[Senate Hearing 108-615] [From the U.S. Government Publishing Office] S. Hrg. 108-615 DOES CMS HAVE THE RIGHT PRESCRIPTION? IMPLEMENTING THE MEDICARE PRESCRIPTION DRUG PROGRAM ======================================================================= HEARING before the OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED EIGHTH CONGRESS SECOND SESSION __________ APRIL 8, 2004 __________ Printed for the use of the Committee on Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 94-489 WASHINGTON : DC ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 COMMITTEE ON GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Amy B. Newhouse, Chief Clerk ------ OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE GEORGE V. VOINOVICH, Ohio, Chairman TED STEVENS, Alaska RICHARD J. DURBIN, Illinois NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware PETER G. FITZGERALD, Illinois FRANK LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire MARK PRYOR, Arkansas Andrew Richardson, Staff Director Marianne Clifford Upton, Minority Staff Director and Chief Counsel Kevin R. Doran, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Voinovich............................................ 1 Senator Lautenberg........................................... 4 Senator Durbin............................................... 27 Senator Pryor................................................ 34 WITNESSES Thursday, April 8, 2004 Michael McMullan, Deputy Director, Center for Beneficiary Choices, Centers for Medicare and Medicaid Services............ 5 Gail R. Wilensky, Ph.D., Senior Fellow, Project HOPE............. 19 Nancy-Ann Min DeParle, Senior Advisor, J.P. Morgan Partners, LLC. 23 Alphabetical List of Witnesses DeParle, Nancy-Ann Min: Testimony.................................................... 23 Prepared statement........................................... 70 McMullan, Michael: Testimony.................................................... 5 Prepared statement with attachments.......................... 41 Wilensky, Gail R., Ph.D.: Testimony.................................................... 19 Prepared statement........................................... 58 APPENDIX Questions and responses for the Record from Ms. McMullan from: Senator Voinovich............................................ 83 Senator Durbin............................................... 180 Senator Akaka................................................ 183 DOES CMS HAVE THE RIGHT PRESCRIPTION? IMPLEMENTING THE MEDICARE PRESCRIPTION DRUG PROGRAM ---------- THURSDAY, APRIL 8, 2004 U.S. Senate, Oversight of Government Management, the Federal Workforce and the District of Columbia Subcommittee, of the Committee on Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 9:42 a.m., in room SD-342, Dirksen Senate Office Building, Hon. George V. Voinovich, Chairman of the Subcommittee, presiding. Present: Senators Voinovich, Durbin, Lautenberg, and Pryor. OPENING STATEMENT OF SENATOR VOINOVICH Senator Voinovich. The hearing will come to order. I do apologize to the witnesses for being late but the Members of the Senate were being briefed by the Secretary of Defense and the Chair of the Joint Chiefs of Staff about what is going on in Iraq today. So we stuck around a little bit longer just to get a real flavor for what is happening there. I apologize for being late. The Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia will come to order and we welcome you. Today's hearing is entitled, ``Does CMS Have the Right Prescription: Implementing the Medicare Prescription Drug Program.'' I thank all of you for coming today and hope that the hearing will provide an opportunity to have a forthright discussion about the management challenges facing the Centers for Medicare and Medicaid Services. The existence of these challenges should not detract from the agency's significant accomplishments. Medicare has been and continues to be a successful program for the American public, providing vital health care to our Nation seniors. Yet the agency currently has more on its plate than it has since the creation of Medicare and Medicaid in 1965. While Medicare and Medicaid have been essential for our Nation's seniors by providing coverage for the cost of doctor's visits and hospital stays, prior to enactment of the Medicare Prescription Drug Improvement and Modernization Act on December 8, 2003, it was structured for a 1960's health care system. Unfortunately, the system did not evolve with the new developments in science that allows physicians to treat diseases that once required surgery with modern prescription medications. Thanks to Congress' action last year, our Nation's seniors will now have access to a prescription drug program through Medicare. It is now our responsibility to make sure that CMS has the means to implement this new benefit in an efficient and effective manner. While the task ahead of CMS is enormous, the agency has faced similar challenges in the past. In fact, implementation of this new benefit is similar to the previous administration's implementation challenge with Medicare Plus Choice. When Medicare Plus Choice was ready to be rolled out nationwide, I was serving as Governor of Ohio. I recall after reviewing the implementation plan I was concerned that the agency was not ready to handle all of the phone calls they were going to get after a massive advertising campaign. Ms. DeParle will remember my concerns at the time. She was the head of the agency preceeding CMS--HCFA. I approached her and then-Health and Human Services Secretary Donna Shalala. I told them that I felt that before they rolled it out nationwide they ought to do some pilot projects to see how it would work. To their credit, they adjusted the program. My State became one of the five test States and the program was implemented smoothly. I think that just like Medicare Plus Choice, CMS has a lot of work to do before it will be ready to roll out this benefit in 2006. Remembering this experience will help us keep in perspective the administrative challenges facing CMS, which we will learn more about today. I believe that when we begin to discuss the details involved in implementing such dramatic changes the perception will shift from why is it taking 2 years to provide the benefit to amazement that CMS intends to provide it in 2 years. I am encouraged to see that CMS already has taken substantial steps to offer a temporary drug discount card. On February 5, CMS announced that over 100 separate entities submitted applications to offer Medicare approved cards to beneficiaries. By March 25, CMS was able to announce that they had reviewed the applications and, I understand, awarded 28 private card sponsors. This is the first step, and we have to make sure that this progress continues, particularly as the mailings go out and beneficiaries are going to be asked a lot of questions about how to take advantage of the card. I understand Ms. McMullan will talk about the discount card but neither the details nor the merits of the program are the topic of this hearing. Understand that. I do not want to get into a debate about the program. There have been numerous Congressional hearings about that issue. The purpose of this hearing today is to discuss the capacity of CMS to respond to the challenge of implementing the drug benefit program by 2006 and to establish a baseline of where the agency is today. Even before passage of the Medicare Modernization Act, CMS was coping with administrative challenges. For example, a 2002 report by the National Academy of Social Insurance highlighted the fact that between fiscal years 1992 and 2002 benefit outlays increased 97 percent and claims grew by 50 percent, however program management funds increased by only 26 percent and authorized full time equivalent positions only 12 percent. So the workload increased, but there was a question about whether the dollars were there to provide for the management that was needed to deal with the increases. One of the challenges facing CMS in moving forward with implementation of the prescription drug benefit is the agency's human capital resources. In general, governmentwide strategic human capital management remains on the General Accounting Office's high-risk list. Currently 18 percent of CMS workforce is eligible to retire. The number is significantly higher, 30 percent, in the career Senior Executive Service. We are not talking about early retirement. In addition, over the past 3 years, CMS has lost a quarter of its career executives to retirement. If that does not seem like a daunting challenge, 46 percent of the existing CMS workforce will be eligible for regular retirement by 2009. These statistics leave me asking the question will CMS have the expertise and the leadership it needs to get the job done? During my time as Mayor of Cleveland and Governor of Ohio, I worked to address the workforce challenges within our local and State governments. Working with a wide range of stakeholders, we successfully empowered our employees while establishing a culture of quality management. Since coming to the Senate in 1999, I have stressed to my colleagues the urgency of the Federal Government's human capital challenges, the need to get the right people with the right skills and knowledge at the right place at the right time, something that has been ignored by this government for as long as I remember. And before I came here I lobbied this place for 18 years as a mayor and governor on this same issue. So the question is, do we have the people to get the job done? Human capital management is but one of the many management challenges we are going to touch upon today. For example, the Medicare program has been on GAO's high-risk list since 1990. I look forward to discussing what the future looks like for CMS. Testifying before the Subcommittee today are three individuals with significant expertise and insight into CMS. While I have highlighted what I see as some of the challenges facing CMS, I look forward to hearing from CMS about the challenges they have identified and the steps the agency has taken to address them. At this time I would like to welcome Michael McMullan. Ms. McMullan is the principal career executive in charge of the Center for Beneficiary Choices. She has been with the agency for 31 years and I certainly hope you are not considering retiring, Ms. McMullan. The Center is a focal point for innovation in the Medicare program, including clinical quality measurement and assessment, the Medicare Plus Choice program and beneficiary education. In addition, we are privileged of have testifying today before us two past administrators of the Health Care Financing Administration, Gail Wilensky, who served from 1990 to 1992, and Nancy-Ann Min DeParle, who served from 1997 to 2000. I have had the privilege of working with both Ms. Wilensky and Ms. DeParle during my time as governor. More recently it was their presentation at the John F. Kennedy Commonwealth Health Policy Conference in January that highlighted for me the tremendous management task before CMS. I look forward to their assessment of CMS's ability to manage the new drug program and what they would do if they were in charge of CMS today. I would now like to recognize Senator Lautenberg for an opening statement. Senator, thank you for being here. OPENING STATEMENT OF SENATOR LAUTENBERG Senator Lautenberg. Thank you, Mr. Chairman. You know that I think that Ohio had chosen wisely when they sent someone with the experience and the commitment that you have, Mr. Chairman, and I enjoy our chances to get together. I am sure that some of our meetings are not quite as pleasant as some of the others, but we always have the same mission in mind, Mr. Chairman. And so I look forward to this hearing and commend you for calling it. The Medicare Modernization Act is being closely scrutinized by all sides. We are not here to debate the merits of the new law, but rather to review how the Centers for Medicare and Medicaid Services will implement the most significant changes to Medicare since its inception. It is not going to be an easy job. It is precisely the implementation of this law that I have some serious concerns about. As you would expect, the view of the law where the class is half-full or half-empty is where we are. The Chairman sees it as half-full. I see it as half-empty. His interest in getting the program underway is one certainly that I think we all would like to see in place. Questions are raised about why the year 2006 was chosen, I think. I came out of the computer business and the Chairman has long studied Medicare and the health care problem. But I know that our recordkeeping is a lot better today than it was in 1965 when Medicare was created and it took us only 11 months, I think, to get the Medicare program up and running. With the computer technology and the recordkeeping that we have today, I think it could take a lot less time. I am rather suspicious about deferring the date until 2006. I have repeatedly asked the Administration to stop producing misleading Medicare advertisements that have a political tone. The reality is that the recent print and television ads promoting the law do really little to inform the Medicare beneficiaries. Rather, they are thinly veiled political ads paid for with taxpayer funds. At my request, the General Accounting Office reviewed these ads and found that they contained ``notable omissions and other weaknesses'' such as misleading seniors about the prescription drug program's premiums, which will very likely exceed the Administration's estimate of $35 a month. These ads sugar coat the description of the Medicare drug discount card program by failing to note that the cards require the payment of annual fees and that the discounts will vary greatly. The ads promise the same Medicare when the law contains new structural incentives for the gradual privatization of Medicare. In a similar vein, false news reports scripted by the Administration repeat the litany of intentional errors and misleading statements. Masquerading as journalism, video news releases, VNRs, produced by the Administration tout the new legislation. In a video produced by HHS, the cheering crowd stands there applauding the President as he signs the Medicare Modernization Act into law. It is fairly obvious that this had to be staged. And even the government's official 1-800-Medicare help line extols the new law, literally forcing callers to describe the changes as Medicare improvement before permitting them to access a counselor. Once a caller submits to say Medicare improvement, he or she is led to an automated voice with a familiar misleading message. It says it is the same Medicare you have always counted on with more benefits. You can keep it as it is and you do not have to change a thing. The Administration's obligation is to educate and not spin. The legislation is now law and understanding its many changes, including some which will offer legitimate help to people with low incomes or high drug needs, is daunting enough for people without being misled by Administration ads or video news releases. If the Administration's primary interest truly lies in getting Medicare beneficiaries and their families to understand the changes under this law, we insist that it remove bias and distortion from its so-called educational efforts. Mr. Chairman, I would like to be as cooperative as I can to get the program underway, but I just have a concern about how this is being presented to the American public. Senator Voinovich. Thank you. It is the tradition of this Subcommittee to swear in the witnesses. Will the witnesses please stand as I administer the oath? [Witnesses sworn.] Senator Voinovich. The record should reflect that the witnesses responded in the affirmative. Ms. McMullan, I want to thank you very much for being here today. I want to also publicly thank you for your 31 years of service to our government and the people that you have come in contact with over the years. We look forward to your testimony. TESTIMONY OF MICHAEL McMULLAN,\1\ DEPUTY DIRECTOR, CENTER FOR BENEFICIARY CHOICES, CENTERS FOR MEDICARE AND MEDICAID SERVICES Ms. McMullan. Chairman Voinovich, distinguished Members the Subcommittee, thank you for inviting me today to discuss implementation of the Medicare Prescription Drug Improvement and Medicare Modernization Act or MMA for short. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. McMullan with attachments appears in the Appendix on page 41. --------------------------------------------------------------------------- The Centers for Medicare and Medicaid Services is very proud---- Senator Voinovich. Ms. McMullan, I usually ask people to speak for 5 minutes, but I do not want you to rush through this. We have three witnesses today and I want to make sure that we hear you. If you could just move up closer to the mike, too, so that we can hear what you have to say. Ms. McMullan. The Centers for Medicare and Medicaid Services is very proud to have a significant role in implementing this historic legislation and is working diligently to meet the numerous and aggressive deadlines outlined in the Act. The MMA represents a fundamental change in the Medicare program by offering our beneficiaries more choices in how they receive their care and by establishing a responsive relationship with providers of that care. This will begin with the Medicare-sponsored discount card and will continue as the full prescription drug benefit is implemented in 2006, and represents a lasting change in how CMS and the Medicare program will operate. CMS is unique among government agencies in that it accomplishes its mission principally through contractors and other government entities. The agency employes about 4,500 people in locations across the country. However, these employers are only a small portion of a very large, complex network of people and groups that make our programs work successfully. The chart that I have attached to my testimony gives an idea of the scope of this contracted work.\1\ For example, in 2003, it is expected that CMS contractors will have provided claims processing services to about 33 million beneficiaries, worked with approximately 1.1 million health care providers, processed more than 1 billion Medicare claims, paid more than $236 billion for beneficiary services, and handled more than 7.3 million review requests and other kinds of appeals. --------------------------------------------------------------------------- \1\ The chart referred to appears in the Appendix on page 50. --------------------------------------------------------------------------- CMS' MMA implementation challenges can be categorized into a number of broad categories, including a prescription drug discount card and transitional assistance program, a new voluntary Medicare prescription drug benefit, modification of the existing Medicare Plus Choice program now renamed as Medicare Advantage, and contractor and regulatory reform. The MMA also modified numerous payment systems under Medicare and Medicaid, particularly those affecting rural providers. It established new preventive benefits, established a number of demonstration programs, provided for administrative improvements and regulatory process changes and numerous other provisions. Given the nature of the work before the agency and the need for effective steady leadership, we appreciate the Senate's swift confirmation of Dr. McClellan as our new Administrator. As an example of what we have already done to implement MMA, on December 15, 2003, just 1 week after the law was signed, CMS published a regulation establishing a new prescription drug discount card program. We solicited applications from organizations interested in sponsoring such a program, and on March 25 announced the approved applications. On April 1, CMS announced the actual drug discount cards that the sponsors will offer. And on April 29 we expect to post on our Web site specific discount prices available through these programs. Beneficiaries will be able to sign up for the cards in May and begin realizing the associated discounts on their drug purchases effective June 1. In addition, qualified low income beneficiaries will receive a significant additional benefit of a $600 credit applied toward their drug purchases. Establishing the drug discount card program, although a major effort, is not the only work that CMS has accomplished in the past 5 months when it comes to MMA implementation. The second attachment to my testimony details more than 100 tasks that CMS has completed to date. It is obvious from this list of accomplishments that CMS is making good headway in meeting the ambitious timeline within the MMA. The MMA provides CMS with about $1 billion to spend over 2 years for implementation. This money will be spent on hiring additional personnel, upgrading and adding new information systems for operations and analysis, educating and providing information services to beneficiaries and providers. CMS has already made important funding decisions related to the implementation of the drug card and to hiring new employees. CMS continues to develop and implement the budget plan as it moves toward implementation of the remaining provisions. To implement the MMA, CMS will need to hire individuals with expertise in pharmacy benefit management, clinical professionals such as pharmacist and physicians, individuals experienced with disease management and prevention, health economists, public policy analysts, and individuals who know how employers structure their retiree benefit practice. CMS will also need additional IT professionals experienced in building systems and telecommunication infrastructure contemplated by the law. Finally, CMS will need to hire individuals experienced with government contracting, as much of the work under MMA, as with other Medicare operations, will be contracted out. We have begun staffing a number of these new positions. Once contracts have been established for the administration of the program set up by CMS, the work of the contractors must be monitored and supervised to ensure program integrity and effectiveness. The main oversight work of CMS is to see that contractors and providers implement these new programs as directed by statute and established by the agency. For example, CMS will need to monitor pricing of drugs and benefits provided under the drug discount card program, by the drug benefit plans, and the Medicare Advantage plans. The new programs must be studied for their effectiveness, to see whether they have carried out the statute as Congress intended, and if they have provided appropriate benefits and assistance to Medicare beneficiaries. Error rates in payment will need to be established and education made available to providers to help them avoid billing errors. CMS must also monitor for fraud and abuse. The agency needs to be able to address any inappropriate behavior, either through remedial education or punitive measures. The implementation of Part D and the new and revised payment systems require substantial IT development and changes. The agency will need to develop and manage plan enrollment and management systems, systems to process beneficiary eligibility requests and enroll beneficiaries in the new benefits, track utilization of services, and measure and track clinical quality. Revised and new IT systems will need to interact with systems supporting MMA managed by other Federal agencies such as the Social Security Administration and the Internal Revenue Service, States, and private insurers who contract for the new benefits under MMA and those offering Medigap plans. CMS recognizes that opportunities for beneficiaries to choose new benefits and how these benefits will be delivered represent a change for Medicare beneficiaries. Therefore, CMS has begun a substantial and varied education campaign to assist beneficiaries as they take advantage of these new benefits. The timelines required under MMA are ambitious and will require prudent planning and wise use of resources. Although there are many decisions left to make with respect to budget and personnel, CMS is committed to informing Congress about these issues as they progress. I thank you for your invitation to testify this morning and I welcome your questions. Senator Voinovich. Thank you, Ms. McMullan. I would like you to go back to about the last 2 minutes of your testimony. I would like you to repeat for us that last part about all the things that you have to do, that is a mouthful and you went quite rapidly through it. Just go through it real slow. It is right at the end of your testimony, you were discussing bringing IT people on board. Ms. McMullan. The types of people that we need to administer the programs? Senator Voinovich. That is right, could you repeat that again? Ms. McMullan. In order to implement MMA, we are going to need people who understand pharmacy benefit management, a principal task under the new Part D, clinical professionals such as pharmacists and physicians, individuals experienced with disease management and prevention, health economists, public policy analysts and individuals who understand how employers structure their employee benefit packages. We will also need IT specialists who understand how to structure the systems and the telecommunication infrastructure contemplated by the statute in implementing both Part D and the other programs under the statute. Senator Voinovich. That is a mouthful. Ms. McMullan, you have been in the agency a while. What lessons has CMS learned from the twin challenges passed by the Medicare reforms mandated by the Balanced Budget Act of 1997 and the Y2K computer migration, in terms of prioritizing and implementing a lengthy list of important and complicated program changes? Just listening to what you have said, what have you learned from past experience that will help you now? Second, these people with specific expertise that you need to hire, are they available today to be hired? Is the budget that has been made available to the agency adequate enough to get the job done? And, finally, but not least, what I am most interested in is do you think that you need some additional workforce flexibilities in order to get the job done? For the last several years, I have been working on the issue of human capital management. One of the concerns I have had is that some agencies have been unable to keep people they need. And then, more important than that, agencies have been challenged in attracting new people into the agencies. I have worked to ensure agenceis have the flexibilities and the tools and the other things that are needed. You have been at CMS a long time. So if you would talk through these issues for me, I would appreciate it. Ms. McMullan. To start with the lessons learned, I think that the most important thing that we learned in both doing the implementation of the Balanced Budget Act and in Y2K is the need to think through the plan for each of the activities that is contemplated in the statute for us to implement and understand what the business requirements are for the task, and the critical path to implementing the different activities. And so, we are in a very careful planning and prioritizing stage now for many of the parts of the statute that have implementation dates in 2006 through 2011. So that is a critical task and activity that proved to be very useful and important in our implementation of the Balanced Budget Act (BBA) and in the Y2K management. So we are actively doing that, reporting on a regular basis on our accomplishment against those plans and working with our colleagues and other Federal agencies and the States to coordinate the activities that have to be implemented against the plan. So that is probably the greatest learning that we have done over time; understanding the importance of that first task of planning. Having said that, then you take those business requirements in the plan and look at what the tasks are ahead of us that are the most important for us to accomplish in implementing the statute. And for Part D, that is substantially information systems and contract development and management because we will be contracting out for the management of the Part D benefit to private drug plans as well as Medicare Advantage plans. The private drug plans is a new entity in the marketplace and so we are going to be working through and thinking about having to do that. Medicare Advantage offers a new option with the PPOs, so we are working to think through and understand how best to organize that and to be able to contract for it. The business requirements for the systems deal with how do you add to our already existing plan management and monitoring capacity that we have now for the Medicare Advantage plans? How do we expand out those systems that already exist? And then, for Part D, establishing new systems to manage eligibility and payment. It is a different program. So that we have to think through those requirements and put the systems in place. As far as the human capital aspect of that, significantly to accomplish the work done to implement those programs we will rely on contractors. And so the human capital that we need within CMS are the people who can define the requirements and manage the contractors. So it is very important that we have expertise inside of CMS and the Department. Senator Voinovich. An important part of this program, and I have been through it as a governor, will be putting requests for proposals together for private contracting. It takes some really good people to do that. Once it is done, it is important to have the people to review the proposals. Do you have that capacity now to do that? Ms. McMullan. We have the capacity now to do part of the work that we are doing now, and then we will build up the capacity over time to do the work that we will have to do between now and 2006. And then eventually, with contractor reform, through 2011. So we need to increase capacity both for people who understand government contracting and in the IT systems, as well as the expertise that we need in understanding how to manage the pharmacy benefit and the clinical staff that can help us understand the coverage and rules. We also have disease management and prevention, so we need more clinical staff in that area as well. So we do understand we have to build out the staff within CMS in order to manage the program. The significant human capital though, will be acquired through contracts as we do now. Senator Voinovich. Do you feel confident that the people you need to bring in to CMS to do the RFPs, request for proposals, are available to be hired? Ms. McMullan. We have had significant success hiring expertise in government contracting. We often acquire people from other government agencies that do contracting. There are significant resources out there in trained resources. So I think that on managing government contracts we probably do have a sufficient supply available to us within the existing government contracting world. We are also using ways to attract scarce resources by offering recruitment bonuses as well as for our clinical staff, special pay provisions for physicians and others that qualify for those provisions. Senator Voinovich. Do you have those flexibilities right now? Ms. McMullan. We have them and we are interested in employing some additional ones that can be made available to us through the direct hiring authority available through the Office of Personnel Management, as well as the hiring potential that is available through the statute itself. So we are interested in using those additional hiring authorities. Senator Voinovich. We are going to have a couple of rounds of questions. Senator Lautenberg. Senator Lautenberg. Thank you, Mr. Chairman. May I have your permission to show a short video just to clarify what was said and when, that kind of thing? Senator Voinovich. That is fine. [Videotape played.] Senator Lautenberg. Thanks, Mr. Chairman. This news story, fake news story, was produced by CMS. It was distributed to TV stations around the country, run as if it were just an unbiased news clip. The video did not identify that it was produced by the government. The GAO has launched an investigation concerning the legality of this video. And I thank you, Ms. McMullan, for your testimony. I know how arduous the task has been to get all these things into shape and I respect it greatly. I just have some questions that I think need clarification. Do you know who Karen Ryan is, the reporter in this video? Ms. McMullan. It was a name used in developing the video. We produce video news releases, audio news releases, and paper press releases that we give to the press in order to give them information. The way that the press stations use these, the VNR in particular, is to cut and paste certain portions of them. The use of a voice in going through the VNR from beginning to end is meant to provide context in ways that news stations may use them. Most news stations just use pieces of the VNRs. Very few of them use any of them from start to finish, and that is really the decision of the news director. But most of them, as I say, use them as just little snippets. And along with the information you show, we also include other kinds of materials that they can use called B-roll. I do not know what the B stands for, but it is called B-roll. That is added to the VNR just to provide them with other information that they can use. So it is very much like a paper press release that newscasters and others use at their discretion. Senator Lautenberg. But it does not identify anyplace that this was put out by CMS because it portrays what one would normally think of as a news report, ``today thus and so happened.'' The President signed the bill, and here is what the law is going to be. Usually that would carry a legend that says this is produced by, paid for by or otherwise. But I think what comes across is, as you have just confirmed, is that you use voices and people to portray things that usually always, I think, are required to identify the fact that this is produced by the government. This certainly did not have that character. How many stations played this so-called new report? Do you know? Ms. McMullan. No, I do not know but we will be happy to provide that for the record. We do have the information. Information provided for the Record follows: The video news release (VNR) was aired on 40 different stations in 33 local markets throughout the country. Senator Lautenberg. I think the number was about 40, but I would appreciate your confirmation. Should CMS be in the business of covertly distributing news stories that are not really representative of just the issue, but rather, in my view, certainly has a political overtone here? Do you think that is appropriate to pitch, cut, and paste, and do that kind of thing, presented as if it was pure news without saying that this is a program that still has some way to go, and things to do? We talk about senior citizens being able to get all kinds of drugs, everything they want. But the fact of the matter is they cannot get the health savings account if they are a Medicare beneficiary. That was pulled, Mr. Chairman, from the first circular that was printed because it is not a benefit that is available to those who are beneficiaries of the Medicare program. The General Accounting Office found that the Medicare flyer and the ad campaign that the Centers for CMS produced contained notable omissions, had a political tone, and overstated the new drug law's benefits. These are tough criticism by a nonpartisan organization, GAO. And will CMS revise these materials in response to GAO's criticisms? Ms. McMullan. The materials that GAO reviewed were ads that had been on the air. We will be airing additional new ads on the drug discount card. We use the power of television to reach the maximum audience that we can. The information that we include in ads, and note that ads are 30-second ads, so that there is not a significant possibility to include all information about all parts of the program. So we try to target it on one or two messages to make sure that people understand, particularly where do they go to get additional information on any of these. When we do the ads, we substantiate the information in the ads to make sure that it is accurate and presented correctly. So we do intend to continue to use television advertising to help people understand Medicare. Senator Lautenberg. So you dismiss the commentary, the response by GAO that said that there were notable omissions, the ads had a political tone, and overstated the new drug law benefits? You dismiss those as not being meritorious in this case? Ms. McMullan. I would never dismiss any good advice that we get from anyone. In looking at what they had to say, we take all of that into consideration in moving forward. But I would just note, in providing a 30-second ad, we have to limit the number of messages just because of the time. And we want to make sure that people understand what they are getting. Senator Lautenberg. But that does not mean that you would change the facts. Ms. McMullan. We do not change the facts. They are fact- based. Senator Lautenberg. Then what is the 30-second relevance, in terms of when I say over---- Ms. McMullan. Well, when you mention that there are significant omissions, it is hard to include a complete analysis of anything in a 30-second ad, so we target it to just a few facts. Senator Lautenberg. How about overstating the benefits and the political tone? Will those ads in the future say produced by the CMS and so forth? Should that legend be on there, do you think at all? Or is it appropriate to just have this out there and let us say pretend that it is a news story? Because it is not basically a news story. Ms. McMullan. You have two different issues here. One is that the ads are always attributed to the Department of Health and Human Services. Senator Lautenberg. This was not. Ms. McMullan. The television ads. The video news release is much like a press release. The video news release, when we send it out, we send it out from the Department of Health and Human Services. So it is attributed to the Department of Health and Human Services when it goes out to the new stations, just like the press releases and fact sheet include our information. What news stations choose to use is at their discretion, just like a newspaper reporter would not necessarily attribute a paragraph in a news story to a fact sheet that he gets from Health and Human Services. So it is much more akin to a press release than it is to the television advertisement, which on the television ads we do include an attribution. Senator Lautenberg. How do you differentiate, who makes the decision that this one is supposed to create the impression that it is a news release, that it is a discovery by the reporter or the station? As opposed to an ad? Why was this not an ad? Because to me it looks like one. Ms. McMullan. For the ads, we buy time on television to present them to the public. The VNRs we produce and send out to the news stations and they make the choice as to whether they use any of it or not. We do not pay for the release of that information. Senator Lautenberg. Did any other networks, the larger stations, use this, that you are aware of? Ms. McMullan. I do not know but I will be happy to provide that for the record. Information provided for the Record follows: The VNR was not aired on national network newscasts but was aired only by local affiliate stations of all four major networks (ABC, NBC, CBS and Fox), as well as Telemundo and some independent stations. Senator Lautenberg. We did some checking because we take heed to what GAO said. The VNR did not go out from CMS. It went out from HHS public relations firm, a professional firm. So there was no ID on the videos as to the source from whence they came. And to me, Ms. McMullan, as we discuss this I am more convinced than ever that there was something out there that was deceptive, misleading and ought to be reviewed very seriously by CMS and by HHS. And I am going to go further with this and see if we cannot insist that all of these carry the legend that this is sent out by either CMS or HHS to make sure that people understand that this is not just some news story that you go ahead and run, because it is misleading in character. Mr. Chairman, what is your preference on time? Senator Voinovich. I would like to ask some questions and then return to you. Senator Lautenberg. Thank you. Senator Voinovich. I would just like to comment, this is not the purpose of this hearing. But let me clarify. The ad that we have seen was sent out as a news release, a television news release. When it was sent to the stations, they knew that it came from CMS and HHS; is that correct? Ms. McMullan. Yes. Senator Voinovich. The point you were making is when they got it, stations could use the whole thing or a snippet of it. It was their decision to make, in terms of what they were going to use; is that right. Ms. McMullan. Correct. Senator Voinovich. Sometimes I sent a news release out when I was governor. We would do a TV spot, put it together, and send it to the stations. And most of the time they did not use it but sometimes they did. But rarely did they ever run the whole piece. They just took parts of it. OK, that is one thing. The other thing, you are guaranteeing to us that for any 30-second commercial that you paid for will notify everyone that it has been paid for by the Department or the government, so that there is no question about where it is coming from; is that correct? Ms. McMullan. Yes. Senator Voinovich. OK, clear. One of the things I am really worried about is the advertising of the 1-800-Medicare number. I had a little experience last night. I called the company that takes care of my drugs with a question about whether one drug that I was getting was cheaper or more expensive than another one that supposedly is the same thing. I am writing to the president of this company. I waited for 15 minutes before I got a pharmacist, 15 minutes. And then, when I got the pharmacist, I could not understand the pharmacist. I do not know where this person was, but I was really upset. Finally, after 5 or 6 minutes, I got what I needed, but it was unbelievable. What testing have you done on the 1-800 number? How much time are you going to be giving the individuals that are making the call? And the people answering going to be U.S. citizens, who can enunciate their words? And I have nothing wrong with accents. My grandmother and grandfather on both sides, they learned to speak English. My concern is that you are dealing with senior citizens. You must have people answering questions that have good diction, understand callers, and can communicate. How much testing have you done on this 1-800-Medicare number. Once people start calling that number, if they are not happy with it, they are calling my office. They are going to call Senator Lautenberg's office. They are going to call our Department of Aging in Ohio. So I would like to know, what testing have you done to make sure that thing really works. Ms. McMullan. At our 1-800-Medicare number, we have increased the number of customer service representatives from 352 to 1,400 people. To answer your question about volume, will we be able to handle the volume. They are scripted with answers to questions that we carefully develop and test with both the customer service representatives and with Medicare beneficiaries. We also provide a quality assurance activity within the call centers where their managers listen in on the calls to make sure that people are following the direction carefully and answering the questions with the right kind of consideration to the caller. We have another tool that we use where we can offline watch the calls being answered and how people are navigating through the scripts to make sure that they are using the right answers to the scripts. And we also have something called mystery shopping where we have contractors who call, ask questions as if they are a Medicare beneficiary, and tell us whether or not they are getting the appropriate answers in return. Senator Voinovich. How long have you had the 1,400 people on? Are they all hired? Ms. McMullan. They are being hired and will all be available by May. So they are being hired and trained now. Senator Voinovich. But people are already calling 1-800- Medicare. Ms. McMullan. And we are able to answer the questions now. The people there are being trained and scripted as we speak. So as we started with the marketing and advertising campaigns, we had the ability to answer those calls. The calls are answered within a very short wait time, almost immediately. If there is a period of the day when there is a heavy call volume and they have to wait more that 2 minutes, we let them know that they can either wait or call back another time when there is less volume. But no one waits 15 minutes. Our call center is operated 24 hours a day, 7 days a week with English and Spanish speaking customer service representatives. And all of the call centers are in the continental United States. Senator Voinovich. Good. Senator Lautenberg. Senator Lautenberg. Thanks again, Mr. Chairman. Ms. McMullan, is Homefront Communications a division of government, do you know? Ms. McMullan. Homefront Communication is one of our contractors who developed the VNR on our behalf. Senator Lautenberg. You said that they would know that this came as a news release from CMS. But here is the script and it says the address for this is Homefront Communications at 1620 I Street, and the phone number is definitely not a government phone number. So is this not a little deceptive to have this released as if it was fresh news without saying hey, this is put out by our Department in the interests of selling this program? Because it has a political bias to it that is, I think, almost impossible to challenge. We have seen a few things, Ms. McMullan, that are disturbing. You know the claim that there will be a $35 premium for the Medicare drug plan. It is only an estimate of what the actual premiums are going to be in 2006. And you know what happens with estimates, invariably they go up. The CMS materials give the misleading impression that the premium will be about $35 when, in reality, it could be substantially higher. Would you stake your family farm on the fact that this is a $35 charge and nothing more? Ms. McMullan. Like many things we estimate prospectively what we anticipate it will be and that is our current estimate. That is our best knowledge at this time. Senator Lautenberg. How long do you think the $35 premium will last, Ms. McMullan? Ms. McMullan. I do not know. I do not know what our analysis showed as far as how long we thought that would be $35. The estimates are done by people who do these kinds of estimates all of the time based on the information that they have. So I expect that they do the best that they can. Senator Lautenberg. Do you know what the cost of this new program will take over the next 10 years? How much it will cost to do, to put this program into place? Ms. McMullan. Those estimates are available. I do not know them off the top of my head, I am sorry. Senator Lautenberg. Do you recall the number $400 billion over a 10-year period? Ms. McMullan. The CBO estimate was close to that, $395 billion was the CBO estimate. Senator Lautenberg. Are you aware of the contest that emerged with a re-estimate of that by Mr. Foster, whose name I am sure you have heard, suggesting that it might be 30 percent higher than was originally, 30 or 40 percent than originally estimated? You are aware that there was a challenge to that? Ms. McMullan. I am aware that the CMS actuaries had a different estimate based on a different set of assumptions that went into those estimates. Senator Lautenberg. But you are satisfied that the $35 is an estimate that we can live with? You are aware of the flyer, familiar with the flyer that was sent out, that was prepared for mailing, 36 million, I think, of these pieces; am I correct? Ms. McMullan. It was mailed to every Medicare beneficiary household, which is about 36 million. Senator Lautenberg. When this was examined, we challenged the section called News for All Americans that talked about starting immediately so Americans would be able to set aside money, in the health savings accounts. This was stricken from the later production because it was challenged. The GAO looked at this. Are you aware that there was a section removed in this? Ms. McMullan. Yes. Senator Lautenberg. So was that a mistake or was that as a result, if I may suggest, that this was kind of a knuckle rap by GAO and some review of this? Ms. McMullan. In the initial development of the flyer, we were responding to the fact that we were getting lots of inquiries from people with Medicare trying to understand what was in the new Medicare Modernization Act. The health savings account information is in the Medicare Modernization Act. So in developing the first version of it we thought that we should explain that important attribute. Since people with Medicare can, before they become Medicare eligible, have an HSA we thought we should explain it. However, you are right. Once you are Medicare aged, you can apply for a Medicare savings account but not an HSA. So upon further review, we decided that we needed to remove it. Senator Lautenberg. Thank you, very much. Senator Voinovich. One of the questions that I had was the same as Senator Lautenberg, in terms of the cost. And I had it explained to me by the Secretary. CBO still claims it is going to cost $395 billion over 10 years. It is OMB that came back and said that it is going to cost, I think, $530 billion or $540 billion, a substantial increase from the $395 billion. It is my understanding that the difference is the estimate of how many people will take advantage of Part D. And I think CBO based their estimate on the percentage of people that are currently taking advantage of Part B of Medicare. Do you know what that percentage is? Ms. McMullan. It is about 90 percent. Senator Voinovich. It is my understanding that when OMB looked at it they said that they thought a larger percentage. In other words, when CBO did its analysis, it said 90 percent participate in Part B. I think the Secretary gave me a larger number. Are you sure that number is right, 90 percent for Part B? Ms. McMullan. We are pretty sure that that is correct, but we will also provide that for the record if it is not. Information provided for the Record follows: Generally, 91 percent of those beneficiaries eligible participate in Medicare Part B. We assume that about 94 percent of those eligible for Part D will choose to participate. Senator Voinovich. If you could do that. But the fact is that there is a difference of opinion about how many people are going to take advantage of this Part D that will be offered to them in 2006. And that is the reason why we have different numbers. But CBO, at this stage of the game, has not backed off the $395 billion and there is a difference. Quite frankly, if we are being honest about it, we are not really sure. It may be between $395 billion and $540 billion. Hopefully, it is not going to be more than $540 billion, but only time will tell because we just do not know how many people are going to take advantage of the program. In line with having people take advantage of the program, you are going to have a Web site; is that correct? Ms. McMullan. Yes. Senator Voinovich. One of my concerns is that you have a lot of vulnerable people out there. The ones that I am really concerned about in this country are the least of our brothers and sisters, the people who today are poor and are unable to buy prescription drugs or, in the alternative, buy them and ration them. One of the things that this program is aimed at is that vast number of people, particularly those under 150 percent of poverty. They are most vulnerable people in this country today because they do not have prescription drug benefits. How can somebody that is in this vulnerable position, that does not have a computer, or maybe like this Senator, is not computer literate--thank god that my wife is--going to get the information so they can intelligently decide which card they should receive? What efforts are going to be made to help them take advantage of this program? Ms. McMullan. We are making a significant commitment to reach out to the low income population. We have several strategies that we are using. In fact, we have 700 people in Washington yesterday and for half a day today, that come from States and other organizations that assist people with Medicare, and understanding how to take advantage of the drug discount card program, particularly those people who qualify for the $600 credit. So we are training people, through this approach, with the conference. We have put additional resources into our regional offices to work with State and local organizations to train additional community-based organizations to reach out to the low income population. We have our State Health Insurance and Assistance programs which are grants to States that we have added money to so that they can also assist the low income individuals and find those opportunities to engage the low income population. We are putting additional resources into establishing longer term partnerships with organizations that reach low income beneficiaries because that is also a very important aspect of Part D. So we have a significant amount of resources going to exactly the population that you are speaking about. Additionally, anyone calling 1-800-Medicare can be walked through the Web site and helped to narrow the choices of drug cards that are available to them and also get additional information about other drug discount programs that may be available to them such as State pharmacy assistance programs in those States that offer those programs. Senator Voinovich. I will close on this one comment. I have really worked with our governor and our Office on Aging and the Department of Insurance to expand OSHIIP. We started that aggressive program when I was governor. This has been very helpful and it seems to me that you ought to be encouraging the States to really go out and recruit more people in the OSHIIP program. It seems to me that you ought to have an expert at every senior citizen club, every senior facility, living facility, so that there is somebody there that can help these individuals take advantage of it. I just want to, for the record, say I had a staff member call 1-800-Medicare. For the record, there was approximately 90 seconds of recorded information. After that an agent picked up immediately. So far, so good, Ms. McMullan. Senator Lautenberg. Senator Lautenberg. That is better than you get from the telephone company if you call for a service call. I would just ask one other thing, Ms. McMullan. I thank you for your cooperation and your patience in this, but we want to get to the bottom of it and we will be sending you additional questions for response to the record. But the subject of the pharmacy assistance program was brought up. There is automatic enrollment for those who are presently in Medicare, in the discount drug program. Why are we prohibiting the pharmacy assisted program beneficiaries from automatically being enrolled? Ms. McMullan. There is no automatic enrollment in the drug card. We have been working closely with the States that offer pharmacy assistance programs to look at the opportunities to allow automatic enrollment for their pharmacy assistance members, and we will do that. It is an interesting combination of both Federal issues and State law issues. But we have worked out a mechanism where we can provide the opportunity for automatic enrollment. The one issue that we need to have, because it is stated in the rules around the drug card, is that we have to have a signature. So we are working with those programs to offer their members to make sure that they understand that they are being enrolled in this benefit. But we will allow the States that have pharmacy assistance programs to automatically enroll, given the fact they ask for a signature of those members. Senator Lautenberg. Thanks, Mr. Chairman. Thank you again, Ms. McMullan. Senator Voinovich. Ms. McMullan, I have several other questions I would like to ask you, but I am going to submit them to you in writing and would appreciate your responding to me in regard to those questions. You have been very gracious to come here this morning. We really appreciate your testimony. You have a very formidable task ahead of you. I have been involved in implementing programs, and god bless. Ms. McMullan. Thank you. Senator Voinovich. I would now like to call Gail Wilensky and Nancy-Ann Min DeParle to come forward. As I mentioned earlier, Ms. Wilensky and Ms. DeParle are former administrators of HCFA, CMS's predecessor. I look forward to hearing what they believe are the major challenges facing CMS as the agency moves forward with this benefit. Ms. Wilensky, if you could start. Again, I really am grateful that the two of you are here today and I am so glad that I was with you at the John F. Kennedy School of Government's 2-day health seminar. Had I not been there and heard from you, we would not be having this hearing, and I would not have been on the phone and working so aggressively to make sure that Mr. McClellan was confirmed to take Mr. Scully's position. A lack of leadership by CMS at this time would have been a disaster. Ms. Wilensky. TESTIMONY OF GAIL R. WILENSKY, Ph.D.,\1\ SENIOR FELLOW, PROJECT HOPE Ms. Wilensky. I agree with your assessment. I believe the people running the January meeting, sponsored by the Commonwealth Fund and the Kennedy School, should feel this is a signal of the success of that meeting. And Senator Lautenberg, I hope sometime you will join us, as well. It is open to all Members of Congress. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Wilensky appears in the Appendix on page 58. --------------------------------------------------------------------------- Mr. Chairman, Members of the Subcommittee, thank you for inviting me to appear before you. I am currently a Senior Fellow at Project Hope, an international health education foundation. As you have indicated, I am a former administrator of the Health Care Financing Administration from 1990 to 1992. I also served as the first chair of the Medicare Payment Advisory Commission, MedPAC, from 1997 to 2001, and chaired the Physician Payment Review Commission from 1995 to 1997. I say that because it has given me a very broad perspective of issues both from an operational and administrative point of view, running the program but also advising the Congress on issues of payment and change. Additionally, I have spent 8\1/2\ years in the Federal Government as a senior researcher and career staff person and that allows me to have a somewhat better understanding of the issues that career people have faced. What I would like to do is review some of the challenges that I believe are present with regard to the regulation and implementation phase of the Medicare prescription drug program, to consider the adequacy of resources available, and also to provide some suggestions about how Congress might be helpful. Before I start, I would like to make a comment in regard to a statement Senator Lautenberg had made about the timing, because I agree with the statement you made earlier, that having the full drug benefit occur January 2006 is going to require a Herculean task. I appreciate the assessment from somebody who has had a very successful career in the private sector in the computer industry that it seems like a long time to get a new benefit implemented. But the computer industry and the rest of corporate America do not have to go through the APA process. It truly is not just a question of making the decisions and of implementing them. Although there are many discussions to be made, I am just going to hint at some of them. Nancy-Ann DeParle, because she was present to implement the Balanced Budget Act, can give you more of them. But I have had the experience of having controversial regulations have to go through the APA process, including the process of proposing the regulation, of putting it out for comment, of having hearings and dealing with comments, particularly for controversial regulations. And some aspects of the regulations included in this bill will indeed be controversial, either with the provider community, industry or with senior citizens. That process, along with the decisions and the implementation, will in my mind make 2006 a very difficult date to meet, although one that I think is possible. It is not just the series of benefit changes. Although these will also be challenging. We have, as one of the specific challenges, the provision of a new benefit, the Part D benefit, using a new delivery system or, if it is not done as Part D benefit directly, it will be done as part of the Medicare Advantage program. Initially these are just payment increases, but by 2006 there also are a number of specific new issues involved in the Medicare Advantage program in terms of bids, regions, appeals processes, etc., that will also have to occur for the Medicare Advantage program to hit full force in 2006. There are, in addition, a series of changes to the outpatient drug program that is currently covered under Part B. I am just going to mention them briefly, as well as the usual host of payment changes and adjustments and modifications to all of the other Medicare providers. I thought I understood the Medicare payment system rather well after spending 2\1/2\ years at HCFA, but I was constantly astounded at PPRC and MedPAC about the enormity of the changes and detail that is involved in the Medicare program. I had not, when I was at HCFA, focused on post-acute care in the way that MedPAC and the Congress has focused on what goes on in both home care and long-term care. Let me just remind the Senators about a few of the issues that will need to get taken care of regarding Part B drug coverage. Then I would like to comment about the early results of implementation. And more importantly, I have a few suggestions to make about how to proceed over the next period that I hope you will find useful. With regard to Part B drugs, and I am assuming that Nancy- Ann DeParle is going to comment more on some of the Part D drug issues as she did down in Florida, at the Kennedy School/ Commonwealth meeting. But let me remind you, while all the effort is being directed for the introduction of the drug discount card, which appears to be going well, and the Part D benefit for January 2006, Part B drugs will continue as Part B drugs at least for now. These are the drugs, outpatient drugs, mostly chemotherapy or other related drugs, that have to be provided by a physician and have previously been covered by Medicare. Up until now, the reimbursement mechanism has been a percentage of the average wholesale price or AWP. The Congress has noted, the GAO has noted, the IG has noted that average wholesale price is not a very satisfactory measure to use. Initially reimbursement will be a lower percentage of AWP. But starting in 2005 the basis will be average selling price, a different measure that will become the basis of reimbursing Part B drugs. And then, in 2006, physicians will have the choice either of continuing with the ASP or going to a competitive acquisition process, a very different process, one that they may or may not choose. We will have to see what happens. In order to have that in place for 2006, a lot of decisions will have to be made and regulations issued about the competitive acquisition process. The number of regions, the kind of appeals process, what happens if there are not two contractors, etc. And it will have to be done by 2005 so that it can be in place for 2006. None of this is impossible. It is just a lot of work, given all of the work that will be going on to get the Part D benefit to start in January 2006. Early results are looking good. The regulations about the discount card got out in December. Of course, we need to remember this was a strategy or a plan that the program, that the Administration had been thinking about for at least 2 years. So in some ways it is not surprising that they could respond so quickly. There appear to be a large number of sponsors. There appears to be good response in terms of trying to make the adjustment from the State pharmacy assistance programs for low income populations, as you mentioned and as Ms. McMullan mentioned, to the low income support program. It appears to be going well and those are good signs. The fact that Mark McClellan was able to be confirmed within one quarter, one calendar quarter, from the time that his predecessor left is something I do not remember ever happening. I applaud the Senate for helping that to occur so rapidly. It would have been very bad to have had a leaderless CMS during this period. Not that the acting people are not capable, but for all the reasons that you need to have presidential appointees in place to lead their agencies, to deal with the Congress, to make decisionmaking, it would have been an awful time to have not had a leader in place. I am astounded it happened so quickly. The Congress also wisely recognized the burden that was being put on the agency by making $1 billion available from the trust fund through September 2005, and $500 million available to Social Security. That is the good news. Let me give you a few thoughts about what I think might help to have this all happen. First, recognize the Herculean task that has been put on CMS' plate. Second, remember that if the Congress chooses to make any significant changes to the legislation between now and January 2006 that affect the decisionmaking, the implementation or the rulemaking process, this will seriously jeopardize the ability of the agency to meet the January 2006 deadline, which really is October 2005. That is when the materials have to be out to the seniors so they can enroll in November 2005. You are, of course, entitled to make those changes as you wish. It is just important to make sure the consequences are known. The third is that it may be useful for relevant Congressional committees to have occasional briefings on the progress that is being made to implement the legislation. It should not occur too frequently or it will become another burden to the agency. But if there is a problem either in the way the legislation is written or in the adequacy of CMS funding, knowing sooner rather than later would improve the likelihood of a successful resolution to the problem. I had a problem with legislative language, implementing the relative value scale for physician payment. It caused a lot of internal frustration and some time could have been saved perhaps if that had been vetted with the Congress. I would consider, if there is a problem, allowing the agency to use temporary hires, such as IPAs from other parts of government or universities, and other flexible hiring strategies in order to try to help solve what may be a temporary problem with a temporary solution. It will be very difficult to hire people who have experience in rulemaking. If you can have them come in in a temporary way, that would help. The agency will need more people with private sector experience than they have had. I assume that should be relatively easier to find. I do not know whether the salaries will be competitive. Finding people who know how to write rules for Medicare, rules from any regulatory agency, and to work the process is difficult to find. It is not a skill you need in the private sector. CMS and HCFA have had a long history of having a disconnect between funding and the responsibilities that are given the agency. This disconnect was recognized in an open bipartisan letter that was published in Health Affairs several years ago. I was a signatory to it. There are a number of individuals who have been both directly involved and who worked for the Congress, Republicans and Democrats, as well as public policy analysts who signed this letter. It was reaffirmed in a MedPAC report while I was chair to the Congress, just reminding the Congress that either it needs to make sure there are adequate resources to match the increasing responsibilities that it puts on the agency or the Congress should turn to other agencies that it is more willing to fund. It is in this vein that I commend the $1 billion that was made available. And finally, the new CMS Administrator Dr. McClellan will have his own vision of how the agency can best function to meet the needs of the people that receive its benefits, the providers that provide the services, and of course the taxpayers that fund these services. Congress should pay serious attention to what he thinks needs to be done in order to have this new legislation implemented on time. Thank you for inviting me and I would be glad to answer any questions. Senator Voinovich. Thank you very much. We really appreciate your testimony. Ms. DeParle. TESTIMONY OF NANCY-ANN MIN DePARLE,\1\ SENIOR ADVISOR, J.P. MORGAN PARTNERS, LLC Ms. DeParle. Thank you, Chairman Voinovich, Senator Durbin, and Members of the Subcommittee. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. DeParle appears in the Appendix on page 70. --------------------------------------------------------------------------- As you know, I served as the Administrator of the predecessor agency to CMS, HCFA, from 1997 to 2000. It was my honor to work with many of you on the Subcommittee and I appreciate your having this hearing today to focus on the real management challenges that I think face the agency as it undertakes probably its biggest mission ever, which is to provide a prescription drug benefit to some 42 million beneficiaries. I want to begin by noting that Michael McMullan, who testified here on behalf of the agency this morning, is one of the finest public servants that I have ever had the honor of working with. In fact, Senator Voinovich, you referenced the meeting in Florida, the Kennedy School meeting at which Dr. Wilensky and I talked about CMS. And I think you asked a question there about whether I thought CMS could get the Medicare prescription drug benefit implemented by January 2006. And I answered you, in part, by saying there is one person that I have in mind. And if she is there, and if she is allowed the flexibility to get the job done, I think that it can be done. Michael McMullan was the person I had in mind. She has, as you heard, served at the agency for 30 years and is a tremendous asset to the government. I want to thank her for everything she did while I was there. So I do think that CMS can get the job done but I also think that there are some significant execution risks. And there are some particular things that this Subcommittee can help CMS with. I think, if you look back at the record of the past few years, you will see a couple of things. One is that the agency Dr. Wilensky just alluded to, has been asked over a decade or more to do more and more with less and less, fewer and fewer people, fewer and fewer resources. That is something that has to change or we are going to be facing some real near-term problems as both we try to implement this prescription drug benefit and CMS tries to do all the other things that it needs to do to improve the health care services that we are offering to millions of Americans. I think the record shows, though, that when CMS has a major project and it has adequate resources and flexibility, focused and stable leadership, and the support of Congress that it can get the job done. In my written testimony I gave you a number of examples of where I think the agency has been successful there. Let me focus this morning, though, just on the execution risks because I know you have a tight agenda. The first risk I think that exists is one that I would characterize as a leadership risk. When we were in Florida I spoke about my concern that the agency was left without an administrator who had been confirmed as soon as the bill was signed. A number of other key political appointees had left as well. And the agency does not have that much depth in terms of political leadership. It is a relatively small agency. As Dr. Wilensky said, the career people are terrific. They are focused. But you need a clear point of view, you need a leader who can be depended on. For the first few months of the implementation of this drug bill they did not have one. That is beginning to be corrected with Dr. McClellan having been sworn in a week or so ago. I think there is still some risk around this, though, because, as I pointed out in Florida, Secretary Thompson said more than a year ago that he would be leaving HHS soon after the election. He has confirmed that recently, saying that he would not be there for the launch of the prescription drug benefit in January 2006. So given the difficulty of working within the Department of Health and Human Services just to get regulations issued and things like that, I do think there is a political instability that should continue to be focused on. But the more troubling concern that I have about leadership is one that is, in some ways, highlighted by Michael McMullan's presence here today. As I pointed out to you, I looked back at my redimentary list of the senior staff when I was there. There are a number of ways you can look at this, but I looked at the Senior Executive Service (SES), the most senior career folks in the agency, the real leadership that you depend on. And there has been a real brain drain of those people over the past few years. In the Spring of 2001 there were 43 SES staff members. Since that time more than half of those people have left the agency. These are people who were working shoulder to shoulder with Michael McMullan. These are presidential rank award winners. These are people who I depended on when I was implementing the Balanced Budget Act. It is an unprecedented loss. You highlighted, Chairman Voinovich, some of the additional losses that we may be facing in the future. And I think that is something for this Subcommittee to really grapple with as you look at the importance of these programs and the unfortunate timing of the departures of these staff. Because I would not have wanted to be trying to do this without them. The administrative complexity is the other big execution risk. Senator Voinovich. To clarify for Senator Durbin, the number I used was 30 percent of the Senior Executive Service currently are eligible to retire. So they could walk out the door tomorrow. Ms. DeParle. That is on top of the more than half who have left since the Spring of 2001. As I said, these are the people with the experience, the knowledge, and the history to get the job done. And that is what concerns me. But to talk about the other execution risk, that is, I think, administrative complexity. Dr. Wilensky alluded to that in her testimony, as well. The BBA, which we went through together, as you all know, was complex and contentious. We had to design new payment systems for virtually every provider. Virtually every hospital and doctor in the country, as well as almost every other health care provider, had their reimbursements cut. I think I heard from just about every one of them. I know all of you did and you told me about them. So it was a very difficult and contentious period. That said, in the BBA, CMS was dealing with a familiar set of providers and a familiar benefit. And we knew a lot of the providers. We knew the trade associations. We kind of had an established process of working with them. The difference here, and I think Michael McMullan talked about this, this morning, is that the Medicare prescription drug benefit poses a different kind of a challenge because CMS is being asked to build a whole new delivery system for a product it has never offered before with a whole new set of partners that it has never worked with before. Now it is getting some experience with those partners, with some of them, with the prescription drug cards that it is doing now. But the fact remains that CMS needs not only human capital but, along with that, intellectual capital around things like how to manage prescription drugs in a smart way. And frankly, the severe time constraints that are built into the law pose a really huge execution risk. We have already had some discussion about that this morning, but I agree with Dr. Wilensky that the notion that on January 1, 2006 your 4 million--how many beneficiaries are in Ohio? I do not even know exactly any more. Senator Voinovich. We have 1.7 million. Ms. DeParle. One-point-seven million Medicare beneficaries in Ohio are going to be expecting to have a prescription drug benefit available to them 20 months from today. And really I think even that is unrealistic when you think about what CMS has to get done in order to have the open enrollment as the law mandates start in November 2005. Beneficiary education is supposed to start October 1, 2005. Chairman Voinovich, you recalled our interaction over the beneficiary education campaign in the BBA, and one can wonder whether starting the beneficiary education campaign, as far as telling beneficiaries how much the premiums are going to be, what the drugs are going to be that are available in October, is really sufficient time to allow them to understand it without being confused. But if you just stick to the deadlines in the law, CMS basically has 18 months to build a brand new delivery system. And I think that is going to be a big challenge, notwithstanding what Senator Lautenberg said about computer systems. In fact, I think computer systems are a big part of the issue. Michael McMullan talked about that, as well. I attached to my testimony a very high-level, abstract list of the steps that CMS has got to take between now and basically November 1, 2005 to get open enrollment going. And Michael McMullan alluded to the list they have, and I am sure their list has much greater detail than what I put forward. But just looking at my list, I think you can get an idea that these are not easy little things you can just check off the box on. For example, how is CMS going to design an information system to keep track of what each beneficiary spends on drugs? They have to be able to do that: To make the deductibles, the catastrophic limits that you put in the bill, the so-called ``doughnut hole,'' to make all those details work, they have to be able to keep track of what beneficiaries are spending on drugs. Now the law stipulates certain ways that the spending is to be counted. For example, spending in the ``doughnut hole'' is supposed to count. I apologize for using that terminology but that is what you all are familiar with, I think. But it does not count if you buy drugs in the doughnut hole that are not on the formulary of the plan that you were in, even if your plan is not contributing during that time. And it does not count if it is for a drug in the beginning if it was not on your plan's formulary. And if it is paid by a family member it can count, but if it is paid by a third party it cannot count. All of those are things that we could sit here and write the rules for but then somebody has to program computers to keep track of that. I believe CMS will have to modify the massive database that it maintains what is known as the Common Working File, which is a repository of all the claims that come in on each beneficiary, in order to keep track of this. That is not going to be a simple task and it is a high-risk task as well. I know this from my experience with Y2K, which you alluded to, Mr. Chairman. We were successful there in remediating all the computer systems but that was a terribly high-risk and difficult chore. Senator Voinovich. Senator Durbin has to go to another meeting. Would you mind if he asked some questions here before he leaves? Ms. DeParle. Of course not. OPENING STATEMENT OF SENATOR DURBIN Senator Durbin. Thank you very much. Thank you, Mr. Chairman, for that. Senator Pryor, thank you, as well. I was happy to vote for Dr. McClellan because I have a lot of confidence in him. I think he has done a fine job at the FDA and I believe he has an extraordinary challenge here and I hope that he can meet that challenge, for his sake and for all the people who will depend on him. I told him when I met with him that I think this whole program is fatally flawed. As you describe the complexity of this law, it was an effort to superimpose a new system of reimbursement instead of turning to the obvious. And that is using the Medicare system to create a prescription drug option for seniors. We decided we were going to invent something new. And we put in rules that are unintelligible to the senators and to the seniors. And now, this agency is going to have to try to make something intelligent out of them. I bet there are not too many survivors, but it would be great some time to have some people who were in on the implementation of Medicare to come and explain to us how, before computers, they established a Medicare program for America 8 months after the bill passed and was signed by the President. How did that happen? Miracle of miracles. Well, it could have been that the concept, as big as it was, was very basic and simple in its approach. We have, instead, taken off on an opposite course. We have built into this so much complexity and we have given a 2-year opportunity to implement it. And when I read statements by Mr. Scully, they really relate to, I think, the reason for this hearing and the passion of Senator Voinovich here. Mr. Scully said, in January of this year to a group, and I will read this from the Pink Sheet, which is probably the best place to turn. It is the Prescription Pharmaceuticals and Biotechnology Newsletter. Here is what they said: CMS itself has ``no idea how they are going to do it, he declared. They do not have a staff so they are probably looking to quit like I did, he joked.'' And then he goes on to say, ``Congress gave them about $1 billion in new funding to hire more people but there is going to be complete chaos in this whole area brought in from the outside world and at CMS in the next couple of years.'' He went on to say, when he was asked about how they were going to deal with coverage decisions, which you have just referred to ``this is something CMS has no clue how to do, by the way. It is completely new for them and they are not particularly well set up to do it.'' Thank you, Mr. Scully, for your observations. So a law that I think is fundamentally flawed and extremely complex and has avoided the obvious of using Medicare to deliver a prescription drug benefit, is now going to be implemented by an agency that Mr. Scully announced in his sayonara is totally unprepared for the job. Well, there is good news for America. Anything more we can tell them, in terms of what we are doing to help them here? Ms. DeParle, what you have said here, when you start describing how to deal with the computer program, you can imagine how much fun it is for me to stand in front of a group of seniors and explain how this is going to work in their real lives. And Ms. Wilensky, there is an assumption in your testimony and others that all seniors are going to sign up for this. We have to at least prepare for that eventuality. I think there is more skepticism out there at this point, when you are told you cannot buy a Medigap policy and the like. And the skepticism is built on this same complexity. I guess the horse is out of the barn here, but do you conclude as I do that we have created the mess that we now find ourselves in with this legislation? Ms. Wilensky. It is a complex program, there is no question. Let me try to guess at the answer as to how did it happened in 1965? The original Medicare looked exactly like BlueCross BlueShield, which was the predominant financing system in the private sector. It is an interesting question about how did they pull it off. My guess is the government made Medicare look like what everybody else had. The problems of turning to Medicare, and this is clearly a discussion for a different committee, and putting the drug benefit in traditional Medicare had to do with whether having Medicare use its usual administered pricing was the best way to provide this new drug. This has been subject to a lot of controversy in the Clinton Administration and in the current Bush Administration. I believe it was the majority consensus that that was not going to happen. The question of whether this is the right answer, whether it is workable, is something else. I think it can be done but it is a complex issue. Senator Durbin. But you have admonished--admonished is not the right word. You have warned us, make any changes here and all bets are off. And I am sitting back here and saying well first, I did not vote for it because I thought it was not fair. I thought the pharmaceutical companies made out like bandits in this deal. I do not think it really was designed for seniors as it should have been. Now to step back and kind of be forewarned any changes are going to delay implementation and complement it, that I think on its face is obvious. Any changes have to be assimilated into the program and its administration. But it strikes me that if there is a way to cut through the complexity of this, to get down to something that is just basic that you can understand and explain it to the average person, that is going to help us in setting up computer programs and appointing people to administer them. So I may not follow your warning about changes. I think honestly a few changes might be for to benefit of the program we need to make it more reasonably understood and easily administered. Ms. Wilensky. Solve some problems and create others. And obviously that is your job as members of the Congress to decide. Ms. DeParle. The one I talked about, in particular, the problem of keeping track of beneficiary spending, if you could fill in the doughnut hole, that might help you some there. But the problem is that would cost hundreds of billions of dollars, I suppose, which is why it is there to begin with. Senator Durbin. If you are not negotiating with the pharmaceutical companies to keep prices under control, then frankly the costs are going to outstrip the resources of this program is such a short period of time. But again, that gets down to the policy side of it. But I really do go back to the original premise. We created Medicare in 8 months. We may have modeled it after BlueCross BlueShield. We were up and running and rolling in 8 months after the bill was signed into law. Now with a 2-year timeframe, people are in a genuine panic in this town as to whether or not this can happen. I think it reflects on the fact that we made this too complicated. It should have been more straightforward. Ms. DeParle. That is part of it. And also, the Administrative Procedure Act and the rulemaking requirements are much more onerous now than they used to be. But I do not think you have any disagreement here that this is very complex. Senator Durbin. Ah, for the good old days. Mr. Chairman, with your permission, I would ask my full opening statement be included in the record. Senator Voinovich. Without objection. Senator Durbin. Thank you. [The prepared opening statement of Senator Durbin follows:] PREPARED OPENING STATEMENT OF SENATOR DURBIN The Center for Medicare and Medicaid Services (CMS) has a monumental task ahead. The Balanced Budget Act of 1997 was a complex bill that forced the agency to go in directions it had never gone before, but BBA pales in comparison to this new Medicare bill. In the next 20 months, CMS will have to not only figure out exactly how this bill is going to work at a practical level, it will also have to set up complex new administrative systems and ensure seniors know how to get their benefits. Seemingly, the most challenging part, from a management perspective, is the constantly changing environment the bill creates. Prescription drug plans can drop in and out of the program, as can PPOs; drugs can drop on and off formularies; drug prices can rise at unpredictable levels; and seniors can rise above or drop below eligibility levels for low-income benefits and means-testing limits. These are only a few of the fluctuating parts of the bill that will make CMS's job hard and confuse seniors. Take the drug discount card, which should be the simplest part of the bill. However, even it is complex at the management level and confusing at the senior level. Different drug cards will offer different discounts for people on different drugs at different pharmacies in different locations for different fees. The volume of calls CMS will get from confused citizens will probably rival any previous piece of major social legislation. While CMS is answering questions from seniors, it will also have to monitor pharmacy benefit managers, pharmacists and Prescription Drug Plans to make sure the savings garnered from drug manufacturers are being passed to the seniors. CMS will have to ensure there is appropriate management of the $600 each low-income senior will receive; ensure people are not being disenrolled; ensure there is pharmacy network access where it is supposed to be, guarantee beneficiary privacy is being protected, and make certain enrollment fees do not exceed $30. CMS will also need to monitor drug prices on a weekly basis to identify drug discount card programs that are deviating from ``expected changes'' in drug prices. These are no small tasks, and my list is not even fully comprehensive. This Committee appreciates the job you have ahead of you and wants to make sure you have the resources to do it. The seniors of America are depending on it. Senator Voinovich. Before we go to Senator Pryor, have you finished your testimony? Would you like a few more minutes? Ms. DeParle. I had a couple of more points to make. May I? Senator Voinovich. Sure, go ahead. Ms. DeParle. I was talking about the difficulties of the computer system, so let me just go on to say that is just one example of a lot of high risk activities that CMS will have to undertake. And as you pointed out, Mr. Chairman, if these things are not done perfectly all of you will be hearing about it. So it is not as though CMS can just do it quickly. They have to be very careful about how they do this. And they have to do it under the structures of the Administrative Procedure Act. And my experience was, when I was there, we did a very simple, pretty straightforward rulemaking about modifying the conditions of participation for hospitals and got 50,000 comments. And there have been others that have gotten more comments than that. And I cannot imagine that a drug bill that is going to involve $500 billion or so changing hands over the next 10 years is going to elicit few comments. I think it is going to be a massive number. So the rulemaking is going to be very difficult here, too. In the meantime, CMS has a lot of other challenges. Just finishing up the implementation of the other provisions of a MMA could be a full-time job. Dr. Wilensky talked about the AWP changes to the other Part B drugs. There are all sorts of other administrative changes, changing Medicare Plus Choice into Medicare Advantage. So just finishing up MMA could be a full- time job. And then, in addition, they have to run all the other day- to-day things that go with managing the Medicare program. And then there is Medicaid and S-CHIP, which all of you care about as well, and which some of you do not think the agency is doing an adequate job with now. So all of that is on their plate. I made three recommendations to this Subcommittee, the first of which was that you request that CMS provide you with an updated strategic plan, including a human capital plan of the sort that you talked about, Mr. Chairman, detailing what they are going to need to get this job done. And I recommend that you provide them with the resources. The MMA took a step in the right direction in giving the agency $1 billion but it really did not say what the money was to be used for. And it disappears in September 2005. That really does not make sense. And so in the next budget, the Administration should tell you what it is going to need to really manage this benefit. And the Congress should look seriously at that request and try to help CMS here instead of asking it to do more and more with less and less. There are also some gaps in their current budget. I mentioned the fact that it is my understanding that the OIG and the DOJ are facing layoffs in their program integrity efforts. It seems to me to be the wrong time to have that happening with Medicare spending getting up to almost $300 billion this year. Senator Voinovich. Where did you say that was, what gaps? Ms. DeParle. First of all, it is my understanding that the funding that the Congress gave to the Department of Justice and the Office of Inspector General under HIPAA, the Health Insurance Portability and Accountability Act, to do Medicare program integrity activities, that is now flat and that those programs are facing layoffs. That is my understanding. And if that is the case, it seems to me to be the wrong time to be doing that when Medicare spending is supposed to increase to almost $300 billion this year, without a prescription drug benefit. We are introducing a whole new prescription drug benefit that, depending on whose estimates you believe, is going to cost at least $500 billion over the next 10 years. We need to pay attention to the program integrity side of this, as well. In addition, the agency has been, for years, sort of robbing Peter to pay Paul to come up with its beneficiary education plans. It seems to me that needs to be a more serious plan that they work out with the Congress and where there is a specific appropriation for beneficiary education. And that has not been the case in the past. Second, I would recommend that you give CMS more flexibility. I talk in my written testimony about personnel flexibility. They need to be able to bring back retirees. They need to be able to hire more high-level staff without FTE restrictions. I suggested to them that they might want to put together a SWAT team of some people with experience in writing regulations and things like that from other agencies. Those kinds of things are what happened when the original Medicare was implemented back in the 1960's and I think they need to do some of those things now. Finally, I would agree with Dr. Wilensky that the Congress needs to make sure that it allows CMS time to focus, that if you add new legislative mandates this year or next year on top of requiring the prescription drug benefit to be up and running January 1, 2006 you will probably not be able to get it done. So you need to understand that there are going to be some other things that will probably suffer in the next few months as they focus their time on the drug benefit. Thank you, Mr. Chairman. Senator Voinovich. Thank you very much. I am really grateful to the two of you for coming here today. Senator Pryor, you came in late and I do not know what your schedule is, but I would invite you to ask some questions. Senator Pryor. I am OK. I want you to go first. I will go second. Thank you. Senator Voinovich. Do you believe that we are going to be able to pull this off? Ms. Wilensky. It can happen. It will be hard. I have thought about whether at some point it would be prudent to have a backup plan in case CMS is a quarter late. What happens if CMS is not really ready to have educational materials mailed out October 1 but could be ready by December 1? Is it possible to have the first year be a three-quarter year? I would recommend, without having given it sufficient consideration, that that type of planning be put in place because it is easy to imagine the need arising. Controversial regulations are very difficult to deal with. I had two during my tenure, CLIA and the proposed rule for the RBRVS, the reform payment for physicians. HCFA got 100,000 comments on RBRVS. I do not know whether there is anything that is that controversial. A lot of comments are part of letter campaigns. But the agency, under the APA, has to respond in writing at the interim final rule with how it has dealt with each of the issues that have been raised. And that is difficult. There are a lot of reasons that the timeframe is a very tight squeeze. Understanding what would be acceptable to the Congress and the Administration if the agency is a quarter behind schedule for the first year is very important. Obviously, should the Congress choose to go in a completely different direction in terms of a drug benefit bill, that would stop the clock at that point. But I would assume until such time as that were to happen, the perception is this is the legislation you have, recognition that change really impedes its implementation, and have a backroom plan for what happens if CMS is a quarter late. I recognize there are a lot of political issues about why that would be difficult to make public. Senator Voinovich. Ms. DeParle. Ms. DeParle. I agree. Yes, I think it can be done. But I would want to be working with the Congress on a contingency plan and I will tell you why. I think Dr. Wilensky is right that the rulemaking on this will be very difficult. Just the amount of time that it takes to get a rule written, cleared through the Department, cleared through OMB, and then out on the streets and then to allow sufficient time for the public to comment is going to take a number of months. But that is not even the thing that makes me the most concerned. It is more that this bidding process that has to occur for the prescription drug plans and the Medicare Advantage plans to say how much they are going to charge beneficiaries and what their drug plan is going to look like. All that has to be done by October 2005 so that if a beneficiary in Cleveland is thinking about signing up for this they will know here are the plans that are available to me. Here is how much each one of them would charge me in a premium. Here is how much my subsidy will be if I am a low-income person. There is a lot of details that will have to be final when they get a piece of paper in the mail in October that says here is what you have. That is my concern, is getting all of those things finalized. And also, if it is not done well, I am harking back to your concern about beneficiary education. The soft kind of beneficiary education that has been occurring so far that Senator Lautenberg highlighted, that is one thing. But when you get down to sending someone a piece of paper and telling them here is how much the premiums are under the plans you are looking at, you need to allow them some time to figure out, ``OK, I take Lipitor. Is that on here? Can I get that?'' And I am just concerned that you want to do this right. That is very important, I think, to you and the Congress and to all of us. If I were at CMS, I would work with the Congress to design a contingency plan, as well. Senator Voinovich. I want to clarify something. I go to meetings and I think I have had 9 or 10 meetings already in Ohio where I have had listening sessions with senior citizens and get a chance to get some input from them. This is complicated stuff. It seems to me that if it is going to work they are going to have to have the best information that they can have to make good decisions. We are going to need a whole lot of help. Governor Taft and I are going to go to an OSHIIP training session this month to find answers so that we are more sophisticated in terms of our interface with people. I also am bringing all of my regional representatives in so that they are better educated. But this is going to be a monumental undertaking in Ohio to make sure it gets done. So the first thing you would do if you were in Dr. McClellan's place is to look at the big picture and determine what the reality is and then maybe come back with some suggestions on how to maybe do it better? But one fact, and I want to clarify this, is that this is a monumental task. It is not something you can snap your fingers at and have it done. At some of my listening sessions seniors will ask me why they cannot have it now. I try to explain to them that there is a whole lot of work that has to be done before this program can be rolled out. I suspect also that there might be some consideration given to cascading implementation over a longer period of time. This would give the agency some experience with the program rather than just launching the rocket and not knowing if it will get off of the ground and what will happen when it does. Ms. Wilensky. Senator Voinovich, it would have been easier if the Congress had chosen to stagger the changes that came in place, for example, of not doing anything to the Part B drug coverage until 2006 and only then start to change Part B coverage. Or having fewer changes with regard to other parts of payments, for it to change to the rurals, changes to oncologist payments, which involve a lot of recalculations with regard to physician payments. I am not suggesting delaying these changes, either politically or at a policy level, would have been necessarily desirable. It is the fact that these changes, each of which probably could have been accomplished and may well be accomplished during the relevant time period, are happening at the same time as Part D coverages is starting is what makes it so difficult. The Medicaid changes are also huge--neither of us have spoken about Medicaid but next week I am going to speak twice about it, so I have been thinking about what happens to the dual eligibles. Many changes are required so that beneficiares are regarded as being seniors first and second, in terms of whether they are Medicare or Medicaid participants, plus all of the other Medicaid changes that are going on because of waivers and the children's health insurance program and all of the HIPAA changes. It is astounding how much one agency has going on, change in at least three different areas, only one of which is Medicare Advantage and Part D drugs. That is the part most peole don't understand. I do not know if it will help you in responding to your seniors, as to why implementing the new benefit is so difficult and takes so long. Of course, in 1965 we had a very narrow program, basically hospital and physician coverage, modeled to look like something that was out there, BlueCross and BlueShield. The complexity of all that this agency does now, did not exist then. Again, I am not willing to say it cannot be done. But it is important to understand how many moving parts there are, not just because the delivery mechanisms are complex but because so much is included in this one bill that impacts a single agency. That is ignoring all of the problems that have been raised about the unusual numbers of people who are retiring. I had the advantage of thinking about this problem in the early 1990's. We could see what was going to happen over the next decade because of the age structure of the workforce, recognizing it was a significant problem on the horizon, and having the advantage of knowing it would be somebody else's problem. Senator Voinovich. Thank you. Senator Pryor, thank you for coming today. OPENING STATEMENT OF SENATOR PRYOR Senator Pryor. Thank you Mr. Chairman. Thank you. Let me first ask a question based on my old job as Attorney General of the State of Arkansas. In my 4 years there, we had a number of incidents where scam artists would come to seniors and convince them to purchase fake drug cards. Then these unsuspecting seniors would purchase these cards and would take them down to the local pharmacy, to realize that the cards were worthless. We also had another occurrence where legitimate companies were aggressively marketing drug cards. But when you actually took the drug cards to the pharmacist, they really did not live up to the senior's expectations. So now the Congress has passed into law and the President has signed a bill that will have a national drug card. So my question for the two of you is, given potential for fraud and scams, etc., should CMS somehow begin educating the public to beware of bogus drug cards and how to recognize the real drug card? I would just like to get your thoughts on that. Ms. DeParle. Yes. It is my understanding that there has been a spike in the incidents of the type you are describing where there have been perhaps some new shysters who are going door-to-door with what they are offering as cards and asking for payment for them. And I think the agency has put out an alert on that. But it may be that it will require something more aggressive either from CMS or the Justice Department. Ms. Wilensky. I have read that exact situation you are describing has indeed been happening. There has been an alert. There is a lot of money at stake here. That usually invites scam and fraud artists to join. It will be very important that while everything else is going forward that some attention is being paid to this issue so that you do not frustrate the seniors and bilk them of their funds and, of course, bilk the taxpayers as well. Senator Pryor. One thing, Mr. Chairman, that does concern me about this is a lot of times these scam artists and these folks who are going to rip seniors off and prey on the unsuspecting, a lot of times they will take some sort of event out there that sounds plausible and all of a sudden they come in and offer some sort of service. We had that after 9/11 where people would come in and try to rip people off and say we are sending money to New York City, and they were not. Unfortunately, you see these types of scams in many situations. I just see the potential right there so I am glad to hear that CMS is taking steps. Let me also ask about something else that made a lot of news in the last few weeks and that is where Tom Scully, potentially, told one of his employees not to be candid with Congress. In my view it is extremely important that CMS, your former agency, is candid with Congress because we are the policymakers. We are going to pass this law. And now a lot of us feel like we did not receive accurate information as we were deliberating this. Let me just ask, from your experience at HCFA, now CMS, are you aware of anything like this happening on your watch when you were there? When you told someone in the agency not to provide information to Congress? Are you aware of anything like that? Ms. Wilensky. I am not. I actually had a conversation about this with Guy King, who was the chief actuary for 16 years or so, including the period when I was there and during both President Carter and the Reagan/Bush Administration. There does seem to be some change. He indicated it would have been very uncommon for the HCFA actuary to have had conversations with the Congress on new legislation unless they involved the Trust Fund. Otherwise that conversation normally would not have occurred. There is a long history of CBO and HCFA actuaries having different estimates. And my experience has been that once CBO has made an estimate about the cost of new legislation Congress really did not care what administrations said because Congress basically follows its advisers, the CBO, and not the Administration. That is why the CBO was created. But I am not aware of anybody either being directed or to not come forward with information or threatened if they did. Ms. DeParle. I worked with the CMS actuary, Rick Foster, for 3 years when I was Administrator and it was an honor to work with him. And not only did I not ever instruct him not to give information to Congress or to be candid with Congress, in fact I urged him to speak directly with members of Congress whenever they needed information and not even to tell me what they asked. Because I do think there is a public interest in members of Congress having as complete and accurate information as they can have. Actuaries can be wrong. So can economists. But I think we, as citizens, have an interest in your having as much information as possible when you make your decisions. Senator Pryor. Thank you and I agree with you both on that. Mr. Chairman, if I may, I would just like to ask one or two more questions. And that is a little bit of a follow up on Senator Durbin's question a few moments ago. He quoted an interview by Tom Scully. One of the things Mr. Scully said is that CMS is not going to be a passive payer anymore. CMS is going to be a market organizer. I am interested if you have any thoughts on Mr. Scully's comment there that CMS's role has changed so much that it will now, under this bill, be a market organizer. Ms. Wilensky. Well, CMS follows administered pricing for the most part. That is set in statute. Medicare pays a price for individual physician services or hospital discharges or nursing days that is not negotiable. So to that extent, it has been passive. But it has not been passive in a lot of other ways in terms of who is allowed to participate or determining quality and appropriateness. This mix of authorizing complicates what the agency can do. Prices are set, whether or not the service is being performed with different quality or even if it was medically appropriate. I presume what Mr. Scully was referencing to is the bidding process that will go on both for Medicare Advantage and for the Part D private prescription drug plan participation. We will see whether or not there is enough participation to have very much competition. I am a big supporter of the Federal Employees Health Care Plan which negotiates the prices and benefits that the plans offer. I think it is a little early to predict a dramatic change for Medicare. The bidding process system is influencing only, at least at this point, a relatively small part of the Medicare program. If the CMS actuary is correct and there is substantial participation in the Medicare Advantage program, which is one of the reasons that there was such a big difference between CMS and CSO, the agency may become involved in price negotiations and become more of a market organizer. But I would like to remind the Congress that both the actuary and CBO radically overestimated the participation of private plans in the Medicare Plus Choice program, and the actuary was even more bullish than CBO. So I think it is a little early to predict a major change in function for the agency. The basic choice is either to do administered pricing or to rely on competitive purposes to moderate spending. This bill moves towards a bidding process and is why CBO has said that it would not score additional savings if administered pricing power was granted to CMS regarding Part D drugs. Senator Pryor. Do you have any comments on that? Ms. DeParle. No, I am sitting here trying to guess what he means by that. I am not even really sure. Senator Pryor. Mr. Chairman, if I might ask one last question. Again, Mr. Scully in this interview said ``You are going to find that most of the expertise to pull this off, this new Medicare drug benefit at CMS, lies on the Medicaid side of the agency. I can tell you, having run the place for 3 years, the relationship between the people who run Medicare and the people who run Medicaid is a little like the Serbs and the Croatians. They do not really talk to each other that much.'' I am curious about your experience there with the Medicare side versus the Medicaid side and who, in the agency, has the expertise to administer this? Ms. Wilensky. The reason Medicaid would be more relevant, although not at the Federal level, is Medicaid covers prescription drugs. So a lot of the issues that need to be dealt with are dealt with in Medicaid. But the major role of the Federal Government in Medicaid is mostly oversight. Medicaid is basically a State program that has Federal oversight, very different from Medicare which clearly is a Federal program. I disagree with the characterization of the people running Medicare and Medicaid. When I went to HCFA, I pulled the people out of Medicare who were working in both Medicare and Medicaid and created a center for Medicaid or Medicaid bureau because I was afraid Medicaid was getting short shrift by having the same people working in both areas, given that Medicare dominates everything that HCFA did. And it was a way to try to give more attention and focus to the people who did work in Medicaid. But I am not aware, or do not believe, at least when I was there, that there was any friction or difficulties between the group working on these two programs. Some of the issues in Part D will have to be helped by bringing in people from the private sector who have worked for PBMs. People who have worked for insurance companies that worked on the prescription drug side, could provide some private-sector expertise. The fact is I do not think either Medicare or Medicaid provides the right expertise. To the extent that you are using private prescription drug plans, however, it does not require the hands-on expertise that Medicare needs when it is trying to price out DRG 351 or which of all of the 9,000 CPT codes should get included in the RBRVS. One of the advantages of having the kind of program structure that is in the legislation is Medicare actually is not responsible for individual price negotiation of individual drugs or their presence on a formulary. That is done by the plan. Medicare's major involvement is in determining the bidding process and the definition of geographical areas, and the appeals and the rights processes that are put in place. So I am not even sure that private prescription drug experience you mentioned is needed. Ms. DeParle. I agree. I would not characterize it that way, either. I did not see friction. I think every administrator struggles with trying to balance the focus on the two programs. And frankly, I came out of the State of Tennessee where I had worked on Medicaid issues. And I think the agency's focus is, to some extent, reflective of the Administration's focus and the Congress' focus. President Clinton was very interested in Medicaid so we spent quite a bit of time on it. But the fact is for every one letter I got from a member of Congress about Medicaid, I got 50 about Medicare. And perhaps that is somewhat symptomatic of the time I was there, because I was there during the Balanced Budget Act. And as we have discussed, every provider in the country was upset about getting their Medicare reimbursements cut. So I found it was difficult to spend as much time on Medicaid as I would have liked. But I did not find the Serbs and Croatians. What I think he is referring to is that there are two career staff in the Medicaid bureau who had experience with the prescription drug rebate law, which I know you know about. And they had a lot of the intellectual capital when we began looking at prescription drugs and the pharmaceutical companies and all those sorts of things that CMS has never dealt with before. Those two gentlemen had the experience in dealing with them. But as Dr. Wilensky says, substantial intellectual capital will have to be built now, building on what is there in Medicaid as well as bringing in some people from the private sector. A lot of this though is not even going to be intrinsic to prescription drugs. It is just getting rules written, figuring out how to oversee contracts, the hard stuff that you talked about earlier in your statement. And for that, I think, you could bring over some good people from SSA if there are some people there who could be spared, as well as from some of the other agencies who do that kind of thing, and get them on a SWAT team to help the agency. That is what I would be looking at. Senator Pryor. Thank you. Senator Voinovich. I want to thank you very much for being here today. I can assure you that not only your written testimony but the responses that you have made today will be sent over to Mr. McClellan. I think your suggestion that it might be good to have him in here to have an opportunity to spend some time with us is a good one, to ascertain what it is that he thinks we need to do to be of help to him. I think the issue of workforce flexibilities in order to hire the people that they need to get the job done is one issue. Another, I think is the issue of the budget, a $1 billion deal. But what will CMS need, in terms of additional money, to get the job done once this program is up and running? This is just a one-shot deal. Looking at some of the other areas in the Department where they have been shortchanged in terms of dollars are also issues that we need to really get at right away. One of the things I have learned here and Senator Pryor probably joins me in that because he was an attorney general, is Congress in so many instances has really no appreciation for the management challenges of some of these programs. We get this idea that we pass a law, snap your fingers and it is all done. A lot of my colleagues have never been a mayor. They have never been a governor or an attorney general. And so they just have no idea about how much work it takes to get something done. It seems to be illogical because if you look at any organization its strength really is in the people that are in that organization. We just do not pay enough attention to that. So I am really grateful that the two of you have come over here today. Dr. McClellan can learn a great deal from your testimony. I was thinking about whether we would do that or not, but I would like to invite him in and give him a chance to share with us his observations and maybe discuss some of these issues that you have raised. Are we too ambitious? Are we being asked to do too much at the same time? Are some of the things that Congress asks for in this legislation things that maybe we could delay for a year or 2 years rather than trying to get it all done at one time? Or is the alternative cascading some of this over a period of time so we get a little more experience with it, so that we can determine whether or not the grand plan is really doing the job that we expect it to do? Again, thank you very much. The hearing is now adjourned. 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