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APRIL 26, 2001


Good Morning, Chairman Bilirakis, Congressman Brown, and members of the Subcommittee. I am honored to appear before you today to discuss the President's FY 2002 budget for the Department of Health and Human Services. I am confident that a review of our budget for these programs will demonstrate that we are proposing a balanced, responsible approach to building a strong and healthy America.

Part of this approach means we must no longer be content to do things a certain way because "that's how we've always done it". It means we must be willing to reform our business practices and seek innovative ways to manage our programs. And, while we know that the federal government has an important role to play, we must also recognize that our State, local and tribal government partners, community and faith-based organizations, the private sector and academic institutions - all are indispensable sources of new and creative approaches to solving public problems. The President and I share this view, and I am proud to say it is manifested in the budget he has put forward.

The President's budget proposes innovative solutions for meeting the challenges that face the nation. Our proposal begins the modernization of Medicare; expands access to health care; enhances the groundbreaking research being sponsored by the National Institutes of Health; protects public health; and, invests in infrastructure and reforms the way the Department's operations are managed. The HHS budget also reflects the President's commitment to a balanced fiscal framework that puts discretionary spending on a more reasonable and sustainable growth path; protects Social Security, Medicare, and other priority programs; continues to pay down the national debt; and provides tax relief for all Americans. Let me now highlight some priorities in the HHS budget.


Advances in scientific knowledge have provided the foundation for improvements in public health and have led to enhanced health and quality of life for all Americans. Our FY 2002 budget enhances support for scientific research as well as for research to improve the quality of the Nation's health care system.

Biomedical Research Sponsored by the National Institutes of Health

The National Institutes of Health (NIH) is the largest and most distinguished biomedical research organization in the world. The research that is conducted and supported by the NIH, from the most basic research on biological systems to the successful mapping of the human genome, offers the promise of breakthroughs in preventing and treating any number of diseases. A top priority for this Administration is ensuring that the NIH continues to have the resources necessary to help turn these promises into a reality.

This budget keeps the President's commitment to double NIH's FY 1998 funding level by FY 2003. For FY 2002, we are proposing an increase of $2.75 billion, which will be the largest dollar increase ever for NIH. This funding level will enable NIH to support over 34,000 research project grants, the highest level in the agency's history. NIH will expand its focus on four research areas that show the greatest potential for yielding new scientific breakthroughs: genetic medicine, clinical research, interdisciplinary research, and health disparities.

With any large increase in resources, there also comes the increased challenge of making sure that those resources are managed properly. I take this responsibility very seriously, and NIH will work to develop strategies to ensure that we are managing taxpayer dollars in the most effective way in setting research priorities.


Of all the issues confronting this Department, none has a more direct effect on the well-being of our citizens than the quality of health care. Our budget proposes to improve the health of the American people by taking important steps to improve Medicare, including the addition of a prescription drug benefit, and by directing funds to various initiatives aimed at directing funds to initiatives aimed at expanding access to health care.

Modernizing Medicare and Immediate Helping Hand

The Medicare program has been the center of our society's commitment for ensuring that all of our seniors enjoy a healthy and secure retirement. Honoring this commitment means making sure that the program is financially prepared for new beneficiaries, and ensuring that current beneficiaries have access to the highest quality care. One clear example of our need to renew Medicare's promise is the lack of adequate prescription drug coverage. When Medicare was created in 1965, prescription drugs were not an integral part of health care as they are today and coverage was not included as part of the Medicare benefit package. But what was acceptable thirty-five years ago is simply unacceptable today.

We have already waited too long to address this problem. The President has put forward our Immediate Helping Hand proposal as an interim measure to do so. Our proposal provides $46 billion over five years to help States so that they can provide prescription drug coverage to beneficiaries with limited incomes or high drug expenses; and it will provide immediate coverage for up to 9.5 million beneficiaries.

Almost half the states currently have prescription drug assistance programs of some kind, and most of the other states are considering such programs. With modifications, these programs would be eligible for IHH grants. The IHH would be fully funded by the Federal government and would provide States with the flexibility to choose how to establish coverage or enhance existing plans. Individuals with incomes up to $11,600 and married couples with incomes up to $15,700 who are not eligible for Medicaid or a comprehensive private retiree benefit would pay no premium and no more than a nominal charge for prescriptions. Individuals with incomes up to $15,000 and married couples with incomes up to $20,300 would receive subsidies for at least half the cost of the premium for high-quality drug coverage. The IHH plan also includes a catastrophic component that would cover any Medicare beneficiary with very high out-of-pocket drug costs.

The President's Immediate Helping Hand proposal is a temporary plan to help our Nation's seniors who are most in need of assistance with their prescription drug costs. The benefit will sunset in December 2004, or as legislation to strengthen Medicare including a prescription drug benefit is implemented. However, this plan is critical because it provides assistance to millions of Americans immediately. The President and I want to work closely with Congress in a bipartisan fashion to see this happen.

We also believe, along with many Members of Congress who have supported and continue to support bipartisan efforts to strengthen Medicare, that we must take steps to improve Medicare as soon as possible. Inadequate prescription drug coverage is only the most obvious gap in Medicare benefits. Today, Medicare covers 55 percent of the average senior's annual medical expenses, and the options available to seniors to help them limit these expenditures are declining. Moreover, the program faces a looming fiscal crisis. A full assessment of the health of both the Part A and Part B Trust Funds reveals that current spending exceeds the total of tax receipts and premiums dedicated to Medicare and that this financing gap is expected to widen dramatically. Even without a financing problem, Medicare modernization would be necessary to ensure that beneficiaries continue to get high quality health care. President Bush proposes to devote $156 billion (including funding for Immediate Helping Hand) over the next ten years to a set of improvements in Medicare that are urgently needed. These Medicare modernizations should include taking steps to make better coverage options available, to assure that all seniors have affordable access to prescription drugs, to provide better coverage for high out of pocket expenses, particularly low-income seniors, and to ensure that Medicare has greater overall financial security.


For any organization to succeed, it must never stop asking how it can do things better. I am committed to seeking new and innovative ways to improve the management of HCFA and all our programs at HHS. But we must also recognize that we do a disservice to all who rely on this Department if we do not provide the resources necessary to effectively administer our programs. In preparing our budget, we began the process of evaluating the programs and business practices of this Department and identifying the areas where we can do a better job of managing taxpayer resources, as well as those areas where new investments are required if we are to successfully administer our operations.

HCFA Management Reform

One of the most important management reforms we will pursue is the improvement of the Health Care Financing Administration (HCFA). We have all heard the complaints by patients, providers, and States about the scope and complexity of the regulations and paperwork that govern the Medicare, Medicaid, and State Children's Health Insurance programs. And, in many cases, these complaints are valid.. But in its defense, HCFA has been tasked with implementing several pieces of major legislation and its responsibilities have grown more complex with each new major health care law or budget reconciliation.

Concerns about HCFA's management capabilities have been raised in several General Accounting Office reports, including the High Risk Series: An Update (January 2001) and Financial Management: Billion in Improper Payments Continue to Require Attention (October 2000). HCFA management reform is an Administration priority. HCFA will undertake a major effort to modernize and streamline its operations to effectively manage current programs and implement new legislation. In particular, HCFA's role in a modernized Medicare program needs to be carefully considered. This may require substantial changes in HCFA's mission and structure. My goal is to assure that HCFA's resources are focused as effectively as possible on improving quality and limiting costs for Medicare beneficiaries, limiting burdens for providers, and increasing efficiency for taxpayers.

The budget proposes an increase of $109 million, or 5 percent, for HCFA program management. Included in this budget is a $53 million, increase of $36 million over this year, to support the development of the HCFA Integrated General Ledger Accounting System (HIGLAS). HCFA currently relies on several financial management systems to account for the hundreds of billions of dollars spent on Medicare benefits, and most contractors do not use double entry accounting methods or claims processing systems with general ledger capabilities. This system requires financial statements to be imputted manually, increasing the risk of administrative and operational errors and misstatements. The new system will provide a uniform Medicare accounting system that will help HCFA detect and collect money owed to the Medicare Trust Funds, retain a clean opinion on financial statements without more expensive, alternative efforts, and comply with financial management statutory requirements.

Contracting Reform

I am also committed to reforming HCFA's antiquated and inefficient contracting system. We are considering a number of options in this area including: allowing carriers who are not health insurance organizations to become Medicare contractors; allowing the Secretary (as opposed to the Part A provider) to contract for and assign fiscal intermediaries to perform claims processing, claims payment, communications, audit functions, renewing contracts, and transferring functions; and replacing current special provisions for terminating contracts with more standard terms and conditions embodied in the Federal Acquisition Regulation (FAR). In addition, I am including in the budget $115 million in new proposed user fees for duplicate and paper claims processing. We will work hard to enact these fees, which will help to improve the efficiency and lower the cost of processing Medicare claims.

Revitalizing Laboratories and Scientific Facilities

There are other investments that are just as important as HCFA reforms. For example, it is critical that we invest in the modernization of our laboratories and scientific facilities, for obsolete facilities affect our scientific readiness and compromise our ability to retain the top scientists. Our budget includes funds to continue the revitalization of key facilities at the Centers for Disease Control and Prevention and the National Institutes of Health. We are requesting $150 million for buildings and facilities at the Centers for Disease Control and Prevention, which will support construction of a laboratory facility dedicated to handling the most highly infectious pathogens, such as Ebola, and construction of an Environmental Toxicology Lab. The budget also requests $307 million for intramural buildings and facilities at the National Institutes of Health to support projects such as the construction of the John Edward Porter Neuroscience Research Center and a centralized, multi-level animal facility.

Enhancing Coordination and Reducing Duplication of Operating Systems

The only way that this Department can effectively serve its many clients is if we commit to making the necessary investments in our management and infrastructure. One of the challenges in a large, decentralized Department such as HHS is finding ways to bring together diverse activities and to develop coordinated systems for managing our programs. Our budget provides the resources necessary to begin the process of streamlining our financial management and information technology systems so that we can enhance coordination across the Department and eliminate unnecessary and duplicate systems.

For financial management, we propose to invest $92.5 million, an increase of $50 million over this year, to move toward a unified financial accounting system, including funding for HCFA's accounting system. The Office of Inspector General has cited problems with the Department's current system structure, which involves five separate accounting systems operated by multiple agencies. We plan to replace these antiquated systems with unified financial management systems that will increase standardization, reduce security risks, allow HHS to produce timely and reliable financial information needed for management decision-making, and provide accountability to our external customers.

In the information technology arena, we are proposing $30 million for a new Information Technology Security and Innovation fund. Currently, the Department's information technology systems are highly decentralized, heterogeneous, and vulnerable to exploitation. Funds would be used to implement an Enterprise Infrastructure Management approach across the Department that would minimize our vulnerabilities and maximize our cost savings and ability to share information. With this approach, we will be able to reduce duplication of equipment and services and be better able to secure our systems against viruses and network intrusion.

As the largest grant-making agency in the Federal Government, this Department will also continue to play a lead role in the government-wide effort to streamline, simplify, and provide electronic options for the grants management processes. As part of the Federal Grant Streamlining Program, we will work with our colleagues across the government to identify unnecessary redundancies and duplication in the more than 600 Federal grant programs and to implement electronic options for all grant recipients who would prefer to apply for, receive, and close out their Federal grant electronically.

Redirecting Resources and Enhancing Flexibility

Being a wise steward of taxpayer resources means not only recognizing where you need to invest but also where resources can be redeployed to more effective uses. In preparing our budget, we carefully reviewed each agency, identified areas where funding could be redirected, and made targeted reductions in selected programs. The FY 2002 budget eliminates $475 million in earmarked projects and $155 million in funding for activities that were funded for the first time in FY 2001. The one-time nature of most of these projects did not necessitate their continuation in FY 2002 allowing the Department to redirect the associated funding to higher priority investments described in this testimony while moderating the overall growth of the HHS budget. In addition, the budget shifts $597 million from programs that are duplicative, or whose goals are better met through other avenues, to higher priority activities. And, to assist in financing other high priority activities, the budget expands the use of Public Health Service Evaluation funds. These decisions helped to meet our goal of moderating the large increases in discretionary spending that have occurred over the last few years and putting the budget on a more sustainable growth path for the future.

This Administration is also committed to giving States greater flexibility to manage public health grant programs. Our budget proposes to give States expanded authority to transfer funds among public health grants, thereby enabling them to make more efficient and effective use of Federal resources and to target and reallocate funds to public health priorities identified at the State and local levels.

In addition to giving the States greater flexibility, I am seeking to increase my transfer authority from one percent to six percent, and to eliminate the restriction that the transfer may not increase an appropriation by more than three percent, and to make it Department-wide. I believe this transfer authority is a valuable tool for managing the Department's resources and will allow me to respond to emergency needs or unforeseen events that would otherwise adversely effect a program or agency.

Continuously Evaluating and Improving Program Performance

The Government Performance and Results Act serves as an important tool for making sure that this Department is not only doing the right things but that we are doing them well. As in previous years, our budget request is accompanied by the annual performance plans and reports. The performance measures and targets in these reports touch nearly every aspect of the Department's multi-faceted mission and detail a number of notable achievements, including:

  • HCFA met its FY 2000 target of reducing the Medicare error rate to 7 percent. Auditors estimated improper payments at $11.9 billion, compared with $13.5 billion in FY 1999. The error rate has fallen to roughly half of what its was in FY 1996, and HCFA is pursuing increasingly rigorous goals for FY 2001 and FY 2002.
  • CDC reported a reduction of perinatal Group B streptococcal disease - the most common cause of severe infections in newborns - by 70 percent from 1995 to 1999, exceeding the goal.

GPRA has been and will continue to be an important part of our effort to improve the management and performance of our programs.


Expanding Community Health Centers

Our budget also proposes steps to strengthen the health care safety net for those most in need. Community Health Centers provide high quality, community based care to approximately 11 million patients, 4.4 million of whom are uninsured, through a network of over 3,000 centers in rural and urban areas. The President has proposed to expand and increase the number of health center sites by 1,200 by FY 2006, and to double the number of individuals without alternative coverage who are served by the centers. As a first installment of this multi-year initiative, we propose to increase funding for Community Health Centers by $124 million. We will also be looking at ways to reform the National Health Service Corps so as to better target placement of providers in areas experiencing the greatest shortages of health professionals.

The Administration believes we should increase our investment in proven programs - like the Community Health Centers - and provide communities with increased flexibility through the President's Healthy Communities Innovation Fund, which allows communities to address health care access challenges in innovative ways using existing resources.

Increasing Access to Drug Treatment

The problems caused by substance abuse affect not only the physical and mental condition of the individual, but also the well-being of society as a whole. Nationwide, approximately 2.9 million people with serious substance abuse problems are not receiving the treatment they desperately need. To help close this treatment gap, we propose to increase funding for substance abuse treatment by $100 million. Of these funds, $60 million will be used to increase the Substance Abuse Block Grant, the primary vehicle for funding State substance abuse efforts, and $40 million will go to increase the number of Targeted Capacity Expansion grants, which seek to address the treatment gap by supporting strategic and rapid responses to emerging areas of need, including grants to organizations that provide residential treatment to teenagers.

Organ Donation

Our budget supports an initiative very close to my heart. Approximately 75,000 patients are awaiting organ transplants, far above the number of available donors. In fact, organ transplants in 2000 totaled 22,827, an increase of 1,172 over the 21,655 transplants that occurred in 1999. The number of living donors rose from 4,747 in 1999 to 5,532 in 2000, an increase of 16.5 percent, the largest one-year jump ever recorded. While I am encouraged by the progress that has been made in the last year, there is still a very long way to go. To tackle this problem, I launched a new national initiative, on April 17th, to encourage and enable Americans to "Donate the Gift of Life". I am beginning a national "Workplace Partnership for Life", in which employers, unions and other employee organizations can join in a nationwide network to promote donation. I released a model organ and tissue donor card, incorporating proven elements from today's donor cards and have ordered an immediate review of the potential of organ and tissue registries where donors' wishes could be recorded electronically and made available to families and hospitals when needed. I have also made a pledge to create a national medal to honor the families of organ donors and will create a model curriculum on donation for use in driver education courses, to be offered to states and counties nationwide. And, let me tell you, this is just the beginning. I intend to do everything I can to increase organ donation throughout America and to create the most comprehensive effort ever in our nation regarding donation and transplantation.

Patient Safety and Health Care Quality

The Agency for Healthcare Research and Quality (AHRQ) is the Federal agency with primary responsibility for research on the Nation's health care system and is HHS's lead agency for improving patient safety and the quality of everyday health care. The FY 2002 budget provides a total program level of $306 million for AHRQ, an increase of $36 million or 13.5% over FY 2001.

AHRQ will devote a total of $53 million to identify ways to reduce the incidence of medical errors. These funds will support activities to research the causes of medical errors, develop and test new technologies to reduce medical errors, test reporting strategies, and improve training. Earlier this week, I announced the establishment of a new Patient Safety Task Force within the department in which AHRQ will collaborate with FDA, CDC, and HCFA to improve existing reporting systems on patient safety. AHRQ will lead this effort to identify the type of data health care providers, states and others need to improve the safety of health care services.

Our request includes a $26 million increase for research on health care quality and cost-effectiveness. Like you and many others, we are reviewing the recent recommendations by the Institute of Medicine for research to improve the quality of health care. Once that review is complete, I expect that an appropriate portion of these resources will be directed toward the recommendations that we conclude should be given the highest priority. I also expect the findings of this an other research on patient safety, which has emphasized the importance of encouraging and rewarding the development of health care systems that encourage safer and higher-quality care, to guide our efforts to improve Medicare, Medicaid, and other government health programs.


Knowing of this Committee's concern for patient privacy protections, I wanted to close by commenting on the recent decision two weeks ago by President Bush to immediately put into effect strong patient privacy protections. President Bush and I strongly believe that we must protect both vital health care services and the right of every American to have confidence that his or her personal medical records will remain private. In response, we allowed the patient privacy rule to take effect on April 14, 2001. As you know, under the HIPAA law, affected parties have two years to comply with the new regulation, until April 14, 2003. While I understand that some members of this committee continue to have concerns and differing opinions as to the best way to protect privacy, our citizens must not wait any longer for protection of the most personal of all information - their health records.

Over the past two months the Department of Health and Human Services received and reviewed more than 11,000 written comments, with 24,000 signatures, on the health information privacy rule. In addition, we met with a diverse group of lawmakers, interest groups and health care leaders to listen to their concerns regarding this regulation.

We will consider concerns expressed by all commenters as we move to develop guidelines to clarify certain points of confusion about the rule, and will issue our first guidance for affected organizations next month. Furthermore, we will work with consumer and industry groups to develop additional guidance in the future. We are also considering where modifications to the rule may be needed to ensure that quality of care does not suffer inadvertently from these new rules.

The focus of our guidance and modifications will be to clarify that doctors and other providers continue to have access to the medical information they need to provide timely, high-quality care to their patients. Patient care will not be unduly hampered by confusing requirements surrounding consent forms. And, parents will have access to information about the health and well-being of their children. We will ensure that this patient privacy rule delivers strong and long overdue protections for patient privacy while maintaining the high quality of care we expect in this great nation.


Mr. Chairman, I want to thank you for the opportunity to testify before you today on the many different proposals that constitute the Department of Health and Human Services budget for FY 2002. The common thread that binds them all together is the desire to build a strong and healthy America and to improve the lives of the American people. Our proposals, from modernizing Medicare and expanding access to care to enhancing scientific research are presented with these simple goals in mind. I know we share these goals and I look forward to working with you on these important issues. I would be happy to address any questions you may have.

Last revised: May 30, 2001