[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]




                               before the

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                           FEBRUARY 17, 2005


                           Serial No. 109-35


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                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
TIM MURPHY, Pennsylvania

                      Bud Albright, Staff Director

      James D. Barnette, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel


                            C O N T E N T S


Testimony of:
    Leavitt, Hon. Michael O., Secretary, U.S. Department of 
      Health and Human Services..................................    11





                      THURSDAY, FEBRUARY 17, 2005

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:12 p.m., in 
room 2123 of the Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Hall, Stearns, 
Gillmor, Deal, Whitfield, Norwood, Shimkus, Wilson, Shadegg, 
Radanovich, Bass, Pitts, Bono, Walden, Ferguson, Otter, Myrick, 
Burgess, Blackburn, Dingell, Waxman, Markey, Brown, Rush, 
Engel, Wynn, Green, Strickland,DeGette, Capps, Allen, 
Schakowsky, Solis, Gonzalez, Inslee, Baldwin, and Ross.
    Staff present: Chuck Clapton, chief health counsel; Jeanne 
Haggerty, professional staff; Eugenia Edwards, legislative 
clerk; John Ford, minority counsel; Bridgett Taylor, minority 
professional staff; Jessica McNiece, research assistant.
    Chairman Barton. The committee will come to order. We are 
honored today to have the Secretary of Health and Human 
Services, the Honorable Michael Leavitt, making his first 
appearance in the capacity before the Energy and Commerce 
Committee. Secretary Leavitt has got a distinguished public 
service career; Governor of Utah, head of the National 
Governors Association, administrator of the EPA and now is 
Secretary of Health and Human Services. He has got a large task 
ahead of him. We have tremendous responsibilities in this 
committee and his agency regarding the public health of the 
United States of America. Just one program of many. He is 
responsible for Medicaid. Right now it is a $196 billion per 
year program growing and doubled in--we also need to take a 
look at the implementation of Medicare reform. I hope that this 
committee will undertake a comprehensive review of the 
authorization of the National Institute of Health. I do also 
believe we should look at the Food and Drug Administration. We 
should look at the National Cancer Institute, Centers for 
Disease Control; these are all issues that are in Secretary 
Leavitt's purview.
    Mr. Secretary, We are extremely pleased to have you before 
this committee. I am going to give every member of the 
committee a chance to make a brief opening statement. They will 
come to you for such time with their main concern and I am sure 
that everyone on the committee will have questions for you. As 
I told you in the anteroom, though, there is both good news and 
bad news. The House is through voting for the week, so most of 
us are going to be rushing to catch airplanes, so I don't think 
you can expect to get a second round of questions today.
    I would now like to yield to the Senior Minority Member of 
this committee, the former chairman of this committee and the 
Dean of the House, the Honorable John Dingell of Michigan for a 
5-minute opening statement.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Good morning. Let me begin by welcoming Secretary Michael Leavitt 
to his first appearance before the Energy & Commerce Committee. We look 
forward to hearing him testify about the Administration's Fiscal-Year 
2006 Health Care Priorities.
    Secretary Leavitt is new to the Department of Health and Human 
Services; but luckily for all of us, he is no stranger to the 
complicated world of health care. As Governor of Utah, he fought to 
make Medicaid more flexible, provided new health benefits for the 
uninsured, and dramatically improved immunization rates above the 
national average. I believe that his experience and insights will 
provide strong leadership in the years to come. Mr. Secretary, I look 
forward to working closely with you to improve this country's health 
care system.
    Mr. Secretary, you have a formidable year in front of you. First 
and foremost, I would like to praise the Administration and you, Mr. 
Secretary, for your ambitious plans for reforming the Medicaid program. 
For years, we have discussed the necessity of looking seriously at this 
program, and for years we have done nothing.
    While we have done nothing, the program has continued to expand 
without any oversight. For fiscal year 2006, the Federal share of 
Medicaid outlays is expected to be almost $193 billion, a $4.3 billion 
dollar increase from last year, and a $16 billion increase from 2004. 
Medicaid is now the largest single Federal health care program, and is 
often the largest item in most state budgets.
    I am extremely interested in hearing more about the reforms 
outlined in the President's budget proposal. States need additional 
flexibility. At the same time, we also need greater accountability. 
Federal dollars given to states for Medicaid should be used only to 
provide for beneficiaries' health care services. Reimbursements for 
prescription drugs should be at an accurate rate, which reflects the 
true costs paid by pharmacists. The laws governing Medicaid eligibility 
should not create incentives for individuals to manipulate the system 
and transfer assets to qualify for long-term care. My Committee has 
already held hearings on a few of the proposals outlined in the budget, 
and we will be holding more. Especially in these tight fiscal times, it 
is critical that we ensure that every Medicaid dollar is used to 
improve the health care of the people who depend on this program.
    This year the Administration also has the important task of 
implementing the new Medicare prescription drug benefit provided in the 
Medicare Modernization Act (MMA). Implementing the new benefit is a top 
priority for Congress as well. Beginning January 1, 2006, seniors will 
FOR THE FIRST TIME have comprehensive coverage of their prescription 
drugs by the Medicare program, and I want to work with you to ensure 
that the transition happens smoothly and efficiently. This new benefit 
will be a great help to Medicare's beneficiaries.
    Quite frankly, the tactics that have been used by opponents of the 
Medicare bill disappoint me. Scaring seniors into not enrolling in a 
Medicare prescription drug card program that would have saved them 
money is inexcusable. Complaining about so-called new ``cost 
estimates'' of the bill that compare the cost of the drug benefit over 
two different time periods and reflect the gross cost without factoring 
savings is dishonest. Arguing that if the Federal government should 
negotiate prescription drug prices to drive down the cost of medicine, 
when the non-partisan Congressional Budget Office has said that doing 
so would not produce substantial savings is just not accurate. It is 
these types of ``Medicare myths'' that will harm seniors--not a new 
prescription drug benefit.
    I am also deeply committed to reauthorizing the National Institutes 
of Health (NIH). Most programs under NIH have not been authorized in 
over a decade. Shockingly, outside of entitlements, many health 
programs have been funded been under lapsed authorization. I've made no 
secret of the fact that I don't believe this is a responsible practice 
and want my Committee to return to a stronger role in reviewing 
programs and program authorizations.
    The Energy and Commerce Committee has the largest jurisdiction over 
health care of any legislative congressional committee, and thus we 
play a key role in creating legislation for better health care. I am 
proud that in the past, we have worked in a bipartisan fashion, and I 
hope that continues into this new Congress. We work best when we work 
together. We could not have passed into law the Medicare Modernization 
Act without the input and support from Democrats. I want to be able to 
work with our Democratic Members to continue to improve our health care 
    As Chairman of this committee, I plan to work with President Bush, 
Secretary Leavitt, Members of Congress, and our health care colleagues 
to continue this important progress and to seize the opportunity for 
better health and responsible health care.
    Thank you again, Mr. Secretary, for appearing here today. I look 
forward to hearing your testimony.

    Mr. Dingell. Mr. Chairman, I thank you for your courtesy. 
Welcome, Secretary. I ask you to accept my statement to be 
inserted in full in the record. I will try to extrapolate----
    Chairman Barton. I would also like to compliment your 
choice of soft drinks. It is the first time I have seen you 
drinking a Diet Dr. Pepper. I may be rubbing off on you a 
little bit.
    Mr. Dingell. The budget before us seriously shortchanges 
the most vulnerable people in our society. This is the 
unfortunate result of reckless tax cuts that have benefited the 
wealthy few. The elderly, the poor, the disabled will now pay 
the price. The President proposes $1.6 trillion in tax cuts 
over the next 10 years. Medicaid will be cut by $60 billion. 
Deep cuts in Medicaid are unfair. Medicaid faces many 
challenges, serving 50 million people who are among the most 
poor and vulnerable in our society. It is the only program that 
provides financial assistance for middle class and poor seniors 
in nursing homes, adequate health insurance for individuals 
with disabilities and health care coverage for one in four of 
our children and their families.
    Are the costs of Medicaid going up? Yes. Medicaid suffers 
not so much from ``inefficiency'' or rigidity, but rather from 
rising health care and prescription drug costs, increased 
enrollment due to declining employer-sponsored coverage, rising 
numbers of uninsured due to the Nation's economic woes, and a 
society which is aging.
    In spite of all of this, Medicaid's per capita growth rate 
of 6.1 percent is less than the private sector's 12.6 percent. 
The President's own baseline dropped by $91 billion from 
previous estimates, indicating that spending is being curbed. 
But the President's budget also includes deep cuts to Medicaid 
on top of this existing reduction in spending, clearly sending 
us in the wrong direction. Rather than cut the program, we 
should shore it up. If we do not, States will have no choice 
but to raise taxes or to reduce or completely eliminate 
coverage for some of the most weak and vulnerable in our 
    If these reasons are not compelling enough, remember that 
cutting Medicaid is also bad for business. Cuts to Medicaid 
leave more Americans uninsured or under-insured. This means 
that providers will have to make up for lost revenue by 
shifting costs to private payers and employer health coverage 
will bear the brunt of that cost.
    Again, this budget ``proposes to provide States with 
additional flexibility in Medicaid to further increase coverage 
amongst low-income individuals and family without creating 
additional cost to the Federal Government.'' Does that mean 
more efficiencies, or simply telling States they can cover more 
people by giving somebody less, whether it is providers, 
seniors, children, or individuals with disabilities? Is this a 
step toward the block grant program that we hear about?
    On Medicare, recent revelations of another increase in the 
cost of prescription drug laws tells us we cannot afford 
bloated payments to HMOs and to drug manufacturers. It is most 
unfortunate President Bush will use his veto to protect them. 
That is clearly wrong. Allowing the Secretary to negotiate drug 
prices, or not paying HMOs the 137 percent of fee-for-service 
costs would allow us to reduce costs. It would also allow us to 
improve the benefit by providing coverage for drugs between 
$2250 and $3600 of spending and to rescind upcoming cuts in 
physicians' payments.
    Public health service budget proposals are also bad--bad 
medicine, not good government. The general theme is to 
eliminate, cut, or to freeze many programs of proven worth. The 
Centers for Disease Control and Prevention's chronic disease 
program is being cut, the preventive health services block 
grant is being eliminated, bioterrorism preparedness funding is 
being cut by more than 12 percent, HIV/AIDS treatment and 
prevention programs remain inadequately funded, biomedical 
research is shortchanged by an increase in name only and the 
Food and Drug Administration's chronic under-funding will 
    Don't take my word for it. The American Public Health 
Association has called the budget ``shortsighted.'' The 
Association of State and Territorial Health Officials says the 
cuts in the Administration's proposed 2006 budget ``would 
weaken the ability of the State and local public health 
officials to respond to bioterrorism, emerging infectious 
diseases, or other public health threats and emergencies.'' The 
Association of American Medical Colleges is ``deeply 
disappointed'' in the President's 2006 budget. The Association 
of American Universities budget says that the budget ``would 
erode research and the innovative capacity of our nation.'' The 
American Nurses Association states that the ``president's 
proposed funding is insufficient to address the increasing 
nursing shortage.'' Patient groups for cancer, diabetes, heart 
disease, HIV/AIDS, and others have expressed similar concerns.
    All this just to pay for past, present and future tax cuts 
to those who are most fortunate among us? We and future 
generations will pay very dearly if these unfair and 
unnecessary cuts are enacted and if this budget passes in the 
form in which it now is. Thank you, Mr. Chairman.
    Chairman Barton. Thank you, Congressman Dingell. We now 
recognize the chairman of the House subcommittee, Mr. Deal, for 
a 1-minute opening statement.
    Mr. Deal. Thank you, Mr. Chairman. I join with you in 
welcoming Secretary Leavitt to our committee today, having 
worked with him in his former role as EPA Administrator. I know 
that he has the skill and the knowledge necessary to serve as 
excellent Secretary; commend the President for his selection of 
you and I welcome you to this committee. We look forward to 
working with you. I yield back. Thank you, Mr. Chairman.
    Chairman Barton. We thank the gentleman from Georgia. We 
would recognize the gentleman from California, Mr. Waxman, for 
a 1-minute opening statement.
    Mr. Waxman. Thank you, Mr. Chairman. I welcome the 
Secretary of HHS. I think he has the unenviable task of trying 
to defend one of the worst budgets in history, as I can recall, 
during the time I have been here. The Bush budget slashes 
Federal support for Medicaid, threatening the safety net 
program for the poorest and most vulnerable of our citizens. It 
also hints at erosion and repeal of basic standards that 
protect people in nursing homes, people with disabilities, low-
income children with family incomes only slightly above 
poverty. It also suggests an NIH budget that won't keep pace 
with inflation which will erode the ability of that institution 
to find cures and other ways to save lives and reduce 
suffering. The resources for FDA and the CDC are quite 
remarkable in light of a recent flu vaccine debacle--it is a 
strange response, indeed. The money for unproven and misleading 
abstinence-only programs is increased dramatically, but funds 
are eliminated for proven preventive health services funded 
through State block grants. Mr. Chairman, I welcome the 
Secretary. I hope I will have a chance to inquire further about 
some of these issues.
    Chairman Barton. We thank the gentleman. Recognize the 
gentleman from Texas, Mr. Hall, for an opening statement.
    Mr. Hall. Thank you, Mr. Chairman. I just congratulate 
Governor Leavitt on the services he has rendered, on being here 
today, and for the opportunity to work with him the next year. 
Thank you, sir. I yield back.
    Chairman Barton. We recognize the gentleman from Ohio, Mr. 
Brown, for an opening statement.
    Mr. Brown. Thank you, Mr. Chairman. Thank you for joining 
us today, Secretary Leavitt. I appreciate our candid 
conversation last week. Thank you. All my questions about the 
President's budget boil down to this, I simply can't understand 
how the President's moral values permit him to give multi-
millionaires tax cuts they are not even asking for, while 
choking off programs that protect children from abuse, seniors 
from destitution, and our communities from crime. Programs like 
Medicaid already run on fumes and programs like Medicaid 
matter. The President is not making the government more 
efficient, he is making it less effective.
    A budget should be an accurate reflection of what a society 
cares about. This budget doesn't reflect the concerns my 
constituents share with me every day; concerns of businesses 
and civic organizations and churches in my district. This every 
man for himself budget reflects a narrow ideology that not only 
invites human suffering, it tests the cohesiveness of our 
society. The programs under this committee's jurisdiction 
reflect the day-to-day concerns of Americans. They extend a 
lifeline to kids and seniors in poverty, they sustain the 
public health, they foster medical progress. The President's 
budget starves these programs while it gives more to the most 
privileged. I hope the Secretary can explain why.
    Chairman Barton. Thank you. The gentleman from Kentucky, 
Mr. Whitfield's, recognized for an opening statement.
    Mr. Whitfield. Mr. Chairman, I waive opening statement.
    Chairman Barton. Okay. The gentleman from New York, Mr. 
Engel, is recognized for an opening statement.
    Mr. Engel. Mr. Chairman, I will waive my opening statement 
so I can have an extra minute later on.
    Chairman Barton. Okay. The gentleman from Ohio, Mr. 
Gillmor, is recognized for an opening statement.
    Mr. Gillmor. Thank you, Mr. Chairman. I just want to 
welcome the Secretary and commend him for the great job he has 
done in the many past positions he has held. We look forward to 
working with you. Thank you. I am hiding behind Mr. Norwood's 
    Chairman Barton. The gentleman from Massachusetts, Mr. 
Markey, make a statement.
    Mr. Markey. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. I am very concerned, Mr. Secretary, that the 
President's budget, with large cuts in both Medicaid and long-
term care programs will hit our Nation's most vulnerable, the 
hardest--are putting an enormous strain on our State budgets. 
This short-sighted budget also cuts prevention programs and 
other programs that have initial costs but will result in 
savings in the long run. Last week we learned that despite the 
fact that the price tag for the best Medicare bill the drug 
companies can buy has skyrocketed to new heights.
    The President is refusing to consider any changes to the 
bill that will reduce cost. The President could easily slash 
the price if he would simply give you the authority to 
negotiate prices on behalf of all Medicare beneficiaries, but 
the President has said he will veto any attempts to change his 
Medicare drug bill to lower costs to seniors in our country. 
That is a big mistake, Mr. Secretary, and we are going to have 
a powerful debate in this country this year in order to deal 
with that issue.
    Chairman Barton. Thank the gentleman. Gentleman from 
Illinois, Mr. Shimkus, wishes to make an opening statement?
    Mr. Shimkus. I will waive.
    Chairman Barton. Okay. Gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I am glad we have 
this hearing and Secretary Governor, I thought always once a 
Governor, always a Governor, so welcome to your first 
appearance for our committee and I welcome the chance to talk 
about the Administration's health care budget.
    I want to applaud the Administration for meeting its 
commitment to doubling the FQHCs. I think that is so important 
in our country and also for the health care technology funding. 
But I have to admit, I was disappointed with the continued 
effort to eliminate the community access program, the HCAP 
program that is been a Godsend for over 150 communities 
throughout our--in 42 States. It helped bring our providers 
together to see how we can deal with the uninsured. In Houston, 
we actually deal with for-profits, nonprofits, everyone to see 
how we can deal with it, our hospital systems and also our 
program system. And I know, on the Senate side, Senator Murray, 
fought to restore the funding last time and I am going to stand 
with her again to make sure we can do that.
    Like other Federal programs, there are elements of Medicaid 
that I think that certainly warrant our examination and I 
wholeheartedly, though, disagree with the Administration's 
assertions that the program is inefficient. True, their costs 
have increased, but Mr. Secretary, the Medicare and private 
insurance have increased even more than Medicaid. Mr. Chairman, 
I would like my full statement be placed in the record.
    Chairman Barton. Without objection, so ordered.
    Gentleman from New Hampshire, Mr. Bass. Gentlelady from 
Colorado, Ms. DeGette. Gentlelady from California, Ms. Bono. 
Okay. The gentlelady from California, Ms. Capps. Okay. 
Gentleman from New Jersey, Mr. Ferguson.
    Mr. Ferguson. I will waive, Mr. Chairman, except to welcome 
the Secretary. We are delighted he is here and looking forward 
to working with him. Thank you.
    Chairman Barton. All right. The gentlelady from Illinois, 
Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman, and welcome, 
Secretary Leavitt. In my view, the President's budget worsens 
the health care crises in the United States in many ways, but 
at the top of my worries about this budget are the proposed 
cuts to Medicaid. At a time when over 45 million Americans, 
including 9 million children, are uninsured for the entire 
year, Medicaid has been a life raft. It is cost-effective. The 
per capita increases in Medicaid are less than half of those in 
the private sector. When the need is so great, how can the Bush 
Administration justify $60 billion in Medicaid cuts?
    I am particularly disturbed by your statements that our 
only real commitment is to ``mandatory populations.'' Optional 
beneficiaries are not extras. They are children and pregnant 
women and persons with disabilities struggling to live on 
poverty or near-poverty incomes. I believe this is a dangerous 
budget that will put the security of a million American 
families in jeopardy and by jeopardizing the health of our 
people, weaken our economic well-being. I will have some 
questions about these optional, so-called optional populations. 
Thank you.
    Chairman Barton. Thank you. Gentlelady from North Carolina 
wish to make an opening statement? Does the gentle lady from 
California, Ms. Solis, wish to make an opening statement?
    Ms. Solis. Yes. Thank you, Mr. Chairman, and welcome, Mr. 
Secretary. Briefly, we have already heard about the problems 
with Medicaid, the cuts, the potential cuts, and I am very 
concerned about what might take place in California. And with--
especially with respect to the inner-governmental transfers 
that I know you are going to be looking at. They have worked 
reasonably well for us in California. Please make that 
consideration to take a second look. We just met with our 
Governor, Mr. Schwarzenegger, and talked about that in depth.
    But I am more concerned, also, about health care profession 
training programs that are going to be eliminated in the 
Department of Health and Human Services. As you know, 
minorities only make up 9 percent of the nurses, 6 percent of 
the physicians, and 5 percent of the dentists. This program is 
something that is much needed if we are to strive for diversity 
in Federal Government, so I would hope that those funds would 
be restored and look forward to working with you on health care 
issues and health care disparity issues that exist in our 
country. Thank you.
    Chairman Barton. Does the gentleman from Texas wish to make 
an opening statement? Dr. Burgess.
    Mr. Burgess. Mr. Chairman, I will waive. I just want to 
welcome the Secretary to the committee.
    Chairman Barton. Okay. Does the other gentleman from Texas, 
Mr. Gonzalez, wish to make--okay. Gentlelady from Tennessee, 
Ms. Blackburn?
    Ms. Blackburn. Thank you, Mr. Chairman. Mr. Secretary, 
thank you. We appreciate you being here and I am particularly 
interested in a portion of the President's budget that would 
allow greater flexibility to the States managing their 
Medicaid. My State is a great example of why this is needed.
    I am from Tennessee and about 10 years ago we had a 
program, TennCare, that was implemented to provide greater 
health care coverage. It is known largely as the test case for 
Hillary Clinton's health care and as you are probably well 
aware, we had a waiver for the program. It has resulted in some 
difficult situations, some budget crunches and is on the brink 
of catastrophe. And it is a financial crisis, a fiscal crisis 
to which we are very closely attuned; double digit increases 
each year and our Governor has had some tough decisions to make 
this year. So we look forward to working with you, we look 
forward to hearing from you. Thank you, sir, for being here.
    Chairman Barton. We thank the gentlelady. The gentleman 
from Maine, Mr. Allen, wish to make an opening statement?
    Mr. Allen. I do, Mr. Chairman. Thank you. Mr. Secretary, 
welcome. Two of our greatest challenges of the rising number of 
uninsured and the increasing burden of health insurance on our 
Nation's employers if the President's budget reduces and in 
some cases completely eliminates many important programs which 
strengthen our healthcare infrastructure.
    The President's solution to dealing with the uninsured is 
to trot out old proposals, association health plans, health 
savings accounts and tax credits. There is little evidence, in 
my view, that these proposals would significantly reduce the 
number of uninsured or bring down costs for employers. As 
Richard Wagner, the head of General Motors said the other day, 
``Our national health care crisis threatens the health and 
global competitiveness of our Nation's economy.'' When it comes 
to Medicaid, I am convinced that simply shifting costs back to 
the States, providers and beneficiaries is not likely to form a 
solution and so I really urge us to think long and hard about 
the budget we have in front of us and try to come up with one 
that does a better job with health care. I am sure you will 
have a different view, but I am glad to have you here. Thank 
you very much.
    Chairman Barton. Does the gentlelady from Wisconsin wish to 
make an opening statement?
    Ms. Baldwin. I will waive.
    Chairman Barton. Does the gentleman from Arkansas wish to 
make an opening statement?
    Mr. Ross. Yes, sir, Mr. Chairman. I appreciate the 
Secretary coming to testify today and like many of my 
colleagues, I am deeply concerned about some of the proposals 
in the Administration's budget in regard to Medicaid. Medicaid 
serves over one quarter of the total population of my home 
State, which is Arkansas, and more than half of these 
recipients are children. In fiscal year 2004 nearly 700,000 
children and adults were eligible for medical care through the 
Medicaid program. 75 percent of the nursing home patients in 
Arkansas are provided care through Medicaid.
    I met with our Governor, Governor Huckabee, who is vice 
chair of the National Governors Association and the lead 
Republican on this very issue last week in my office here in 
Washington and he expressed concerns regarding the 
sustainability of Medicaid and the impact of any reduction of 
Federal assistance with administering the program. Therefore, 
as the Administration develops its changes to State funding 
rules, administrative payment cuts, and other reforms, Mr. 
Secretary, I just ask that you please do not lose sight of 
those who need Medicaid to live and what an impact any cuts 
would have on the small, rural and poor States like Arkansas.
    Chairman Barton. Is there any other member present which 
has not been given an opportunity to make an opening statement 
that wishes to do so? Seeing none, the Chair would ask 
unanimous consent that all members not present have the 
requisite number of days to put their statements in the record 
in their entirety. Without objection, so ordered.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Heather Wilson, a Representative in Congress 
                      from the State of New Mexico

    Thank you, Mr. Chairman, for holding this hearing today to review 
the President's budget for health care. And thank you, Secretary 
Leavitt, for being here today.
    Let me start with what I believe are highlights of the President's 
budget. The budget includes a $304 million increase for community 
health centers, including $26 million to build new health centers in 
low-income communities. The budget also includes needed funding for 
health information technology initiatives, including $125 million for 
the Office of the National Coordinator for Health Information 
    But there are many items for concern for me in this budget, none of 
which are more important than Medicaid. I'm not against making changes 
to Medicaid that result in savings. In fact, I believe some of the 
specific Medicaid proposals in the President's budget are changes that 
are needed and would improve Medicaid. But I believe those changes will 
have consequences and can't be made in a vacuum. Starting with a budget 
number and only looking at changes that produce savings to meet that 
number may not be the right way to go here. We must look at the overall 
impact of these changes on the Medicaid program and its ability to 
provide access to high-quality health care for low-income children, 
pregnant women, disabled, and elderly Americans.
    I believe most people in this room are aware that I have introduced 
a bill to create a Bipartisan Medicaid Commission to make 
recommendations for real reforms that would improve Medicaid. Nothing 
in this budget talks about having a national discussion about financing 
long-term care, the cost of which will double in the next ten years. 
Nothing in this budget talks about improving chronic disease management 
in Medicaid, encouraging prevention to keep people healthy. The 
commission would provide the right forum to carefully deliberate needed 
policy changes and ensure the long-term financial stability of the 
    I look forward to hearing your thoughts on this legislation, Mr. 
Leavitt, and I look forward to working with you as the Administration 
continues to develop and refine its ideas for Medicaid reform.
Prepared Statement of Hon. Joe Pitts, a Representative in Congress from 
                       the State of Pennsylvania

    Mr. Chairman, thank you for holding this important hearing today. I 
will be brief since we are all eager to get to the Secretary's 
testimony. I just want to welcome Secretary Leavitt to your first 
hearing before the committee, and let you know that I look forward to 
working with you.
    Mr. Chairman, I know many of my colleagues will focus on Medicaid. 
Let me just say, at the outset, that while I believe our committee 
certainly our work cut out for us in finding the savings the President 
requested. However, I am certain that, if we put politics aside, we can 
work together diligently in a bipartisan manner to meet the Presidents 
goals in this area.
    There are two other topics I would like to touch on very briefly. 
Last April, HHS limited attendance at its July International AIDS 
Conference in Bangkok, Thailand, to 50 federal employees at a cost of 
$500,000. That was down from the $3.6 million spent to send 236 people 
to the 2002 conference in Barcelona, Spain. Twenty-nine members of 
Congress sent a letter to Secretary Thompson last year thanking him for 
limiting attendance to this conference. Mr. Chairman, I would like to 
insert that letter into the record.
    I applaud the Department's leadership in working to scale back the 
largess of the federal involvement at these international conferences. 
Further, I appreciate the Department's ongoing efforts to change the 
way the conference and travel system works at HHS. Total annual US HIV/
AIDS spending in 2004 was $18.5 billion, and Congress passed a five-
year, $15 billion initiative to combat global Aids. Clearly, focusing 
resources on AIDS treatment and effective prevention programs should be 
a higher priority than HHS spending millions of dollars on a single 
    Secondly, I support the President's request for a $34 million 
increase in funding for SPRANS community-based abstinence education 
grants and hope Congress fully funds his proposal. Overall, our 
government spends $12 to promote contraception for every dollar spent 
to encourage abstinence. However, these spending priorities are exactly 
the opposite of what our parents say they want taught to their teens. 
In a recent Zogby poll, an overwhelming majority--85 percent--of 
parents said that the emphasis placed on abstinence for teens should be 
equal to or greater than the emphasis placed on contraception.
    Further, I understand that HHS has jurisdiction over part of the 
Global AIDs funds. As you may know, my amendment to this law last 
Congress required that one-third of the prevention funds be used to 
teach abstinence until marriage, following the successful model Uganda 
developed. I just want to encourage you to follow the president's 
vision for this and make sure this funding gets proper oversight.
    Again, welcome Mr. Secretary, and I look forward to working with 
you on these and other issues of importance.
 Prepared Statement of Hon. C.L. ``Butch'' Otter, a Representative in 
                    Congress from the State of Idaho

    I would like to thank the chairman for holding this hearing and 
congratulate Secretary Leavitt on his new post.
    While health care costs continue to rise and we discuss ways to 
trim costs, I think it is important to recognize we may be treating the 
symptoms of the system and not the disease. Until we put personal 
responsibility back into the health system, through emphasizing healthy 
behaviors and structuring health programs that put the actual costs of 
care in front of consumers we are going to face budget constraints like 
we see in Medicaid. The Medicaid budget problems at hand dictate we 
find a new approach. I agree with the Administration's proposal that 
would give states more flexibility in Medicaid spending. States must 
have the opportunity to shift resources to ensure the right care is 
delivered to the right folks.
    I look forward to Secretary Leavitt's testimony and working with 
the administration in this regard.
  Prepared Statement of Hon. Tim Murphy, a Representative in Congress 
                     from the State of Pennsylvania

    Thank you Mr. Chairman.
    It is a pleasure to welcome Secretary Leavitt to today's hearing 
and to thank him for his many years of public service to our country.
    As the Chairman of the 21st Century Health Care Caucus, I am 
pleased that the Secretary shares my passion for the benefits that 
health information technology can bring to improving the quality of 
care, reducing medical mistakes and managing the costs of health care.
    I applaud the President's 2006 budget for providing better options 
for how we pay for health care including association health plans for 
small businesses, expanded Health Savings Accounts, and medical 
liability reform. More importantly, I am pleased that the President 
plans an unprecedented commitment to health information technology and 
to expanding our nation's community health centers.
    The budget takes a strong stance on eliminating waste and 
duplication in social spending and entitlement programs. We must be 
careful to ensure that we balance the intention to eliminate waste with 
our efforts to provide health care to those who need it the most. With 
over 45% of mandatory spending going towards these programs, the 
federal government should be driving the change to reforming health 
care by shifting the focus from ``Who,'' is paying to increasing the 
quality of ``What,'' it is that we are paying for with an emphasis on 
quality as a means of improving affordability and access.
    As a child psychologist, I am also pleased with the 
Administration's proposal for the ``Cover the Kids Program,'' to 
provide $1 billion in grant money over two years to help coordinate 
Federal, State, school and community Medicaid/SCHIP outreach efforts to 
make sure that children who are eligible for these vital services get 
the care that they need and that we are paying for.
    I look forward to hearing the Secretary's thoughts today and to 
working together to bring our health care system into the 21st Century.

    Chairman Barton. Mr. Secretary, welcome to the Energy and 
Commerce Committee. We look forward to your comments. You are 
recognized for such time as you may consume, after which we 
will have some questions for you.
    Secretary Leavitt. Thank you, Mr. Chairman.
    Chairman Barton. You need to push that button--there is--on 
the actual microphone there is a button you push. There you go, 
right there.


    Secretary Leavitt. Thank you. Mr. Chairman, I am delighted 
to be here. Mr. Dingell, I am very pleased for a chance to work 
with you again. Mr. Chairman, I am sensitive to the fact that 
there are members of the committee who have deadlines to meet 
that may involve transportation and I will tell you that I have 
discovered, in my role as Cabinet Secretary, an arrangement 
that Cabinet Secretaries have with the airlines and that is if 
we are not there, they just leave, anyway. So I would like to 
be sensitive to that and submit my full statement for the 
record and I would just like to summarize.
    Chairman Barton. Without objection, so ordered.
    Secretary Leavitt. The President and I share a very 
aggressive agenda over the course of the next year. It is an 
agenda that I believe will take us closer to being a nation 
where health insurance is within the reach of every American, a 
Nation where medical technology and information technology can 
provide a system that creates fewer mistakes, lower costs and 
better care. The budget is $642 billion. It is an increase of 
10 percent over the previous fiscal year, an increase of some 
$58 billion. I want to be the first one to acknowledge that 
that is a great deal of money and that it is my responsibility, 
as the Secretary, to ensure that those dollars are spent 
wisely. I hope today we can talk about the Medicare 
Modernization Act and the prescription drug rollout, what I 
believe to be a historic opportunity for us to put prescription 
drugs into the hands of many who need them in this country.
    I would like to just acknowledge that recent press reports 
have inaccurately claimed that our cost estimates have 
dramatically increased. That simply is not true. I would like 
to comment on Medicaid. I hope we will have a chance to talk 
about that some. There are many Governors who are deeply 
concerned about this. You have alluded to it. What they are 
concerned about is that they are having to leave behind 
optional populations that they desperately want to continue to 
provide coverage for. The current system is inflexible, rigidly 
inflexible, and it is of great concern to them and great 
concern to us. My objective is to preserve the coverage for 
those groups and to expand to more. I believe it can be done. 
We can cover more people on the nearly $5 trillion that we will 
be spending over the course of the next 10 years.
    I hope today we can talk some about SCHIP and what a 
remarkable success that has been and what we could and should 
learn from that as we look to provide health care to more 
people. The President has put forward a budget that will 
include $125 billion over the next 10 years in a way that we 
believe will provide access to health insurance for some 12 to 
14 million additional Americans. We will be requesting $2 
billion, I might add, to increase the number of those served by 
our community health centers. A number of you are aware that 
the President has set a goal to have an additional 1,200 of 
them. We will not only meet that goal but exceed it with a 
proposal that would add it to 40 additional centers in the 
poorest of our counties.
    I hope we will have a chance to speak about the health care 
system, the need to transform it, to create a personalized 
patient-centered kind of medicine that will allow us to have 
fewer mistakes, and have higher forms of care at lower cost. 
The President has proposed $125 million at the beginning, at 
the underpinning of that, which is technology. Protection of 
our homeland should be a topic of our conversation today. If we 
include the 2006 requests, since September 11, 2001, the 
President will have spent or requested $19 billion. It is 
beginning to have a real positive impact.
    FDA has been raised by some. The budget includes a $1.9 
billion appropriation. That is an increase of $81 million since 
last year. This is a matter of great concern to me. The 
citizens of our nation need and deserve safety in their drugs 
and their food. This would allow us to combat the threats to 
our food safety. The 2006 budget would also expand activities 
to educate adolescents and parents on the risks associated with 
sexual activity while they are young and to help them make good 
choices. In conclusion, Mr. Chairman, this is a strong, 
fiscally responsible budget. It is one that I believe comes at 
a challenging time for the Federal Government, but I believe it 
will strengthen our country, our economy and continue to allow 
us to protect our homeland.
    [The prepared statement of Hon. Michael O. Leavitt 

    Prepared Statement of Hon. Michael O. Leavitt, Secretary, U.S. 
                Department of Health and Human Services

    Good morning Chairman Barton, Congressman Dingell, and members of 
the committee. I am honored to be here today to present to you the 
President's FY 2006 budget for the Department of Health and Human 
Services (HHS). The President and I share an aggressive agenda for the 
upcoming fiscal year, in which HHS advances a healthier, stronger 
America while upholding fiscal responsibility and good stewardship of 
the People's money.
    In his February 2nd State of the Union Address, the President 
underscored the need to restrain spending in order to sustain our 
economic prosperity. As part of this restraint, it is important that 
total discretionary and non-security spending be held to levels 
proposed in the FY 2006 budget. The budget savings and reforms in the 
budget are important components of achieving the President's goal of 
cutting the budget deficit in half by 2009 and I urge the Congress to 
support these reforms. The FY 2006 budget includes more than 150 
reductions, reforms, and terminations in non-defense discretionary 
programs, of which 19 affect HHS programs. The Department wants to work 
with the Congress to achieve these savings.
    The President's health agenda leads us towards a nation of 
healthier Americans, where health insurance is within the reach of 
every American, where American workers have a comparative advantage in 
the global economy because they are healthy and productive, and where 
health technology allows for a better health care system that produces 
fewer mistakes and better outcomes at lower costs. The FY 2006 HHS 
budget advances this agenda.
    The FY 2006 HHS budget funds the transition towards a health care 
system where informed consumers will own their personal health records, 
their health savings accounts, and their health insurance. It enables 
seniors and people with disabilities to choose where they receive long-
term care and from whom they receive it. Equally important, it builds 
on the Department's Strategic Plan and enables HHS to foster strong, 
sustained advances in the sciences underlying medicine, in public 
health, and in social services.
    To support our goals, President Bush proposes outlays of $642 
billion for HHS, a 10 percent increase over FY 2005 spending, and more 
than a 50 percent increase over FY--2001 spending. The discretionary 
portion of the President's HHS budget totals $67--billion in budget 
authority and $71 billion in program level funding. In total, the HHS 
budget accounts for almost two-thirds of the proposed federal budget 
increase in FY 2006.
    The Department will direct its resources and efforts in FY 2006 

 Providing access to quality health care, including continued 
        implementation of the Medicare Prescription Drug, Improvement, 
        and Modernization Act of 2003;
 Enhancing public health and protecting America;
 Supporting a compassionate society; and
 Improving HHS management, including continuing to implement the 
        President's Management Agenda
    Americans enjoy the finest health care in the world. This year's 
budget provides opportunities to make quality health care more 
affordable and accessible to millions more Americans.


    HHS will be working in FY 2006 to successfully implement the 
Medicare Modernization Act (MMA), including the Medicare Prescription 
Drug Benefit and the new Medicare Advantage regional health plans. I 
know there has been a lot of discussion over the past week about the 
cost of the new Medicare proposal, and I want to address that issue 
today. Recent press reports have inaccurately claimed that our cost 
estimates have dramatically increased. This is simply untrue.
    The passage of time is the main reason that the FY 2006 budget 
shows a higher net federal cost ($723.8 billion) for 2006-2015 than the 
cost estimate for 2004-2013. In the original cost estimates, the first 
two years in the ten-year budget window were for years before the new 
drug benefit was implemented (2004 and 2005). The ten-year budget 
window reflected in the 2006 budget includes ten full years of actual 
drug benefit spending. In effect, the passage of time has dropped two 
low-cost dollar year estimates (only transitional assistance spending) 
from the budget window and added two high-cost years, due to 
anticipated increases in average drug spending and the growth of the 
Medicare population. People should not be surprised that the numbers 
look different as a result of the advance of time.
    Some individuals have asserted that the estimate for MMA 
implementation is now over a trillion dollars. This assertion is 
completely unsupported by facts. The trillion dollar figure is a gross 
estimate that neglects to subtract out hundreds of billions of dollars 
of federal revenue, including beneficiary premiums, state payments, and 
other offsetting federal savings. Focusing exclusively on gross 
spending levels without considering the offsetting savings creates 
false impressions and does a disservice to the budget process and to 
Medicare beneficiaries.
    Moving beyond the subject of funding, I hope we can all begin to 
focus on the task at hand--ensuring successful implementation of a 
strengthened and improved Medicare program with the new prescription 
drug benefit. Between now and January 1, 2006, we have a lot of work to 
do, and I give you my commitment that we will not fail. I know not 
everyone in this committee supported the passage of the Medicare bill, 
but it is now law, and in 10 + months, almost 43 million Americans will 
be eligible to receive much needed assistance with the high cost of 
prescription drugs. Let us put aside our differences and work together 
towards the goal of ensuring that seniors and people with disabilities 
are successfully sign up for their new benefits. We all owe that to 


    In FY 2006, the President also proposes steps to promote affordable 
health care for the approximately 45 million Americans who are 
currently uninsured. The President proposes to spend more than $125.7 
billion over ten years to expand insurance coverage to millions of 
Americans through tax credits, purchasing pools, and Health Savings 
Accounts. To improve access to care for many uninsured Americans, the 
President's budget requests $2 billion, a $304 million increase from FY 
2005, to fund community health centers. This request does two things. 
It completes the President's commitment to create 1,200 new or expanded 
sites to serve an additional 6.1 million people by 2006. By the end of 
FY 2006, the Health Centers program will deliver high quality, 
affordable health care to over 16 million patients at more than 4,000 
sites across the country. In 2006, health centers will serve an 
estimated 16 percent of the Nation's population who are at or below 200 
percent of the Federal poverty level. Forty percent of health center 
patients have no health insurance and 64 percent are racial or ethnic 
minorities. In addition, the President has established a new goal of 
helping every poor county in America that lacks a community health 
center and can support one. The budget begins that effort by supporting 
40 new health centers in high poverty counties.
    Moreover, the President proposes a budget that would expand access 
to American Indian and Alaska Native health care facilities, staff six 
newly built facilities to serve the growing eligible population of 
federally recognized members of Native American Tribes, and address the 
rising costs of delivering care. In FY 2006, the Indian Health Service 
will provide quality health care through 49 hospitals, more than 240 
outpatient centers, and more than 300 health stations and Alaska 
village clinics. In total, the President proposes increasing health 
support of federally recognized tribes by $72 million in FY 2006, for a 
total of $3.8 billion.
    The President and the Department are also committed to resolving 
the growing challenges facing Medicaid. Medicaid provides health 
insurance for more than 46 million Americans, but as you are all aware, 
States still complain about overly burdensome rules and regulations, 
and the State-Federal financing system remains prone to abuse.
    This past year, for the first time ever, states spent more on 
Medicaid than they spent on education. Over the next ten years, 
American taxpayers will spend nearly $5 trillion dollars on Medicaid in 
combined state and Federal spending. The Department proposes to make 
sure tax dollars are used more efficiently by building on the success 
of the State Children's Health Insurance Program (SCHIP) and waiver 
programs that allow states the flexibility to construct targeted 
benefit packages, coordinate with private insurance, and extend 
coverage to uninsured individuals and families not typically covered by 
    The President proposes to give states more flexibility in the 
Medicaid program in order to enable states to increase coverage using 
the same Federal dollars. The tools we have at our disposal today were 
not available when Medicaid was created. States largely agree that 
current Medicaid rules and regulations are barriers to effective and 
efficient management. Over the past ten years, Medicaid spending 
doubled. At its current rate of growth (7.4%), the Federal share of 
Medicaid spending would double again in another ten years.
    The growth in Medicaid spending is unsustainable. I intend to enter 
into a serious discussion with Governors and Congress to decide the 
best way to provide states the flexibility they need to better meet the 
health care needs of their citizens.
    The President plans to expand coverage for the key populations 
served in Medicaid and SCHIP by spending $15.5 billion on targeted 
activities over ten years. The Budget includes several proposals to 
provide coverage, including the ``Cover the Kids'' campaign to enroll 
more eligible uninsured children in Medicaid and SCHIP. In addition, 
the extension of the Qualified Individual (QI) and transitional medical 
assistance programs will ensure coverage is available to continue full 
payment (subject to a spending limit) of Medicare Part B premiums for 
qualified individuals, and provide coverage for families that lose 
eligibility for Medicaid due to earnings from employment. Also, 
community-based care options for people with disabilities will be 
expanded through the President's New Freedom Initiative, including 
authorizing $1.75 billion over five years for the Money Follows the 
Person Rebalancing demonstration.
    Overall, these efforts to expand health insurance coverage, as well 
as those in other Departments, work together to extend health care 
coverage and health care services to millions of people. Thanks to the 
comprehensive nature of this agenda, workers are already investing 
money tax-free for medical expenses through Health Savings Accounts, 
Americans have increasing flexibility to accumulate savings and to 
change jobs when they wish, and more Americans are accessing high-
quality health care. We estimate that 8 to 10 million additional people 
will gain health insurance over the next ten years. Together, these 
efforts to expand insurance coverage and improve the Medicaid and SCHIP 
programs will cost approximately $140 billion over the same period.
    At the same time, we are taking steps to ensure states can use 
their Medicaid funds to the fullest potential to reach more individuals 
in need of health care. The budget includes proposals that will assure 
an appropriate partnership between the Federal and state governments. 
We would like to work cooperatively with the states to respond to the 
challenges in Medicaid. We must eliminate the vulnerabilities that 
threaten Medicaid's viability. In our budget, we have proposed a series 
of legislative changes that will ensure Medicaid dollars are used 
appropriately to fulfill the program's purpose to provide health care 
coverage for low income families and elderly and disabled individuals 
with low incomes. Under this proposal, inappropriate federal spending 
on Medicaid intergovernmental transfers and spending resulting from 
other current loopholes in Medicaid law will decrease by $60 billion 
over 10 years.
    As a former Governor, I understand the pressure on states in 
developing their budgets, particularly given the lack of flexibility in 
the current Medicaid law. However, some state officials have resorted 
to a variety of inappropriate loopholes and accounting gimmicks that 
shift their Medicaid costs to the taxpayers of other states. Obviously, 
states that are not engaging in these activities will not be affected 
by the proposals in the same manner as states that are. Collectively, 
the overall impact of the $60 billion ten-year decrease in federal 
Medicaid spending on states will in reality be about $40 billion, 
because by changing the calculation of prescription drug payments to be 
based on the average sales price and by tightening asset transfer 
rules, approximately $20 billion in state spending will be saved. And 
it should be noted that two-thirds of the savings will occur beyond the 
initial five-year budget window.


    The HHS FY 2006 budget will also build on the Department's 
achievements in strengthening our ability to detect, respond, treat, 
and prevent potential disease outbreaks due to bioterrorist acts.
    It will enable the National Institutes of Health (NIH) to increase 
research efforts in developing bioterrorism countermeasures and to fund 
biomedical research at current levels, it will allow the Centers for 
Disease Control and Prevention (CDC) to expand the Strategic National 
Stockpile, and it will support the Food and Drug Administration's 
efforts to defend the nation's food supply. This proposal requests $4.2 
billion to continue this work, an increase of almost 1500% over 2001. 
This request raises to $19 billion the cumulative amount invested since 
September 11, 2001 on public health preparedness, and that investment 
is showing tangible results.
    Let me mention just a few of the highlights and also note that HHS 
works in close cooperation with DHS on many of these activities, 
including the medical surge initiative and food node threats and 
vulnerability assessments:

 HHS has a responsibility to lead public health and medical services 
        during major disasters and emergencies. To support this, we are 
        requesting $70 million for the Federal Mass Casualty Initiative 
        to improve our medical surge capacity. We are also investing 
        $1.3 billion to support work at CDC and the Health Resources 
        and Services Administration (HRSA) to improve state and local 
        public health and hospital preparedness.
 In the event of a major health emergency, one posed by either nature 
        or through the intentional use of a weapon of mass destruction, 
        the Strategic National Stockpile would provide Americans with 
        almost immediate access to an adequate supply of needed 
        medicines. In order to ensure the effectiveness of the 
        Stockpile, we're requesting $600 million to buy additional 
        medicines, replace old ones, provide specialized storage, and 
        get any needed medicines and supplies to any location in the 
        United States within 12 hours. $50 million of this will go to 
        procure portable mass casualty treatment units.
 We're requesting $1.9 billion for the Food and Drug Administration 
        (FDA)--an increase of $81 million over 2005. $30 million of 
        this request would be directed to improving the agency's 
        national network of food contamination analysis laboratories 
        and to supporting vital research on technologies that could 
        prevent threats to our food supply. HHS also proposes to 
        dedicate $6.5 million more than in FY 2005 to evaluating and 
        communicating drug safety risks to the public and applying 
        scientific expertise to explore the risks of medical products 
        already on the market.
    We now have a heightened awareness that the nation's critical food 
safety infrastructure must be better protected. FDA quickly learned 
that pursuing more field exams, alone, is not the most effective 
strategy for providing this protection. The new Prior Notice 
requirement on the shipment of foods allows FDA to conduct intensive 
security reviews on products that pose the greatest potential 
bioterrorism risk to consumers in the United States. We intend to 
compliment these inspection efforts with further improvements to the 
national network of food contamination analysis laboratories, and to 
provide support for vital research on technologies that could prevent 
threats to food supply. Investments like these will allow FDA to work 
smarter in the future.
    The Food and Drug Administration is an integral component in our 
efforts to promote and protect the health of the United States public. 
Its mission is broad, and the agency's decisions affect virtually every 
American on a daily basis. In addition to food defense, the proposed 
$81 million increase will be focused on achieving specific improvements 
in drug safety and medical devices.
    The budget includes a total of $747 million for human drugs and 
biologics, an increase of $26 million. With these funds, we propose to 
strengthen FDA's Office of Drug Safety with an increase of $6.5 
million, for a total of $33 million. This increase will better equip 
the Office to carry out Center-wide responsibilities for drug safety 
analysis and decision-making. Critical staff expertise will be 
augmented in such areas as risk management, communication and 
epidemiology. Increased access to a wide range of clinical, pharmacy 
and administrative databases to monitor adverse drug events will be 
obtained. Also, external experts will also be used to a greater degree 
to evaluate safety issues.
    Medical device products regulated by FDA must be safe and 
effective. The budget requests $289 million, an increase of $12 
million, to improve timely performance in the review of applications, 
as well as, maintaining consistent high standards of safety and 
quality. Additional funds will also be directed towards medical device 
post-market safety activities.


    The FY 2006 budget also includes targeted efforts to ensure a 
stable supply of annual influenza vaccine, to develop the surge 
capacity that would be needed in a pandemic, to improve the response to 
emerging infectious diseases before they reach the United States, and 
to improve low-income children's access to routine immunizations.
    HHS plans to invest $439 million in targeted influenza activities 
in FY 2006, in addition to insurance reimbursement payments through 
Medicare. The budget includes a two-part $70 million approach to ensure 
industry manufactures an adequate supply of annual influenza vaccine. 
The Vaccines for Children (VFC) program will again set aside $40 
million in new resources to ensure an adequate supply of finished 
pediatric influenza vaccine. The discretionary Section 317 program will 
use $30 million to get manufacturers to make additional bulk monovalent 
vaccine that can be turned into finished vaccine if other producers 
experience problems, or unusually high demand is anticipated.
    To improve low-income children's access to routine immunizations, 
the budget includes legislative proposals in VFC that I believe should 
be strongly supported by the members of this Committee. This 
legislation would enable any child who is currently entitled to receive 
VFC vaccines to receive them at State and local public health clinics. 
There are hundreds of thousands of children who are entitled to VFC 
vaccines, but can receive them only at HRSA-funded health centers and 
other Federally Qualified Health Centers. When these children go to a 
State or local public health clinic, they are unable to receive 
vaccines through the VFC program. This legislation will expand access 
to routine immunizations by eliminating this barrier to coverage and 
will help States meet the rising costs of new and better vaccines. As 
modern technology and research has generated new and better vaccines, 
that cost has risen dramatically. For example, when the pneumococcal 
conjugate vaccine became available, it increased the cost of vaccines 
to fully-immunize a child by about 80 percent. FDA has recently 
approved a new meningococcal vaccine that will further raise the cost 
to fully-immunize a child--making this legislation even more important.
    To improve our Nation's long-term preparedness, NIH will invest 
approximately $119 million in influenza-related research--nearly six 
times the FY 2001 level. The budget also increases the Department's 
investment to develop the year-round domestic surge vaccine production 
capacity that would be needed in a pandemic, including new cell culture 
vaccine manufacturing processes, to $120 million. These research and 
advanced development efforts will be complemented by expanding CDC's 
Global Disease Detection initiatives from $22 million to $34 million to 
improve our ability to prevent and control outbreaks before they reach 
the U.S.

                        OTHER BUDGET INITIATIVES

    The toll of drug abuse on the individual, family, and community is 
both significant and cumulative. Abuse may lead to lost productivity 
and educational opportunity, lost lives, and to costly social and 
public health problems. HHS will assist states in FY 2006 through the 
Access to Recovery program to expand access to clinical treatment and 
recovery support services, and to allow individuals to exercise choice 
among qualified community provider organizations, including those that 
are faith-based. This program recognizes that there are many pathways 
of recovery from addiction. Fourteen states and one tribal organization 
were awarded Access to Recovery funding in FY 2004, the first year of 
funding for the initiative. This budget increases support for the 
Access to Recovery initiative by 50 percent, for a total of $150 
    Expanding abstinence education programs is also part of a 
comprehensive and continuing effort of the Administration, because they 
help adolescents avoid behaviors that could jeopardize their futures. 
Last year, HHS integrated abstinence education activities with the 
youth development efforts at the Administration for Children and 
Families (ACF), by transferring the Community-Based Abstinence 
Education program and the Abstinence Education Grants to States to ACF. 
The FY 2006 budget expands activities to educate adolescents and 
parents about the health risks associated with early sexual activity 
and provide them with the tools needed to help adolescents make healthy 
choices. The programs focus on educating adolescents ages 12 through 
18, and create a positive environment within communities to support 
adolescents' decisions to postpone sexual activity. A total of $206 
million, an increase of $39 million, is requested for these activities.
    Our request also includes approximately $18 billion for domestic 
AIDS research, care, prevention and treatment. We are committed to the 
reauthorization of the Ryan White CARE Act treatment programs and 
request a total of $2.1 billion for these activities, including $798 
million for lifesaving medications through the AIDS Drug Assistance 
    Finally, we constructed the FY 2006 budget with the knowledge that 
health information technology will improve the practice of medicine. 
For example, the rapid implementation of secure and interoperable 
electronic health records will significantly improve the safety, 
quality, and cost-effectiveness of health care. To implement this 
vision, we are requesting an investment of $125 million. $75 million 
will go to the Office of the National Coordinator for Health 
Information Technology, to provide strategic direction for development 
of a national interoperable health care system. $50 million will go to 
the Agency for Health Care Research and Quality to accelerate the 
development, adoption, and diffusion of interoperable information 
technology in a range of health care settings.

                          PROGRAM PERFORMANCE

    The President and the Department considered a number of factors in 
constructing the FY 2006 budget, including the need for spending 
discipline and program effectiveness to help cut the deficit in half 
over four years. Specifically, the budget decreases funding for lower-
priority programs and one-time projects, consolidates or eliminates 
programs with duplicative missions, reduces administrative costs, and 
makes government more efficient. For example, the budget requests no 
funding for a number of smaller, duplicative community services 
programs and the Community Services Block Grant, which was unable to 
demonstrate results in Program Assessment Rating Tool evaluation. The 
Administration proposes to focus economic and community development 
activities through a more targeted and unified program to be 
administered by the Department of Commerce. It is due to this focused 
effort to direct resources to programs that produce results that I am 
certain our targeted increases in spending will enable the Department 
to continue to provide for the health, safety, and well-being of our 
    Over the past four years, this Department has worked to make 
America and the world healthier. I am proud to build on the HHS record 
of achievements. For the upcoming fiscal year, the President and I 
share an aggressive agenda for HHS that advances a healthier, stronger 
America while upholding fiscal responsibility and good stewardship of 
the People's money. I look forward to working with Congress as we move 
forward in this direction. I am happy to answer any questions you may 

    Chairman Barton. Thank you, Mr. Secretary. Let me get the 
clock changed and you surprise me. Most Cabinet Secretaries 
take 5 minutes just to say hello, so I am----
    Secretary Leavitt. Is it possible to reserve that time?
    Chairman Barton. I think you are going to get plenty of 
opportunity to use it in the question and answer. The Chair 
would recognize himself for the first 5 minutes of questions.
    Mr. Secretary, I think as chairman of this committee, I owe 
it to you and obviously to the President and the people of the 
United States to indicate to you what I think this committee's 
priorities are for this Congress. Every one of the subjects 
that I am about to list in and of itself is worthy of a full 
hearing and a full debate, but today is a general oversight 
review. I think the first thing we are going to do as a 
committee is continue our efforts to oversee the implementation 
of the Medicare Modernization Act that includes, as we gear up 
for the rollout of the prescription drug benefit that is 
scheduled to take effect next year.
    The second thing I would like our committee to emphasize is 
a review and hopefully a passage of reauthorization bill that 
would reform and modernize the National Institute of Health. We 
have doubled their budget during the first 4 years of the Bush 
Administration, but the agency is still run like it was 13, 14, 
15 years ago. As you know, Dr. Zerhouni has just announced a 
new policy on consultations, which I totally support. I would 
really love for our committee to work with you and the 
Governors, the State legislatures, to see if there is some 
consensus on how we could reform our Medicaid program. In many 
State budgets it is the No. 1 and No. 2 budget item. The goal 
should be to try to find the ways to get more real dollars to 
low-income Americans in every State in the union and I think in 
order to do that we need to begin to think of innovative 
solutions and not just rearrange the deck chairs in the 
existing program.
    Last, but not leastly, there has been considerable 
controversy at the Food and Drug Administration about their 
drug approval process. There have been a number of major drugs 
that have been withdrawn from the market for various reasons. I 
think we owe it to the American people to work with you and Dr. 
Crawford, who is I think soon to become the permanent 
administrator of the FDA, to see if we can't find a way to 
maintain the FDA as the gold standard for drug approval and get 
drugs to the marketplace as quickly as possible, but also as 
safely and as effectively as possible.
    And I would add a fifth one. We have had a problem in this 
country in the last year in shortage of vaccinations for flu. 
It is beginning to appear as if we may have overstated the 
problem, but there still is a real problem in making sure that 
we have continuing supplies for next year and the year after 
that. So we will be looking at that.
    So my question is, in having stated what I believe to be 
the major priorities for this Congress, for this committee, if 
we were to pick one of those, that we ought to try to start 
working on immediately in terms of a legislative agenda, I 
would say would be reauthorization of NIH; perhaps a review of 
the existing Medicaid program. Would you like to share your 
views on those two issues about what you think, Mike, can be 
done and how you see yourself in the Bush Administration moving 
in those two areas?
    Secretary Leavitt. Indeed I would, Mr. Chairman. May I just 
say that I believe the rollout of the Medicaid and Medicare 
prescription drug benefit is an historic moment and let us all 
acknowledge this is big, both in terms of the task and its 
importance. One of the things I would appeal to you on is that 
we recognize the size of this task and that we partner 
together. The Congress has a big stake in having this 
accomplished and accomplished well and I would like to work 
directly with not just this committee, but with the Congress in 
general so that when you are in your districts, you are able to 
pitch in and help seniors gain access to this. This is an 
exciting moment where I believe seniors across the land will 
not only have access to a new drug benefit, but it will create 
a robust, competitive marketplace that I believe will 
ultimately impact and drive the cost of prescription medication 
    On Medicaid, may I also say I believe that this is a 
problem that has to be dealt with. There is a time in the life 
of every problem when it is big enough you can see it, but 
small enough you can still solve it, and we are on the verge of 
losing that opportunity with Medicaid. States are desperately 
seeking ways to maintain coverage for optional population 
groups. They do not want to see them leave the program. 
Governors, such as myself, for years have been able to add 
groups through optional populations. To see those turn around 
now and have to be leaving the program is not what is in our 
heart or in our mind and I believe there are ways in which we 
can cover more people using the substantial investment we are 
making in this country.
    Now, if I could just add one other, and that is, Mr. 
Chairman, I believe there is an issue that connects many of 
your priorities, and that is information technology and the 
need for us to deploy information technology. There is a huge 
opportunity for us in the Medicare rollout to begin to 
modernize the system of delivery, to modernize what we learn 
about prescription drugs, and to be able to put into the hands 
of the FDA information about drugs we have already approved 
that badly need to have more information gathered that can 
increase the health and safety of our people. So I hope that 
that could also be considered as part of your agenda.
    Chairman Barton. I am out of time. Could you briefly 
comment on your general view about reauthorization of the 
National Institute of Health?
    Secretary Leavitt. The National Institute of Health is a 
treasure. As you suggest, we have doubled our investment there 
in recent years. It is now time for us to make certain that we 
are using that in the wisest possible way and going after 
priorities in a coordinated fashion to the degree that we need 
new tools. And I agree that there is a need for us to continue 
to work to do it better. You have talked about Dr. Zerhouni and 
his ideas. There are many others. I would be supportive and 
look forward to any opportunity to work on increasing the fruit 
of what we have now planted.
    Chairman Barton. Thank you, Mr. Secretary. The Chair now 
recognizes the gentleman from Michigan, Mr. Dingell, for 5 
minutes for questions.
    Mr. Dingell. Mr. Chairman, thank you for your courtesy. Mr. 
Secretary, again welcome. Mr. Secretary, the budget cut $60 
billion from the Medicaid program, is that correct?
    Secretary Leavitt. There are 3 categories.
    Mr. Dingell. No, no, no. It is either correct or it is not 
correct. Which----
    Secretary Leavitt. There are 3 categories that add up to 
$60 million with an additional 15 of add-backs. Nearly 20 add-
    Mr. Dingell. Thank you. Now, this means then that to make 
up that $45 billion then, you will have to either cut people, 
cut provider payments or raise taxes, is that right?
    Secretary Leavitt. That basically is a dispute between the 
Federal Government and the States on who----
    Mr. Dingell. You have got $45 billion to make up. How are 
you going to do it?
    Secretary Leavitt. I would be very pleased to reconcile it. 
If you look at the President's budget, there are basically 3 
areas of change in reduction and two areas of add-back. The 
first area of change is on prescription drug medication. The 
idea is we are paying too much. We believe we can save $15 
billion for the Federal Government and $11 billion for the 
States by changing the way we pay.
    Mr. Dingell. So are you shifting, then, monies--the burdens 
to the States?
    Secretary Leavitt. In a way----
    Mr. Dingell. To pick up a larger share of the cost?
    Secretary Leavitt. We will both benefit from that one. We 
will benefit----
    Mr. Dingell. But you are--I am trying to figure who is 
going to pick up this cost. Somebody is going to pay $45 
billion. Who is it? You are telling the Feds are not. Are you 
telling me the States are not?
    Secretary Leavitt. We believe that there is a funding 
partnership between the Federal Government and the States and 
that the States, in certain situations----
    Mr. Dingell. Governor, I have 3 minutes and 27 seconds to 
address these questions. I need your help and I need you to 
answer the questions as narrowly as you can. Somebody is going 
to pick up that $45 billion. Who is it? Feds, States, 
providers? Somebody is going to do it. Who?
    Secretary Leavitt. A good piece of it will be 
pharmaceutical companies who don't get as much money.
    Mr. Dingell. Okay.
    Secretary Leavitt. A piece of it will be people who are not 
giving away their assets and then we will have a dispute that 
we have got to resolve with our friends, the States.
    Mr. Dingell. Now, it is fair, is it not, Governor, that the 
States are already having major financing difficulties in 
coming up with money from existing budgets to address Medicaid?
    Secretary Leavitt. That is true.
    Mr. Dingell. Do you think that the States will raise their 
local contributions or raise taxes or allow local taxes to be 
raised to address these questions of shortfalls in Federal 
funding coming to the States?
    Secretary Leavitt. Let me again say, Congressman, we will 
spend $5 trillion over the next 10 years. The question here is 
can we do a better job of spending it? I believe that----
    Mr. Dingell. Who is going to pony up this money?
    Secretary Leavitt. I believe the States can very well find 
ways to cover more people using the investment that they have 
now and that we can cover not fewer, but more.
    Mr. Dingell. If I were talking to Governor Leavitt, would 
he be telling me that or is this Secretary Leavitt that is 
telling me that?
    Secretary Leavitt. Oh, the song that I am singing now, sir, 
is one I have sung for a long time. I believe that if we give 
the States flexibility, they can cover more people. It is rigid 
in its inflexibility and we have an opportunity, I think a 
historic one, to approve that.
    Mr. Dingell. You are going to give more flexibility and 
less money?
    Secretary Leavitt. Not less money. We are going to be 
spending more than 7 percent more money every year for the next 
10 years.
    Mr. Dingell. But on a straight-line projection, you are 
going to be giving them less money in relationship to the 
demands upon that money than you did last year, isn't that 
    Secretary Leavitt. Congressman, as they have said many 
times, Washington is the only place where you can reduce the 
amount that a person anticipated and call it a cut when we are 
going to be adding some $5 trillion. Not adding, but spending 
$5 trillion.
    Mr. Dingell. Everybody plays games, Mr. Secretary, as you 
well know, with the budget. We only get the budget after the 
games have been played with it at OMB and we find that there is 
less money being spent for these things on a per capita basis 
and what I am trying to figure out is how then will this 
shortfall be made up and who is going to be the lucky volunteer 
that pays for it? So far, you have indicated that in some 
magical way there is going to be--there will be additional 
funds made available for somebody because we are giving 
flexibility to the States, but we are still leaving the States 
in a situation where they are having less money for a lot of 
things than they did last year or this year.
    Secretary Leavitt. As I have spoken to you privately and I 
will now publicly, there are a number of States who I believe 
are not meeting the full measure of their agreement under our 
partnership and this is not a question of--many States are.
    Mr. Dingell. This means they are not spending, then, the 
money that they should spend.
    Secretary Leavitt. This means that they are----
    Mr. Dingell. This means that the services that are needed 
by the recipients of Medicaid will not be available. For 
example, nursing home care will probably be cut or other 
programs of this kind will be cut, isn't that so?
    Secretary Leavitt. Again, Mr. Dingell, we are going to be 
spending a lot more money, not less, and I believe we can use 
that money in a way that will allow us to expand the number 
    Mr. Dingell. Our chairman, Mr. Secretary, has the gavel up, 
but you have reminded me of the loaves and fishes. The last 
time that happened it was referred to in the Bible in a very 
interesting story. I am not sure that anybody in this 
Administration has those powers, although I will not----
    Secretary Leavitt. That is not a standard I would like to 
be held to either, sir.
    Chairman Barton. Gentleman's time has expired. The chairman 
of the Health Subcommittee, Mr. Deal, is recognized for 5 
    Mr. Deal. Thank you, Mr. Chairman, Mr. Secretary. We heard 
you make a very important announcement earlier this week with 
regard to FDA and the issue of drug safety. Would you elaborate 
on that and tell us what the next step is in that undertaking?
    Secretary Leavitt. It has become, I think, evident that the 
people of this country want to see an atmosphere and a culture 
of openness and independence at FDA and we intend to deliver 
that. I announced that we would have a drug safety board and 
that we would begin to monitor more aggressively the many drugs 
that have already been approved for market. In making drug 
approvals we often use trials, clinical trials, where we 
measure a certain number of people for a certain amount of time 
and we are able to make scientific judgments about the safety. 
They may involve a thousand people for 6 months. In the next 6 
years a million people may use that same drug and there are a 
million data points available to us about what help the drug 
provided and in some few cases, the harm. Our goal is to use 
the capacity of information technology to harness that 
information, to provide it to the public in an open, 
transparent way so that we can learn from what we are 
experiencing in post-market uses of those drugs.
    Mr. Deal. Thank you. Let me shift back to Medicaid for just 
a minute. Most of us, at least on this side of the aisle, have 
agreed with the concept of giving the States more flexibility 
and that by doing so they can make the money go further. I 
presume that is the general thrust of the reforms that you are 
proposing and I would simply ask do you see these reforms as 
necessitating legislative action by us or do you currently have 
the mechanism to make those reforms possible?
    Secretary Leavitt. Mr. Deal, they will require legislation 
in most cases.
    Mr. Deal. And I assume we will be seeing that proposal in 
the very near future?
    Secretary Leavitt. Yes. I am actually working with a 
bipartisan group of Governors to develop what I hope will be a 
proposal that can be brought to this committee for help. The 
Governors desperately need help here. They want to maintain the 
coverage on these optional groups, but they need flexibility 
and they are working hard to come up with some proposals that 
would untie their hands and allow them to accomplish just that.
    Mr. Deal. Thank you, Mr. Secretary. I am going to yield 
back, Mr. Chairman.
    Chairman Barton. Gentleman yields back. The distinguished 
ranking member of the Health Subcommittee, Mr. Brown of Ohio, 
is recognized for 5 minutes.
    Mr. Brown. Thank you, Mr. Chair. Mr. Secretary, as you 
know, the public's confidence in drug safety has been shaken 
over the past few months before you arrived on the scene. It 
seems we ought to be looking at the part that direct-to-
consumer advertising has played in scandals like Vioxx because 
of DTC advertising, demand for blockbuster drugs explodes right 
away as soon as the drug goes on the market rather than the 
slow increase we used to see from doctors' word of mouth and in 
magazines and all of that, and that dramatically increases 
exposure to potentially deadly side effects more quickly. 
During Vioxx's first year in the market, Merck spent $160 
million in DTC advertising and even though subsequent studies 
showed that for many patients, drugs like Advil were just as 
effective as the far more expensive, but heavily marketed 
Vioxx, non-stop advertising prevent that fact from having any 
meaningful effect on sales. My question is do you plan to do 
anything, as the Secretary, about direct-to-consumer 
advertising, given its safety and cost impact?
    Secretary Leavitt. Congressman, information is good. 
Inaccurate information is bad, exaggerations would be bad, 
unsubstantiated claims would be bad. We have the power to cause 
that to cease when it occurs and we will use it.
    Mr. Brown. Do you really think that that kind of mass 
advertising is the best way to educate and empower the public?
    Secretary Leavitt. Used properly, it is a powerful tool for 
good. Used improperly, it is a powerful tool for bad and the 
objective and duty of a regulator is to find those cases in 
which inaccurate information has been offered or exaggerated 
claims have been offered and to act. And we have that power and 
we will act.
    Mr. Brown. Was Merck spending $100 million a year an 
example of used--of your term ``used improperly?'' Secretary 
Leavitt. That is not a judgment I am in a position to make at 
this point.
    Mr. Brown. The House passed legislation yesterday that 
holds broadcasters legally responsible for airing indecent 
programming even if the broadcasters themselves did not produce 
that content. With revelations about Vioxx and with revelations 
about other drugs, it seems it could be only a matter of time 
before someone sues a broadcaster for airing an ad that 
encourages consumers to buy a pill that ends up harming them. 
Are you concerned by the possibility that incomplete or 
misleading content in drug ads is going to become a legal 
liability for TV and radio stations?
    Secretary Leavitt. To the extent that that is true, I would 
guess that would be a big worry to them. My concern is that 
information has value when it is presented in an objective and 
reasonable way. It becomes a liability and has the potential to 
harm when it contains inaccuracies or exaggerations. The FDA 
currently has the authority necessary to stop that when it 
occurs and we will use that authority.
    Mr. Brown. But I recall that FDA doesn't fund particularly 
well that part of the agency that looks at those 
advertisements. What do you--well, how do you propose that 
those advertisements are examined a little more assiduously 
than they have been and how are you going to aggressively 
protect the public when it is clear in the last handful of 
years the FDA hasn't been able to do or hasn't chosen to do 
    Secretary Leavitt. That regulatory power needs to be used 
in partnership with the considerable scientific prowess that 
that agency holds. It is the gold standard around the world 
despite the fact that there have been controversies of late. It 
is a remarkable agency with dedicated people who have the 
capacity, if anyone in the world has to make those decisions, 
is the FDA.
    Mr. Brown. Does it need more funding to be able to examine 
those ads properly?
    Secretary Leavitt. Well, the President has proposed $81 
million more than last year. We have a huge mission. We believe 
we can conduct that mission in the context of the budget that 
we are presenting.
    Mr. Brown. Okay. Thank you. Thank you, Mr. Chairman.
    Chairman Barton. Before I recognize Mr. Hall, just as a 
follow-up to Mr. Brown's question, under the Constitution and 
current law, drug manufacturer has the right to advertise its 
product so long as it does so in a truthful and generally 
accurate fashion. In other words, if you wanted to stop some of 
these advertisements, we would either have to amend the 
Constitution or at a minimum, get a statute that prescribed the 
limits under which those advertisements could occur. Is that 
    Secretary Leavitt. That would be my understanding.
    Mr. Brown. Could you yield for a moment on that point?
    Chairman Barton. Sure.
    Mr. Brown. I guess--I am not a lawyer and I am certainly 
not a First Amendment lawyer, but I also know that we have 
looked on tobacco and alcohol advertising. Without a 
Constitutional amendment, we looked at striking a balance 
between free speech and the public interest and I would hope 
that when a drug has harmed as many people as Vioxx seems to 
have had and Resilin and other drugs from time to time that we 
would strike that balance and not protect corporations as a 
free speech no matter what, which seems to be the 
interpretation of many.
    Chairman Barton. I would just add that some of these drugs 
that have been withdrawn have helped millions of people lead 
better lives and if we are going to strike a balance, let us 
strike a balance.
    The gentleman from Texas, Mr. Hall, is recognized for 5 
    Mr. Hall. Thank you, Mr. Chairman. Governor, like you, a 
lot of us have had experience--I was at the local or the county 
level for 12 years as a judge and 10 years in the senate at the 
State level and up here for 24 years. You, too, were Governor 
and mine is more of a practical question than it is anything 
specific about the budget because we know the problems and we 
know what we will have to do to cure them. But just--you have 
the benefit of having been a Governor and being on the other 
side now, the Medicaid battle today, it seems that really 
should arm you. Discuss, if you would, what your experience 
with Medicaid as Governor of Utah was, how you handled it and 
what successes you had and what challenges you faced and how 
that colored or lost the reforms that are proposed in this 
    Secretary Leavitt. Congressman, perhaps the best way would 
be to isolate one circumstance that I think illustrates the 
principles I am talking about. The Congress, and in a large 
measure the good works of this committee and others, passed the 
SCHIP program some years ago. It has provided the capacity for 
approximately 5.6 million of our citizens' children to be 
covered. I believe Congress wisely provided a degree of 
flexibility in the bill that allowed States to ask a very 
important question: What is basic quality care?
    Congress provided 5 choices. They could define quality as 
Medicaid or they could say it is the same roughly as the State 
employees receive or what Federal employees receive the best 
HMO in the state, or a composite of those. Those are 5 choices 
to define quality, not just 1, Medicaid, but 5.
    We were a State that concluded we would not choose Medicaid 
because we believed we could do it more efficiently. And I am 
happy to report to you that we covered, with the same coverages 
that my children had while I was Governor, 35 percent more 
children on the same investment and they had the same coverage 
that my children had, in fact, better; lower co-pays than my 
children had. Now, I am just pointing out that if the State is 
going to provide for the Governor a set of benefits and the 
Governor's children, that is pretty good coverage. And we felt 
great about that.
    What we felt best about was that we covered more children 
and that is the kind of thing I believe Governors across this 
country are seeking. They have optional populations right now 
that are on the verge of losing coverage because of the 
inflexibility of the current program. They want to preserve the 
coverage of those people. And if we work together, I believe we 
can do that. We can meet your objective of preserving their 
coverage and perhaps enhancing it in the same way we did with 
SCHIP for the number of children that we covered.
    Mr. Hall. Thank you, Governor. I yield back my time. I will 
thank you for the 125 mil, somewhere in that area, for the 
health information technology. I think that is going to be very 
helpful. Thank you, sir. I yield back my time, Mr. Chairman.
    Mr. Deal [presiding]. Chair recognizes Mr. Waxman for 5 
    Mr. Waxman. Thank you. Mr. Secretary, you said you want to 
help the States do more, but the proposed budget is to take $60 
billion out of the Medicaid program and the States are already 
struggling to do what they are already doing. And one of the 
things you are proposing is to change the rules on how the 
States can pay for their share of the costs of the program. I 
want to concentrate particularly on the proposal to eliminate 
what is called inter-governmental transfers. These have always 
been a legitimate way of financing the non-Federal portion of 
Medicaid. In fact, they are explicitly recognized as legal in 
the law and you want to stop the States from doing this. Have 
you estimated the savings that you would achieve by changing 
the rules on intergovernmental transfers?
    Secretary Leavitt. Congressman, there are, in fact, as you 
point out, intergovernmental transfers that are very clearly 
and explicitly allowed in the law and we support that and 
acknowledge it. However, there are intergovernmental transfers 
that are not contemplated and here is what I believe the 
difference to be; when the State pays a provider----
    Mr. Waxman. Let me interrupt you because you are going to 
get savings some way or other. You may have a distinction. Now, 
if it is legal, it is legal. If it is not legal, you ought to 
stop it now. So you are going to stop some things that are 
legal because you want to change the law to make it illegal and 
you are going to have less money available to the States. How 
much less money are we going to have available to the States? 
That is my question.
    Secretary Leavitt. Congressman, you use the phrase ``change 
the rules.'' We simply want to enforce the rules. Congress----
    Mr. Waxman. So you don't need legislation for us to do 
that, do you?
    Secretary Leavitt. That is probably true in most cases and 
what we believe will occur over the course of the next 10 years 
is that there will, in fact, be a true partnership where the 
Federal Government is in essence putting up $.65--5\1/2\ or $5 
trillion and the States will be putting up their share and 
together, we will provide coverage to more people.
    Mr. Waxman. We represent districts with your partners in 
the States and so we want to know what it is going to mean to 
our State. Last March the Administration came in and said they 
were proposing to do something like this and I asked them for a 
commitment that we would get, well, legislative language. We 
have not received that. I would like to know if you could give 
us the legislative language. And the second thing I would like 
to have is the State-by-State analysis. We would like to know 
what it means for our State if you are going to change, in some 
way, these intergovernmental transfers. Will you have that 
available for us?
    Secretary Leavitt. I have committed to provide others and 
will provide you the best information that we can accurately 
provide as to which of the provisions we see being violated 
regularly and what we believe or would estimate them to be. It 
is a complex and it is something, frankly, we are negotiating 
with the States one State at a time. Our meeting today, as a 
matter of fact, with your Governor----
    Mr. Waxman. I know that. He told us.
    Secretary Leavitt. [continuing] then meeting with others.
    Mr. Waxman. But the reason it is so vague to us is if there 
is going to be a change in intergovernmental transfers, which 
is an essential way the States now have money to pay for their 
share and you make changes in that, that means they have less 
money. I want to know how much less money my State is going to 
have. I know other members are going to know how much less 
money they are going to have and if you are going to do it on a 
State-by-State basis, then you are not having a uniform rule. 
Maybe you are trying to press each State to agree to something, 
but that is a different matter.
    Now, if they don't have that money available to them, how 
are they going to be able to give Medicaid coverage to those 
that now get it? You talked about optional. My colleagues might 
be interested to know that 60 percent of the program is 
considered optional, either optional populations or optional 
benefits. Optional populations are the people in the nursing 
homes and the disabled. That is maybe two-thirds of the 
expending of the program. We in this committee proudly have 
passed legislation to make sure women with breast cancer get 
covered for their treatment if they qualify for their status in 
poverty. Those optional services are like pharmaceutical 
services. States don't have to provide it. Now, those States 
that are providing those services now and most of them are 
providing most of those optional services, how are they going 
to pay for it? Are they going to have to raise taxes? Are they 
going to have to cut benefits? Are they going to cut providers? 
What is going to happen?
    Secretary Leavitt. That isn't true in every State. There 
are some States who are not using intergovernmental transfers 
inappropriately. And this is an awkward and difficult 
conversation we are having with having every one of our funding 
partners. We are simply saying to them we want to be partners 
and let us just----
    Mr. Waxman. Well, then let me give you very parochial--I 
want to know what it means for California. We have got a couple 
other Californians on the committee on both sides of the aisle. 
What is it going to mean for California? I can't imagine any of 
the intergovernmental transfers in California being improper or 
illegitimate. It all goes into health care. It serves the needs 
of the populations that need healthcare and if those sums are 
taken away, I see they are going to have a real problem in 
California. I think you are asking us to buy into a budget 
number of $60 billion and I am not sure how you are going to 
achieve that $60 billion cut. It looks like you don't really 
know how you are going to achieve that $60 billion cut, either. 
Before we adopt a budget calling for it, we better get the 
legislative language and the State-by-State analysis and I 
would like to have you guarantee that we will get that before 
we vote on our budget.
    Secretary Leavitt. I will give you every piece of 
information I have that is credible.
    Mr. Waxman. Mr. Chairman, I want to ask unanimous consent 
to put in the record a letter that Mr. Dingell wrote to the 
Secretary on this very subject. It ought to be in the record so 
members will know what the Secretary has been asked to provide 
for us and I think it is important we get it. Thank you, Mr. 
    Mr. Deal. Without objection.
    I would ask members to adhere to the clock.
    Mr. Waxman. And excuse me. If there is an actuary figure 
that is different than yours, I hope you will provide that to 
us, as well. We didn't get the actuary's figures on Medicare, 
but we should get them on Medicaid.
    Mr. Deal. We do have members who have travel plans, so I 
would ask everybody to please adhere to the time clock. At this 
time I recognize Dr. Burgess for 6 minutes.
    Mr. Burgess. Thank you, Mr. Chairman. Mr. Secretary, let us 
stay on intergovernmental transfers just for a moment because I 
think my State, Texas, does not participate in 
intergovernmental transfers and I will just tell you I, for 
one, would prefer that we all play by the rules and if it is 
preferable that we get our funding through a shell game, then 
Texas needs to be educated by California on how to do that, but 
I would prefer that this be a direct transaction between the 
Federal Government and the States and that we not finagle the 
books in order to up reimbursement to our States because I 
don't think it is fair that Texas not receive the same 
percentage of dollars back that another State might receive. Is 
that a fair assessment?
    Secretary Leavitt. Well, there are consultants who you can 
hire who will show you just how to do it.
    Mr. Burgess. Okay.
    Secretary Leavitt. You know, it might be, Mr. Burgess, 
helpful if I could just take a moment and describe----
    Mr. Burgess. Please.
    Secretary Leavitt. [continuing] in large terms what is 
happening here. Assume that there are three people who live in 
a cul-de-sac. There is Mr. Federal and Mr. States and the Jones 
family. The Jones family has a daughter that has a chronic 
disease that requires constant help, but they have no health 
insurance. It costs about a thousand dollars a month. So Mr. 
State and Mr. Federal get together and they decide they want to 
help the Jones family. Mr. Federal says to Mr. State, why don't 
you go work with the Jones family because you know them well 
and when you have worked that out, come back and give me the 
bill and I will pay 65 percent of it. Well, it works out great. 
In fact, the doctor sends the bill directly to Mr. State and 
Mr. State comes over to my house, the Federal house, and I 
write him a check for my 65 percent.
    Well, this goes on for a while and it works out pretty well 
until it gets difficult for us to come up with that money and 
Mr. State then goes to the doctor for the Jones family and says 
here is a deal that will be good for both of us. You know the 
$1,000 a month? Why don't you raise the price to $1,500 and 
then give me Mr. State's discount coupon for $300 and then he 
brings it over to my house and says I have got bad news. The 
$1,000 has now gone to $1,500, so let us think about this. He 
says here is your share. I say okay, two-thirds of $1,500 is, 
let us see, $1,000. Well, the clinic is now getting $1,200, Mr. 
Federal is now paying $1,000 instead of $666 and Mr. States, he 
is paying $200 instead of $500. My point is that we all want 
the Jones family to have their care, it is a laudable thing, 
but it needs to be fair. And we don't think it is fair for a 
State who may, in fact, be not doing it and one that is not.
    Mr. Burgess. Thank you, Mr. Secretary. Can you just give us 
very quickly what the proposal that you talked about, you 
actually mentioned three change reductions and two expansions. 
You talked, before you were interrupted, about the prescription 
savings. Just very quickly take us through that, the change 
from average wholesale price to average sales price, what to 
expect from that.
    Secretary Leavitt. Simply stated, we are overpaying for 
prescription drugs and if we could just use the same system 
that we are using for Medicare, the States would save $11 
billion, we would save $15 billion, and we simply just want to 
change it to where we are getting the lowest price. No patients 
and no Medicaid recipients will get their services and their 
pharmaceuticals, we will just save money. That is just smart.
    Mr. Burgess. Yes, sir. What were the other two change 
reductions that you were going to mention?
    Secretary Leavitt. The second is there are many in the 
country who have begun to give their assets away to their 
children so they qualify for Medicaid. In many cases, it is 
children having their parents give the assets to them so that 
as they go into nursing homes, they have coverage. This was not 
intended to be, in essence, the asset protection plan. It was 
intended to be a way of helping people who have no other 
alternative, and the States are asking us to tighten those laws 
and we think we should.
    Mr. Burgess. Do you think we can partner in some way to 
allow individuals who have provided for long-term care 
insurance for themselves and their families to protect some 
segment of their assets should it then become--should they 
exhaust those benefits and have to go into a nursing home?
    Secretary Leavitt. Absolutely.
    Mr. Burgess. Okay. Then I assume the third change reduction 
would be the intergovernmental transfer, is that correct?
    Secretary Leavitt. The third is just a dispute between 
    Mr. Burgess. Okay. What about the two expansions that you 
alluded to?
    Secretary Leavitt. The two expansions are No. 1, a $10 
billion set aside to cover more children and to go out into the 
communities and find those children that are eligible but not 
being covered. The second would be to begin a transition 
between where we are today, where people are essentially 
required to be served if they are disabled or elderly in an 
institution or a nursing home, and allow them to be covered and 
to have help in community or home settings. There is just under 
$5 billion there.
    Mr. Burgess. In the last 30 seconds, is there any type of 
consumer-directed change we might--transformational change we 
could make in Medicaid to more efficiently spend those dollars 
that you alluded to?
    Secretary Leavitt. Congressman, every morning when I wake 
up, the first thing on my mind is health information technology 
because it ties all of these together. The power of the 
consumer can be linked through information technology, can be 
made more efficient, fewer mistakes, better care. That is, I 
think, the lynch pin to improvement.
    Mr. Burgess. Thank you, Mr. Secretary.
    Mr. Deal. Chair recognizes Mr. Markey for 5 minutes.
    Mr. Markey. Thank you. Secretary, as a condition of getting 
accelerated approval, drug companies promise the FDA that they 
will complete post-marketing studies to prove the safety or 
efficacy of a drug. I am concerned that some of these drug 
companies are failing to keep their commitments and the public 
may be buying and using products that they think are safe and 
effective, but are no more than sugar pills or worse, are 
dangerous. On March 15, 2004, the FDA submitted a report to 
Congress regarding the progress of requiring post-marketing 
studies. According to that report, only 33 percent of drug 
studies and 62 percent of biologics studies were proceeding on 
schedule or have been completed. Why is the FDA allowing the 
drug companies to get away with not conducting post-marketing 
studies that the agency told them to perform as a condition of 
approving a drug that has millions of Americans continue to 
take drugs even though the long-term studies have not been 
    Secretary Leavitt. Our effort in providing and receiving 
new information on drugs that have been approved for market has 
been essentially passive. We have received information as 
incidents have occurred. That is not good enough and we need to 
improve it. We need to have those studies done and we need to 
continue to gather information from a myriad of opportunities 
we have. The new Medicare rollout is a wonderful new 
opportunity for us to begin capturing information about the 
efficacy and the impact of pharmaceuticals. We need to gather 
the information and we need to make it available and we need to 
do it in a way that will inform physicians and patients and 
consumers in a rapid, transparent way.
    Mr. Markey. You do understand, Mr. Secretary, that the drug 
companies keep these drugs out on the market even as they foot 
drag in the completion of the long-term studies, and the FDA 
does have the authority to withdraw approval for any of these 
drugs. Would you commit to withdrawing drugs from the market 
that do not complete, within the law, the long-term studies 
that are required by the FDA?
    Secretary Leavitt. Congressman, the FDA is the gold 
standard around the world. We have the benefit in this country 
of having the assurance of the entire scientific prowess of the 
FDA. Judgment calls need to be made. When they are, and when it 
calls for them to be withdrawn, we will withdraw them.
    Mr. Markey. Well, unfortunately, without information, you 
can't withdraw. So what I would suggest is that companies are 
keeping information from you because they don't want you to 
know what the long-term effects of these drugs are and that, as 
a result, the public is at risk because the FDA does not force 
the completion of the long-term study. The risk then runs to 
families that are taking drugs that are later found to be 
endangering the health of those individuals taking the drugs. 
So where is the standard then? What is the guillotine moment 
where you cutoff the production and sale of the drug?
    Secretary Leavitt. As you may be aware, on Tuesday on this 
week, I announced the creation of a drug safety board which 
will be in a position to independently make those judgments. 
These will be people drawn from inside and outside of 
government who were not involved in the original approval of 
the drug, who have the capacity to make those decisions, to 
find those, as you referred to them, guillotine moments. My 
guess is that in time they will exist and we will, in fact, do 
as the law provides.
    Mr. Markey. Well, you know, these post-marketing studies go 
right to the heart of the fiduciary relationship that the CEOs 
of the drug companies have with their shareholders, which is, 
of course, their top legal responsibility, to benefit 
shareholders. The problem is that the patients have an 
obligation that the companies also have, but the shareholders 
split the allegiance of CEOs.
    So what I am going to do today is I am sending a letter to 
the Securities and Exchange Commission, asking them to ensure 
that there is a disclosure given to all investors in drug 
companies that there are outstanding studies of the efficacy of 
these drugs that the FDA has yet to call in that could affect 
the long-term stock valuation of these companies. Because I 
think the Securities and Exchange Commission could perhaps put 
more pressure on these companies to get to the answer so that 
investors aren't harmed and the pressure that we have had 
patients placing upon the FDA to get the information out, 
either from the drug companies or from the CEO or from the FDA.
    Secretary Leavitt. Let me make one thing very clear and 
that is that the Food and Drug Administration has one group to 
which it is accountable, those who consume and take the drugs, 
the citizens of this country.
    Mr. Deal. Time is expired. The Chair recognizes Ms. Bono 
for 6 minutes.
    Ms. Bono. Thank you, Mr. Chairman. Again, welcome, Mr. 
Secretary. First of all, I just would like to comment on our 
concern about the IGT issue. I, along with Congressman Waxman, 
just heard with our meeting with Governor Schwarzenegger, that 
he is working on these reforms. I am concerned that we are 
going to come out and pull the rug out from underneath our 
Governors as they are trying to reform and modernize our States 
and that our budget is not on track with what the State needs. 
Second, my colleague, Ms. DeGette, on the other side had to 
leave to catch a plane, so she asked if I would ask her 
questions and I said I would not but I would ask if we could 
submit to you in writing her questions about embryonic stem 
cell research, which I also am very interested in, so could we 
send it to you?
    Secretary Leavitt. Yes, we would be happy to respond.
    Ms. Bono. Thank you. And then last, I have two more 
boutique issues that I am concerned about and I don't believe 
that we have addressed. My first question is regarding the 
Women's Health Initiative, which was a study that was being 
conducted on hormones on women. Once it was found that there 
are increased incidences of different cancers, the study was 
abruptly halted. And I believe women are still out there 
clamoring for answers to this and I am hopeful that you will 
take this into consideration. And by furthering any studies 
with the Women's Health Initiative, you might look at bio-
identical hormones. Do you know why, in fact, bio-identical 
hormones have not been included and the necessary research has 
not been done on bio-identical hormones, but only on synthetic 
    Secretary Leavitt. Representative Bono, may I suggest, that 
sounds like a question that would be well-responded to in 
    Ms. Bono. Thank you. I just wanted to point out to you that 
this is extremely important and I think women really deserve 
this answer and only the NIH and only we can do this research.
    Next, your predecessor cared a great deal about obesity and 
I have worked with Senator Frist on an obesity bill, the Impact 
Act, last Congress. To tell you the truth, I was a little bit 
torn with the legislation because I don't know how we legislate 
to cure obesity, but I do believe it is something that we need 
to handle sooner rather than later. I was wondering if you have 
any thoughts on obesity and the epidemic, both childhood 
obesity and adult obesity and the burdens on our society and 
how we can do something to help with that problem?
    Secretary Leavitt. I am persuaded, as you have been, that 
it is a substantial part of the health dilemma of this country, 
that there is an unquestionable link between obesity and 
diabetes and other heart ailments and cancer and that by 
getting to the heart of that, we will make substantial 
improvement other places. My own sense is that it is a matter 
of educating people to change their behavior, that it is about 
orienting our entire emphasis to not just be about curing 
disease, but in creating wellness and obesity is a big part of 
    Ms. Bono. Well, thank you. I look forward to working with 
you on it further. I am hopeful that the chairman of my full 
committee can also hold a hearing at some point in time on the 
Impact Bill which, again, looks at obesity and does address it 
as a disease. Thank you very much.
    Chairman Barton. We will certainly take that under 
advisement. Who seeks recognition on the Minority side? Mr. 
Engel of New York is recognized for 5 minutes, 6----
    Mr. Engel. 6 minutes.
    Chairman Barton. Thank you.
    Mr. Engel. First of all, welcome, Mr. Secretary. I have two 
somewhat lengthy questions, but I first want to identify with 
the remarks Mr. Waxman made about the potential elimination of 
IGTs. In a State like mine, New York, IGTs are very, very 
important and if we are going to go after them, we really need 
to have an answer of what is going to happen to the people that 
are using them for care; in the absence of care, what is going 
to happen to these people. I know you can take IGTs alone and 
say well, there are certain states that are doing very well and 
yes, this happens to be one of the instances that New York does 
very, very well, but New York certainly puts more money into 
Washington than it gets back and we really don't like 
eliminating the programs where we do well. It eliminates some 
of the programs where we are not doing so well and other States 
are doing well, so I think it is unfair to--well--certain 
States are gaming the system. The fact that we need the IGTs, 
and I am very concerned about, so I want to add my voice to 
    Mr. Secretary, since the attacks on September 11, there has 
been a renewed focus on emergency preparedness. Hospitals and 
public safety officials have scrutinized their readiness to 
comprehensively respond to nuclear, biological, or chemical 
attacks. I know everyone here agrees that it is critical that 
our hospitals be a top priority in funding should our nation 
become victim to a future attack, particularly in light of a 
December 2004 study by the Trust for America's Health stating 
that over two-thirds of States lack basic preparedness 
    I have grave concerns regarding the budget, the 2006 
budget, which public health officials have stated would 
actually weaken the ability of State and local public health to 
respond to bioterrorism and related public health emergencies. 
I want to draw your attention, Mr. Secretary, to a few of the 
questionable financing provisions, and when I am done, get your 
feedback on it.
    If we start with hospital preparedness, your budget states 
that you are cutting $8 million out of the program, leaving a 
grand total of $483 million for the Nation's hospitals. It 
doesn't sound like a terrible cut until you realize a couple of 
things. First, the program is ridiculously under-funded as it 
is. An American Hospital Association report done 2 years ago 
says that hospitals in New York alone would need at least $750 
to $850 million in funding for basic readiness. And my 
hospitals in New York tell me that HRSA, the program, was a 
joke even before the cuts because by the time it was divided, 
most hospitals got only about $45,000 each, and one of my 
hospitals used that for a security camera.
    And my second point is that hospital preparedness, the main 
program, was actually not cut by $8 million, but nearly $34 
million this year, since $25 million of overall funding has 
been allocated for a competitive demonstration grant and if you 
don't win the grant, you surely lose. So how does the 
Administration justify such gross under-funding and further 
cuts to hospital preparedness, particularly in light of a $130 
million cut to CDC, State and local bioterrorism preparedness 
funding? I would like your answer and then I have a second 
question for you.
    Secretary Leavitt. Let me comment on two points. One is 
intergovernmental transfers. I want to make clear that there 
are some intergovernmental transfers that are not just 
acceptable to us, but we support with our money. If money goes 
into a provider and it stays there, we applaud that; that is 
our goal. It is when they are recycled in a way as to create 
more obligation for the Federal Government and to minimize 
theirs, that troubles us.
    Second point. With respect to bioterrorism, it has been 
troubling to us that there is a substantial amount of the money 
to be drawn down by States that has still not been drawn down. 
We don't believe that the hospital capacity has been moving 
fast enough and so much of the new investment that you will see 
in this budget goes to develop national stockpiles so that we 
have the capacity to deploy, on a rapid response basis, within 
12 hours, to any community in this country substantial or 
suitable supplies to respond. All the States are clearly 
benefiting from this new investment.
    Mr. Engel. I would like to continue to dialog with you on 
it and because my hospitals are yelling bloody murder and that 
is not what they are saying to me.
    The second question I have is, as you know, earlier this 
month our New York City Health Commissioner gave notice of a 
potential new strain of HIV that may be impossible to treat. 
For many, the identification of a possible AIDS super bug, 
recall the same fear that arose 20 or 30 years ago when the 
original AIDS virus was discovered. I think it is critical, 
more than ever, that we use the scarce funds to appropriately 
fund AIDS surveillance, prevention, and treatment programs 
wisely toward at-risk populations, so I am concerned that 
funding for HIV/AIDS prevention has been reduced by nearly $5 
million, while abstinence education, a program that I think has 
limited effectiveness, is getting an increase of $38 million. 
HIV, as you know, is in a place we want to cut corners and 
while there is a modest increase in funding for ADAP under the 
Ryan White program, it really doesn't excuse the other 
shortfalls, so I would like you to mention that how do you 
justify spending so little money on HIV/AIDS prevention given 
the President's repeated commitment to fighting the spread of 
the virus globally.
    And finally, I know from conversations with New York City 
health officials that many are concerned about the level of 
funding that will be required to track and research this new 
resistant HIV strain in New York City, should it be a serious 
and widespread a problem as we fear and if asked will the CDC 
provide necessary funds to New York health officials to respond 
to this potential new strain of HIV due to its impact on our 
public health. Can you answer that, about the cuts?
    Secretary Leavitt. I think the President's commitment, as 
you acknowledged, on Ryan White funds in the international and 
the continuation of research funds, makes evident his 
commitment here and maybe given the time, I could respond to 
you in writing with more detail.
    Mr. Engel. Okay, I appreciate that. Thank you.
    Chairman Barton. The gentleman from Oregon, Mr. Walden, is 
recognized for 6 minutes.
    Mr. Walden. Thank you very much, Mr. Chairman. I certainly 
appreciate the opportunity to have the Secretary come before 
our committee and congratulations on your new appointment and 
or is it sympathy, as I am never sure, the responsibilities you 
take on. Mr. Secretary, there are a couple of issues I wanted 
to raise that are somewhat specific to the Northwest or Oregon 
and somewhat broader than that. The first is my senators and I 
and other colleagues have said to CMS a letter requesting 
another look at a decision made in Region 10 involving Medicaid 
payments. Under an Oregon statutory framework, the State of 
Oregon is required to provide full-cost payment for hospital 
services provided to Medicaid patients when those services are 
provided at rural hospital at 50 or fewer beds, referred to as 
Type A or B hospitals. And Region 10 now says that may violate 
some Federal law and so it is one of those issues that I would 
like to draw your personal attention to; as I say, our 
delegation has sent a letter to Mr. Smith, the director of 
Center for Medicaid and State Operations in Baltimore. And so 
it is one we will be making sure you are aware of, as well.
    Secretary Leavitt. Thank you. I will assure that that is 
responded to.
    Mr. Walden. In another issue that I and others had raised 
with your agency prior to your arrival there, it involves 
graduate medical education training and as I understand it, and 
we have never gotten a response back from the letter that was 
sent last year sometime, but it seems that hospitals cannot 
claim for Medicare graduate medical education payment purposes 
the time residents spend in non-hospital sites unless the 
hospitals pay a supervisory physician some amount even if the 
physician agrees to train the resident on a volunteer basis. So 
according to a family practice residency in Klamath Falls, 
Oregon, this policy, they believe, will result in teaching 
hospitals pulling their residents back into the hospital 
setting for training, thus limiting residents' exposure to the 
physician office and non-hospital environment. And we will get 
you more information on----
    Secretary Leavitt. I actually heard some of this this 
morning and it has raised my level of curiosity and I will do 
what I can to be responsive to you.
    Mr. Walden. I appreciate that. Earl Pomeroy, from North 
Dakota, and I are the co-chairs of the Rural Health Care 
Coalition for this period and there are a number of other 
issues that we are raising that I will give to you and not 
expect immediate answers here today, but we have sent a letter 
to you raising them and one of them, though, I would throw out 
at you is that your predecessor, Secretary Thompson, did 
establish a Health and Human Services Rural Task Force that was 
charged with examining how HHS programs can be strengthened to 
better serve the healthcare needs in rural communities and I am 
just seeking your sort of commitment to continue that process, 
especially coming from a State like Utah. I am sure I am 
preaching to the choir here.
    Secretary Leavitt. Well, I understand well the dilemmas of 
delivery in rural America. I have observed what I think to be a 
quite prudent choice that has been made on how to get to those 
problems. For many years we have tried to surgically find ways 
in which to bolster with various programs, I see in this budget 
a different strategy, and that is to essentially use a rising 
tide lifts all boats. We have dramatically increased or 
improved the reimbursement rates through the Medicare Bill by 
some $25 billion. That is a substantial infusion going directly 
into the system and allowing communities the flexibility that 
is required to make a difference, and I like that. As a person 
responsible to deliver in rural America, I think that makes a 
lot of sense.
    Mr. Walden. Now, I appreciate that and I think the Medicare 
Bill is probably singularly the most important improvement in 
rural health care that we have seen passed in the Congress, 
certainly in my time here. However, my understanding is only 4 
of the 118 Rural Health Care Services Outreach grants funded 
between 2001 and 2003 focused on the Medicare population. 
Apparently these are grants that may be targeted. The vast 
majority of grantees are not Medicare providers, thus receive 
no benefit from MMA, so there may be some other pieces in the 
budget that may adversely affect our rural areas.
    I want to follow up on something that Dr. Burgess talked 
briefly about, as well. I spent 5 years on a community non-
profit hospital board before coming to the Congress. I was in 
the legislature and dealt with health care issues when we not 
only passed but implemented the Oregon Health Plan, which was 
trying to get at Medicaid population to do as you say with 
SCHIP, insure more people but hold the cost by prioritizing how 
you do it. I would encourage you in your work with the 
Governors to think outside the box on Medicaid because it seems 
like we sort of nibble around the edges, we cut here and think 
we can shove costs there and I will tell you, if there is one 
thing that really struck home with me on the hospital board, it 
was the amount of rules and regulations and audits and as you 
say, I mean, we hired somebody to come in and tell us how to 
bill more properly so we could get more money back.
    It is a standard process out there, all within the rules, 
but we have created a bureaucratic, no offense, but a rules-
based system that is so complicated that you have to hire 
professionals to come in to tell you just how to bill. And I 
have often wondered if there isn't a better way to give the 
providers or the States or somebody--there has to be a way to 
cut through the incredible complex procedures that we have put 
in place. We could save so much money and deliver such better 
health care if maybe we measured the outcomes rather than the 
    Secretary Leavitt. Congressman, may I just echo what you 
said? If we could measure outcome and hold ourselves against 
that standard, as opposed to filtering everything we do through 
binders full of regulations, we would have better outcomes.
    Chairman Barton. Gentleman's time has expired. My list 
shows that Mr. Allen actually got here before Ms. Capps, but 
that is not right. She says it is not right. I am going to 
yield. I will recognize either Mr. Allen or Ms. Capps, 
whichever one of you arm wrestles the best. Okay, Ms. Capps has 
apparently recognized--6 minutes or 5 minutes?
    Ms. Capps. 6 minutes----
    Chairman Barton. 6 minutes.
    Ms. Capps. --Chairman, and thank you very much and thank 
you, Mr. Allen. Thank you, Mr. Secretary, for your testimony 
and for spending this much time with us. I have three different 
topics to bring up in this time and so I appreciate this time. 
First, to continue or perhaps conclude the discussion of my 
California colleagues, will you make available to us the 
actuaries which estimated the budget savings from your various 
Medicaid proposals? By this, I mean the actuaries that predict 
the cutting the IGTs will save certain amounts or increase 
outreach will cost this much or whatever. I would like to ask 
for this, as specific as possible and in writing?
    Secretary Leavitt. I am happy to provide you with the 
information I have on how it was scored. I will tell you that 
there are a lot of complications, as the people at CBO would 
tell you on how they arrive at those estimates looking out 10 
years and there are disagreements, I suppose, available to be 
analyzed on why, so----
    Ms. Capps. Well, we would like to have access to the actual 
actuaries, if possible, please, sir.
    Secretary Leavitt. I will do my best to give you everything 
that I have that is credible.
    Ms. Capps. Thank you, Mr. Secretary. I am holding in my 
hand the 2005 Blue Cross and Blue Shield Service and Benefit 
Plan book for Federal Employees Program. You have made a number 
of public statements about how Medicaid benefits are more 
generous than those in the Federal Employees Program and how 
Medicaid should be more like our private insurance plans, so I 
want to ask you about two benefits not covered under FEHBP and 
how Medicaid beneficiaries would fare without them.
    Now, the Blue Cross plan document says it does not cover 
maintenance or palliative rehabilitative therapy. Would you 
address, please, ``optional infant'' with cerebral palsy in a 
family with an income of about $1400 a month who requires 
weekly maintenance therapy to prevent complete atrophy of his 
muscles. Address how living in pain and suffering because 
Medicaid doesn't cover such therapy or should Medicaid cover 
such therapy and I want to ask you another example on that, 
    Secretary Leavitt. I will respond with this construct. 
There are populations of our citizens, those who are disabled, 
those who are elderly, those who are elderly and disabled, 
those who are in foster care, populations of our young, of our 
children who are in the lowest possible income brackets or the 
lowest income brackets; they need to have not just acute care 
or insurance, they need multiple services.
    Ms. Capps. So that wouldn't be covered in----
    Secretary Leavitt. Well, many of those--there are also 
people in the optional groups who fall under there and the 
States need the capacity to do that. My point all along is we 
need the capacity to treat groups according to their situation 
and the help they need, not a situation where we provide the 
same thing to everyone.
    Ms. Capps. Okay, so then the comparison with the private 
insurance is not for every population group?
    Secretary Leavitt. In our SCHIP program, we provided States 
with the flexibility of being able to design programs around 
the needs of the recipients and it is a brilliant way to go 
because it provides us the capacity to provide coverage to 
    Ms. Capps. Let me ask you about another population. The 
Blue Cross plan document does not cover admissions to non-
covered facilities such as nursing homes. The vast majority of 
seniors in nursing homes as so-called optional beneficiaries. 
How about the millions of individuals with disabilities in 
elderly, in institutions? How would they manage or would this 
be another exception to the private insurance plan?
    Secretary Leavitt. Again, if you were to go back to SCHIP 
it wouldn't be covering elderly, but we provided the option of 
being able to design it. I believe that many States are now 
viewing value in creating home and community care where they 
can provide the coverage that the citizen wants, what the 
recipient wants, in the place they want it as opposed to 
dictating the fact that it will happen in a nursing home. And 
if a State had that flexibility, they not only could cover them 
in the way they wanted, meaning the person wanted to be served, 
but they could also cover more of them.
    Ms. Capps. Okay, but if a person is not using a benefit, 
Medicaid isn't paying for it and how does this save money 
unless you take benefits from people who are using it?
    Secretary Leavitt. Again, I don't see us taking benefits 
from people who are using them. I am suggesting that there are 
large populations of those served by Medicaid who simply need 
help buying insurance.
    Ms. Capps. Okay.
    Secretary Leavitt. And what we provide them with is the 
same benefit we provide for someone who has a disability and 
that is not, in my judgment, the best use of resources.
    Ms. Capps. I want to switch to another topic, if I could, 
just for my last few seconds. President Bush indicated in his 
State of the Union address that his budget would be targeting 
for elimination, and it did eliminate programs that are not 
getting results, yet he has proposed a $38 million increase for 
unproven abstinence only programs, sex education programs. 
Recent evaluations of 11 different abstinence only programs 
show that the programs had no lasting positive effect on 
younger people's sexual behavior and may even result in riskier 
behavior by teenagers. In 2001 a report released by the 
National Campaign to Prevent Teen Pregnancy found no credible 
studies of abstinence only programs showing any significant 
impact on participants' initiation or frequency of sexual 
activity and the National Academy of Science's Institute of 
Medicine has criticized the investment of hundreds of millions 
of dollars in unproven abstinence only programs as poor fiscal 
and public health policy. So in a few seconds, could you 
explain to me why the administration recommended that we 
increase funding for this program that hasn't been proven 
effective, but in fact may even put young people at risk?
    Secretary Leavitt. Well, in the 2 seconds we have left, I 
will simply say abstinence is 100 percent effective.
    Ms. Capps. The programs I am talking about. Everyone agrees 
with that.
    Mr. Deal [presiding]. Gentlelady's time has expired. I 
recognize Mr. Whitfield for 6 minutes.
    Mr. Whitfield. Thank you, Mr. Chairman, and Mr. Secretary, 
thank you for being with us this afternoon. It is my 
understanding that Utah has one of the most comprehensive and 
technologically advanced prescription drug monitoring programs 
in the country and about 20 States that have these programs, 
and I have even been told, I don't know if it is true or not, 
but that you were Governor when Utah created their monitoring 
program and as you probably know, in the last Congress, we 
passed legislation on the House side establishing a 
prescription drug monitoring program with the support of Frank 
Leone, Charlie Norwood, Ted Strickland and others, and Senator 
Sessions had introduced it on the Senate side and I do notice 
that President Bush, in his budget, has provided some funding 
for monitoring programs.
    Our legislation would have placed this with the Department 
of Health and Human Services and of course, the goal was simply 
to enable all of the States to have a program, meet certain 
basic requirements, establish a stable funding stream and 
allows the sharing of information across State lines. And of 
course, Secretary Thompson was quite supportive of our efforts 
and I would just like to know, with your background 
particularly as it relates to Utah, would you be supportive of 
this type of a program, trying to Federalize it and encourage 
States to establish these programs?
    Secretary Leavitt. Mr. Whitfield, earlier I said and I will 
repeat for emphasis, when I wake up in the morning, the first 
words that come to my mind are health information technology 
because I believe it weaves together most of the subjects we 
have been talking about today. The capacity for FDA to monitor 
drugs that have been approved for market, literally tens of 
millions of data points that can be gathered in anonymous ways 
to be able to provide the FDA with powerful insights into the 
impact of drugs, the worldwide web being able to then put that 
information into the hands of those who need it; consumers, 
physician, pharmacists. The ability, then, for electronic 
health records to where we are eliminating the inefficiencies 
on purchasing, allowing us more dollars to be able to provide 
benefits for health coverage like our colleagues have been 
suggesting are so badly needed. All of this weaves together.
    Now, it is going to require, in my judgment, a large 
national collaboration. There are very few ways to get to the 
kind of national system, not Federal, national system, where we 
are essentially creating standards by which people begin to 
operate and provide additional support for. It is well within 
our grasp and for that reason the President has proposed $125 
million as a means. Beyond that, other agencies of Federal 
Government, State governments, private providers all need to 
pull together. The words are health IT. It is the secret to 
many of the things that we have been talking about today.
    Mr. Whitfield. Well, thank you. You know, Mr. Norwood and I 
plan to reintroduce this legislation and the purpose, of 
course, is to provide that impetus with the States to create 
programs because the first program is, I think, around 40 years 
old and yet, we still only have 20 States that have good 
programs, so----
    Secretary Leavitt. I look forward to working with you on 
this. You have my full enthusiasm and complete interest.
    Mr. Whitfield. Thank you so much. A second issue I want to 
discuss just briefly, we all recognize we have a very complex 
health care system and it is fragmented and I know that 
President Bush is totally supportive of these community health 
centers and since he has been president, he has provided more 
money each year in his budget and I know that these are 
effective centers. I have one in my district and everyone sings 
its praises, but I am just curious, is there anyone at Health 
and Human Services looking at how these community health 
centers complement or work with the Medicaid program, the 
Medicare program, because all of a sudden we have got these 
health centers and anyone is eligible, they can go and there is 
a sliding scale for what you pay for services, but is there any 
long-range plan coordinating the service that they provide with 
the existing government health programs?
    Secretary Leavitt. My level of experience at the department 
is still new enough that I cannot respond properly to date. I 
will be happy to respond in writing, but I would like to tell 
you that the promise of community health centers, I believe, we 
are only beginning to see. In my own State, we created a small 
network of these and in essence, then, created a little HMO, if 
you will, and provided a health card we were able to provide 
basic, very basic, but basic health insurance to 18,000 people 
in our State who didn't have it before with money we were able 
to take from savings in other areas. Using that community 
network, we were able to provide basic quality care, 
preventative care and others; not as good of coverage as we 
would like, but we linked it together with some other things. 
There are lots of imaginative ways to use these and they need 
to be coordinated closely with Medicaid and Medicare.
    Mr. Whitfield. Well, I mean, I agree with you and someone 
even made the comment and not seriously, because no one has 
even looked at it, but someone made the comment we might be 
better off as a nation to take the dollars being spent in the 
Medicaid program and establish community health centers around 
the country, so----
    Secretary Leavitt. 6.1 million people will be served this 
year. And by the way, we don't count among those who have 
insurance, because they don't have insurance. However, they are 
getting care and it is increasingly higher quality.
    Mr. Whitfield. Absolutely. Thank you.
    Mr. Deal. Gentleman's time has expired. Chair recognizes 
Mr. Allen for 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman. Mr. Secretary, the $45 
billion in reductions in Medicaid spending works out to about 
$4.5 billion a year over 10 years. But there is another number 
that is worth keeping in mind and that is $89 billion. That is 
the amount in tax cuts that people earning over $350,000 a year 
will keep in 2005 alone. The administration budget has $23 
billion in additional tax cuts over 5 years proposed, which is 
on an annual basis, about what the reductions in the Medicaid 
program are. I think those numbers speak more loudly and 
clearly than you or I can about this administration's 
priorities. It is why we feel that putting more of the burden 
on State taxpayers and on Medicaid beneficiaries is really the 
wrong way to go.
    I am prepared to concede to you that there certainly are 
circumstances where additional flexibility could yield some 
savings at the State level; not in every State, not at every 
time, but clearly, I think you are right about that, but I 
believe, unless you tell me differently, that the $45 billion 
figure was a budget figure. It wasn't based on any sort of 
calculation of what the savings could be in all 50 States over 
the next 10 years and I think, in your testimony before the 
Senate, you recognized that frankly, there will be lower 
benefits. Yesterday you told Senator Bingaman that the States 
need help coping with Medicaid costs now, I agree with that. 
But you also said that States should be able to cover more 
people in optional populations with the same amount of money by 
offering a less costly set of benefits. To me, that means that 
some people will get fewer benefits than they have today under 
Medicaid under your proposal. Isn't that right?
    Secretary Leavitt. It is possible.
    Mr. Allen. You also said yesterday that if we don't allow 
States to give people fewer benefits, many will, and I quote, 
``many will simply lose coverage.'' Is that true, as well?
    Secretary Leavitt. Well, that is certainly true. I want to 
make sure I am understood. We have a mandatory set of groups 
that we have made a commitment with an entitlement to, we all 
know who they are, and there are no block grants in the 
President's budget, there are no involuntary caps. We recognize 
the need to keep trust and faith with those groups. There are 
other groups who are covered by Medicaid that basically need 
insurance. They need help buying insurance. And the question is 
do we treat both of those groups precisely the same or do we 
recognize that given the fact that they need help buying 
insurance that we could provide more help to more people if we 
treated them in a way that was consistent with their needs, not 
with the same level of care as those who need for long-term 
care, or those who have needs for additional services beyond 
which virtually anyone else in society gets?
    Mr. Allen. In theory, you know, I understand what you are 
saying in theory, but the bottom line impact is going to be--I 
mean, for example, I understand that it is something like 60 to 
70 percent of Medicaid dollars go to nursing homes, or close to 
that. And I have been through nursing homes in Maine and the 
people who are in nursing homes in Maine today, as opposed to 
20 years ago, really need to be in nursing homes. That is a 
terribly disabled population. And it seems to me that when you 
start doing this budget from the top down, when you make a 
decision at other levels of the administration, that we are 
going to do enormous tax cuts for people earning over $350,000 
a year on the one end, but we are going to start reducing the 
amount of money flowing to the States. We say we are going to 
provide--you say you are going to provide flexibility, that is 
a little bit of help, but the bottom line is, as you said 
yesterday, that somebody, some people are clearly going to have 
either less coverage or no coverage. And that, it seems to me, 
is the bottom line.
    Secretary Leavitt. I would invite you to just look a little 
south of you to two States, New Hampshire and Vermont. Vermont 
has adopted a waiver that allows them to use home and community 
care with their elderly citizens. New Hampshire has chosen not 
to. There are dramatic differences in the number of people that 
can be covered in Vermont and the way in which they are 
covered. As I recall, the number is roughly 50 percent of those 
in Vermont who are of that age or in nursing homes, and it is 
roughly 85 percent in New Hampshire. And it costs roughly twice 
as much. The net effect is that two States, both your 
neighbors, next door to one another, one pays twice as much to 
care and they are able to care for roughly half as many people.
    Mr. Allen. And just to conclude, Mr. Secretary, I am not 
contesting that point. I do recognize there are differences in 
States, I do recognize there are efficiencies to be had. My 
only point is the $45 billion is an arbitrary number, not 
related to what you think can be achieved by efficiencies in 
the 50 States, and we are going to have to see how that works 
out. But the bottom line is some people are going to be worse 
off, they have to be.
    Secretary Leavitt. This is not a debate over whether we 
should pay, it is a question of who should pay.
    Mr. Deal. Gentleman's time is expired. Chair recognizes Mr. 
Stearns for 5 minutes.
    Mr. Stearns. Thank you, Mr. Chairman, and welcome, welcome. 
You have been through quite a bit here. I have got two 
questions and I don't think they have been asked yet. The 
President's budget seemed to suggest a need to recalibrate 
peoples' expectation regarding Medicaid, its role and its 
limitations and I remember when we had the welfare debate here 
and we came up with plans and nobody thought we would pass it, 
but we did try to say that we wanted to have some personal 
responsibility and we had some limitations in it. And I guess 
after reaching this consensus and finally after it was vetoed 2 
or 3 times by the President, we finally passed it, and I guess 
I would say to you and ask your best personal opinion whether 
there is a way to bring to the Medicaid program this personal 
responsibility and a sense of ownership of what they have so 
that they would be more mindful, not only of the cost, but also 
how to improve health maintenance for themselves?
    Secretary Leavitt. I believe we can do for Medicaid what we 
did for welfare.
    Mr. Stearns. Good. That is good to hear. That is good. 
Governor Bush came up here and talked about some of the 
problems he had and he and other Governors were working on this 
Cash and Counseling program they had. You are familiar with it. 
It provided beneficiaries with the flexibility and self-design 
over their personal care. It was conducted in Florida, Arkansas 
and New Jersey and I understand now it is expanding to 11 
States that I have here, in a map. It has been demonstrated to 
have dramatic and satisfactory satisfaction with both the 
people and the savings of money. It improved the health 
outcomes and cost no more than traditional delivery systems and 
I think Governor Bush is to be commended for doing this, and 
the other Governors. I think the Robert Wood Foundation, 
Johnson, the Robert Wood--Johnson Foundation has been a partner 
in this and we have got in the prescription drug bill a Cash 
and Counseling demonstration for Medicare. And I was hoping 
that you would look at that and perhaps give me an idea of what 
you think, as a legislator, I could do to help you in 
developing both Cash and Counseling for Medicaid and for 
Medicare to bring in more personal responsibility.
    Secretary Leavitt. Thank you. I look forward to that.
    Mr. Stearns. Okay. That is it. Thank you, Mr. Chairman.
    Mr. Deal. Thank you, gentleman. Ms. Schakowsky is 
recognized for 5 minutes.
    Ms. Schakowsky. Thank you, Mr. Secretary. I appreciate your 
patience and staying to answer these questions and clearly, 
this will be an ongoing dialog because so many of these things 
can't be dealt with just today and are so critical. I want to 
focus in on one question, as I said, about this issue of the 
mandatory populations, but I just want to tell you that I would 
love to be part of the conversation, too, about stem cell 
research, about drug safety. I have a friend who had some 
anxiety, who ended up committing suicide after taking anti-
depressants and I know we have dealt with some of that with 
young people, but her family is convinced that that drug had 
something to do with it. The whole issue of information about 
trials and testing and public access to those.
    I am concerned about some of the things that you said. I 
know that they have been brought up in many different ways and 
by different members, but you gave a speech before the World 
Healthcare Congress in early February where you said, I will 
quote, ``The optional populations on the other hand, may not 
need such a comprehensive solution. Most of them are healthy 
people who just need help paying for health insurance,'' which 
is what you said, but I wanted to ask some additional questions 
about so-called optional beneficiaries and find out which 
benefits you think they should not receive, if that is the 
route that States are forced to go.
    Let me give you a couple of examples that I have thought 
of, of real-life people. A 63-year-old widow who has multiple 
conditions; fibrosis of the lungs, rheumatoid arthritis, high 
blood pressure, whose income is $700 a month, which is just too 
much to qualify for SSI and become mandatory eligible for 
Medicaid because her income is low enough in her State to 
qualify for Medicaid home and community-based care. So which 
services in the Medicaid benefit package should be eliminated 
for her, you know, physician services, hospital services, 
prescription drugs? And let me just run through them and then 
you can answer.
    Another example might be an 85-year-old with Alzheimer's 
with a monthly income of $1500, which is about 200 percent of 
poverty, qualifies for nursing home care. Under the law, she is 
allowed, as our other Medicaid--to keep $30 a month for 
personal needs, something I hear a lot about from people 
because it is such a low dollar number. But the remainder of 
her income goes to the nursing home to support her care, but 
even that isn't enough to keep her off Medicaid as the nursing 
home care costs more than her income. So which services in the 
Medicaid benefits package do you think should be eliminated for 
her and as my colleague from Maine said, increasingly, people 
in nursing homes are very, very sick.
    No. 3, a 7-year-old boy with autism living with his parents 
whose income is greater than $1310 a month, 100 percent of 
poverty for a family of three. He qualifies for Medicaid 
through a home and community-based care waiver. Which services 
in the Medicaid package do you think should be eliminated for 
him? Physician services, preventive care, hospital care? You 
know, again, in theory, as my colleague, Mr. Allen said, there 
is a lot of things that can be said about cutting costs, but 
when you face these individuals, where do you start cutting?
    Secretary Leavitt. Let me answer that by offering another 
couple. A 58-year-old man and a 56-year-old woman who are 
married; she works as a waitress, he works as a mechanic. They 
work two jobs. Together, they make about $24,000 or $28,000 a 
year just above the poverty line, and they have nothing. I 
guess the question I would have, all of those people that you 
have identified to me sound like people who need not just 
insurance, but they need services and I don't propose anything 
that would distract from the States' ability to do it, but what 
about this couple who doesn't have anything and the States 
would like not only to be able to provide coverage to the 
people you have described, but also to these, and they believe 
they have the capacity, if they can give the people that you 
have talked about the same benefits that you and I get, or the 
same benefits that the biggest HMO in the State provides and 
then they could provide basic coverage to this couple, which is 
    Ms. Schakowsky. Well, it is just that when you--overall, 
when you see that there are going to be cuts in Medicaid, I 
think the notion that we should--you said at some other point 
that there are, you know, why give Cadillacs to some when you 
could give a Chevy to others? I mean, I guess when I talk about 
these people, we are not talking about Cadillac services. Why 
should we take from some poor to give to other poor when there, 
for example, are billions of dollars in tax cuts for the 
wealthiest? I agree with your description of that family, but 
budgets are a question of priorities and I think they are 
misplaced here.
    Secretary Leavitt. You know, it has never occurred to me--I 
say never occurred to me--it has never seemed right to me that 
we would say we are taking from one poor person to give to 
another. We are managing the resources of taxpayers to try to 
help the most possible people. We are not taking money from 
poor to give to other poor; we are taking taxpayers' dollars 
and saying how can we help the most people in the best possible 
    Mr. Deal. The gentlelady's time has expired. Dr. Norwood is 
recognized for 5 minutes.
    Mr. Norwood. Thank you, Mr. Chairman. Governor, welcome.
    Secretary Leavitt. Thank you.
    Mr. Norwood. I am pleased you are here. Some people call 
this the greatest committee on Capitol Hill and I agree with 
those some people. And we are pleased to work with you. I am 
excited about your new posting and I will bet you are, too.
    Secretary Leavitt. I am.
    Mr. Norwood. You have got some possibilities here to do 
some really great things in the next 4 years and we want to be 
part of working with you on that.
    Secretary Leavitt. That pleases me.
    Mr. Norwood. Now, I have a lot of questions and they are 
detailed and I don't want----
    Mr. Deal. I am going to give you an extra minute. You are 
entitled to 6 instead of 5.
    Mr. Norwood. Thank you so much, Mr. Chairman. The questions 
I need answered in writing. Frankly, I don't want a 5-minute 
answer, I want some thoughtful answers and I think it is best 
done in writing, so I will take my little few minutes and try 
to raise your level of curiosity to an issue that is very 
important to me. I want to talk to you about this on behalf of 
Congressman Simpson and Congressman Linder and Chairman Don 
Young. Before I do, I want to make sure I got it right, so you 
correct me if I am wrong, but the Public Health Service Corps 
is under your jurisdiction?
    Secretary Leavitt. True.
    Mr. Norwood. And within that, we have the Indian Health 
Service that is under your jurisdiction?
    Secretary Leavitt. True.
    Mr. Norwood. So you are the man. It stops with you. That is 
what I wanted to be sure of. Now, I have a great concern with 
the Indian Health Service and I hope you can help me and I hope 
we can sit down and talk through this at some time, but the 
dental--I mean, the Indian Health Service has approved the use 
of dental health aids in Alaska. Now, I have looked high and 
low and nobody in America knows what that is. There is no such 
title. It is not taught or trained in any institution of higher 
learning that I am aware of. My problem is whatever a dental 
health aid is, the Indian Health Service is going to allow them 
to perform highly skilled procedures without sufficient 
training. The limited amount of training that they are supposed 
to receive would not let them qualify to be licensed in any 
State in America.
    Now, an important first rule for me is do no harm, and I am 
scared of this thing and so is Congressman Young about his 
constituents. I want to think, and I believe it to be true, 
that the services under your authority will have respect for 
State law and the traditional role of States in determining 
appropriate scope of practice. I don't think it is a good idea 
at all for the Indian Health Service to bring in from out-of-
country training, under-trained, unlicensed providers into 
Alaska that are clearly acting outside the licensure 
requirements of the State of Alaska, in fact, of any State in 
    Now, I know you have been here just a few weeks; 30, 40 
days, something like that. So I don't expect to get detailed 
answers right here. I hope you and I can have a grown-up 
discussion about it at some time, but three little quick 
queries. Does HHS take any steps to ensure that providers that 
receive Federal dollars are properly licensed in the States 
they provide care?
    Second question. Do you agree with the proposition that 
States are the appropriate entities, and I am so glad you are a 
former Governor, to license health care professionals?
    And third, if time permits, maybe you could give us just a 
comment on the general principle of respecting State Scope of 
Practice Laws and maybe we can get detailed at another time.
    Secretary Leavitt. Question one.
    Mr. Norwood. Yes, sir.
    Secretary Leavitt. I don't know.
    Mr. Norwood. Okay. It is all right.
    Secretary Leavitt. Question two. Yes, I believe that the 
States are the appropriate way.
    Mr. Norwood. I hope.
    Secretary Leavitt. Question three. I believe, though I am 
not sure; the last time I testified in this room, it was on 
    Mr. Norwood. No wonder I want you to be the new Secretary. 
If you would, perhaps maybe your staff and we could just get 
together to talk about this. We are very greatly concerned that 
we are going to set some precedents that is going to hurt our 
country in terms of dental health care and it needs to be 
nipped in the bud. I do know how difficult it is, it has got to 
be, to deliver dental care in Alaska. I mean, half the year you 
can't even get out there. But many people are willing to try to 
help solve that problem in the private industry, but we don't 
want the system we have set in place to protect patients in the 
Nation to be torn apart in the process of trying to treat the 
natives. We want to help, we will help, but you and I need to 
get together sometime and talk about this.
    Secretary Leavitt. Congressman, this is a subject that I 
think does warrant a lot of discussion. I reference the fact 
that I was to here to talk, as a Governor, about federalism. I 
believe we are in a period of history where political 
boundaries are not as relevant in a practical way as they might 
have been 50 or 100 years ago.
    Mr. Norwood. Understood.
    Secretary Leavitt. I mentioned the fact that when I wake up 
in the morning and I am thinking health IT, what that means is 
we have the capacity to move big blocks of information 
instantly across not just the States or the country, but the 
planet and that it is requiring us to think through, in a new 
way, ways to provide the protections that come from State 
licensing and the efficiencies that a global economy requires. 
I believe this conversation is a very important one and I look 
forward to having the conversation with you. I think the 
principle is that the Federal Government establishes standards, 
but we have to leave to the local communities the capacity to 
have local strategies.
    Mr. Norwood. But you are not going to help the government 
establish standards that dumb-down care for patients, I know.
    Secretary Leavitt. True.
    Mr. Norwood. And they do that sometimes in their effort to 
say we are trying to help everybody. But we must not do harm. 
There are things that can be done, I agree, but this thing goes 
too far and I look forward to working with you on it.
    Secretary Leavitt. Thank you, sir.
    Mr. Norwood. Mr. Chairman, I know you are not going to 
believe this, but I am going to give you back my little bit of 
    Mr. Deal. It is already gone. We appreciate the thought, 
anyway. Ms. Baldwin is recognized for 6 minutes.
    Ms. Baldwin. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. I note that your predecessor and his predecessor 
before both hailed from Madison, Wisconsin, my district, 
immediately before occupying their position as Secretary of DH 
and HS, but welcome, nonetheless.
    Secretary Leavitt. Thank you very much.
    Ms. Baldwin. I wanted to follow up on a question that has 
been alluded to but not specifically asked by previous 
speakers, and that regards embryonic stem cell research. And as 
we all know, in August 2001, President Bush banned Federal 
funding for research on new embryonic stem cell lines that were 
created after the date of his announcement. President Bush's 
policy, in my opinion, has severely limited the number of stem 
cell lines available for research and we know, as scientists, 
including those in my district, believe that this embryonic 
stem cell research could lead to incredible breakthroughs in 
treatment and knowledge of diseases, conditions such as 
Alzheimer's, Parkinson's, cancer, diabetes, spinal cord 
injuries and more. I, for one, believe that we should lift the 
ban on funding, Federal funding for new stem cell lines, 
embryonic stem cell lines, but I wonder whether you plan to 
review or revisit this policy. If so, I would like to hear 
about your plans in that regard and let you know that many 
members both side of the aisle would be very happy to work with 
you to review that policy.
    Secretary Leavitt. Representative, I share in the hope and 
optimism for stem cell research. I would like to point out that 
the President's decision empowered dramatic increases in the 
amount of stem cell research that occurred. He made what he 
believes, and I believe, as well, to be a decision, a moral 
decision on embryonic stem cells. I have spoken with him about 
it. I understand the reason he made the decision. I understand 
why he believes it is a moral decision. I concur with him and I 
will support him in that decision.
    Ms. Baldwin. So no, you do not plan on reviewing or 
revisiting that during your tenure?
    Secretary Leavitt. I will be supporting the President's 
    Ms. Baldwin. Okay. You have said, in your testimony, that 
you were hoping for some questions on the Medicare prescription 
drug rollout next year and I have a couple that certainly 
emanate from my district and the concerns that have been raised 
about that rollout. Specifically, our State has a Pharmacy Plus 
waiver and we have had a great deal of success in making 
prescription drugs more affordable for especially low-income 
senior citizens through what we have called our SeniorCare 
program. And it appears, as we see some of the new regulations 
with the Medicare Modernization Act that it may be the intent 
to rapidly extinguish the four Pharmacy Plus waivers that are 
in existence. This would have a devastating effect on people 
that I represent. We have calculated sort of side-by-side how 
they would be served under SeniorCare versus how they would be 
served under the Medicare prescription drug benefit. They are 
much better off if they remain in the SeniorCare program. What 
assurances can you give to Wisconsin seniors that the 
administration will not force Wisconsin to terminate its 
SeniorCare program as a result of the new regulations that deal 
with budget neutrality renegotiations of these waivers?
    Secretary Leavitt. CMS is going to work very closely with 
States who have these waivers to enable them to provide 
comparable drug coverage to their beneficiaries. In fact, our 
objective is to have our systems be able to work with them so 
they not only are compatible, but they work hand-in-hand.
    Ms. Baldwin. And as you have more specifics, I certainly 
want to keep in touch with this because it is something that 
has been a vital lifeline for our seniors in Wisconsin. Lastly, 
specifically dealing with dual eligibles, those individuals who 
are both on Medicare and Medicaid, I am wondering if you can 
identify specific measures that CMS will be taking to ensure 
that the transition for dual eligibles as they go from Medicaid 
to this Medicare prescription drug benefit commences goes as 
smoothly as possible to avoid any disruptions in access to 
essential medications. Especially we are concerned about people 
with severe mental illness. In the case of a dual eligible, for 
example, who is auto-assigned to a preferred drug plan that 
does not cover the mental health medications that they are 
currently taking. What sort of provisions or contingencies or 
plans do you have in order to ensure that the beneficiary does 
not have any uninterrupted coverage?
    Secretary Leavitt. Representative, our first priority, of 
course, is to assure that a decision is made on behalf of all 
recipients and that no one is dropped from coverage because of 
a lack of decision. We also recognize that there may be those 
who will have special needs where one decision will be 
measurably better than another and we intend to be imminently 
flexible and work with them until we have--and very willing to 
make changes to accommodate them. There is no question that 
many people will need to make decisions quickly and that some 
will not make the decisions. We are going to make a decision 
and then work with them to make certain it is the right 
    Ms. Baldwin. Thank you. I yield back, Mr. Chair.
    Mr. Deal. I thank you. Representative Wynn is recognized 
for 5 minutes.
    Mr. Wynn. Thank you, Mr. Chairman. Mr. Secretary, thank you 
for your patience. On the subject of Medicare physician 
payments, currently payments remain well below the rate of 
inflation and cuts of 4 to 5 percent are predicted annually 
between 2006 and 2013. In that time, the physician costs will 
rise by 19 percent, the Medicare payments will fall by 31 
percent. We are already seeing physicians leaving the Medicare 
program. What actions are you going to take to prevent 
physicians continuing to leave the program given the shortfall?
    Secretary Leavitt. You have defined very carefully and 
skillfully the dilemma and, frankly, the solution for us to 
work together to come up with a solution. The Secretary needs 
to be working with this committee to find a solution. I 
recognize the dilemma. We have got to work together to find a 
    Mr. Wynn. Well, I appreciate that. I look forward to 
working with you on that, but we are also going to have to have 
some more money in the--similarly, on Medicaid, you are 
proposing about $60 billion in cuts over 10 years and you have 
acknowledged to my colleague, Tom Allen, that there is going to 
be increased cost sharing and less benefits. You said that that 
is likely to happen. Now, my question to you is won't this 
result in an increase in uncompensated care? People with 
insurance are going without care because they can't afford the 
cost sharing responsibilities as the premiums go up. This has 
got to be even worse for the poor. So my question, won't 
uncompensated care go up? Two, won't this put an additional 
burden on hospitals? And three, won't this drive up private 
insurance, which means four, won't small businesses have a more 
difficult time providing insurance?
    Secretary Leavitt. Important that I am understood here. The 
President has proposed three changes in Medicaid. One of them 
is a reduction in the amount we pay for pharmaceuticals, not to 
those receiving benefit, but to the companies we buy it from.
    Mr. Wynn. If I can just jump in. Didn't you agree that 
there would be a reduction of benefits? I am sure there are 
some other features involved in the President's budget, but in 
the interest of time, isn't it true that there would be a 
reduction of benefits and increased cost sharing?
    Secretary Leavitt. Not automatically. The States--I am 
suggesting that there will be many people who will fall on the 
system, just like you are saying, if they don't have coverage 
and right now, the States are struggling to find ways to keep 
the people insured who they have insured and they----
    Mr. Wynn. And so the States are going to have less money, 
isn't that true?
    Secretary Leavitt. No. Well, the States----
    Mr. Wynn. Well, a $60 billion cut over 10 years.
    Secretary Leavitt. We made a deal with the States. The deal 
is we will pay roughly 65 percent if they will pay 35. All we 
want is for States to keep the deal.
    Mr. Wynn. Does that result in a $60 billion cut over 10 
    Secretary Leavitt. It means that States are going to have 
to step up and pay their part of the deal and not----
    Mr. Wynn. Will States have more people to cover?
    Secretary Leavitt. I suspect that populations have, in 
fact, been expanding, but an important----
    Mr. Wynn. So you have more people to cover with less money. 
Doesn't that, by definition, mean that there are going to be 
lower benefits or higher deductible, the higher cost sharing by 
people on the lower end of the economic spectrum?
    Secretary Leavitt. Congressman, you have large groups of 
people who are optional coverage groups now that are on the 
verge of losing their coverage because States do not have the 
flexibility to be able to find ways of covering them. What we 
are proposing is to use methods that would allow the States to 
manage those groups while keeping----
    Mr. Wynn. But the bottom line is that the amount of money 
the States will get will be less, so it seems to me that this 
is worsening the problem.
    Secretary Leavitt. This isn't a function of whether or not 
the money goes into Medicaid, it is a question of who puts it 
    Mr. Wynn. Okay.
    Secretary Leavitt. There are many States who are meeting 
their part----
    Mr. Wynn. How will the States, given the fact that they are 
currently strapped, how will they come up with their share of 
the money? They will have to raise taxes, isn't that true?
    Secretary Leavitt. It will be different in every State. 
What we are asking is that they be given flexibility so that 
they can manage the money that they are currently spending----
    Mr. Wynn. More flexibility, but more people, isn't that 
    Secretary Leavitt. Well, we would hope that they could 
cover more people, yes.
    Mr. Wynn. With less money.
    Secretary Leavitt. And we believe it can be done with 
flexibility. There are many States who come to the Secretary of 
HHS and offer waiver requests and say we believe that given 
flexibility we can not only continue to cover people that we 
worry we won't be able to without this waiver----
    Mr. Wynn. If you increase the cost sharing, which you have 
indicated will happen, won't that result in more uncompensated 
care as people are unable, as the poor are unable to meet those 
    Secretary Leavitt. Congressman, our conversation is leaving 
out one important fact and that is we are not talking about 
less money going into Medicaid, we are talking about a 7 
percent increase every year for 10 years that over the----
    Mr. Wynn. I have been asking you about a $60 billion cut 
over 10 years and each time you have acknowledged that that's 
the cut.
    Secretary Leavitt. No, I am acknowledging that over the 
next 10 years we will spend $5 trillion. There will be more 
money every year going in. What we are talking about is whether 
or not the rate of growth is 7.6 percent or 7.4 percent.
    Mr. Wynn. Okay. Well, we seem to be going around and around 
and my time has expired. I yield my time. Thank you, Mr. 
    Mr. Deal. Mr. Inslee is recognized for 5 minutes.
    Mr. Inslee. Thank you. Mr. Secretary, over to your right 
here. My name is Jay Inslee from Seattle. Welcome to your new 
post, wish you the best of luck. If you have any problems in 
your job, just give me a call, because I was Region 10's 
director for a while, so I solved all the problems at HHS. 
There are a few that haven't been implemented yet.
    Secretary Leavitt. I need your phone number.
    Mr. Inslee. You give me a call and we can work--but one of 
them is local, as many of our concerns are and I am from one of 
the States that we are very visionary in increasing our SCHIP 
eligibility some time ago, back in 1997 and was rewarded by the 
Federal Government before your tenure with the penalty, if you 
will, of not getting coverage for a significant number of our 
young folks. And we hope that we will be able to work with you 
in an effort to resolve that. We are not the only State, as you 
know, there were punished for our being ahead of the curve a 
little bit and being an early adopter of our increased 
enrollment. I think you may have heard about our $2 billion 
shortfall in Washington State. I know Washington State is not 
alone in that regard. I hope that you can give us some 
assistance in designing a way that will remove that getting hit 
with a 2x4 financially because we were ahead of about 40 other 
States in advancing the cause that you now seek to advance. 
What can you do to help us in that regard?
    Secretary Leavitt. I am uncertain, but I will look forward 
to working with an experienced hand to try.
    Mr. Inslee. I won't let you forget that. You know, it is 
our job to extract promises from secretaries, so I will try to 
hold you on that. It is a very serious issue because if we are 
going to expand eligibility and you are making this commitment 
to get these eligible but unenrolled people in, that is going 
to exacerbate the problem, in a sense, which is increasing our 
coverage, which is our goal, but causes additional financial 
stresses. So I will hope to talk with you again about this 
issue, to find a way and--you know, before we move forward, I 
hope we can look at this as a top priority first to remedy this 
inequity for us and several other States. I hope to talk with 
you about that.
    Secretary Leavitt. I will look forward to that 
    Mr. Inslee. Thanks. As far as reimbursement levels, is 
there any thought being given to a more permanent fix to this? 
We are seeing very significant lack of coverage in our State in 
a variety--I know we are not alone. This is getting worse 
rather than better. We have this tremendous technology that is 
not available in parts of our State in no small measure because 
these reimbursement rates--is your administration considering 
any more permanent fix to this other than temporary stop-gap 
measures to give us some hope in that regard?
    Secretary Leavitt. I hear a lot about this. I have this 
conversation with lots of Members of Congress. It is pretty 
clear to me that we have got to work together to solve it. 
There are those in Congress who believe the Secretary has 
authority to do it. There are serious questions about that. 
What I do believe is that we are going to have to work together 
to find a solution. Not coming up with a solution is not an 
option in my mind.
    Mr. Inslee. Now, let me ask you a difficult question. Those 
were two softballs. Let me ask you a difficult one now. In 
listening to the budget proposals the administration, in your 
agency, they seem, by and large, except maybe enrollment, the 
effort to increase enrollment for eligible SCHIP kids, which we 
applaud--other than that, they pretty much seem, to me, budget-
driven. We have budget issues; we are going to take policy 
issues to try to close those holes and those are driven by 
three things; our economic, sort of, recession for a period of 
time; the war/wars that we are now involved in; and the tax 
cuts, and one can argue about the percentage contribution to 
those. At what point would you discuss with the President the 
necessity of reviewing his revenue position in order to 
maintain your ability to fulfill your responsibilities? And 
maybe it is a little early in your tenure to ask you a hard 
question like that, but I hope you will think about it.
    Secretary Leavitt. Great question and one I wish I had more 
than 37 seconds to answer, but I will tell you, the President 
gave me a direct charge and it was to help Americans to live 
longer and to live healthier and to do it in a way that will 
help us maintain our economic competitiveness. Now, I believe 
that is an important charge and I think the key to it--and he 
also put into this budget $125 billion over 10 years to allow 
12 to 14 million people who don't have health insurance to get 
it, and $125 million to begin to connect the Nation together 
with an IT system that will transform our health system. Those 
are big visionary objectives that have to be accomplished in 
order for me to meet my mission and I am delighted for a chance 
to work with an experienced hand at this problem.
    Mr. Inslee. Thank you. Good luck.
    Secretary Leavitt. Thank you.
    Mr. Inslee. Thank you, Mr. Chair.
    Mr. Deal. Thank you, gentleman. The Chair has three 
requests for documents to be added to the record. One is a 
letter from CBO to Chairman Barton dated February 16 of this 
year. The second is a report from the Office of Actuary of 
February 11, 2005, and the third is a letter from Ranking 
Member Dingell dated February 15 to Secretary Leavitt. Without 
objection, they are admitted to the record.
    The Chair would recognize Mr. Burgess for an inquiry or 
    Mr. Burgess. Thank you, Mr. Chairman. Mr. Secretary, if I 
could, and I know the hour is late and I will ask this and it 
is certainly okay to respond in writing, but I will have my 
office get--there has been several questions the last few 
minutes about Medicare reimbursement rates for physicians and 
it always brings up the question of balanced billing and what 
is going to happen with the STR or the MedPack formula, so let 
me get a question in writing to you, if I could, about that 
issue. And then finally, I would just ask, there has been some 
community health centers and I am relatively new here. This is 
the start of my second term. It seems to me that there are 
enormous barriers to entry for community health centers, 
getting one of those up and running and I would very much 
welcome talking with someone on your staff with my staff and 
myself about how to step-by-step go through that process. We 
have got 127,000 poor residents in Tarrant County who 
desperately need that type of facility, so I would----
    Secretary Leavitt. That conversation can take place.
    Mr. Burgess. Thank you.
    Secretary Leavitt. Thank you.
    Mr. Deal. I thank the members who are still here for 
staying and I thank the Secretary for his patience and for 
being with us today and we look forward to seeing you in the 
future and good luck on your job.
    Secretary Leavitt. Thank you.
    Mr. Deal. This hearing is adjourned.
    [Whereupon, at 4:33 p.m., the committee was adjourned.]
    [The Department of Health and Human Services failed to 
respond to questions for the record.]