is critically important that seniors have full confidence from
the get go in whatever policy you develop and that they
understand there will be cost sharing and that cost sharing is
bound to be acceptable to them before you enact anything.
This and other lessons of that Medicare Catastrophic debate
are important to draw upon as the committee examines this
complex issue.
I also assisted in the development of Medicare+Choice, and
share the subcommittee's concerns about the future of that
program. I believe that the future of market-oriented
approaches to preserving Medicare depends on keeping
Medicare+Choice viable.
Mr. Chairman, I believe there is a consensus today that
seniors need help with prescription drugs. Advances in drug
therapies have vastly improved medical care, as well as the
very health of millions of Americans. However, at the same
time, these advances come at a tremendous cost.
A study done for HIAA and the Blue Cross/Blue Shield
Association by the University of Maryland projects that the
Nation's spending for prescription drugs will increase by 15 to
18 percent annually over the next 5 years. I repeat, over the
next 5 years. This reflects more than doubling of annual drug
costs to $212 billion by 2004. These growing drug costs are
clearly putting a squeeze on our Nation's seniors.
Mr. Chairman, we all agree on the goal of helping seniors
with drugs. But as you and the subcommittee consider solutions,
I urge you to weigh carefully the consequences of the policy
alternatives. The lessons of unintended consequences were
learned well in 1988 and 1989.
I will be happy to comment specifically on the new
bipartisan drug coverage plan when the legislative details are
available. I can say, however, from my understanding of the
proposal, it appears to provide a realistic approach to
assuring seniors that coverage for drugs will be available to
them since it has a fallback.
However, HIAA continues to maintain its strong conviction
that the much discussed private-drug-only insurance insurance
option is unworkable and will not fulfill the expectations of
seniors.
In my written testimony I provided a detailed critique
which elaborates on our member companies' concerns.
Additionally, as you consider options, because of the
expensive nature of drug coverage, we are equally concerned
that simply mandating that Medicare HMOs or Medigap plans cover
outpatient prescription drugs will not serve beneficiaries
well.
Next, the bipartisan proposal recognizes that
Medicare+Choice plans are severely underpaid, and action is
necessary now to save this important option that so many
seniors depend on.
Most Medicare HMO plans now offer prescription drugs
coverage. However, sustaining this benefit will be difficult
since payment inequities and regulatory burdens are major
hurdles. Medicare+Choice 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.
Finally, the proposal for a new Medicare Board to replace
HCFA has great potential. Our experience indicates that HCFA
has had great difficulties implementing the Medicare+Choice
program, and 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 either exit all or part of the Medicare program. I urge you
to review the Fried report and consider his recommendations.
In conclusion, I would like to reiterate the point that if
the 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 very much, Mr. Chairman. I will be happy to
answer any questions the subcommittee may have.
[The prepared statement of Charles N. Kahn III follows:]
Prepared Statement of Charles N. Kahn III, President, Health Insurance
Association of America
introduction
Chairman Bilirakis, 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 as a staff member
for both the United States Senate and the House of Representatives. I
was involved in the last 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 on the subsequent repeal of that legislation. As Staff Director
to the Subcommittee on Health of the Committee on Ways and Means, I
also played a major role in the development of the Balanced Budget Act
of 1997 and the creation of the Medicare+Choice program.
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 believes 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 state 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 10 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 4 percent of annual drug costs if
offered to beneficiaries with pharmaceutical expenses above $5,000 per
year (see Figure 3).
Figure 1
Nearly Nine Out of Ten Medicare Beneficiaries Have Annual Drug Costs
Under $2,000 \1\
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 who enrolled in a Medicare+Choice plan at
any point during the calendar year.
Figure 2
Stop-Loss for Expenses Above $2,500 Will Cover Just 16 Percent of Total
Annual Drug Spending by Medicare Beneficiaries \2\
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 who enrolled in a Medicare+Choice plan at
any point during the calendar year.
Figure 3
Stop-Loss for Expenses Above $5,000 Will Cover Just 4 Percent of Total
Annual Drug Spending by Medicare Beneficiaries \3\
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 who enrolled in a 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
nine 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.
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. Bilirakis. Thank you, Chip. Dr. Feder, we have had the
pleasure of having you here before, and it is good to see you
again. Please proceed.
STATEMENT OF JUDITH FEDER
Ms. Feder. Thank you, Mr. Chairman. Mr. Chairman,
Congressman Brown, members of the committee, it is a pleasure
to be with you this afternoon to discuss the design of a
Medicare prescription drug benefit.
In brief, it is my view first that a meaningful benefit is
sorely needed. Prescription drugs have become a fundamental
part of medical treatment. It is a travesty that prescription
drug coverage has become a standard part of insurance coverage
for the working-age population and is still not provided to the
population over age 65, who most needs the protection.
Second, it is my view that the way to provide the benefit
is to build on the success of the Medicare program, not to
pretend that a means-tested voucher or reliance on a private
insurance market can be any substitute for the financial access
and financial protection that is achieved by a universal public
program.
Let me elaborate first very briefly on the need. Despite
the widely recognized importance of drug protection, the
sources of that protection are deteriorating, not improving. In
recent years we have seen a dramatic decline in the number of
employers who are providing prescription drug coverage for
their employees. Medicare+Choice plans have restricted the
benefits they are providing, and Medigap plans have to charge
so much for their limited coverage that it is hard anymore even
to call that insurance.
In short, the sources of protection are indeed drying up.
Happily, we see less debate today than even a year ago that
the limited availability of affordable coverage is a
significant problem. But as shown this morning, we still see
significant debate about how to address that problem.
Some argue that public support is needed only by the low
income population. That argument ignores lots of evidence and
lots of experience. First it ignores that the problem of
affordability does not stop at incomes of 133 or 150 percent of
poverty. An individual with $15,000, $16,000 or $17,000 is no
better able to afford insurance coverage than an individual at
$12,000 or $13,000. And for people with these incomes, even
relatively modest expenses on drugs can be catastrophic.
Second, it ignores that means-tested programs, in the words
of Congressman Waxman, tend to be mean programs. They tend to
pose barriers to participation rather than promoting ready
access. They are likely to offer lower quality care. Think for
a minute whether Members of Congress would like to be in the
lowest cost plan. And as compared with programs that bring
together all people of all incomes as Medicare does, they are
likely to be vulnerable to inadequate political and financial
support.
Some also argue that the appropriate vehicle for coverage
is a private insurance market, again ignoring lots of evidence
and experience. The Medigap and the Medicare+Choice markets
show us that competition does not provide beneficiaries service
and efficiency they can count on.
On the contrary, competition creates tremendous uncertainty
as to what plan or what benefits will be available to
beneficiaries at any given time. And competition tends to
divide the healthy from the sick and the modest income from the
better off as plans compete to get good risks and avoid those
in need of service.
It is disconcerting at best that even when insurers
themselves acknowledge that they are not the ones to count on
for stable, affordable coverage, that some nevertheless
continue to insist that they can do the job.
Today's arguments about means testing and private insurance
and even about the destruction of industry of the private
sector are remarkably similar to the arguments that were made
prior to enactment of Medicare in 1965. We rejected those
arguments as a Nation in 1965. It is time to reject them again.
Contrary to what some would have us believe, Medicare is an
enormously successful program. It is time to incorporate
prescription drug coverage that ought to be there within it
according to Medicare's principles.
In brief, the drug benefit must be designed to provide, not
just claim, that it is a universal entitlement for all Medicare
beneficiaries. That----
Mr. Bilirakis. Please summarize, if you will, Doctor.
Ms. Feder. Absolutely. It must be affordable for all
beneficiaries, which means subsidies must grow across the
income spectrum so that we have universal participation to
match universal entitlement, and the benefit must be defined,
specific, and uniform for everyone, because we cannot have an
entitlement unless beneficiaries know what they are entitled
to.
In sum, the evidence and experience makes clear that the
right thing to do is to incorporate a prescription drug
coverage into Medicare, not to invent or create an alternative
that is doomed to failure.
Thank you, Mr. Chairman.
[The prepared statement of Judith Feder follows:]
Prepared Statement of Judith Feder, Professor and Dean of Policy
Studies, Georgetown University
Chairman Bilirakis, Congressman Brown, distinguished Subcommittee
members, thank you for inviting me to discuss my views on the design
for a long overdue Medicare drug benefit. While there seems to be
increasing agreement in Congress about the need to provide a Medicare
drug benefit, there is less consensus about the benefit design required
to ensure access to needed medications by beneficiaries. I would like
to take this opportunity to explain why a Medicare drug benefit is
necessary and outline the principles that I believe are essential to
keep in mind as the legislative process unfolds.
Increasingly, advances in medical treatment take the form of new
prescription drugs which improve health outcomes, replace surgical
treatments and provide therapies for conditions that were once
untreatable. Medicare beneficiaries use prescription drugs at a rate
that far exceeds the non-Medicare population but they are much less apt
to have drug coverage than the general insured population. More than
one observer has noted the similarities between the current state of
drug coverage for the Medicare population and the inadequate health
insurance available to the elderly before the passage of the program.
Thirty-five years ago, many of the elderly were denied the benefits of
medical advances, represented then primarily through technological
breakthroughs in hospital care, because of lack of insurance. While
about one half of the population over the age of 65 had some form of
hospital insurance, the rest either could not afford insurance or did
not have access to it. Despite arguments against a government program
supplanting the private market, a bipartisan majority in Congress
recognized that private insurance could not ensure that all
beneficiaries would have access to the advances of modern medicine.
As was the case with hospital insurance in 1965, Medicare
beneficiaries currently receive drug coverage through a patchwork of
public and private programs. In the 1990s, many beneficiaries sought
drug coverage through access to employer-sponsored retiree benefits,
enrollment in Medicare managed care offered by private plans, and
purchase of individual supplemental Medigap policies. Experience has
shown that much of this coverage has been either unreliable,
unavailable or unaffordable, and sometimes all three.
While retiree health benefits typically provide a generous
drug benefit, access to this coverage depends upon whether the
individual's former employer chooses to provide retiree
coverage. Those who worked in small firms or live in rural
areas are less likely to receive these benefits. Further, all
recent surveys indicate that this coverage is eroding. For
example, the 1999 Kaiser Family Foundation and Health Research
and Educational Trust (HRET) survey recorded a decline in large
firms offering retiree benefits from 40 percent in 1993 to 28
percent in 1999.
Medicare+Choice plans, which had been a source of increasing
coverage in the mid-1990s, have cut back on their drug benefits
in the past few years. For example, 70 percent of these plans
now cap drug benefits at $1000 or less. Here in the District,
one plan limits coverage for brand name drugs to $400 per year;
another in suburban Maryland sets a $300 cap on coverage for
all drugs. Depending upon the particular condition of the
beneficiary, that limit might cover the cost of only two
prescriptions for the entire year. Further, decisions by
private plans to pull out of the Medicare program in the last
few years have left beneficiaries uncertain of whether their
benefits will be there when they need them.
Lastly, some beneficiaries obtain drug coverage through the
purchase of supplemental Medigap policies. Yet, Medigap
policies with drug coverage are expensive, unavailable, and
inadequate. In many cases, policies with drug benefits are
subject to medical underwriting and not available for all. In
other cases, premiums are far higher than the total value of
the drug benefit. The high cost of these policies has sharply
limited their appeal. A recent analysis of 1998 NAIC data shows
that fewer than 2 million beneficiaries have drug coverage
through standardized Medigap plans.
There are many similarities between the current debate over a
prescription drug benefit and the earlier debate over the enactment of
the Medicare program itself. In 1965, some policymakers believed that
gaps in insurance coverage could be filled by providing medical
coverage to the low-income elderly. This argument is often heard today.
Yet even with modest subsidies for individuals with incomes above 150
percent of poverty (as low as $13,000), a beneficiary would be forced
to pay substantial premiums for a private plan or do without coverage.
Since it is unlikely that many low to middle income beneficiaries could
afford unsubsidized premiums, they would be forced to do without
coverage despite the existence of a nominal Medicare drug benefit. In
addition, the type of coverage available in a means-tested program is
likely to be both more vulnerable and of lower quality.
We rejected a means-tested model in 1965 and we should reject it
now.
In 1965, Congress rejected the notion that the private insurance
market could be counted upon to ensure health insurance coverage for
the elderly. However, we continued to rely upon supplemental private
coverage to fill in the gaps in benefits not covered by Medicare. Yet
failures in the individual Medigap market make it clear that this is
not a realistic expectation as far as drug coverage is concerned.
Consumer Reports shows premiums for a 65 year old woman to purchase
Plan I, which covers 50 percent of drug costs up to a cap of $1250
after a $250 deductible, that range from $2049 to $4358 in Florida. In
most states, premiums rise with age. Thus, for a 75-year old woman in
Florida the premium rises as high as $4850. The cost of the premium
ensures adverse selection as only those with a strong likelihood of
high drug expenses will purchase these policies. An adverse selection
cycle leads to a spiraling of premium costs. As a result, many firms do
not offer Medigap policies with drug coverage at all. For example,
MedPAC reports that in New York 14 carriers offer Plan A but only one
offers Plan J, the policy with the most generous drug benefit. Even
with a modest subsidy, these policies are unlikely to be made
affordable. Given the problems of adverse selection and high premium
costs, it is not surprising that HIAA reports little enthusiasm for a
stand alone drug policy among its member companies. They were quoted
again this week saying they were unaware of any members that would
offer coverage in response to the anticipated Republican proposal.
We recognized that private insurance could not fill the coverage
gap in 1965 and we should reject that model now.
I would argue that three principles must be maintained as a drug
proposal goes through the legislative process.
The drug benefit must be designed as a universal entitlement
for all Medicare beneficiaries. Since the program's inception,
all Medicare-covered benefits have been available to all
eligible beneficiaries, subject only to medical requirements.
This guarantee goes to the heart of the social insurance model
that has made Medicare one of the most successful and popular
programs in the history of this country. As a result of the
Congressional decision to create a universal entitlement,
seniors went from being among the least likely Americans to
have health insurance to the most insured segment of the
population with 97 percent of seniors covered by Medicare. Not
coincidentally, the average life expectancy for a 65 year old
woman has increased by almost 20 percent since 1960.
The drug benefit must be affordable for all beneficiaries. No
one would deny that low income beneficiaries are in great need
of help affording the cost of medications. However, both the
cost and critical importance of new breakthrough medications
has created a problem for all beneficiaries without access to
prescription drug coverage. More than half of all beneficiaries
without coverage have incomes about 150 percent of poverty and
one-fourth have incomes above 400 percent. It is entirely
unreasonable to assume that a widow with an income of $15,000
per year could afford to purchase private drug coverage even if
that coverage was offered to her. This problem would only
increase over time as premiums surged because of the same cycle
of adverse selection that currently affects the Medigap market.
Beneficiaries in all areas of the country, rural and urban,
healthy and ill, must have secure access to a standard benefit.
As long as it is left to the private market to design
actuarially equivalent benefits, beneficiaries will be forced
to navigate their way through a confusing morass of differing
benefit limits, deductibles, copays, formularies, and pharmacy
networks. The potential for benefits designed to facilitate
cherry-picking of healthy beneficiaries will be great. Access
to coverage will continue to depend upon where an individual
lives and what her medical condition is. In addition, insurers
might offer low option coverage that would erect barriers to
beneficiaries receiving the innovative medical treatments that
they required. Paper drug coverage might turn out to be less
than adequate when an individual most needed it.
Drugs are expensive no matter who buys them. Seniors cannot bear
this cost alone. The increased use of prescription drugs by all of us
but particularly seniors, and the rising cost of new therapies makes
cost containment concerns inevitable. We must use the best tools
available to us to control costs and recognize that we will learn more
as we go along. In sum, Mr. Chairman, Medicare has been a successful
program for 35 years. It is time that we built upon this system that we
know works to fill the critical gap in coverage that still exists so
that we, as a society, have ensured that the benefits of pharmaceutical
advances are available to all who need them.
Mr. Bilirakis. Thank you. Mr. Donoho.
STATEMENT OF PATRICK B. DONOHO
Mr. Donoho. Mr. Chairman and Mr. Brown, members of the
committee, my name is Patrick Donoho. I am Vice President of
Government Affairs and Public Policy for the Pharmaceutical
Care Management Association.
PCMA represents managed care pharmacies and organizations
who a substantial part of their business is managing pharmacy
benefits. We are the PBM industry.
I am pleased to provide you some of our outlooks on views
on providing the prescription drug coverage under Medicare.
Our members currently provide care for over 10 million
Medicare beneficiaries through employee retirement plans and
Medicare+Choice plans.
Collectively they cover benefits for over 150 million
Americans. We are pleased that many of the pending proposals
recognize that it would be more efficient to use existing drug
benefit managers in an expanded Medicare drug benefit program
than to attempt to re-create these capabilities in HCFA.
Let me give you our six basic principles that we think
would make a successful program.
First, the benefit should be delivered in a manner that
enhances the health of seniors and the disabled. It is
essential that the program not simply help pay for drug costs
but also protect the health of seniors. Some drugs are
inappropriate for use among the elderly; others are used at
different dosing levels 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 1990 for Medicaid recipients and presently in virtually
all third-party programs.
Second, legislation should provide the benefit through the
private sector. Competition among private sector PBMs delivers
significant cost savings and has spurred innovation in the use
of advanced technology for administering those benefits.
A new drug benefit should embrace and promote competition
among these entities and ensure the vitality of innovation
through competition.
We had a slight discussion yesterday in Ways and Means and
repeated it here today about rural coverage. Many of the plans
in the private sector today mandate that you have rural
coverage, and I think there are 52,000 pharmacies in the United
States, and we have to ensure that we have coverage for the
people in the plans that we administer.
Third, the legislations should retain flexibility and cost
controls within the private sector. Prescription drug coverage
for Medicare enrollees must permit pharmacy benefits managers
to continue such programs as pharmacy network management,
formulary development and management, mail service pharmacies,
disease management, prescription compliance and adherence
programs, utilization review, and provider profiling for
adherence to best medical practices.
Fourth, legislation should encourage the continuation of
current prescription benefit plans. A prescription drug benefit
plan for seniors should contain some incentives for employers
to continue to provide prescription drug coverage to their
current retirees.
Fifth, a plan should be designed to protect beneficiaries
against catastrophic liability.
And sixth, the goal of an agency overseeing the
administration of a prescription benefit should be to foster
innovation and competition. The legislation should not freeze
in time the management techniques used today by PBMs.
In examining the various proposals that have been announced
or introduced, we see much commonality. In particular, most
proposals appropriately focus on PBMs, encouraging or mandating
use of the latest tools to improve health outcomes and to
eliminate medical and medication errors.
Where proposals differ is on whether we as PBMs will have
the flexibility to use our tools in the management of the
benefit. Any legislation that does not empower us as PBMs to
negotiate discounts in the pricing concessions from drug
manufacturers and pharmacies, as we do today in private plans,
will not be able to deliver on the anticipated cost savings.
We share the concerns expressed by the Congressional Budget
Office and the General Accounting Office that 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 the
proposals that HCFA is unlikely to favor competition over
regulation. Therefore, we are pleased to see that some
legislation envisions new structures for administering a
Medicare drug benefit.
I am willing to answer questions hereafter and am willing
to help you craft a bill. Thank you.
[The prepared statement of Patrick B. Donoho follows:]
Prepared Statement of Patrick B. Donoho, Pharmaceutical Care Management
Association
Mr. Chairman, Mr. Dingell, 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 of
areas which may be restricted by a program that is less private sector
are examples 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. Bilirakis. Thank you for that, Mr. Donoho. Mr. Pollack.
STATEMENT OF RONALD F. POLLACK
Mr. Pollack. Mr. Chairman, thank you very much for inviting
us to lunch. I appreciate it.
In my testimony, I focused on the need for a prescription
drug benefit and for moderating prices. Here I would like to
focus on the legislation that we have been talking about this
morning, mainly because there appears to be a rush to mark up
this legislation, and notwithstanding the fact that this is
still a work in progress, I think we know enough to say there's
reason for abundant caution.
Clearly, the proposal looks much better from a distance
than it does closer up. Let me suggest to you five areas that I
would like to see us look more carefully at.
First is the question about the reliance on the private
insurance industry to provide this policy. We have had ample
discussion about this this morning. We know that the industry,
notwithstanding the fact that it has been offered very
significant subsidies, has balked at offering this coverage
through its own private plans.
But we do not need merely the protestations of the industry
to tell us that we have to look at this with abundant caution.
We have experience with the Medigap program which for many
years has been offering a prescription drug benefit. And I
would suggest if I may, if you look on Appendix 2 that is
appended to my testimony, one of the things we looked at were
the differences in prices that people experienced for very
comparable policies, one that provides prescription drug
coverage, and another that does not.
Now what we find first of all is that only 8 percent of
America's seniors in the Medicare program have opted into a
Medigap plan that provides prescription drug coverage. This is
a mature product, and yet only 8 percent of America's seniors
have opted into it.
If you look at the comparison between Plan F and Plan J
under Medigap, with J being the one that provides a
prescription drug benefit, you will see on average the price
differential is over $1,700. It gives you good reason why it is
unlikely that the industry is going to be able to develop a
plan that is going to be usable.
And if I can accentuate one thing, it is the second point.
That is, that I do not think that seniors are going to get good
value for their premium dollar under this proposal. There are
three reasons for that. One reason Mr. Ganske has already
explained, and that relates to adverse selection. I would be
happy to discuss what I think is a real comparison between the
potential adverse selection problems in the administration's
proposal and this one. I think there is a major difference. But
obviously there is a significant adverse selection problem.
But there are two other concerns. And that is that Medigap
plans use about 35 percent of the premium dollar on items that
have nothing to do with claims benefits, whether it includes
agent's fees, advertising and marketing, profits and
administration, it is considerably more expensive than it is
under the Medicare program, and that means less value is
provided.
But perhaps the most important reason really goes to the
question as to why the pharmaceutical industry, sight unseen,
is giving us full-page advertisements telling us why they
support legislation that has not even been crafted into
language. And I think the reason is very obvious. The
pharmaceutical industry knows that if we establish private
insurance policies, we are not going to have the same kind of
marketing power that exists in the Medicare program. We will
have very vulcanized bargaining power when you have various
insurance companies negotiating for seniors as opposed to the
Medicare program that can really bring clout to the table. And
frankly, that is the bottom line difference between this bill
and the administration's bill.
Under this bill, there would not be that bargaining power
to rein in the prices, and as a result, senior citizens would
not get the value that they would receive under Medicare.
Third, it is really absurd to now pull at the thread of the
genius of the Medicare program, which is a program that brings
people together irrespective of their age, irrespective of
their health condition, and irrespective of their income. And
now we want to in effect provide a means-tested benefit.
Now I do not want to take second seat to anyone in saying I
support a special care for the poor. But as Judy Feder
indicated, we are talking about a very miserly standard here.
When we are talking about 150 percent of the Federal poverty
level, we are talking about $12,525 a year in income for a
widow.
And if I may just refer you to Appendix 8 in the testimony,
let's take a look at what the costs are for that widow and what
a bite out of her income it will take when she has just minor
health conditions.
If she has a problem with diabetes, hypertension and
cholesterol, she is going to take Glucophage, Procardia XL, and
Lipitor 10, and that is going to cost her as much as $2,295 a
year. That comprises over 18 percent of her income. One out of
every $6 of her total income just for those three pills, and we
are saying we are not going to provide benefits for people at
that income level.
Mr. Bilirakis. Mr. Pollack, your time has long expired. If
you could summarize within just a few seconds, I would
appreciate it. You know, you will probably have an opportunity
to make these points, which are very good ones, during the
inquiry section.
Mr. Pollack. Well I guess the last point I would make, very
shortly, is the question about this fallback. What is this
fallback? Is this fallback in effect going to be a public
program for those portions of the population that the industry
does not wish to serve?
If it does, we are going to have wonderful segmentation. We
are in effect inviting the insurance industry to provide
coverage for those people who are the easiest to cover. The
least sick, the youngest, and those portions of the geography
of our country that they think they can make a profit in. And
of course then perhaps the Medicare program would wind up
holding the bag for all the rest. I fear that years from now we
are going to come back and look at such a scheme----
Mr. Bilirakis. Mr. Pollack----
Mr. Pollack. [continuing] and we are going to say the
Medicare program does not function well.
[The prepared statement of Ronald F. Pollack follows:]
Prepared Statement of Ronald F. Pollack, Executive Director, Families
USA
Mister Chairman and Members of the Committee: Thank you for
inviting me to testify today. Families USA is a national non-profit
organization dedicated to protecting and improving the health care of
consumers. We have been engaged in analyzing the implications of
changes in the Medicare program on Medicare beneficiaries for some
time. Our most recent research efforts have focused on examining the
prices of prescription drugs and what impact those rising prices have
on prescription drug coverage for Medicare consumers. This testimony
will describe what we have learned about drug prices. The bottom line
is that seniors need help to buy the drugs they need. A sound public
policy will ensure that seniors gain the benefit of two basic policy
changes, Medicare coverage of prescription drugs and reasonable steps
to ensure that drug costs are moderated.
Medicare beneficiaries are the only insured population group
without prescription drug coverage. At any point, approximately 35
percent of all Medicare beneficiaries are without drug coverage. Over
the course of the year, nearly half of all Medicare beneficiaries are
without drug coverage for all or part of the year. (See Appendix 1.)
Based on recent trends, it is likely that this situation will get
worse. Among the primary sources of prescription drug coverage for
those beneficiaries who have it--Medigap, Medicare+Choice, and
employer-sponsored coverage--drug coverage is increasingly unaffordable
and unreliable.
Medigap: Individually purchased Medigap policies cover a relatively
small number of Medicare beneficiaries, roughly 3.3 million
beneficiaries (or about eight percent of all Medicare beneficiaries).
Given the additional cost of a prescription drug policy, it is
understandable why a senior living on a fixed income does not see this
as an affordable option. Looking at the average cost of Medigap
policies with and without prescription drug coverage, the cost
differential clearly illustrates why few people purchase plans with
drug coverage. Simply put, the costs of the plans with drugs are
considerably more expensive--substantially as a result of adverse
selection.
If you compare premiums for two moderate policies (of the ten
standardized plans)--plans letters E and H, where the only significant
difference in coverage is that the latter covers drugs and the fomer
does not--you will see an annual premium difference of approximately
$600. Even so the drug plan is sparse. The drug benefit under plan H
has a $250 deductible, a 50 percent copayment, and a cap of $1250--
coverage that still leads to significant out-of-pocket costs for
beneficiaries. The premium differential is considerably larger for
plans with more considerable health coverage. The difference between
Plan F (without drug coverage) and Plan J (with drug coverage) is more
than $1,700 per year. Clearly, for many, the premiums for Medigap drug
plans are unaffordable (see Appendix 2).
Medicare+Choice: Approximately 13 percent (5.2 million) Medicare
beneficiaries had some prescription drug coverage through a
Medicare+Choice plan. However, Medicare+Choice plans are an
increasingly unreliable source of prescription drug coverage for
seniors because plans covering prescription drugs are not offered
consistently across the country and the benefits they offer are being
reduced. In 2000, beneficiaries in four states (AR, IO, NE, and WV)
have no access to plans offering drug coverage. In an additional four
states (DE, LA, NM, and NC), beneficiary access to plans with drug
coverage decreased significantly.
Obviously, as health plans drop out of Medicare+Choice, the
availability of prescription drug coverage is jeopardized. For those
beneficiaries who do have access to plans with drug coverage, the value
of the drug benefit is decreasing. Between 1999 and 2000, the
proportion of plans with benefit caps of $500 increased by 50 percent.
During the same period, the number of beneficiaries living in areas
with copayments on brand name drugs averaging at least $25 more than
tripled. Recent announcements from two major Medicare+Choice plans
suggest beneficiaries will have fewer options in 2001. Cigna
Corporation recently reported it will no longer serve Medicare markets
in 11 states beginning January 2001. Aetna Inc., will also terminate
its participation as a Medicare+Choice provider in a number of markets
in January 2001.
Employer-Sponsored Retiree Coverage: Employer-sponsored retiree
coverage is declining, leaving more Medicare beneficiaries on their own
to purchase coverage or to pay for drugs out-of-pocket. Among large
firms of 1,000 or more, the percentage of large firms offering retiree
coverage dropped from 80 percent in 1991 to 67 percent in 1998. The
trend is the same across firms of all sizes. According to a recent
Mercer Foster-Higgins survey, the percentage of firms offering retiree
coverage dropped from 40 percent in 1994 to 28 percent in 1999. Thus,
employer-sponsored retiree coverage--which has been the most
significant pathway to drug coverage for seniors--is diminishing
rapidly (see Appendix 3).
Rising Prices and the Impact on Seniors
Seniors without drug coverage are most affected by rising
prescription drug prices. In November 1999 Families USA released a
report looking at prices of the 50 top-selling drugs for seniors. The
report found that prices of these 50 top-selling drugs rose much faster
than inflation. In April we released an updated version of that report,
``Still Rising: Drug Price Increases for Seniors 1999-2000.'' Among the
50 top-selling drugs for seniors, there was some good news and some bad
news. The good news for the 1999-2000 period was that the prices of 12
of the 50 drugs rose slower than inflation--with nine of those not
increasing in price at all. The bad news was that 33 of the 50 drugs
rose in price at least one and one-half times inflation. Half of the
drugs rose at least twice as fast as inflation. Sixteen drugs rose at
least three times inflation and one-fifth (11) rose at least four times
the rate of inflation (see Appendix 4).
Some drugs are rising at much faster rates. For example, the price
for furosemide, a generic drug, rose 50 percent in this one year. Klor-
con 10, a brand name drug, rose 43.8 percent (see Appendix 5).
The report also compared prices over the six-year period of 1994-
2000. Thirty-nine of the 50 drugs were on the market for the full six
years. Of those 39 drugs, prices for 37 rose faster than inflation (see
Appendix 6). Prices for three-fourths (30) rose at least 1.5 times
inflation. Over half (22) rose at least twice as fast as inflation and
over a quarter (11) rose at least three times the rate of inflation.
Six drugs rose at least five times the rate of inflation. Examples of
some of the faster growing drugs include lorazepam (which rose 409
percent, or 27 times inflation) and furosimide (which rose 210 percent,
or 14 times inflation). (See Appendix 7.)
While these price increases may seem dramatic, the impact on
seniors is clear when we look at two examples:
For a widow or widower with a gastrointestinal problem, the drug
most likely to be prescribed is Prilosec. Based on 1998 data from the
Pennsylvania Pharmaceutical Assistance Contract for the Elderly (PACE)
program (the largest outpatient prescription drug program for older
Americans), Prilosec is the second highest of all the top-selling drugs
prescribed for seniors. The annual cost for a senior with no drug
coverage taking Prilosec (20 milligram, controlled release capsules) is
$1,455. For a widow or widower subsisting at 150 percent of poverty
($12,525 of income per year), the annual cost of Prilosec alone will
consume more than one in nine dollars (11.6 percent) of that senior's
total budget. Even at twice the poverty level ($16,700 per year),
Prilosec will consume almost one out of eleven dollars (8.7 percent) of
that widow's total income (see Appendix 8).
The second example is a senior with no drug coverage who has
diabetes, hypertension, and high cholesterol--three conditions that
often occur in conjunction with one another. A widow with these three
conditions is likely to be treated with Gluophage, Procardia XL, and
Lipitor. Annual costs for Gluophage (500 milligram tablets) will be
$708. Annual costs for Procardia XL will either be $521 or $901,
depending on whether 30-milligram tablets or 60-milligram tablets are
prescribed. The annual cost for Lipitor (10 milligram tablets) will be
$686 (see Appendix 9).
Thus, total annual spending for seniors with diabetes,
hypertension, and high cholesterol--for these three drugs alone--will
range from $1,915 to $2,295. For a widow subsisting at 150 percent of
poverty, this expenditure will constitute as much as 18.3 percent of
her annual income. Even at twice the poverty level, these costs will
consume up to 13.7 percent of her annual income. These costs,
therefore, are likely to cause significant economic hardships.
Clearly, affordability of prescription drugs is a problem. Coverage
for prescription drugs, for those people who have it, makes a
difference as to whether or not seniors get the drugs they need. In
1996, seniors with drug coverage obtained, on average, 21
prescriptions, while those without drug coverage received only 16
prescriptions (see Appendix 10).
Paying More For Prescription Drugs in the U.S. Than In Other Countries
It is clear that drug prices are much higher in the United States
than they are in other countries. Several months ago USA Today compared
prices in the U.S., Canada, Great Britain, and Australia for the ten
best-selling drugs. The comparison found that Prilosec was two to two-
and-one-half times as expensive in the U.S.; Prozac was two to two-and-
three-quarters as expensive; Lipitor was 50 to 92 percent more
expensive; and Prevacid was two-and-one-third to four times more
expensive. Only one drug was cheaper in the U.S. than in the other
countries, Epogen. In the case of all other ten drugs, the U.S. price
was highest, by far (see Appendix 11).
Two General Accounting Office studies from 1992 and 1994 show
similar results. Comparing prices for 121 drugs sold in the U.S. and
Canada, prices for 98 were higher in the U.S., and almost half were
more than 50 percent higher. Comparing 77 drugs sold in the U.S. and in
the United Kingdom, 86 percent of the drugs were higher in the U.S. and
more than 60 percent were more than twice as high in the U.S.
The R&D Defense is a Canard
The pharmaceutical manufacturers argue that they need these higher
prices so they can undertake research and development. They say that,
if we reduce these prices, research and development will be curtailed.
The drug industry's assertion in this respect is wildly exaggerated.
Among the top pharmaceutical companies, more money goes for marketing,
advertisement, and administration than for research and development.
More money is received in profits than is spent on research and
development. In 1999, among the five companies with the highest
revenues, four spent at least double on marketing, advertising and
administration than was spent on research and development. For example,
Merck spent considerably more than twice as much on marketing,
advertising, and administration than it did on research and
development. Comparable comparisons apply to other large pharmaceutical
companies. Indeed, for the ten companies with the highest revenues (for
which data are available), only one reports spending more on research
and development than on marketing, advertising, and administration.
Merck's profits for that year were approximately three times its
research and development budget (see Appendix 12).
For the manufacturers of the top 50 drugs sold to seniors, profit
margins are more than triple profit rates of other Fortune 500
companies. These drug manufacturers are receiving an 18 percent profit
rate of total revenues compared to approximately five percent for other
Fortune 500 companies (see Appendix 13). Given their profit margins and
advertising budgets, it is a wild and irresponsible exaggeration for
pharmaceutical companies to suggest that, if prices were moderated, the
first and only place they would cut is their research and development
budget.
The pharmaceutical manufacturers are quick to overstate the role
they play in research and development and to understate the role the
government plays in this area. According to a study conducted by MIT
and cited in the New York Times, of the 14 most medically significant
drugs developed over the past 25 years, 11 have roots in research
funded by the government. In general, much of the basic research
essential to the development of new drugs is conducted at NIH or funded
by the government. Taxol and Xalatan are examples of drugs developed
from basic research conducted by the government. These two drugs alone
now earn their manufacturers, Bristol-Myers Squibb and Pharmacia,
hundreds of millions of dollars annually (see Appendix 14).
It is amusing to see how the pharmaceutical industry has a love-
love-love-love-hate relationship with the US government. On the one
hand, the industry loves the advantages gained through NIH research,
patent protections, and laws governing re-importation. In addition, the
industry loves the multiple tax advantages it receives, including the
research and development tax credit and tax breaks for manufacturing in
Puerto Rico. On the other hand, they continue to object to any effort
by the government to moderate prices for the population most in need of
drugs, the seniors and persons with disabilities in Medicare.
The rising prices of prescription drugs in the U.S. and the
difference between what consumers pay in the U.S. compared to other
countries raises real questions about equity and fairness of the drug
industry's pricing practices. However, the best protection for
consumers against high prices is to have guaranteed coverage that uses
market clout to moderate drug prices and helps consumers pay for these
drugs.
Recommendations for Affordable Drugs for Seniors
A sound public policy will ensure that seniors gain the benefit of
two basic policy changes, Medicare coverage of prescription drugs and
reasonable steps to ensure that drug costs are moderated. The
principles for those changes include:
Coverage must be a defined benefit (both basic and
catastrophic) included in Medicare, not the promise of access
to a private insurance policy: Prescription drug coverage
should be added to the Medicare benefits package in such a way
that beneficiaries have the same guaranteed coverage for drugs
that they have today for hospital, physician and other Medicare
covered services. Public policy predicated on the availability
of private-sector drug-only insurance will be a mirage for most
seniors. Insurance companies are unlikely to provide such
coverage, and the premiums would quickly be unaffordable due to
adverse risk selection.
Prescription drug costs must be contained: A Medicare drug
benefit will not be affordable if it does not include efforts
to contain prescription drug costs. There are a number of
mechanisms that Medicare can use to contain costs but Medicare
should use its size to leverage the lowest price possible.
The Medicare benefit must be affordable to all seniors, with
special subsidies for low-income beneficiaries: The Medicare
benefit must offer coverage that is affordable, including
reasonable premiums and coinsurance requirements, and it should
include catastrophic protections. Poor and near-poor Medicare
beneficiaries should receive special assistance in paying for
their premiums and out-of-pocket expenses. Low-income
beneficiaries should have the premiums fully subsidized and
should also receive help with any coinsurance requirements.
Administration of low-income protections should be improved:
The low-income assistance component of Medicare should
eventually be integrated into the Medicare program, including
full federal funding and federal administration of this
benefit. It makes little sense to foist responsibilities of
low-income protections on the states through Medicaid.
Concerns about ``Medicare Rx 2000''
In response to the prescription drug plan unveiled by Congressman
Bill Thomas, we have a number of concerns regarding the contents of
this proposal. We believe this plan will not provide a real benefit for
seniors and it does not meet the basic principles outlined above. More
specifically, we raise the following concerns:
Medicare Rx 2000, like previous versions of this plan, relies
on private insurance offering prescription drug coverage,
something the insurers have already emphatically stated they
will not do. In fact, the president of the Health Insurance
Association of America called this idea ``an empty promise to
America's seniors.''
The plan apparently has a provision that requires the
government to step in when plans are not available. This means
that the government will try to negotiate with the plans to
make offering coverage more attractive to them. It does not
mean that the government will offer a plan. When the sponsor,
Cong. Thomas, testified that ``this is a guaranteed
entitlement,'' it remained unclear how seniors would get this
coverage and now much he proposes that the government should
pay insurance companies to induce their participation. There
appears to be no mechanism to ensure that Medicare
beneficiaries gain the benefit of the subsidies to insurance
companies.
Under this plan, consumers with incomes over $12,525 a year
must pay 100 percent of the cost of the private plan, even if
the insurance companies can be persuaded to offer it. Under
this income level there is some help for the premium of the
lowest-cost plan. There is no help for co-payments or the
deductible. The lowest-cost plan could be a lower-quality plan.
This scheme potentially creates a two-tiered system with
lowest-income people segregated into lower-quality plans.
Consumers don't know what they will to get in drug coverage.
The proposal leaves the actual benefit undefined. The plan has
an actuarial value of $740. The deductible, co-payments and
benefits will vary across the country. In some areas this
amount will buy more than in others. Administrative costs
(usually around 35% in Medigap plans as compared to 3% in
Medicare) will most likely come out of the actuarial amount.
For oversight, the proposal--ironically--creates a new federal
bureaucracy with its own budget authority. It makes
recommendations directly to Congress and the President. The
term of office is not concurrent with the administration. The
``new agency'' does not report to the secretary. This appears
to be a ``new agency'' that has office space within the
Department of HHS, but acts independently on all matters within
its charge.
In conclusion, we hope to work with members of this committee and
the rest of the Congress to make a prescription drug benefit in
Medicare a reality.
INSERT OFFSET FOLIOS 1 TO 14 HERE
Mr. Bilirakis. Mr. Pollack, I am sorry to cut you off, but
I have really got to move on.
Ms. Davenport-Ennis, please proceed.
STATEMENT OF NANCY DAVENPORT-ENNIS
Ms. Davenport-Ennis. Thank you, Chairman Bilirakis and
members of the committee for your invitation to be here this
afternoon.
I am Nancy Davenport-Ennis. I am the Executive Director of
two national organizations, one of which is the National
Patient Advocate Foundation. Our organization supports public
policy that ensures patients timely access to cutting-edge
therapies.
Our affiliate, the Patient Advocate Foundation, provides
oncology nurse case managers, coding and billing specialists,
and attorneys to both consult and intervene on behalf of
patients who have faced denial of access to care in the health
care delivery system in this country.
Based on the work of our organizations, we are pleased to
share our ideas for the design and implementation of such a
program.
Our ultimate goal is a rational and balanced prescription
drug program that will meet the needs of all seniors, including
individuals with serious and life-threatening diseases.
Because of our experience with cancer patients and perhaps
because I am a twice survivor of cancer, I am the mother-in-law
of a cancer survivor, I am the aunt of a now-deceased 34-year-
old niece who died after a 5-year battle with ovarian cancer,
and perhaps because I have the opportunity to interface with
case managers that served over 29,000 Americans last year who
were facing denial of care, many of my recommendations will be
specific to the issue of cancer protection.
I would also like to cite for the record that because I
have not had access to the bill that has been introduced, I am
here to talk about Medicare modernization and not to address
specific tenets of specific legislation.
I would like to go back to the evolution of cancer care and
cite that Medicare does pay for prescription drugs, as you
know, that are provided incident to a physician's services.
Because most current anti-cancer drugs are administered
intravenously by physicians, they are already covered by
Medicare.
Cancer patients have come to expect, and in fact to prefer
dramatically, care in the community setting. And I thank the
Congress for their role in seeing that we have been able to
maintain continuity of care in this particular area.
With regard to the future of cancer care, Medicare
currently pays only for those oral chemotherapy agents that are
a replacement for intravenous chemotherapy agents. Oral
chemotherapy drugs that are not a replacement for existing IV
drugs will be a critical part of cancer care in the future. And
cancer patients have expressed a strong desire to use these
medications.
Medicare reimbursement will play a key role in the
acceptance and proper use of these drugs. It will not be
sufficient for physicians to give a patient a prescription for
these drugs and have no further responsibility for that
patient's use of the drugs.
The payment system must recognize that these drugs will
need to be monitored more carefully than many other self-
administered drugs because of issues of side effects and
compliance; therefore, physician reimbursement for supervision
of this therapy must be adequate.
In order to prevent financial disincentives against the use
of these drugs, including the imposition of unreasonably large
copayments or coverage caps, oral chemotherapy drugs should be
incorporated in the existing Medicare drug coverage system.
Our constituents--cancer patients and others with serious
and life-threatening illnesses--will benefit from a new
prescription drug benefit only if it is administered fairly and
consistently.
In administering any benefit, it is essential that a
balance be achieved between the availability of the benefit and
the preservation of funding for the benefit.
At times it appears as though the balance struck by HCFA is
weighted more toward preservation of financing than
availability of benefits.
I base that again on the fact that we have served so many
Americans that have confronted problems with denial within the
Medicare program.
Last year alone, patients from 44 States contacted us for
help with regard to denial of Medicare benefits.
A series of agency actions, both recently and historically,
confirm our concerns about HCFA's administrative approach.
These actions include development of an outpatient
prospective payment system that would have severely limited if
not eliminated cancer care in the hospital outpatient
department.
The problems in this proposal were remedied legislatively
after an outcry from patients and others.
We are concerned about the policy for injectable drugs. And
certainly the Congress has been successful in once again making
certain that patients will continue to have access to physician
point-of-service injectable drugs.
The issue of average wholesale pricing has also been a
concern. HCFA has repeatedly sought to reduce reimbursement for
Medicare outpatient drugs, threatening a situation where
oncologists would suffer a loss of drugs administered to
Medicare patients.
Cancer patient groups have made clear their objections to
these changes unless the modifications are accompanied by
appropriate and adequate adjustments in chemotherapy
administration fees.
With regard to clinical trials coverage, the cancer patient
community celebrated a victory last Wednesday when the
President announced a policy of Medicare coverage for routine
patient care costs for those enrolled in clinical trials.
We are now quite concerned to learn that HCFA has prepared
a program memoranda implementing the President's directive that
would in fact negate the President's announcement on this fact.
Mr. Bilirakis. Please summarize, Ms. Davenport-Ennis.
Ms. Davenport-Ennis. I will be happy to. I am here this
afternoon to say to each of you, we are most willing to share
with you data that we have as a result of our patient cases
that may be beneficial to you as you design a new Medicare
program that is going to work in the area of prescription drug
benefits.
We will be happy to share the specifics of what we feel
would be important in that, and we are most happy to answer
questions from members of the panel this afternoon.
Mr. Bilirakis. Thank you, ma'am.
[The prepared statement of Nancy Davenport-Ennis follows:]
Prepared Statement of Nancy Davenport-Ennis, National Patient Advocate
Foundation
Good morning and thank you for inviting me to testify today on the
issue of modernizing Medicare drug coverage. I am Nancy Davenport-
Ennis, Executive Director of the National Patient Advocate Foundation,
or NPAF. Our organization supports public policy that ensures patients
timely access to cutting-edge therapies. Our affiliate, the Patient
Advocate Foundation, provides caseworker services to individuals who
have been denied coverage for their health care.
Through our work at NPAF and the Patient Advocate Foundation, we
have become quite familiar with the difficulties that Medicare
beneficiaries experience in reliably securing reimbursement for
potentially life-saving therapies under the current limited drug
benefit. That experience has provided valuable insights into the
appropriate structure and administration of an expanded Medicare
prescription drug benefit, and we are pleased to share our ideas for
the design and implementation of a prescription drug program.
Many--although not all--of our direct services are provided to
cancer patients, and our advocacy program focuses on cancer policy
issues. Therefore, some of my remarks will refer specifically to cancer
patients. However, our recommendations have relevance for all Medicare
beneficiaries. Our ultimate goal is a rational and balanced
prescription drug program that will meet the needs of all seniors,
including individuals with serious and life-threatening diseases.
Evolution of Cancer Care
As you know, Medicare pays for prescription drugs that are provided
incident to a physician's services. Because most current anticancer
drugs are administered intravenously by physicians, they are already
covered by Medicare. This is a system that works well for cancer
patients, and we would be concerned if any new Medicare drug benefit
changed this situation.
The gradual shift of chemotherapy from the inpatient setting to the
physician's office has been aided by the introduction of certain
supportive care products and by the availability of Medicare
reimbursement. Cancer patients have come to expect, and in fact to
prefer dramatically, that their chemotherapy be administered in the
physician's office and that they recuperate from the effects of the
therapy in their own homes with the support of family and friends.
This shifting of practice from hospital to physician's office has
been cost-effective for Medicare, and it has been a humane development
for patients, who benefit not only from care in the outpatient setting,
but also from limited copayment requirements and the absence of a
benefit cap for their cancer chemotherapy. Continuity of care for
cancer patients is very important, and changes to the current
successful system of cancer care should be approached with caution.
The Future of Cancer Care
Medicare currently pays only for those oral chemotherapy agents
that are a replacement for intravenous chemotherapy agents. Oral
chemotherapy drugs that are not a replacement for existing IV drugs
will be a critical part of cancer care in the future, and cancer
patients have expressed a strong desire to use these medications.
Medicare reimbursement will play a key role in the acceptance and
proper use of these drugs.
It will not be sufficient for physicians to give a patient a
prescription for these drugs and have no further responsibility for
that patient's use of the drugs. The payment system must recognize that
these drugs will need to be monitored more carefully than many other
self-administered drugs because of issues of side effects and
compliance; therefore, physician reimbursement for supervision of this
therapy must be adequate. In order to prevent financial disincentives
against the use of these drugs, including the imposition of
unreasonably large copayments or coverage caps, oral chemotherapy drugs
should be incorporated in the existing Medicare drug coverage system.
Role of HCFA in Administering an Expanded Drug Benefit
Notwithstanding our desire to have a comprehensive program of
cancer benefits administered under Part B, we have some concerns about
the expansion of HCFA authority to administer a new program including
all drugs. Our constituents--cancer patients and others with serious
and life-threatening illnesses--will benefit from a new prescription
drug benefit only if it is administered fairly and consistently. In
administering any benefit, it is essential that a balance be achieved
between the availability of the benefit and the preservation of funding
for the benefit.
At times, it appears as though the balance struck by HCFA is
weighted more toward preservation of financing than availability of
benefits. We are mindful of the need for HCFA to be a responsible
guardian of Medicare funds, but we do not think that it should be the
highest priority of the agency. Where the balance has not been
appropriately struck, we have seen narrow coverage determinations,
resistance to introduction of new technology, and unwarranted
reimbursement denials.
A series of agency actions, both recently and historically, confirm
our concerns about HCFA's administrative approach.
Ambulatory Payment Classification System--HCFA's proposal for
an outpatient prospective payment system would have
dramatically underpaid for certain chemotherapy agents, failed
to pay for supportive therapies, and created disincentives for
the introduction of new therapies. Congress had to intercede
with revisions of the outpatient prospective payment proposal
because the original plan would have severely limited, if not
eliminated, cancer care in the hospital outpatient department.
Just as patients prefer care in the physician's 0ffice over
inpatient care, they also prefer care in the hospital
outpatient department to care as an inpatient.
Policy for Injectable Drugs--Since the inception of the
Medicare program in 1 965, reimbursement has been available for
injectable drugs based on the usual method of their
administration. In the last two years, however, HCFA has
attempted to modify that policy and eliminate reimbursement for
many injectable drugs. The agency has challenged the
expectation of Medicare beneficiaries that injectable drugs
administered in the physician's office will be reimbursed. In
1999, Congress was forced to intervene and direct HCFA to
restore its historical reimbursement policy based on the usual
method of administration of injectable drugs. The
appropriations rider that mandated that coverage is in force
only until September 30, 2000, and HCFA has already indicated
an intention to revise its coverage policy.
AWP--HCFA has repeatedly sought to reduce reimbursement for
Medicare outpatient drugs, threatening a situation where
oncologists would suffer a loss on drugs administered to
Medicare patients. This situation would not be sustainable, and
in the past Congress has directed HCFA to refrain from
implementing these reductions. Cancer patient groups have made
clear their objections to these changes, unless the
modifications are accompanied by appropriate and adequate
adjustments in chemotherapy administration fees. I have
attached the NPAF statement and copies of Cancer Leadership
Council letters on this topic.
Clinical Trials Coverage--Although the cancer patient
community recently celebrated a victory when the President
announced a policy of Medicare coverage for routine patient
care costs for those enrolled in clinical trials, this
accomplishment came only after years of delay. Cancer advocates
suggested years ago that HCFA had the authority to cover
clinical trials and proposed specifically how that might be
accomplished. After years of resisting this change, HCFA made
the modification only because of a Presidential directive. We
are still awaiting the details of the coverage announcement.
Coverage of Off-Label Drugs and New Medical Devices--Beyond
these recent issues, HCFA historically has expressed reluctance
to cover certain new or developing technologies even after they
have been fully incorporated into good medical practice. The
cancer community still chafes under the recollection of
Medicare policy during the 1980's and early 1990's, when the
program routinely denied coverage for medically accepted uses
of anticancer drugs that were different from the specific use
approved by the Food and Drug Administration. When supported by
sound clinical data, these so-called off-label uses of drugs
are standard therapy for many cancers. HCFA firmly resisted
efforts to reform its backward reimbursement policy in this
regard, until Congress finally felt compelled in the Omnibus
Budget Reconciliation Act of 1993 (OBRA '93) to take the
unusual step of mandating that HCFA follow the recommendations
of certain private review bodies with respect to the off-label
use of drugs for the treatment of cancer. In addition, Medicare
acceptance of new medical devices is notoriously slow, leaving
many approved devices unreimbursed by Medicare years after
their introduction in the private sector.
Our organization recommends that Congress, when considering its
options for administration of a Medicare prescription drug benefit,
include among those choices market-based mechanisms for procurement of
drugs for seniors.
Fundamental Principles of Prescription Drug Coverage
As advocates for individuals with cancer, we believe the issues we
have discussed above deserve serious consideration during debate on a
prescription drug plan. I would also like to discuss briefly some
additional issues of broad impact that should be weighed by Congress.
We propose a number of fundamental principles of prescription drug
coverage that are important to individuals with cancer and other
serious and life-threatening illnesses:
--Formularies--We cannot foresee any venue where a restrictive
formulary would be appropriate. Decisions regarding medical
care should be made by the patient in consultation with his or
her physician and should not be limited by a formulary.
Differences in prescription drugs that are perceived by benefit
managers to be minor may be a matter of life and death for
cancer patients. It is not adequate to have an appeals process
for access to drugs not on the formulary, because delays during
appeal may be life-threatening for some individuals.
--Pharmaceutical benefit managers--For individuals with serious and
life-threatening illnesses, care by a comprehensive health care
team is important and the involvement of a pharmaceutical
benefit management company does not facilitate such care.
--Appeals of coverage denials--The new prescription drug plan should
include procedures for the timely review of denials of
coverage, including complaints by beneficiaries, providers, and
pharmacists.
--Information and education campaign--Implementation of a new benefit
will create confusion among Medicare beneficiaries. Therefore,
a substantial educational effort is a necessary component of
the new program. While patient and provider organizations can
play a pivotal role in beneficiary and provider education, the
agency responsible for program implementation must also have a
broad-based dissemination initiative and provide funds for
private sector educational efforts.
We believe enactment of a prescription drug benefit is necessary to
ensure Medicare beneficiaries access to life-saving therapies. However,
the success of any new plan will depend significantly on a fair and
balanced approach to program implementation. In light of our experience
to date with HCFA implementation of the current benefit, we urge
Congress to evaluate a range of administrative options, including
market-based solutions, before you reach your decision.
I would be glad to answer your questions.
Mr. Bilirakis. You have been so patient sitting here all of
these hours and sharing lunch with us so I really hesitate and
hate to cutoff anyone. But you have got to have structure in
order to be able to function. So I hope you will forgive me in
that regard.
Ms. Eshoo--I am glad to see that she is still here--coined
a phrase earlier which probably said it better than any of us
could when she talked about this problem being like putting
socks on an octopus.
It says it all I think. It is just so very, very difficult
to do this right. Not just to do it, but trying to do it
correctly.
I have as much optimism as anyone and I like to think we
will get the job done and get it done this year.
We have to be practical. Will we be able to get it done
this year? Politics certainly plays a very large part in all
this. Partisanship will play a big role, as will the details of
any proposal.
So I guess I would raise the question, and Mr. Fuller
touched on it. There are people out there who are hurting. And
I know that a couple of you made comments about means testing.
For the life of me I cannot understand why, when there are a
limited amount of resources available, we cannot rightly focus
those resources for those who are more in need than others.
Mr. Fuller referred to State-based programs that are in
place already--there are approximately 20 around the country.
In fact, I understand that one of the top priorities at the
National Governors' Conference was to install a prescription
drug program in their States. Florida just recently completed
it in their legislature, and they are putting a program into
place.
If we have these programs in place, what is wrong with
complementing and supplementing those existing programs with
Federal dollars until we get it right and make a prescription
drug benefit a part of Medicare? I trust, if it is done
correctly, that these programs could help even more people,
maybe double the number of people, for example, than they take
care of presently.
And of course, if you add to that some help for those
people who maybe do not qualify as being very poor, if you add
to that the stop-loss concept for those who would not qualify
for the subsidy but at the same time have prescription drug
costs that would be out of the roof and really run them into a
hole.
So I raise that question. Very quickly. I do not have that
much time. If each of you could take maybe just a few seconds
to respond to that, I would appreciate it. Negative or
positive, whatever.
Mr. Kahn. Well, Mr. Chairman, HIAA believes that the issue
you are raising is an important one, which is we ought to do
now what can be done. And clearly, States are showing they can
very rapidly implement these programs. I mean, it has grown
from around 13 to about 19 in just a few short weeks actually.
Mr. Bilirakis. Right.
Mr. Kahn. And I think anyone at the table has got to admit
that the current pricing of drugs is Byzantine and the
complexity of adopting any kind of benefit, whether it is
private sector or public sector, that is universal is such that
it will take years.
And so we believe firmly that the best to do now would be
to help those most in need immediately. Because otherwise, it
is going to be years.
Mr. Fuller. I would just maybe supplement what I said by
saying that in the months that we have been working on this, we
have seen the American Pharmaceutical Association come on board
supporting it. They represent the Nation's pharmacists.
The American Society of Consultant Pharmacists, Food
Marketing Institute, and the National Consumers League all
signed on to the program. So we think there is growing
attraction to the State-based approach.
I would also add that we would recommend that the program
be sunsetted, so that this does not continue forever; to sunset
it in 5 years or whenever there is major Medicare reform so we
keep the pressure on.
Mr. Bilirakis. Right.
Mr. Fuller. But it is the kind of pressure in which there
can be constructive dialog.
Mr. Bilirakis. That would be a concern. You have got to
keep the pressure on, that is for sure.
Ms. Ignagni. Mr. Chairman, I think that without a doubt if
the choice is doing something or doing nothing, something is
always better than nothing.
Having said that, we have a time of tremendous prosperity
in this country, probably like no other we have seen in a very
long time.
There are two issues that remain to be addressed in health
care, and probably many, many others, but two large ones loom
over us. One is the matter of prescription drugs to update this
1965 benefit program; and the second is the matter of the
uninsured, which looms large and will undoubtedly get larger as
the economy slows.
So we would say on the part of our members that we would
like to sit with you, to sit with members of the minority, and
work together to try at this juncture to address this unique
opportunity to fulfill that promise that was made in 1965 to
beneficiaries.
Mr. Bilirakis. Dr. Feder.
Ms. Feder. I actually agree with Karen Ignagni that the
promise of Medicare of mainstream protection is no longer being
fulfilled without the prescription drug protection.
Mr. Bilirakis. Agreed. Agreed.
Ms. Feder. Good. And the barrier really is political. Sure
it is hard to do the specific design, and it takes effort, and
there is contention around it. But we are capable of agreeing
as policy analysts on a design.
The greatest underlying problem that I see in reaching
agreement is that rather than having a political consensus on
the value of the Medicare program, the Medicare program, even
its basic benefit, in addition to its administration, has been
under siege for the last 5 years.
And it seems to me that to go in a direction of very modest
means-tested benefits which we know from the outset will be
inadequate, is to walk away from what we need to do and have
the resources to do, which is to strengthen and recognize and
support the program that we know works.
Mr. Bilirakis. But in the meantime, of course, an awful lot
of needy people out there would not have----
Ms. Feder. But that is because we are not willing to act.
We can do it.
Mr. Bilirakis. Mr. Donoho.
Mr. Donoho. Mr. Chairman, I guess, you know, our
association starts with the premise that Medicare needs to be
reformed. We spent a year or more in the last couple of years
studying this issue. What we are here today about is taking a
piece of that study an enacting it for Medicare.
From what I understand, and I guess the concern I would
express, because our association has not taken a position on a
State-based plan, is that once you give it to the States as a
block grant or however you do that, how do you bring it back
under a Medicare style program?
I mean, it is just a question. And once you get a program
operating similar to Title 19 Medicaid, how do we achieve
reform and how do we come back to it in terms of Medicare
itself?
Mr. Bilirakis. Which is a question that would have to be
answered.
Mr. Pollack.
Mr. Pollack. Mr. Chairman, let me tell you that we actually
have worked with numerous States actually to establish some of
these programs.
Having said that, let me make clear what the impulse was on
the part of the States and why I do not think it is the right
direction to go in here.
The States have done this because they have thrown their
hands up, and they have said we are waiting for the Federal
Government. We cannot do anything else. We are at a position
today where we can do something much more significant.
I have three fears.
One fear is that if we move in this direction, we are not
going to keep the same sense of urgency about the real reform
that we need.
Second, these low-income programs have very poor
participation rates. If you look at things like the Qualified
Medicare Beneficiary program, the SLMBY program as well, they
have very low participation rates because they are treated very
differently than when you have a universal program.
And last, these programs do not have the opportunity of
containing costs and containing prices. And so if we do not
contain those costs and prices, that benefit quickly will be
less meaningful.
Mr. Bilirakis. Well, all right. Ms. Davenport-Ennis, very
briefly, if you can, since you are last.
Ms. Davenport-Ennis. Thank you. I would like to concur with
the remarks that Karen Ignagni made in terms of the need to
absolutely look at addressing prescription drug benefits while
we have an economy that will allow us to do that.
I think also from our experience, we must do something to
deal with the uninsured population.
I would also have to say that based on our experience in
State legislation before moving to the Federal level in that
activity, each time that we worked in a State to effect reform,
what we found was that the process was usually a slow process.
It was hit-or-miss process.
We ended up with citizens in one group of States having one
set of services and in other States having no services at all.
With regard to the Block Grant Program, we would share the
same concern that has previously been voiced, that if we get it
started at the State level, how are we ever going to get it
back?
And, as you say, Chairman Bilirakis, there are so many
people that are hurting, right now the one vehicle that we have
available to them in all States is to try to get them into an
indigent drug program either through their State or through a
pharmaceutical manufacturer.
And I can share with you, in great detail,----
Mr. Bilirakis. Please don't, please don't today.
Mr. Davenport-Ennis. No, I won't go into great detail, but
I will share with you that it is very difficult to effect
remedy for the at-risk populations that find themselves needing
this help the very most.
Mr. Bilirakis. Thanks. I asked for it and I got it.
Mr. Brown? I appreciate the committee's indulgence.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Pollack, you held up a larger, but a black and white
version of this. This was in Congress, I think in Congress
Daily today. ``Private Drug Insurance Lowers Prices 30 Percent
To 39 Percent: Shouldn't Seniors Have It?
Your point was that it segments the market not using
Medicare buying power, if you will. There is another underlying
perhaps inadvertent message, I think, that says something else.
That is, that in the background you hear the drug
companies, over and over, talking about $500 million, it costs
them $500 million to research a new drug, they have never
really provided evidence of that $500 million but that is the
number that even the media sometimes accept without really any
documentation. It has almost become part of the rap in this
town that it costs $500 million, no questions asked, even
though almost 50 percent of prescription drug research and
development is paid for by taxpayers. And that is rarely
mentioned in all this.
The drug companies go on and say, ``Any action by Congress
to reduce prices in any way would make the drug companies
unable to to this wonderful''--and it is wonderful--research
that they do.
But this ad says, ``If all seniors had access to private
market discounts, the medicine they need on average would cost
30 to 39 percent less, private prescription drug insurance is
the cure. A hundred-and-fifty-million Americans don't pay full
price for the medicines. Why should any senior?''
Are they suggesting in your mind that if senior citizens
could get a 30, 39 percent discount that they still would be
able to do all this research?
Mr. Pollack. I made that very point in testimony yesterday
in the Senate with Alan Homer, the President of the
Pharmaceutical Research and Manufacturers Association. In
effect, they seem to be saying, come at us with 30 to 39
percent discounts. It is not going to be harmful to us.
You know, the point you are making I think is amplified in
Appendix 12 to my testimony. If you look at the various
companies, you will see that they are spending considerably
more on marketing, advertising, and administration than they
are spending on research and development.
They take considerably larger amounts in profits than they
spend on research and development. If I just might give you two
illustrations:
Merck spends 2\1/2\ times as much on marketing-related
costs than it does on research and development. It receives
profits that are three times as high as what the spend on
research and development.
Eli Lilly spends 1\1/2\ times as much on marketing and
takes 1\1/2\ times as much of research and development for
profits.
Clearly, if we moderated prices, it would not hamper the
ability to undertake research and development. And the industry
seems to be admitting this with their advertisement.
Mr. Brown. Dr. Feder, if I could switch gears. The
Republicans claim that relying on the private sector would
permit flexible benefits and avoid a one-size-fits-all approach
that Medicare's traditionally successfully used.
Give us the downsides of that in a prescription drug
program.
Ms. Feder. Sure. I think that the one-size-fits-all
language is intended to be pejorative, and if we step back, No.
1, we need to step back and look at what the one size that does
fit all is being advocated, that being that we are saying that
everybody is to be entitled, every senior ought to be entitled
to a defined prescription drug benefit.
That kind of protection everybody does indeed need. So the
label itself is misleading. When they talk about flexibility, I
think that they are implying that there ought to be a variation
in benefits, a wide choice of plans, and we have heard a lot of
problems in that argument discussed this morning.
One is that the flexibility that is talked about in terms
of relying on a private market is a flexibility to serve some
areas and some people and not others.
It is a flexibility and uncertainty that has plans coming
and going from markets and changing their benefits because that
is the way the market works.
So we have heard a lot of discussion about the uncertainty
that it creates for beneficiaries.
In terms of the flexibility on benefits, it means, as we
have heard many others say this morning, and many members of
the panel say of the committee say that it creates concerns
about what people can expect, as well as a competition in the
marketplace that is designed to avoid risky patients, rather
than to really provide care efficiently.
So I would say, in all those respects and add to them the
administrative costs and the marketing costs and the lack of
knowledge that consumers will have going into a plan on what
they are really getting with formularies, for example.
That what is being called flexibility is really confusion
and fragmentation.
Mr. Bilirakis. The gentleman from Pennsylvania, Mr.
Greenwood.
Mr. Greenwood. Thank you, Mr. Chairman.
In quick response to Mr. Brown's commentary, I would agree
it would be a good idea for us to get documentation of what
exactly it costs to produce a drug, because I know I use that
$500 million per drug figure. And by virtue of this statement,
I would hope the pharmaceutical industry would provide us with
that substantiation.
I would also like some substantiation of the gentleman from
Ohio's statement that 50 percent of the profits of
pharmaceutical companies come from, are taxpayer funded because
that gets bandied around a bit too, and needs some
substantiation. So I hope you can provide the committee with
that.
Mr. Pollack, in your testimony, you say that prescription
drug coverage should be added to the Medicare benefits package
in such a way that beneficiaries have the same guaranteed
coverage for drugs that they have today for hospital physicians
and other Medicare care coverage services.
I want to understand what your proposal is. Would you
assume that the beneficiaries pay a premium for that?
Mr. Pollack. Yes, I do.
Mr. Greenwood. And would you assume that there is a co-pay?
Mr. Pollack. Probably, yes. With the probable, hopeful
exception to those of lower income who would have that
subsidized.
Mr. Greenwood. You assume that there is a deductible?
Mr. Pollack. Not necessarily. It might, might not.
Mr. Greenwood. Would you assume that there is a stop loss.
In other words, would you assume that there is a cap, I should
say. Do beneficiaries have access to whatever the costs are, if
it is $10,000, $20,000, $30,000,----
Mr. Pollack. There should be a catastrophic benefit, yes.
Mr. Greenwood. And what would that cost?
Mr. Pollack. Well, it depends on how it was designed. I am
not an actuary so I do not think I can give you that cost, and
of course it will depend very much on a variety of factors, and
so I do not know how I could give you an estimate of that
without knowing the details.
Mr. Greenwood. Well, in your testimony, you say we have
been engaged in analyzing the implications of changes of the
Medicare program and Medicare beneficiaries for some time. And
you talk about the research you do. And you have come to the
committee and made a very clear recommendation.
And I am a little surprised if you have not any idea what
your recommendation would cost because that is----
Mr. Pollack. I did not say that we are coming in with a
proposal. We said the approach should be to incorporate this
into the Medicare program. There are many ways to do it, and
those different ways are going to cost very different amounts
of money.
Mr. Ganske. Would the gentleman yield?
Mr. Greenwood. Briefly, Mr. Ganske. People would yield to
you before and lose their time.
Mr. Ganske. One additional question to your series of
questions. And that is, it sounds to me like Mr. Pollack is
saying that there should be a standard part of Medicare.
And that to me means that if it is like physician services
or other services, that it is not voluntary.
Mr. Pollack. Well, Part B is voluntary and----
Mr. Greenwood. Is to further describe the gentleman's
proposal. Would yours in fact be voluntary or would it be a
requirement that everyone that participates in Medicare pay
this premium whether they already have coverage from their
employer or not?
Mr. Pollack. I think the likelihood is that it would be
voluntary. I do not think it is feasibly probably politically
to enact a plan that was not voluntary.
Mr. Greenwood. In all due respect, Mr. Pollack, you spend a
lot more time criticizing the proposals that are on the table
than you have proposing something yourself. And continued in
all due respect, that is the easy part of this process.
The easy part of this process is knocking other people's
ideas; the hard part of the process is coming up with something
that we can afford and that makes sense, and I have not seen
that in your testimony.
Do you believe that the pharmaceutical industry ought to be
nationalized, or do you think it ought to remain in the private
sector?
Mr. Pollack. No, I think the pharmaceutical industry should
be in the private sector.
Mr. Greenwood. Okay, if you were running----
Mr. Pollack. Even, even in the private sector----
Mr. Greenwood. Okay, thank you for answering the question.
Let me just get to where I want to go here.
If you were running a private sector pharmaceutical
company, would you forego marketing, advertising and
administration and profits, or any of those?
Mr. Pollack. Of course not, and I am not saying they
should.
I am saying, however, that when the industry keeps on
asserting research and development is going to go down the
tubes if we do something to moderate prices, I suggest to you
that that is very misleading----
Mr. Greenwood. Well let me----
Mr. Pollack. [continuing] because there are much larger
pots of money, including marketing, advertising, administration
and profits that dwarf the amount of money that is spent on
research and development.
And to say that when we moderate prices, the only thing
that is going to happen is that we are going to limit research
and development is absurd.
Mr. Greenwood. Well, the reality is that if you were
running a company, whether you were making pharmaceuticals or
whether you are making widgets, you cannot survive if you do
not have marketing, and you cannot compete if your marketing
isn't robust. You cannot survive if you do not have
administration unless management's going to work for free. You
cannot survive if you do not have profits because nobody is
going to invest in your company.
So research is the one thing that then becomes dispensable
because that is the one thing that is not necessary to survive.
You can survive into the future without research, but you
cannot survive without those other costs.
Mr. Pollack. Au contraire, I do not believe that for a
moment.
First, I am not suggesting at all that we should do away
with marketing and do away with advertising, and I am not
saying there should be x-amount spent on it or y-amount on
profits. That is not the point I am making.
But what I am saying is that when the industry tells us the
only thing that is going to give is research and development,
that is plain nonsense, and it is in the industry's interest to
undertake research and development.
It does not do this merely for altruism. The reason it
undertakes research and development is it brings new products
to market for which they can make a profit.
Mr. Greenwood. Of course.
Mr. Pollack. It is in the interest of any company to do
research and development, but to say if we moderate prices,
that the only thing that is going to be harmed is research and
development, is a wild exaggeration.
Mr. Greenwood. I would love to respond but my time has
expired.
Mr. Bilirakis. I thank the gentleman.
Mr. Pallone?
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to ask Mr. Pollack a question but I, to me, I
think you have been quite clear in basically suggesting that,
you know, something like the President's proposal that is part
of the Medicare program that is universal, that you know is
affordable, that has some kind of effort to deal with the price
discrimination issue is certainly, you know, one way to go. And
that you have been concerned about, you know, this Thomas, I
call it the Thomas proposal, the Republican proposal is not
accomplishing those goals.
And what I wanted to ask Mr. Pollack is that, you know, I
try to get down to specifics and give an example if we could
maybe contrast the Thomas proposal with the President's with an
example.
And I am going to give you an example of a widow living at
150 percent of poverty who has diabetes, hypertension, high
cholesterol, no supplemental drug coverage. Drug costs for
medication to treat these illnesses consume over 18 percent of
her income.
What kind of prescription drug benefit does she need?
And, you know, keep in mind the two options, the Thomas
versus the President's.
Mr. Pollack. Well clearly the proposal we have been talking
about this morning does not provide a subsidy for that
individual. The way the plan is structured, as I understand it,
is that it provides a subsidy up to 133 percent of poverty, and
then it phases down, and it phases completely out at 150
percent.
So this widow is provided with no subsidy whatsoever. And
so she is going to have to bear the brunt of those costs.
Under the administration's proposal, there would be a
subsidy in effect for everybody and so this individual would
get assistance. There would be a significant contrast.
Mr. Pallone. I mean, I think that is the bottom line is how
this is going to apply to individuals, but thank you.
I wanted to ask Mr. Kahn, and I may have misunderstood what
you said, but let me see if I can clarify it.
You said that the private drug insurance option is
essentially unworkable, and you said how you were pleased with
Thomas having the possible fall back on a government program,
and then you talked about how Medicare+Choice needs more
dollars, particularly for drug coverage.
Are you basically saying to us that, I mean, I do not know
what this fall back is because that is been very unclear to me.
But I mean you do not really want to see the private
insurance with the fall back? Wouldn't it make more sense to
have some kind of a, you know, Medicare program along the lines
of what the President suggests to begin with rather than have
this private insurance with the fall back?
Mr. Kahn. The President's plan presumes that
Medicare+Choice will continue on into the future.
Medicare+Choice offers a comprehensive benefit. We are only
talking about a piece of that benefit when we are talking about
pharmaceuticals.
So presumably whether it's the fall back or whether it's
the President's plan, there will be money in there to subsidize
the coverage in the Medicare+Choice plan for pharmaceuticals.
Mr. Pallone. And there is in fact. But I guess what I am
trying to pinpoint is, you know, I think you were saying
clearly that the private drug insurance option is unworkable.
I mean, it does not seem to me to make sense to say, okay,
we will try that and if it does not happen, you know, we will
fall back on the government.
I mean, it would seem to me to make more sense if you
really believe that the private insurance is unworkable, is
simply do something like the President rather than hope that
somehow, you know, we are going to fall back on something that
is undefined at this point.
Mr. Kahn. Well my member companies have not chosen to
endorse any of the universal plans. That is one of the reasons,
when the chairman asked the question, I answered positively
about our member companies' feeling about helping the low
income elderly through the block grant.
But I guess my answer to you is that either the fall back
or the President's plan, if it is universal, it answers your
problem of making sure there is something for all Medicare
beneficiaries, depending on how it is structured.
Mr. Pallone. Well, let me just say this one more thing,
because I think my time is up.
In the Thomas plan, what we are told is that, you know,
there is a subsidy of like 30 to 35 percent. Do you feel that
if there was a larger subsidy that, you know, private drug
insurance options would be workable?
Is it just a question of the level of subsidy, or you just
think the idea is unworkable?
Mr. Kahn. I think the idea is unworkable. I mean, let's say
in Part B right now, you have a 75 percent subsidy and you have
98 percent compliance with a voluntary program. But it is a
universal program and also the premiums are collected, and also
the premiums are collected with your social security check.
So there is a sort of big hammer there to make sure those
premiums are collected.
I guess we have our doubts, both on the administrative
side, the risk selection side, and just the cost containment
side of providing any kind of drug-only benefit in any form,
drug-only. I need to stress that because Medicare+Choice and
comprehensive benefits are fundamentally different than a drug-
only benefit.
Mr. Pallone. Thank you.
Mr. Bilirakis. Mr. Burr to inquire.
Mr. Burr. Thank you, Mr. Chairman.
Craig, let me say to you I hope you will be happy when this
bill is finalized to read that we do understand the importance
of pharmacists, but more importantly, we have written in
language that will address the medication management/disease
management function that many druggists around the country
currently perform. And it is a very important part of the
overall health care system today.
It is going to be up to plans to determine some
reimbursement, but hopefully there is a framework that has
thought through everybody who plays a role in this.
Mr. Pollack, let me go to you, because you were very
specific on the 150 percent of poverty and that there not be a
means test. And I do not think anybody's portrayed it as one.
The President's plan cuts off at 150 percent of poverty.
Does that make you objectionable to the President's plan?
Mr. Pollack. No. What the President does----
Mr. Burr. The President's cuts off----
Mr. Pollack. No, no. No, no. What the President does is
very different than this proposal. So let's be----
Mr. Burr. Mr. Pollack, you have not read our plan.
Mr. Pollack. I have read what you have issued. You do not
have a bill.
Mr. Burr. Well, then to make a statement that you just
made,----
Mr. Pollack. Sir, I can only go by what you have released
so far.
Mr. Burr. The President subsidizes everybody's premium,
correct?
Mr. Pollack. Correct.
Mr. Burr. He has 150 percent cutoff of poverty on where
additional subsidies go.
Mr. Pollack. That is correct.
Mr. Burr. And if Ms. DeParle is correct that we use,
instead of a subsidy to the premium, we use our subsidy to buy
down the high risk, and by her statement, our subsidy might be
a little bit larger, but we go to the same 150 percent of
poverty. We are just using the subsidy not for the premium but
to buy down the high risk.
Now where is the difference?
Mr. Pollack. I think there is a significant difference.
First of all, the subsidy that is provided in effect goes
directly to the beneficiary, and so it in effect pays for 50
percent of the cost of that benefit.
Mr. Burr. Long term is more important?
Mr. Pollack. Pardon me?
Mr. Burr. Ms. DeParle said that predictability was one of
the primary objectives, and I think Ms. Davenport, you know,
she speaks for the groups that are out there, the human face
behind this issue.
Do these people want to know there is a point they could
reach in an illness in a given year and not have any financial
exposure?
Ms. Davenport-Ennis. Yes. I am delighted to answer that
question. Absolutely the patients that contact us will say
often, is there a vehicle for insurance for me that is going to
tell me how much I need to pay, how much will be my co-pay,
where will my stop loss be, what happens to me if I have cancer
or need a heart transplant and have a catastrophic event that I
need coverage for, and what is it going to cost me when I am
65, 70, and 75?
I brought with me today two stories of two Americans. One
is a woman in Nicholasville, Kentucky, 68 years old. Her total
income per month is $830. She is a widow. She has throat
cancer. She needs to take eight maintenance medications for
this cancer to keep her in remission. The total cost of that
medicine per month is $600 a month.
She does not have $600. When she called us to help, she had
been 8 months with buying two medicines a month, and each
month, she would switch to another two medicines.
And the reality was----
Mr. Burr. And the reality is that Part B probably has gone
up because of some medical need in the meantime.
Ms. Davenport-Ennis. Absolutely. And then what we did was
we assisted her in an application process to get her into what
is referred to as SLMB program through Medicaid, which she is
now paying a $45 a month premium for but she can get the
medicine and she can have the care.
Mr. Burr. Hopefully, she will have some options that might
be less than $45.
Ms. Davenport-Ennis. Absolutely.
Mr. Burr. Let me go on to one last thing for you, and that
is the issue of self-injectable drugs. I am sure that you have
watched HCFA, who had drugs that they reimbursed on, and
because technology now allowed those drugs to be self-
injectable, HCFA has determined they are no longer
reimbursable.
What comfort level would you have with that experience at
HCFA, at putting them in charge of determining the coverage
determinations of a new prescription drug benefit for 38
million Americans?
Ms. Davenport-Ennis. I think for our organization, and
perhaps we are joined I know by other professional
organizations in the country, the physicians and the nurses, we
feel that the medical decision has to be made by the physician,
by the treating physician. And if the treating physician
determines that a medication can be self-administered, is
appropriate for that patient, we still want to see a vehicle
for reimbursement for that American consumer to have.
Our experience with HCFA, as we have seen program memoranda
that have changed from State-to-State and medical director-to-
medical director, is one of inconsistency. And inconsistency is
a simple word for us to say today but it is not a simple
process to reverse when it impacts an entire State at a time
when you have to go through process to change it.
So to answer your question summarily, we would be very
troubled if we added another area of responsibility to an
agency that at this point we feel has very good intentions is
overburdened, is understaffed, and we feel the issue of
administering a prescription drug benefit program is a
complicated program that needs a fresh approach, high energy,
and complete attention to the details that will be part of that
process.
Mr. Burr. I thank you.
Mr. Chairman, let me also point out, for the purposes of
the members because I know Ms. Eshoo and others, we have worked
aggressively for a number of years to try to change a policy at
HCFA relating to immunosuppressant drugs, drugs that are needed
to be taken by every person who gets an organ transplant for
their entire life.
Medicare's policy still is that we pay for 3 years. Now we
will pay for an additional organ transplant when they reject it
because they cannot afford the continuation of the drugs. It is
ludicrous for us to believe that we can have example after
example after example and not consider a new entity to do
nothing but----
Ms. Eshoo. Would the gentleman just yield for a moment?
Mr. Burr. I have no time.
Mr. Bilirakis. The gentleman's time has expired and it is
now the gentlelady's turn.
Ms. Eshoo. It is now my time. Thank you, Mr. Chairman.
The reason I was asking you to yield was to point out that
Congress put what you just described in place as law on the
books. And that is why we are trying, as Members of Congress,
to change that. But that is not HCFA, okay?
I mean, what is fair is fair.
Mr. Burr. Regarding the injectable drugs, though, you would
agree that it was HCFA?
Ms. Eshoo. Exactly. Exactly.
Thank you to every single one of the panelists. I think
whether members agree or disagree with different parts of what
you have said, I think you are just absolutely terrific.
I think if all of the members of this subcommittee, both
sides of aisle, and all of you could stay in this room for the
next 48 or 60 hours, we would really come up with something
because we have got the expertise here in front of us. So thank
you very much.
I want to go to something that I think has been touched on
but perhaps members do not have the clearest of understanding
about, and that is the whole issue of risk.
Now there are different ideas, i.e., proposals. The Thomas
proposal, although it is not in writing, again I spent a lot of
time at Ways and Means yesterday listening, and what I believe
is the case with the Thomas proposal which will be in
legislation is that the risk is assigned to insurers.
Now to Mr. Kahn, you were saying, and I think you have
caused some people considerable heartburn, but nonetheless, you
have said, look, we will not and cannot design a vehicle
freestanding for drug-only insurance.
But the Thomas plan assumes that the risk will be assumed
at least partially by insurers.
Can anyone tell me who these insurers are, and how you
assign this risk?
And I think that it is an important question. You are
touching on some of it, and others have in different ways.
Medicare, human beings, are called beneficiaries.
So are they going to assume the risk, are we, as a Nation,
through a system going to assume the risk, or is there a
vehicle that is going to assume the risk?
Who and what is this vehicle?
So in designing a plan, members, especially of this
subcommittee because we have a huge responsibility here, or
maybe we do not, maybe it will be ripped out of the
subcommittee and just be dragged to the floor, which has
happened before too, but I mean I want to be respectful of
this.
Who can answer this question for us, not just for me, but
for us?
Does anyone want to take a stab at it? Maybe Mr. Kahn
should start.
Mr. Kahn. Well if there is a fallback, or if there is a
government, a broad program, then the risk is spread and the
taxpayers are paying part of it and the beneficiaries, through
whatever premiums you charge, are paying the other part, and
then they are paying whatever the copayment is, the cost
sharing. So that is where the risk is being spread.
Ms. Eshoo. I will just jump in. I mean, it is some
advertising for my legislation. We encourage PBMs to bring the
price down.
Now, I believe in the Thomas approach, they are required to
do that.
Mr. Kahn. You really need to separate the role of the PBMs,
they are the mediators.
Ms. Eshoo. Right.
Mr. Kahn. And they can contain the base cost and possibly
the growth over time.
Ms. Eshoo. Yes.
Mr. Kahn. I do not want to speak for them but I do not
think they are waiting here to accept 100 or even 50 percent of
the risk.
Ms. Eshoo. No, they are not. It is not the way they work.
That is not why they work well, either.
Mr. Kahn. But the dilemma here is that you have many people
who use no drugs and many people who use drugs in a very
predictable way because they have a chronic illness or because
of their situation.
Ms. Eshoo. Right.
Mr. Kahn. And so those who have a predictable use will want
to buy the coverage and those who do not will be less likely
to.
Ms. Eshoo. Um-hmm.
Mr. Kahn. So the selection is obvious. So then you have got
a product, one product, so you cannot manage across a whole
comprehensive benefit package.
Ms. Eshoo. But does everybody understand this answer,
though? I do not know if the Members do. But again, what I am
trying to do, as you are, each one of you, I guess, is to
highlight the areas that we have to be really very concerned
about.
Well, there is a vinyl wrap around this thing, and we have
got to know what the words mean. I would much rather be up
front and say, as a Nation, we are going to assign the risk
collectively to ourselves.
And most frankly, Members, if you are not willing to assign
dollars to this, then you are not for a prescription drug
benefit because you cannot do this on the skinny. You cannot be
skinflints and say we are for it. It will not work.
So I do not know if anyone else wants to--Karen, do you
want to take a stab at this risk business?
Ms. Ignagni. Thank you, Ms. Eshoo. I appreciate the
opportunity.
I am not talking about a specific proposal now. We too are
looking forward to seeing all the proposals and analyzing them.
But just in terms of the issue of risk and how you go forth,
one option that has been discussed by a number of members very
well on the panel has been the issue of government program risk
pooling.
Another way that is often adopted in the private sector and
sometimes it works well and sometimes it does not, quite
frankly, but there are opportunities I think to build on it,
which is the option of risk pooling.
So to the extent you are taking catastrophic costs and
aggregating them and trying to distribute those costs across a
broad population and subsidizing from that, that is one
strategy to think about.
Ms. Eshoo. I know what pooling, and risk-pooling, and that
is, but if we are going to design a benefit, I think the
question that needs to be answered legislatively is: who takes
on the risk?
Ms. Ignagni. Well, and I think that is one of the issues
that the committee is going to need to zero in on as you look
at details of proposals.
However, what we have seen is that there are ways to
distribute risk other than one particular approach, and I think
that that will be part of the art of crafting the right
proposal.
Ms. Eshoo. Or, you know, in cruder language, who is left
holding the bag. And so, you know, we will have a revolution in
this country if in fact there is something that is designed and
marketed to be one thing, and then turns out to be something
else. It's all going to come back on us.
Mr. Bilirakis. It would not be the first time, though,
would it?
Ms. Eshoo. Mr. Chairman, I think probably my time is up----
Mr. Bilirakis. Yes, it is.
Ms. Eshoo. [continuing] but I would ask unanimous consent
to insert these letters relative to this issue in the record.
Mr. Bilirakis. Without objection, that is the case.
Doctor Ganske to----
Ms. Eshoo. Thank you very much. And thank you to all the
panelists. I think you are terrific.
[The letters follow:]
ALZA Corporation
June 6, 2000
The Honorable Anna Eshoo
205 Cannon House Office Building
Washington, DC 20015
Dear Anna: I was delighted to hear of your newly-introduced plan
for a Medicare Drug Benefit. While some of your colleagues in the
Congress have done little more than play politics by proposing all
sorts of plans that simply can't pass and wrongly cast our industry as
the ``bad guy,'' your plan directly addresses both the needs of the
uninsured and the necessity to protect pharmaceutical research and
development.
We believe that your proposal, by relying on robust competition by
pharmaceutical benefit managers, will allow Medicare to offer a
generous and realistic drug benefit to American seniors without busting
the budget. Your proposal to use the OPM to administer parts of the
plan (rather than HCFA) takes due notice of the expertise developed by
that agency in administering the PBM-based government employee health
plans. Your innovative ``stop loss'' provision insures that seniors who
require ofttimes expensive new biotech technologies will not be left
without necessary treatments.
Finally, your explicit exclusion of government-imposed price
controls insures that our industry will continue to have the financial
resources and investment necessary to bring new and innovative
treatments to market in the future.
As with your key roles in FDA reform and passage of the
Biomaterials bill, you have once again shown an extraordinary
commitment to help our industry save lives, cure disease and end pain.
ALZA and the millions of patients we serve thank you.
Sincerely,
Ernest Mario,
Chairman and CEO, ALZA Corporation
______
Genetech, Inc.
June 7, 2000
The Honorable Anna Eshoo
U.S. House of Representatives
205 Cannon House Office Building
Washington, DC 20515
Dear Representative Eshoo: On behalf of Genentech, Inc., I am
pleased to write in support of your bill, the ``Medicare Prescription
Drug Security Act of 2000,'' which guarantees seniors much needed
coverage of outpatient prescription drugs. Genentech supports enactment
of a Medicare prescription drug benefit this year, and your proposal
creates a real opportunity for a bipartisan compromise to be reached on
this critical issue.
Specifically, we are encouraged by your proposal's competitive
approach to delivering prescription drugs to seniors. By rejecting
government price controls and relying instead on competing
pharmaceutical benefit managers to negotiate on behalf of seniors, your
plan most effectively ensures seniors access to affordable prescription
drugs while also preserving and encouraging vital investment in
biomedical research. In addition, placing administration of the new
drug benefit to the Office of Personnel Management (OPM) is an
important step forward in providing Medicare benefits to seniors
through a more competitive approach, and away from the bureaucratic
approach that has burdened seniors for decades. Finally, the stop-loss
benefit included in your proposal is critical to addressing the needs
of seniors who require treatments for often serious and life-
threatening illnesses.
Your consistent commitment to policies that encourage innovation
and the development of new lifesaving technologies has directly
benefited the lives of countless patients. We appreciate your
leadership and encourage you to continue in your effort to enacting a
Medicare prescription drug benefit for seniors this Congress.
Sincerely,
Arthur Levinson
Chairman and Chief Executive Officer
______
Pharmaceutical Care Management Association
June 6, 2000
The Honorable Anna Eshoo
United States House of Representatives
205 Cannon House Office Building
Washington, DC 20515
Dear Representative Eshoo: The Pharmaceutical Care Management
Association (PCMA) recently adopted the enclosed Medicare Prescription
Drug Policy Statement. PCMA and its members are committed to providing
quality, cost effective pharmaceutical care to the Nation's elderly.
Within the PCMA Policy Statement are the guiding principles which PCMA
and its members believe will advance pharmaceutical care for Medicare
beneficiaries, as they have for the over 150 million lives currently
receiving prescription drug benefits through PCMA members.
PCMA applauds your leadership in introducing the ``Medicare
Prescription Drug Act of 2000.'' This bill represents a major step
forward in the Congress' important deliberations on prescription drug
benefit for Medicare beneficiaries.
Your proposed bill creates a competitive system, through which drug
costs would effectively be managed without unnecessary or burdensome
regulation. This bill provides seniors with access to safe, affordable,
prescription drugs and improved pharmaceutical care by relying on
pharmacy' benefit managers (PBMs)--organizations whose proven expertise
in managing pharmaceutical care allows seniors to obtain the most drug
benefit for their money. It also promises a generous benefit that
protects beneficiaries from large out-of-pocket expenditures.
Enacting a prescription drug benefit that relies on competitive
principles is in the best interests of Medicare beneficiaries, and
should be the first order of business for this Congress. We look
forward to working with you and your staff as well as other members who
support the role of PBMs in competitive based models.
If you have any questions, please do not hesitate to contact me at
(703) 920-8480, ext. 110,
Sincerely,
Patrick B. Donoho
Vice President, Government Affairs and Public Policy
Enclosure: PCMA Medicare Prescription Drug Coverage Policy Statement
INSERT OFFSET FOLIOS 15 TO 17 HERE
Mr. Bilirakis. Dr. Ganske?
Mr. Ganske. Thank you, Mr. Chairman.
I am having a good time at this. It is much more fun to sit
in front of you than behind you at the Ways and Means hearing,
to actually face you.
I also think that there is a likelihood that this will
probably be the last time this committee looks at this issue.
It is my understanding that in Ways and Means on Monday or
sometime next week, this issue will be rammed through the
committee. Republicans will march lock-step, vote for a bill,
and it will come to the floor, and I think that that is
unfortunate on this issue.
Because there are a lot of issues in the details that we
need to know about. There have been rumors, for instance, that
there would be a provision in this bill that would allow
private employers to opt out of their current promises on
prescription drug benefits for retirees at some ``buyout.'' Who
knows what that will be? Who knows how much the taxpayer will
be taking on for that provision?
When you talk about a government fall back program, if
there are no private programs, would there be a government fall
back program if, for instance, a Medicare beneficiary did not
like either of the two private plans?
What would that government program be?
How do you compare apples to apples in terms of benefits.
We are going over a whole bunch of issues today that need to be
answered.
Ms. Ignagni and Mr. Kahn, you will be happy to know that I
am not going to ask you any questions about managed care today,
patient protection, patient protection at all.
I am not even going to ask you how much the Republican
leadership had to lean on you to mute your criticism of the,
``plans'' as has been reported in the press.
I do however want to address the essential problem which
many of you have addressed, and that is that when you look at
the current program, and you look at those Medigap policies
that do offer prescription drugs as has been so aptly described
by Mr. Pollack, because only the beneficiaries that need it
sign up for it, who have big expenses, then you end up with
very high premiums and this gets to Mr. Kahn's and Ms.
Ignagni's point about adverse risk selection.
Now you can cure that by requiring all Medicare
beneficiaries to be in the program. However, as Mr. Pollack
aptly pointed out, that is very difficult politically.
And we are really looking, I think, at a political logjam
on this.
So I want to go to then the other chart that Mr. Pollack
pointed out and that was, you know, for that widow living on
$12,500 a year, and my question ties in with the chairman's
question.
Now he proposes a block grant which would somehow go back
to the State. I propose additional funding to go into expansion
of QMBY SLMBY with a spend down.
So for instance, you could go for some specified percentage
above those programs so that if a person has additional
pharmacy expenses, they deduct that from their income, and then
they get into the programs.
And I honestly think then that if you add a prescription
drug benefit to those programs, that you will see a much
increased participation because seniors will really like it,
and that will take care of some of the objections that Mr.
Pollack has.
I think that, you know, where we are at this year, I do not
see the QMBY program as welfare. I see this as assistance to
people who are above the Medicaid program, assistance with
their premiums and assistance with their copayments.
Now you could say, well, maybe we should not do anything on
that right now because that could take some steam out of a more
comprehensive benefit later on. We see that argument frequently
with bills on the Hill.
Don't put a little benefit on there because it could
prevent overall reform. I think we are going to be facing
overall reform regardless.
But I do see that for this widow here, that would be a
significant help.
My question to you is this. Okay?
We have been talking about Medicare recipients a lot. This
is a very informed group. I think we ought to be looking at the
high cost of drugs for everyone.
If you address that issue and you help the QMBY SLMBYs,
then you are going to be helping those Medicare beneficiaries
who are above them with their prescription drug prices just as
you would be helping everyone else with their prescription drug
prices.
So my question is this:
What else can we do on this prescription drug cost problem
that would help not just Medicare beneficiaries but everyone?
Do you have any suggestions for us on this?
There are some proposals out there in Congress, as you know
about. Maybe we could start with Ms. Ignagni.
That is my question.
Ms. Ignagni. Thank you, Dr. Ganske.
I will be very quick because I am sure my colleagues want
to interact on this question as well.
I think that you have raised a very important point.
Remember, and you know well that the increase in expenditures
are, roughly, according to the researchers, one-third price,
two-thirds use.
What we have tried to do in our managed care programs is
create formularies, create a range of strategies to in fact
allocate resources as broadly as possible. And what we face in
the context of patient protection discussion is a continuous
chipping away and sometimes direct assault at many of the
strategies that we have used.
And by the way, as we look at the President's proposal, we
know he is talking about similar kinds of strategies to get
costs under control. So I think both our proposals contemplate
that.
We think we can build on that. But you really need to look
both at the use side and whether or not there is pressure to go
forward with me-too drugs when other drugs can substitute. How
do we encourage generics and how do we get our hands around
this issue without necessarily and unilaterally agreeing on one
solution that is probably going to be limiting in what can
ultimately come out of it.
So I think you are right, that this carries over to patient
protection and a number of the strategies that have been
proposed would do a very good job of continuing to get costs
under control, but it would be harder to do.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Ganske. Mr. Chairman, could we hear from the rest of
the panel on that?
Mr. Bilirakis. If the rest take that much time, we are, no,
I do not think we ought to give the rest of the panel the
opportunity.
Mr. Ganske. Are we going to have another round, Mr.
Chairman?
Mr. Bilirakis. I am not contemplating another round. We
have been here since 10 o'clock this morning.
Mr. Ganske. Could I have a yes or question or answer on----
Mr. Bilirakis. By all means if it is a yes or no question.
Mr. Ganske. A Yes or no question? Okay, here is my
question:
Should we repeal the advertising portion of the FDA reform
bill?
Mr. Kahn. Yes.
Mr. Ganske. Mr. Kahn says yes.
Can we go down the line?
Ms. Feder. Can't comment.
Mr. Ganske. No answer.
Mr. Donoho. Don't have a position.
Mr. Pollack. Yes.
Ms. Davenport-Ennis. I am not thoroughly versed on the
issue so I cannot give you a good answer. I will be happy to
get back to you with it.
Mr. Ganske. Mr. Fuller, did I hear from you?
Ms. Fuller. We have not taken a position.
Mr. Ganske. Karen?
Ms. Ignagni. Our members have not taken a position on this.
I think that if you begin to do it in one sector, you are under
pressure to do it in others, and the question is, is that the
right strategy. But I do not want to preempt our members, they
have not taken a position.
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Bilirakis. That was a very good question, by the way.
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Stupak?
Mr. Stupak. Thank you, Mr. Chairman.
In my opening statement, I showed this chart from my
district where we have different prices for the same drug with
Zocore, whether you are the Federal Supply Service, major
wholesaler, chain store independent, average retail, average
wholesale price.
Would any of the plans before Congress right now would stop
this price discrimination?
Karen?
Ms. Ignagni. I do not know the answer to that.
Mr. Stupak. Mr. Fuller?
Ms. Fuller. I do not think so.
Mr. Stupak. Mr. Kahn?
Mr. Kahn. No, they would not stop it but they would get
some people better prices.
Mr. Stupak. Okay. Dr. Feder?
Ms. Feder. They would provide--the President's plan, for
example, would provide people for a specified premium,
subsidized premium, drugs they could count on with known cost
sharing. It would be very different from that situation.
Mr. Stupak. Mr. Donoho?
Mr. Donoho. I think my colleague, Chip Kahn, said it best;
no, it will just change the market in terms of who is available
to which price.
Mr. Stupak. Mr. Pollack?
Mr. Pollack. The administration's plan would do a great
deal to reduce those disparities.
Mr. Stupak. Ms. Davenport-Ennis?
Ms. Davenport-Ennis. Yes. And because once again we have
not had an opportunity to review all the plans, our
constituents have not taken a position.
Mr. Stupak. So the only way to get these prices down to get
them somewhat reasonable so we do not have 134 percent
difference is who has really the clout at the table, so to
speak, when they negotiate on behalf of uninsured seniors?
Right, basically?
Ms. Davenport-Ennis. Yes.
Mr. Stupak. Yes, yes?
Ms. Davenport-Ennis. That is a very big factor.
Mr. Stupak. Okay. Let me ask a more specific question then
to Dr. Feder.
AAHP testified that many seniors who would not otherwise
have access to drug coverage, either because they do not have
retiree coverage or drugs, they just cannot afford them, cannot
buy them, so if they cannot afford a Medigap policy that covers
drugs, are able to get drug benefits through their
Medicare+Choice plan, couldn't we use that model as a way to
get drug coverage to all seniors?
There has been some instability in that Medicare+Choice
market, but couldn't we provide extra funding so that more
plans could get back to the market and provide drugs?
Ms. Feder. I think we certainly can provide, through
Medicare and through Medicare+Choice plans, we can provide
prescription drug coverage. But the way to do that is to
incorporate it into the core benefit of Medicare and then have
the plans offer that benefit.
The way we are doing it now, and if I am hearing you
correctly, just put some extra money in the plans, it is
available in some places and not available in others.
Mr. Stupak. With that in mind. But it sounded like the----
Ms. Feder. Correct. In some places----
Mr. Stupak. [continuing] like it worked.
Ms. Feder. [continuing] but it is a function of where the
plans find that given a given level of payment, they can
profitably offer that benefit.
And as we have worked over the last several years to
constrain Medicare costs and eliminate the deficit, we have
constrained both fee-for-service and Medicare+Choice payments
and we are finding that there is not as much room in this extra
payment to offer this benefit.
It is not the way to do it because it does not guarantee
the availability of that benefit every place. It should not
rest on whether a plan wants to be there, whether they find it
profitable. That is not the way to do it.
Mr. Stupak. Karen?
Ms. Ignagni. I appreciate the question, and I believe we
have a track record that can be built on and with additional
resources, that is a major start at moving in this direction.
But I do not want to mislead you about the need for
additional resources now on the basic side before we get to
additional. But it is a model that can be built on.
Mr. Stupak. I do not totally reject the model, and if we
had some more resources maybe we can get there, but how do you
overcome what I see--and maybe I am using the wrong words--
instability in the private market insurance? I still see a
cherry picking going on.
In my district, they probably do not even offer it. I am
sure if I was 70 years old and I started having a battle with
cancer, I am sure I am going to be dropped because I get too
expensive.
Ms. Ignagni. Well actually, Mr. Stupak, as you know, one of
the accomplishments of our programs actually is to do a better
job managing chronic illness.
The existence of prescription drugs in most of the
Medicare+Choice programs has actually recruited in not only the
lower income, and the HCFA data confirmed that absolutely, but
the people with the highest health care costs, because of our
ability to coordinate their care and offer them more and that
is I think a model that can in fact be built on.
And in the rural areas is one of the major barriers--our
health plans would very much like to serve the rural
community--has been the unwillingness of single health care
systems who do not have any competition to actually contract
with our plans. So we need to talk about that as we think about
going forward.
We would love to be participating in your area and other
areas where we have not had the opportunity.
Mr. Stupak. Did you want to add something further, Dr.
Feder?
Ms. Feder. Just that I think it is critical that if you do
not define the benefit, you are leaving too much discretion to
plans. What you need to do is define the benefit and then have
a payment mechanism that plans can know what it is that they
are supposed to bid on or offer and proceed that way.
Ms. Ignagni. And we would agree with that. We agree with
the defined benefit for purposes of bidding.
Mr. Kahn. And it is also important to point out that the
pharmaceutical benefits that are generally offered now by
health plans under Medicare+Choice are not as generous as all
these different plans anticipate. So there has got to be more
funding to get those drugs at a level that these different
bills anticipate.
Mr. Stupak. So we have got to have someone with clout
negotiating and we have got to have a defined plan, if that is
what I am hearing you say.
Mr. Kahn. The plans can do the negotiation or work through
PBMs. The question is the money.
Mr. Stupak. Okay.
Ms. Feder. And the defined benefit, as you said.
Mr. Stupak. Defined benefit, yes, you have got to have a
defined benefit.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Bryant?
Mr. Bryant. Thank you, Mr. Chairman, and panel, it has been
a long day so far.
Mr. Bilirakis. Amen.
Mr. Bryant. Let me just take you back on a couple of
questions my friend from Michigan led us into.
Mr. Donoho, you have been quiet here for awhile. Let me ask
you a question directly.
In your statement, you indicate that the drug benefit
should be administered through the private sector, and also
that competition among private sector PBMs would deliver
significant cost savings and spur innovation.
In light of this issue of the cost that we have been
talking about, the high cost of drugs, would you expand on your
statement?
Mr. Donoho. Well it has been our experience in the private
sector anyway that the competition has spurred the cost
savings. If you talk about decisions directly, let's take on
drug costs, it is the competition within a PBM in terms of
formulary development, after you have done your P&T analysis,
you have looked at, you have covered all your classes of
product and you find out that there are two competing products
in the marketplace today, then you can go back and get a
reduced reimbursement.
The question I think in my opening statement was. has the
Federal Government, our concern in terms of the Federal
Government operating a program is the fact of do they have the
will to put that kind of hard decision on the table?
Because the hard decision on the table then is to say to
somebody, listen, this product--if you have competing plans--
you can have choice. But if you have the hard decision of
saying I am not going to cover this particular product, and
then you have got no choice to seniors, then you have got a
different kind of kettle of fish.
And you have got to have a prior authorization like our
plans do. But the question then becomes, and that is the way
you get leverage to negotiate. It is not based on volume.
Let me make sure that you understand that. It is based on
market share. If you can move market share for drug
manufacturers, they will negotiate on price. That has been our
experience.
Mr. Bryant. Okay, thank you.
Let me jump to another issue very quickly in terms of those
of us that, in this whole concept, are also concerned with
consumer protections.
The bipartisan bill that we are talking about today
primarily, would indicate that in that for the first time we
create an Office of Beneficiary Assistance within this MBA,
this outside of HCFA agency that will administer this, it is an
Office of Beneficiary Assistance. And its purpose is to provide
educational materials to the beneficiaries about the entire
Medicare program.
And within the Office of Beneficiary Assistance, there will
be a Medicare ombudsman whose sole purpose is to assist
beneficiaries when they are having trouble with claims and
appeals, getting access to care, and generally need help or
answers to questions.
Such a one-stop central Beneficiary Assistance-oriented
office does not currently exist within the HCFA. And for those
reasons, I think again, particularly the panelists on the end
that are from citizens groups and family groups and so forth,
that also should be of interest there.
Ms. Ignagni, on the end, a question.
I think we have talked about this a little bit, but let me
clearly get your response to this in terms of the criticism of
this bipartisan bill in building in flexibility that would
allow health plans to provide a standard benefit or a benefit
that has an actuarial equivalent.
That criticism is that that would encourage health plans to
develop proposals only to attract the healthy beneficiaries,
cherry picking. How do you respond to that particular issue?
Ms. Ignagni. Well first of all I think as I understand the
proposal, and I appreciate the question, it is to have a floor
benefit. There would be a clearly set out benefit.
The concept of actuarial equivalence would then allow us to
do better than the floor, which is what we do now in
Medicare+Choice, as you know.
We have a floor set of Medicare benefits. We meet that
floor. But because we are more efficient at disease management,
coordination of care, et cetera, we can, for the same dollar
value, offer beneficiaries more, which is why it is such a
travesty that 3 weeks before the date in which we have to
notify HCFA of what plans will be forced out of this program
who are serving 6.2 million people, that we are not moving to
do something about that.
And we have taken heart that this committee in fact has
made that a major part of its agenda over the years. So the
idea that actuarial equivalence would somehow mean that there
would be no baseline benefit is not something that I understand
this proposal before you--and we are all looking for the
details--to be.
So I think what we all are saying on this panel is that we
agree with the concept of a floor. That is where you start. We
in the health plan community can do better than that.
For beneficiaries, we would like to be able to be given the
opportunity to do better than that for beneficiaries.
Mr. Bryant. Just following up on that, I am curious if you
have an opinion about our move from the administration of this
from HCFA over to an outside agency that we establish. Do you
think this would help health plans participating in the
Medicare+Choice----
Ms. Ignagni. Two-and-a-half years ago----
Mr. Bryant. [continuing] of this on Medicare+Choice, as you
know.
Ms. Ignagni. Two-and-a-half years ago there was a
reorganization at HCFA which I believe, based on what we have
seen from the Administrator recently, is an acknowledgment of
what much of what our members have said for 2\1/2\ years, that
that reorganization has not worked.
The Administrator, herself, and to her credit, has begun to
a] recognize it, and b] put in place some strategies to respond
to that.
The concept here is whether you set up a new agency within
HHS or whether you aggregate the responsibilities of HCFA
differently.
We have to do things differently than the way we are doing
it now. We have instability. We have no predictability with
respect to the regulatory environment. We have 900 pages of
regulatory compliance that we started with. But then virtually
every 2 weeks there has been a policy letter with which we have
to comply with.
And I am pleased that the Administrator has recognized
this. She is moving in a particular direction. I think there
are many options. And for us the most important thing is to
aggregate these responsibilities and somehow make progress on
the conflict within HCFA which is purchaser/regulator /
competitor. How are we going to sort that out?
There was a model that worked well in the past. We are
beginning to go back to that model. I think that is a very big
and important step forward.
Mr. Bryant. I thank the panel and yield back.
Mr. Bilirakis. Mr. Barrett, the current Ranking Member, to
inquire.
Mr. Barrett. Thank you, Mr. Chairman.
Mr. Kahn, notwithstanding the red tinge in your beard, I do
not think of you as a flaming radical.
And it strikes me almost as counterintuitive that you are
here today representing the insurance industry, and yet telling
us that your industry feels that this approach that is being
advanced has some problems to it.
And it strikes me as, again, just odd, although I must
admit that my feelings run the same way.
Can you talk a little bit more, just about the adverse
selection issue you see out there that I have got to believe
you think is a fatal flaw to this proposal, or you would not be
so up front about it.
Mr. Kahn. Let me say that I believe that in the case of
drug-only policies and the fact that 35 percent of Medicare
beneficiaries have no coverage and another number have sort of
mixed coverage, you would assume that if this was a good
product, it would be there. And it is not.
I mean there are not companies seeking to do it. And
actually those companies that have supplemental policies, the
HI&J, a lot of companies have left that and there are a few
companies left in it, but they are not enthusiastic about that
coverage because they end up paying actually there the highest
prices just like the beneficiaries who have no coverage.
But I think part of the adverse selection issue goes down
to this--that you have got some people that do not use any
drugs, a very large number that use between $500 and $2500
worth of drugs which can be significant on somebody's budget,
particularly if you are just living on Social Security or a
little bit extra above Social Security, but at the same time
that is not enough money to call it catastrophic.
And the fact is only 4 percent of expenditures for drugs is
over 4 percent.
Actually, one of the interesting things here for the
elderly is that drugs are different from all other kinds of
health expenditures.
In all the areas of health, when you look at the total,
most of the spending is done by few people. The trouble with
drugs is it is done by many people and it is frequently
predictable, and that is why we do not think you could sell an
affordable policy.
At the same time, there is another factor, and I will just
take--I wish I had copies of this chart to pass around--the
HCFA actuaries projected drug costs in March 1999, and they
thought that by 2007 they would grow to about $170 billion.
Six months later they decided, no, they were wrong. Looking
at the market, you know, seven or 8 years out, they would be at
$223 billion.
Now the point I make is that when an actuary looks at
numbers like that, and that kind of volatility, you know, if he
is stuck or she is stuck with the recommendation for a premium
you know, on 399, and an insurance commissioner or whoever says
that is the premium, then when they go back and say, well, wait
a second, we miscalculated because there is a new report now
that says, you know, 6 months later, that we were wrong, they
are going to be stuck. And that is how the actuaries look at
this.
I mean, this is just not an individual benefit that we can
provide insurance for.
Mr. Barrett. Ms. Davenport-Ennis talked about your patients
or your clients and say a person with cancer or a person with a
disability, I am going to ask each of you just a yes or no
question.
Do you think that there is a private insurance company out
there that would sell a drug-only policy to a person with
cancer and that person say at 200 percent of poverty, could
afford it?
Ms. Ignagni?
Ms. Ignagni. Our plans would do it in the context of
Medicare+Choice.
Mr. Barrett. No, that was not my question. My question was
a drug-only policy.
Ms. Ignagni. It depends what the rules are.
Mr. Barrett. What do you mean it depends what the rules
are?
Ms. Ignagni. Well we have not seen the proposal. We are
looking forward to seeing the proposal.
Mr. Barrett. Okay, but I think we understand what we are
talking about here. It would be a private company.
Ms. Ignagni. Let me give you an example.
Mr. Barrett. I do not want an example.
Ms. Ignagni. Okay. Well, if you want to understand the
answer, I need to give you an example.
Mr. Barrett. I will go on to Mr. Fuller.
Mr. Fuller?
Ms. Fuller. I mean I really have to yield to the people of
the insurance. I do not, I do not know.
Mr. Barrett. Intuitively, what do you think? You are a
businessman.
Mr. Fuller. Doubtful.
Mr. Barrett. Doubtful.
Mr. Fuller. I cannot speak for all companies, but at least
my own, I doubt the would offer the policy in the first place.
Mr. Barrett. Dr. Feder?
Ms. Feder. I would defer to Chip Kahn.
Mr. Barrett. Okay. That is the last time we will ever see
that.
Mr. Kahn. I would not know how to answer that question. I
do not know.
Mr. Barrett. Well intuitively, as a businessman, would you
sell this product? Do you think you could make money selling a
drug-only insurance policy to a 68-year-old woman making
$20,000 a year who has breast cancer?
Mr. Kahn. Intuitively, maybe, but probably not.
Mr. Barrett. Mr. Pollack?
Mr. Pollack. It may be possible. I would not take the odds
with me to Las Vegas.
Ms. Davenport-Ennis. And I guess that as a 10-year survivor
and one who does not have to take medications to deal with my
former diagnosis, I would not be able to answer you as a
specialist. I would only be able to say that if you bet the
odds on me, you would have done all right in selling the
policy. But I cannot answer the question for the community.
Mr. Kahn. Mr. Barrett, excuse me, but I really think you
asked the wrong question. Because the question is, are there
enough people who are well but concerned that they might have a
risk that would buy the policy so that you could sell it to the
68-year-old who already has----
Mr. Barrett. But why would I buy the policy if I were well?
Ms. Ignagni. Because you are at risk.
Mr. Kahn. Because in our society, people buy insurance
every day for a lot of reasons. And my point is that if you
could get enough people to buy insurance in this case, you
could insure the risk. Our concern is that those people who are
well now, because of the cost and the payoff year, are not
likely to buy it.
Mr. Ganske. Would the gentleman yield?
Mr. Barrett. I know my time has run out, but let me follow
up on that then. If this bill became law tomorrow, a 40-year-
old man, 40-year-old woman, would they buy this policy? Of
course not. Of course not.
Mr. Kahn. I would say a 65-year-old who was perfectly well
would probably not buy it. And that is the problem.
Mr. Ganske. Would the chairman entertain a question, the
Acting Chairman?
Mr. Burr [presiding]. The Chair would recognize the
gentleman for 1 minute.
Mr. Ganske. Thank you. Maybe the Chair could help us on
this, because this is one of the details of the plan that we do
not know about. And that is will everybody, when they turn 65,
be given one chance to enter this, or will you have an annual
chance to get into this program?
Because most people, if they have an annual chance, and
they have no prescription costs, will not but they may think
well, maybe I will need some prescription drugs in September or
August. I can just eat those costs until January 1 comes up,
and then, since I need the drugs, then I will get into the
plan.
Can the Chair answer my question? Is there an annual up for
this or is this a one-time offer----
Mr. Burr. Well the Chair----
Mr. Ganske. [continuing] or is this a detail being worked
out?
Mr. Burr. The Chair is not on today's panel but I would be
happy to turn that over to Mr. Kahn.
Mr. Kahn. I have not seen the bill. This is an important
question. I mean----
Mr. Burr. It is an important question, and the gentleman's
time has expired.
Mr. Barrett. Thank you, Mr. Chairman.
Mr. Burr. The Chair would announce to the members that we
are going to do a second round.
Has the gentleman from Ohio gone yet?
Mr. Strickland. No, I have not.
Mr. Burr. Then the Chair would recognize Mr. Strickland for
5 minutes. I apologize.
Mr. Strickland. Thank you.
This is a fascinating hearing. I am glad we are having it
and I think if we have kept our eyes open and our ears open and
listened, we have probably learned a lot.
I would just like to say, Mr. Fuller, you make a statement
in your testimony that you think the highly efficient community
pharmacy infrastructure needs to be protected and I feel the
same way.
Are you familiar, sir, with Mr. Allen's bill? And if so,
would you tell me what you think of that bill and why you
either think it is a good idea or bad idea?
Ms. Fuller. First, I thank you for sharing the concern
about community pharmacy, and I also appreciate the comment
that Mr. Burr made earlier that some of the provisions that we
have talked about are in fact being incorporated into the--
excuse me, that the chairman made earlier--are in fact being
incorporated into the legislation.
I am familiar with the Allen bill. I probably am not going
to satisfy you. We have not taken a position on it. Our
companies have not taken a position on it. We are concerned
about a number of elements in it.
Any kind of price control mechanism philosophically is of
concern to us, no matter who it applies to, because it at some
point is going to trickle down to the pharmacy and be enforced.
So we are concerned about that. We have not taken a position on
it though.
Mr. Strickland. Okay, thank you.
I continuously hear comments from seniors who are concerned
about the cost and I think the cost is something that we ought
to be concerned about as well.
And we know that, as Mr. Pollack has said in his testimony,
that tax dollars are used to promote research, and that
research leads to new pharmaceuticals, and those
pharmaceuticals are sold to consumers, to American consumers
and to foreign consumers.
And I do not think there is any really debate about the
fact that foreign consumers of pharmaceutical medications pay
significantly less than American consumers.
And you are here because you are experts, and I would just
like your personal opinion. You do not have to even speak for
the agency or association or university you are with, but I
would like your personal opinion:
Do you think the government should be concerned about that
and should try to find some way to keep American consumers from
experiencing this kind of price discrimination, given the fact
that so many of these pharmaceuticals are developed with
American tax dollars in part.
Ms. Ignagni. I do, Mr. Strickland, and I think that there
are other ways, however, in addition to price controls, that
one can get at that issue.
Mr. Strickland. Okay.
Ms. Fuller. I think we have to be concerned about it, and
certainly we are seeing seniors every day that are going across
the border to get drugs. There's proposals to allow drugs to be
purchased internationally and brought here. There are concerns
there.
So I think it is going to have to be examined pretty
carefully. I would add that there are also very noticeable
differences in the availability of certain drugs and medicines,
both generic as well as branded drugs in these countries that
control prices. And so there are some offsets here that you
would also have to take into consideration when you look at the
overall issue.
Mr. Strickland. Okay. Mr. Kahn?
Mr. Kahn. I think there needs to be a complete
reevaluation--I am not an expert in trade law--but of our trade
law because it would be good to put some pressure on the rest
of the world. Because it does not make any sense for us to pay
the basic price and everybody else to pay the price at the
margin.
Ms. Feder. I guess I would look at it from the opposite
perspective. I think the reason it is this way is because
everybody else in the world provides everybody in their country
health insurance and decides what essentially they are willing
to pay. And we do not do that in this country. There are many
ways for us to consider beginning to lower what we are willing
to pay and I think that is what we ought to be doing.
Mr. Donoho. I think we have to be concerned about price
controls and, being an American, I think I would turn around
and say maybe we should look at designing a system to take
better advantage of competition within the system.
And if you look at what we have done in price controls to
date, like in Title 19, Medicaid, what has the impact been on
like our people's business, since you have a best price, can we
negotiate down below best price without impact on the Medicaid
program?
I mean, we have got competition in the market. How do you
design a system to take advantage of that competition, I think
is the answer we would give.
Mr. Pollack. Mr. Strickland, I would say that we need to do
something not just because there are inequities from one
country to another. This is an affordability crisis for a lot
of people, and that is why we need to do something.
I do not think we need price controls. I think we need to
give the Medicare Program the same kind of leveraging authority
that other institutions have. Hospitals, HMOs, others, they use
their leveraging authority to get prices down. We should do the
same thing for seniors through the Medicare program.
Ms. Davenport-Ennis. And certainly I would agree that for
our constituents there is not a patient that we deal with when
we get into debt crisis resolution as a result of their
diagnosis that the cost of all health care does not become
problematic for them, including the costs of pharmaceutical
agents.
As we look at many discussions in which we talk about what
the pharmaceutical agents are sold for abroad, what they are
sold for in America, there are three conclusions that we come
back to routinely.
Why is that happening? What are the pressures that we can
put in place in this country to look thoughtfully at why is
there such a wide variation from this country to another
country?
And what can we do to empower the individual consumer in
America, and particularly the senior consumer, to negotiate for
the most attractive prices available to them in purchasing the
agents that they need.
We are not a part of the pricing structure for the
pharmaceutical industry, therefore we do not have any concept
of how those figures are originally introduced to the market.
And I think, as a fair piece of the evaluation, that that would
also have to be looked at as a Nation.
Mr. Strickland. Mr. Chairman, can I make a concluding
sentence?
Mr. Burr. The gentleman may.
Mr. Strickland. We hear about the world economy and the
fact that we are a part of it, but as long as other nations
have controls and our Nation does not have some control, it is
inevitable, it seems to me, that the American consumer is going
to subsidize the foreign consumer.
Thank you.
Mr. Burr. The gentleman's time has expired.
The Chair would recognize the gentleman from Iowa, Dr.
Ganske for 5 minutes.
Mr. Ganske. Thank you, Mr. Chairman.
I want to try to get a handle on the Medicare HMOs. So Ms.
Ignagni, you can help me on this because there have been a lot
of reports about the Medicare HMOs dropping out of the market
because you have not received a large enough update increase.
Are we seeing Medicare HMOs drop out of markets where their
AAPCC is say above 450?
Ms. Ignagni. We have. And we may, as July 1 approaches. And
I think that one of the things that we are working very hard on
and are looking forward to working with this committee on is
trying to avoid that, stabilizing this program, and continuing
to allow this to be a choice for people because they can
receive so many benefits. These are people on very fixed
incomes with limited means.
Mr. Ganske. And this is even despite the fact that Medicare
HMOs are increasing their deductibles and copayments for their
prescription drug coverage?
Ms. Ignagni. Yes, sir.
Mr. Ganske. Now just so everyone is clear, a Medicare HMO
is paid on a monthly basis per enrollee an amount determined by
a formula called the AAPCC, adjusted per capita cost something.
How much additional funds do you need for a prescription
benefit, do you think, for your Medicare HMOs to continue to be
able to offer prescription drug coverage?
Ms. Ignagni. First of all, sir, I think the first thing we
need is to stabilize the program before we get to additional
benefits. There is a great deal of unfinished business to
fulfill that promise that was made to people in 1997 that they
would have a choice.
One of the most effective strategies there is to impose a
safety net so that the purchasing power of the Medicare+Choice
capitation or reimbursement to the plan is actually keeping
pace with what the costs of purchasing health care from the
academic teaching centers, from the physicians in that
community, et cetera, are.
What we have is a major problem because we have lost that
relationship.
Mr. Ganske. So you would like to see an increase across the
board?
Ms. Ignagni. Across the board.
Mr. Ganske. Across the board. So for instance, there are
some counties where the payment for a senior citizen could be
as much as $750. What you are saying is that in order to
stabilize your drug benefit programs, even for those in those
areas, they need a higher increase in their adjustment?
Ms. Ignagni. Yes.
Mr. Ganske. Is that right?
Ms. Ignagni. Yes. Well yes and no.
One, No. 1, we have to stabilize those programs across the
country and there are a range of strategies to do that. We have
to deal with the particular problems of the blend counties
making sure that that is funded irrespective of what happens on
budget neutrality, et cetera, No. 1.
The floor issue, No. 2. We have to have a better risk
adjustment system than we do now. The one we have on the table
does not work, is not encouraging disease management or the
kinds of strategies we have employed so well.
Once you do that--and that can be done and it can be done
this year----
Mr. Ganske. But you are telling me----
Ms. Ignagni. Once you do that, then you need to do
something additional for the prescription drug question.
Mr. Ganske. You are telling me though that you are seeing
Medicare HMOs drop out of AAPCC areas that are significantly
above $450.
And we heard in Ways and Means yesterday that they are
talking about raising the AAPCC to a floor of $475. Now that is
only about $50 higher than what it currently is in Des Moines,
Iowa where there really are not any plans being offered.
How high would you have to get that AAPCC to see HMOs move
into more rural areas where there have been lower AAPCCs,
because we know in the rural areas we have a disproportionately
number of very elderly that have a higher percentage of
prescription drug costs----
Ms. Ignagni. Yes. That's right.
Mr. Ganske. [continuing] than in some of the more urban
areas.
I mean, do you have any ideas what levels we would be
looking at?
Ms. Ignagni. I do, actually. I think it has, in many cases,
Dr. Ganske, and I know that you know this because we have had
some discussions about it, that this issue about presence of
Medicare+Choice in rural areas, in many cases has little to do
with payment.
It has much more to do with whether a provider system,
often with no competition, is actually willing to negotiate
with a health plan.
In a number of situations, because there is not a
competition in the market in the provider community, individual
systems are unwilling to contract.
Mr. Ganske. I understand there are other factors that enter
into it.
Ms. Ignagni. Yes.
Mr. Ganske. But it would appear to me that on the face that
one would have to significantly increase that floor above what
I hear is currently being proposed. I think you are looking at
something more in the range of $600 or $650.
Ms. Ignagni. I think if we think that the way to solve the
Medicare+Choice systemic challenge now is to only increase the
payment in rural areas, then I think we are kidding ourselves.
And I think we will let a number of beneficiaries down.
There is more that needs to be done, and I would be happy
to spend some time with you on some of the specifics because
what I am excited about is people are beginning to talk very
specifically about that.
Mr. Ganske. Yesterday----
Mr. Burr. The gentleman's----
Mr. Ganske. One additional question?
Mr. Burr. Very quickly.
Mr. Ganske. Yesterday, Mr. McDermott asked Chairman Thomas
a question about well, you know, if studies have shown that
payments to Medicare HMOs have actually cost more than what
they would have, and you are familiar with some of those
studies, why is it that Republicans want to move all Medicare
beneficiaries into HMOs?
And Mr. Thomas said this, and I would like your response to
this. He said:
Well, that only tells half the story. In other words, he
agreed with the initial premise, and then he said, we would
like to see competitive HMOs.
Is it your position that you would like to see the majority
of Medicare beneficiaries in Medicare HMOs?
Ms. Ignagni. I think that we offer opportunities for
Medicare beneficiaries. Right now, in the here-and-now, and I
could not responsibly answer any other way, we have to build
capacity to accommodate all beneficiaries. So I do not want to
mislead you about that, so I would not make that promise.
But what I can actually tell you is the systems that we
have have done a better job in managing the chronic care
challenges of people who are over 65, and the literature is
beginning now to support that.
So we have coordinated care. We have early intervention.
But what we have done is created a promise that has not been
funded. So we need to do the second step, which is to fund the
promise so that more and more seniors can take advantage.
And there is no lack of interest. There is a great deal of
interest. But now, because plans have been forced out, seniors
in fact are faced with situations where, in many markets, there
is not a plan or likely to be no plan in the future. And that
is not what we promised in 1997, and that is not what people
indicated they wanted.
We have the highest degree of satisfaction in the Medicare
population in our health plans because of the comprehensiveness
and the breadth of the intervention here. And we want to be
able to partner with the best physicians and best facilities
around the country to continue to do this job.
Mr. Ganske. You are an effective spokeswoman. I would point
out that sometimes patients, when they get sick, decide to
leave Medicare HMOs and then go into fee-for-service, and there
may be some adverse risk selection.
But I appreciate the Chair's indulgence.
Mr. Burr. I thank the gentleman for his question.
The Chair would recognize Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman.
Ms. Ignagni, if I could follow up a little bit on some of
the questions that Dr. Ganske was talking about, from your
perspective why is it important to stabilize the
Medicare+Choice program if we are going to eventually have a
prescription drug coverage for all Medicare beneficiaries, even
who are not in Medicare HMOs?
Ms. Ignagni. Because I think we can build on this model and
we can do better.
So to the extent that you establish a floor benefit
package, that however you construct the proposal, whether you
look at the bipartisan proposal and where everyone's looking
for the details, and we are looking for them as well and we
will be looking to analyze them, or the President's proposal or
the Democrat's proposal that we have seen thus far, I think
there is a broad scale recognition that once you establish a
floor, because of the nature of coordinated care systems, we
can do more for seniors, and we are looking forward to doing
that.
But we cannot build on that track record unless we
stabilize the existing program.
Mr. Deutsch. You know, it is interesting. In my district, I
have both an urban setting, a traditional health care urban
setting, and as you are aware also, Monroe County, the Keys is
actually technically a rural health system because Monroe Key
West, the closest regional hospital, is over 100 miles away.
The only HMO service in Monroe County has left. And so you
have a phenomenon for 80,000 people in my district, 20,000 plus
Medicare beneficiaries, who if they have high prescription
drugs, have no choice, have no option.
Where in the urban part of my district, even though some
people have left the market, there is still a competitive HMO
market.
And in fact, one of the phenomenon is people using fake
addresses to actually get prescription drug coverage because
they cannot get HMO coverage. And the only way they can get the
prescription drug coverage is by using a neighbor, a friend, a
relative's address in a county that has an HMO that services--
which is illegal, and I do not know the enforcement side of it
or now much enforcement is going on, but it sort of talks about
the problem.
In terms of just seeing how many people join HMOs because
of that need, do you have any feel or any empirical data in
terms of that marking tool, that coverage for prescription
drugs, what does it mean?
Ms. Ignagni. Yes. We know that a number of beneficiaries
have joined our plans because of the existence of prescription
drugs. So the tenor of your question is absolutely right.
However, we also know, and I think the next point is not
often recognized or not recognized enough, that people on fixed
incomes value the cost containment protection, No. 1, the cost
sharing protection, I am sorry.
The second is that they value, an element of what we
provide is this notion of catastrophic coverage which, as we
have heard this morning, was embarked upon in the traditional
Medicare program, and then ultimately that was repealed.
We continue to offer not only cost-sharing protection, but
catastrophic coverage and that is a very, very strong value for
individuals on a limited income.
Mr. Deutsch. Let me, I guess--because we had our 5 minutes
on an introduction--really sort of follow up and it is really
not a question, but it may be a rhetorical question--but I
think one of the interesting things about prescription drug
coverage, and it is really sort of fascinating talking to
constituents, not just Medicare constituents but people whose
parents are on Medicare, but also I think what is also really
interesting is talking to physicians who are not participating
in HMOs. How supportive they are of prescription drug coverage.
Because I think physicians who I have talked to literally
see people leaving their practice because of HMO coverage
because they have someone who is a middle class senior who is
spending $500 a month on prescriptions, and that person, even
though they do not want to leave their cardiologist there,
whoever, effectively do not have a choice and have to join an
HMO to get the prescription drug coverage.
And they know that if there was prescription drug coverage
under Medicare, that is a person who they see, who they talk
to, who they know is a patient who would not leave.
And it is kind of a strange phenomena. You know, if
anything, we keep trying to shift this pendulum where it is an
even choice, where consumers really have a choice and it is
level. And in some cases, maybe the incentive to join an HMO
has gotten too high. The reimbursement might have been too
high. The extra benefits, health care benefits, everything
else, might be too much, and then we have leveled it, and maybe
now it is the other way. So this can kind of level back.
And one of the interesting things I guess that maybe you
can share as well, and if anyone else on the panel, let me just
open this up as well to anyone else who wants to respond, but
one of the issues that we have talked about in prescription
drugs is the actual potential cost savings of providing
prescription drug coverage.
Because avoiding adverse health consequences because people
do not take it, from the HMO perspective, where you are
basically indemnifying the person, do you have empirical
evidence to sort of talk about your savings----
Ms. Ignagni. Yes.
Mr. Deutsch. [continuing] about people getting the drugs
regardless of their costs which is effectively the way the HMOs
can do that.
Ms. Ignagni. Yes. Because the existence of prescription
drugs allows us to do the early intervention to prevent the
catastrophic illness down the road. There is no question about
that.
Mr. Deutsch. Does anyone else want to respond to that?
Mr. Donoho. To give you a real life example, one of the
issues with the elderly is hypertension. If you look at
hypertension in a managed benefit, hypertension compliance is
about--on noncompliance is about 49 percent.
If you look at that, about a third of them--this is a study
done by one of our members--if you look, a third of those
require hospitalization. The average hospitalization is at
$15,000 a year.
So if you can increase compliance, if you can maintain
people on hypertension, look at the money that you are saving.
It is just one simple study.
Mr. Kahn. I guess I think that we are looking at Medicare
from the standpoint of drugs because of the discussion today.
And I think that you tend to get a little bit perverted.
I think from the standpoint of the beneficiary, you are
describing how they join HMOs because in a sense they get a
deal and that is why they give up fee-for-service.
I think we have to--and I cannot say it is this year or
next year--but there is a point in the future where in a sense
Medicare+Choice is not the problem, fee-for-service Medicare is
the problem. Because whether it is home health, skilled nursing
facilities, out-patient hospital department, I spent 13 years
working on payment policy and I can tell you, it is about over.
The way HCFA applies the rules that Congress passed is such
that it is going to be very hard for the infrastructure through
this old fee-for-service system to be sustained.
And I do not know what the crisis is in--you know,
obviously in the skilled nursing facility area you can make the
argument that there are a lot of people that came in and abused
Medicare for years, a lot of providers, and, you know, you can
see what the stock market is doing to them today. You know,
half of them are in bankruptcy.
But the point is that from an infrastructure standpoint to
serve the beneficiary, I think that the fee-for-service system
is extremely sick, and that if we let the managed care
infrastructure fade, which it is about to do, I think we are
going to have some real organizational problems in terms of
getting services to beneficiaries.
And this is a serious problem. There are a lot of
physicians now that do not like to take fee-for-service
Medicare because of the way Medicare pays.
Ms. Feder. Mr. Deutsch, I cannot let that one stand. I
deferred once to Chip. I cannot do it again.
It seems to me that there is an on-going issue in managing
the Medicare program which I think is intrinsic to managing a
health insurance program which is trying to balance what we
want to pay and the access to quality care that we desire.
And it is true that in the last few years, we have adopted
some new prospective payment systems that need work, and I
think will continue to need work, but to say that the fee-for-
service system is sick when it continues to guarantee millions
of Medicare beneficiaries access to care and has simultaneously
been able to slow its cost growth so that we have extended the
life of the trust fund to 2025, does not make any sense to me.
I think, on the contrary, it really is that there were
claims made for managed care and what it could deliver and I do
not think we have seen delivery on those claims of performance.
My view is that we should not have a situation, as I said
before to Mr. Stupak, when you talk about having a level
playing field, we need that core benefit, and we need to have
people not moving in and out of fee-for-service and managed
care because they can get extra benefits one place and not
another.
We need to have a core benefit, make it a reasonable price
or a reasonable system of paying for that core benefit in fee-
for-service and outside, and then enable beneficiaries to
choose.
Mr. Burr. I thank the gentleman from Florida. He got 9
minutes.
I really did have a goal when I got in the seat to try to
get these witnesses out by 3:30. You have had an extremely long
day. I will not ask you questions, but I will summarize the
questions that I would have asked with my own answers, if that
is okay.
We have got a huge challenge. I think that is evident by
the varying degrees of answers, but more importantly the
questions that still remain unanswered and that means that we
have to go into new ground and to plow that ground.
Illness is not predictable.
Illness is not predictable if you are young.
Illness is not predictable if you are old.
It puts a unique challenge on us to provide not only the
coverage for those who are at risk, whether it is because of
the financial point in the sand that was set, or because of a
current health problem, but we are also challenged to produce a
product that really resembles more a life insurance product, a
product that assures individuals who have the means to pay
today for drug costs, that they are protected against the drug
costs of tomorrow. But more importantly against the terminal
illness that might strike and that the resources might not be
there for an unpredictable outflow of money.
So the challenge for us is to make that predictable, to
bring some parameters to the process and to respond to not only
those who choose between food and drugs, but to try to design a
program that fits the needs of the long-term security and
predictability that has been expressed by many of you.
One of the other most difficult things is to integrate a
new program into a system that has had a difficult time at
making any new coverage decisions.
I think every member of this subcommittee at some point in
any given month has dealt with a manufacturer of a medical
device of a pharmaceutical, a member of a patients' groups who
seeks to try to accelerate the coverage decisions at HCFA.
Because technology changes with such a fast pace today,
HCFA, for whatever reason, is unable to make those coverage
determinations in a fashion that we would all want for the
quality of care of the patient.
And I think that that is one thing that has contributed to
many of us looking outside of HCFA, to create a new entity
whose sole focus it is to administer the Medicare prescription
drug benefit regardless of how it is configured.
I would say that in the proposal that hopefully will be out
next week, we would also create a new responsibility within the
benefit administration, Medicare Benefit Administration, which
would be a Medicare ombudsman.
One place for everybody to go, whether it is for an appeals
process, a coverage determination, somewhere that you can go
that covers not only what HCFA's got responsibility for but
hopefully the new drug entity and the administration of that.
Somebody mentioned earlier stock prices or Wall Street.
Believe it or not, that is a consideration in this plan too. We
understand that our hopes at bringing down drug costs and
meeting the challenges of a doubling of the population under
Medicare in many cases can only be met through new
technological breakthroughs and non-invasive medical devices
and pharmaceuticals that actually do cure things that today we
treat and maintain in a very expensive way.
We are confident that we have to continue a commitment, not
only a public commitment to the NIH for research, but we have
to make sure that the incentive exists in the system for
private sector companies to continue their research and
development to find those breakthroughs.
Without that, the future will be predictable. And I think,
Chip, you alluded to a deterioration in one part of the system.
That we are talking about is a deterioration of the entire
system.
I remember 3\1/2\ years ago when I landed in the Czech
Republic and had an opportunity fresh into a new democracy to
sit down with their minister of health. They had a hybrid
Soviet system that they had continued over from their
independence.
I also had an opportunity to go back last year on the day
that the minister of health was headed to the government to
drop off their new health care plan. It very much resembled a
hybrid of our managed care system, but the question was why.
And they went through a very detailed statement about the
lack of money. They cut reimbursements to try to save money.
And when they cut reimbursements, doctors began to leave. And
when doctors begin to leave, hospitals begin to close and all
of a sudden they had a quality of care issue that they realized
they created because they tried to treat it in the wrong way.
We understand that we need our entire system to be
strengthened. If I had my choice, it would be comprehensive
reform. It would be something that mirrors more what the
Medicare Commission, which I think put partisanship aside and
addressed some very long-term needs of our health care system
for seniors. Unfortunately, I do not believe that that is
possible to reach this year, but I believe it will continue to
be our goal to make sure that we reach it in the not-too-
distant future.
I hope that the stand alone drug effort is a step in the
right direction. It is not a solution to the problem, but I do
not believe it is a step in the wrong direction.
Clearly, we did not expect to find consensus today and
clearly every member will leave with additional questions that
I hope will find answers as we move through whatever markup
process, whatever floor activity process we go through, but I
am confident of one thing: that this subcommittee, both
Republican and Democrat, is engaged in this issue and is
willing to learn.
For those who feel shorted from today's opportunity to
testify, please take the opportunity to go see those Members
and educate them further. It will contribute to a much more
accurate debate as we move to House activities.
Let me once again thank all of you for your willingness to
be here today. This hearing is now adjourned.
[Whereupon, at 3:37 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of James L. Martin, President, 60 Plus Association
Mr. Chairman, on behalf of the 60 Plus Association, I commend you
and the Subcommittee on Health and Environment of the House Commerce
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, which appeared in Parade 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 the 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 House Commerce 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.