Statement by
Tommy G. Thompson
Department of Health and Human Services

HHS FY 2005 Budget
before the
The U.S. House of Representatives
Committee on Energy and Commerce

March 10, 2004

Good morning, Mr. Chairman and members of the Committee. I am pleased to present to you the President's FY 2005 budget for the Department of Health and Human Services (HHS). I am confident you will find our budget to be an equitable proposal to improve the health and well-being of our Nation's citizens.

This year's budget proposal builds upon HHS accomplishments in meeting several of the health and safety goals established at the beginning of the current Administration. Last year, Congress passed the comprehensive Medicare reform legislation, adding prescription drug coverage for seniors and modernizing the Medicare program.

  • Since 2001, with the support of Congress, the Administration has funded 614 new and expanded health centers that target low-income individuals, effectively increasing access to health care for an additional three (3) million people, a 29 percent increase.

  • The Department established the Access to Recovery State Vouchers program, providing 50,000 individuals with needed treatment and recovery services.

  • To support the President's faith-based initiative, HHS has created the Compassion Capital Fund for public/private partnerships to support charitable groups in expanding model social services programs. We awarded 81 new and continuing grants in 2003.

  • HHS initiated a new Mentoring Children of Prisoners program to provide one-to-one mentoring for over 30,000 children with an incarcerated parent in FY 2004. The Department also created education and training vouchers for foster care youth, providing $5,000 vouchers to 17,400 eligible youth.

  • In August 2001, the President and I invited States to participate in the Health Insurance Flexibility and Accountability (HIFA) demonstration initiative. States use HIFA demonstrations to expand health care coverage. As of January 2004, HIFA demonstrations had expanded coverage to 175,000 people, and another 646,000 were approved for enrollment.

I could go on listing our achievements to you and the Committee, Mr. Chairman, but instead I have chosen to highlight a few that we are most proud of.

For FY 2005, the President proposes an HHS budget of $580 billion in outlays to enable the Department to continue working with our State and local government partners, as well as with the private and volunteer sectors, to ensure the health, well-being, and safety of our Nation. Through the programs and services presented in the budget plan of HHS, Americans will receive new health benefits and services, be better protected from the threat of bioterrorism, benefit from enhanced disease detection and prevention, have greater access to health care, and will see improved social services through the work of faith- and community-based organizations and a focus on healthy family development. This proposal is a $32 billion increase in outlays over the comparable FY 2004 budget, or an increase of about 5.9 percent. The discretionary programs in the HHS budget total $67 billion in budget authority, a 1.2 percent increase. In addition, the budget identifies approximately $500 million in mandatory program savings.

Allow me to draw your attention to several key factors of the HHS budget so that we may continue to work together to address the needs of our Nation.

Medicare and Medicaid Reform/Modernization

I am proud to remind the Committee of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which President Bush signed into law December 8, 2003. With the implementation of MMA, the Department faces many challenges in the coming fiscal year. As the most significant reform of Medicare since its inception in 1965, the law expands health plan choices for beneficiaries and adds a prescription drug benefit. MMA will strengthen and improve the Medicare program, while providing beneficiaries with new benefits and the option of retaining their traditional coverage. The HHS FY 2005 budget request includes about $482 billion in net outlays to finance Medicare, Medicaid, the State's Children's Health Insurance Program, the Health Care Fraud and Abuse Control Program, state insurance enforcement, and the Agency's operating costs.

Drug Discount Card

MMA establishes a new, exciting Medicare approved prescription drug discount card program, providing immediate relief to those beneficiaries who have been burdened by their drug costs. From June 2004 through 2005, all Medicare beneficiaries, except those with Medicaid drug coverage, will have the choice of enrolling in a Medicare-endorsed drug discount card program. With the discount card, beneficiaries will save an estimated 10 to 15 percent off the retail cost of their drugs. For some, savings may reach up to 25 percent on individual prescriptions. A typical senior with $1,285 in yearly drug expenses could save as much as $300 annually. To enroll, beneficiaries will pay no more than $30 annually. Most with low incomes - below 135 percent of the Federal poverty level - will qualify for a $600 per year subsidy to purchase drugs unless they have health insurance that includes drug coverage. Medicare also will cover the enrollment fees for low-income seniors who are eligible for the $600 subsidy.

Voluntary Prescription Drug Benefit

Responding to President Bush's pledge to add meaningful drug coverage to Medicare, MMA establishes a new voluntary prescription drug benefit under a new Medicare Part D. Starting in 2006, Medicare beneficiaries who are entitled to Part A, or enrolled in Part B, can choose prescription drug coverage under the new Part D. Under Part D, beneficiaries can choose to enroll in stand-alone, prescription drug plans (PDPs) or Medicare Advantage prescription drug plans (MA-PDs), and will be able to choose between at least two plans to receive their benefit. The law contains important beneficiary protections. For example, while the plans are permitted to use formularies, they must include drugs within each therapeutic category and class of covered Part D drugs, allowing beneficiaries to have a choice of drugs. In instances in which a drug is not covered, beneficiaries can appeal to have the drug included in the formulary. To reduce the number of prescribing errors that occur each year, HHS will develop an electronic prescription program for Part D covered drugs.

Medicare Advantage

MMA replaces the Medicare+Choice program with a new program called Medicare Advantage, which will operate under Part C of Medicare. In response to the increasing costs of caring for Medicare beneficiaries, the law increases payments to managed care plans by $14.2 billion over 10 years. These enhanced payments will allow private plans to provide more generous coverage, including benefits that traditional Medicare may not offer. Specifically in 2004, plans must use these funds to provide additional benefits, to lower premiums and/or cost-sharing, or to improve provider access in their network. This increased compensation will also encourage more private plans to enter the Medicare market, improving beneficiaries' overall access to care.

Starting in 2006, the new law changes how private plans will be paid. Under Medicare Advantage, local managed care plans will continue to operate on a county-by-county basis. Beginning in 2006, Medicare Advantage also will offer regional plans, which will cover both in-network and out-of-network services in a model very similar to what we in the Federal Government enjoy through the Federal Employee Health Benefits Program. There will be at least 10 regions, but no more than 50. The regional plans must use a unified deductible and offer catastrophic protection, such as capping out-of-pocket expenses.

The changes in the Medicare advantage program will provide seniors with more choices, improved benefits, and provide beneficiaries a choice for integrated care - combining medical and prescription drug coverage. We project that 32 percent of Medicare beneficiaries will enroll in Medicare Advantage plans by 2010.

Providers and Rural Health

Recognizing geographic disparities in Medicare payments, MMA provides much needed relief to rural providers by equalizing the standardized amounts paid to both urban and rural hospitals. Along with standardizing the base payment amounts to both urban and rural hospitals, MMA reduces the labor share of the standardized payment amount. In addition, Mr. Chairman, MMA increases payments for Disproportionate Share Hospitals (DSH) and provides greater flexibility to Graduate Medical Education (GME) residencies. The new law also increases flexibility for hospitals seeking Sole Community Hospital (SCH) status and reduces the requirements for achieving Critical Access Hospital (CAH) status. Critical Access Hospital status will receive increased payments under MMA, as the payment rate will be increased to 101 percent of allowable costs.

Other providers will also see increased reimbursements under MMA. Physicians practicing in defined shortage areas will receive an additional 5 percent payment bonus. Home Health Agencies in rural areas also will receive a 5 percent bonus. In a change for rural hospice providers, more freedom will be given to utilize nurse practitioners. The law also creates an Office of Rural Health Policy Improvements and requires demonstration projects involving telehealth, frontier services, rural hospitals, and safe harbors.

Preventive Benefits

MMA expands the number of preventive benefits covered by Medicare beginning in 2005. Through a particularly important provision, an initial preventive physical examination will be offered within six months of enrollment for those beneficiaries whose Medicare Part B coverage begins January 1, 2005 or later. The examination, as appropriate, will include an electrocardiogram and education, counseling, and referral for screenings and preventive services already covered by Medicare, such as pneumococcal, influenza and hepatitis B vaccines; prostate, colorectal, breast, and cervical cancers screenings, in addition to screening for glaucoma and diabetes. Diabetes and cardiovascular screening blood tests do not have any deductible or co-payments, as Medicare pays for 100 percent of these clinical laboratory tests.

Regulatory Reform/Contracting Reform

MMA includes a number of administrative and operational reforms, as well. For example, reform provisions require the establishment of overpayment recovery plans in case of hardship; prohibit contractors from using extrapolation to determine overpayment amounts except under specific circumstances; describe the rights of providers when under audit by Medicare contractors; require the establishment of standard methodology to use when selecting a probe sample of claims for review; and prohibit a supplier or provider from paying a penalty resulting from adherence to guidelines. In addition, MMA allows physicians to reassign payment for Medicare services to entities with which the physicians have an independent contractor arrangement. Under the new law, final regulations are to be published within three years of enactment.

Also under the law, as Secretary, I will be permitted to introduce greater competitiveness and flexibility to the Medicare contracting process by removing the distinction between Part A and Part B contractors, allowing the renewal of contracts annually for up to five years, limiting contractor liability, and providing incentive payments to improve contractor performance. These changes will enhance HHS efficiency and effectiveness in program operations.

Regarding Medicare appeals, MMA changes the process for fee-for-service Medicare by requiring the Social Security Administration and HHS to develop a plan by April 1, 2004 and implement this plan by October 1, 2005 for shifting the appeals function from SSA to HHS. MMA also changes the requirements for the presentation of evidence. This also will enhance the efficiency and effectiveness of the operation of the Medicare program.

Medicare and Medicaid Estimates

Historically, HHS and the Congressional Budget Office (CBO) have provided differing estimates of Medicare and Medicaid spending. It is not uncommon for different assumptions underlying the respective estimates to produce differences in cost projections. This year's new estimates include the changes resulting from enactment of MMA.

When Congress considered this act, Mr. Chairman, CBO estimated the cost of the bill at $395 billion from 2004 to 2013. The HHS actuaries have recently estimated the cost of the law as $534 billion from 2004 to 2013. The CBO Director has told the House and Senate Budget Committees that CBO has not changed its estimate and that they continue to believe that the cost of the bill is $395 billion. Because the Medicare legislation makes far-reaching changes to a complex entitlement program with many new private-sector elements, there is even larger uncertainty in these estimates than usual.

The two sets of estimates provide a reasonable range of possible future cost scenarios for Medicare spending. The tremendous uncertainty surrounding estimates of the newly enacted Medicare law has resulted in a plausible range of estimates of future cost scenarios for Medicare spending, from the $395 billion estimate from CBO to the $534 billion estimate from the Medicare actuaries. It should be noted that this difference of $139 billion is approximately two (2) percent of the projected $7 trillion in total Federal Medicare and Medicaid spending over the same period, as projected by HHS.

Additional MMA Changes

MMA addresses other issues facing the Medicare program including the program's long-term, financial security. The law requires the Medicare Trustees, beginning in the 2005 annual report, to assess whether Medicare's "excess general revenue Medicare funding" exceeds 45 percent. As defined in the law, excess general revenue Medicare funding is equal to Medicare's total outlays minus dedicated revenues. The Medicare Trustees shall issue a "warning" if excess general revenues Medicare funding is projected to exceed 45 percent of Medicare spending in a year within the next seven years. If the Trustees issue such a warning in two consecutive years, the law provides special legislative conditions for the consideration of proposed legislation submitted by the President to address the warning.

In addition to implementing MMA, the HHS budget request includes provisions for the State Children's Health Insurance Program, the New Freedom Initiative, and Medicaid.

State Children's Health Insurance Program (SCHIP)

As you know, Mr. Chairman, SCHIP was created with a funding mechanism that required States to spend their allotments within a three-year window, after which any unused funds would be redistributed among States that had spent all of their allotted funds. These redistributed funds would be available for one additional year, after which any unused funds would be returned to the Treasury.

On August 15, 2003, President Bush signed Public Law 108-74. The law restores $1.2 billion in FY 1998 and FY 1999 SCHIP funds, and makes them available to States until September 30, 2004. The law also extends $2.2 billion in FYs 2000 and 2001 SCHIP funds, and revises the rule for the redistribution of the unspent funds from these allotments. For FYs 2000 and 2001 allotments, the law allows States that do not spend their entire allotment within the three-year period to keep half of those respective year's unspent amounts. The other half would be redistributed to States that have spent their entire amount of the respective year's allotments. The law also extends the availability of funds from the FY 2000 allotments through September 30, 2004, and the availability of FY 2001 allotment through September 30, 2005. The law gives some relief to States that expanded their Medicaid programs to cover additional low-income children prior to the enactment of SCHIP.

New Freedom Initiative

The Administration is committed to ensuring that people with disabilities and/or long-term care needs receive the supports necessary to remain in (or return to) the community as opposed to remaining in an institutional setting. One of the Administration's priorities is relying more on home- and community-based care, rather than costly and confining institutional care, for the elderly and people with disabilities. The New Freedom Initiative signifies the President's commitment to promoting at-home and community-based care. There are several components to this initiative, Mr. Chairman, which I would like to bring to your attention.

Under the "Money Follows the Individual Re-Balancing Demonstration" States could participate in a $1.75 billion, five-year demonstration that finances services for individuals who transition from institutions to the community. Federal grant funds would pay for the home- and community-based waiver services of an individual for one year at an enhanced Federal match rate of 100 percent. As a condition of receiving the enhanced match, the participating State would agree to continue care at the regular Medicaid matching rate after the end of the one-year period and to reduce institutional long-term care spending.

The New Freedom Initiative is very important to me and to the President, and we would like to work closely with Congress to secure its passage this year. The Administration recognizes the success of consumer directed programs that give people the opportunity to manage their own long-term care, as delineated by the development of its Independence Plus Waivers. Thus, we propose allowing individuals who self-direct all of their community-based, long-term care services to accumulate savings and still retain eligibility for Medicaid and Supplemental Security Income. Under current law, beneficiaries are discouraged from accumulating savings because it could jeopardize their eligibility for Medicaid and SSI. Under the Living with Independence, Freedom, and Equality (LIFE) Accounts Program, individuals who self-direct all of their Medicaid, community-based, long term supports will be able to retain up to 50 percent of savings from their self-directed Medicaid community-based service budget at year end, contribute savings from employment, and accept limited contributions from others. Ultimately, LIFE Accounts would enable individuals to save money to reach long-term goals (for example, to purchase expensive equipment or attain higher education) and to obtain greater independence.

The Administration looks forward to working with Congress to pass legislation authorizing me, as Secretary, to administer demonstrations to assist caregivers and children with serious emotional disturbances. Two demonstrations will provide respite services to caregivers of adults with disabilities and to children with severe disabilities. A third demonstration will offer home and community-based services for children currently residing in psychiatric facilities. The fourth demonstration will address shortages of community, direct-care workers by providing grants to States to identify best practices and develop models. Direct-care workers play an important role in providing care to individuals living with disabilities in the community and this demonstration should help address these workforce challenges.

Medicaid and SCHIP Modernization

This Committee is well aware that Medicaid spending continues to rise each year. Total Federal and State Medicaid spending for 2004 is projected to be $301 billion, nearly a tripling in spending over 10 years. Medicaid -- not Medicare -- is currently the largest government health program in the United States. Since Medicaid expenditures are a large and growing proportion of most State budgets, the Medicaid program is an area to which States turn to reduce costs including dropping optional Medicaid benefits or limiting optional groups from enrolling.

These concerns have fostered a dialogue between the Federal government and the States regarding ways to improve and modernize Medicaid and SCHIP. Building on this dialogue, the Administration will continue to work with Congress and other stakeholders to seek new ways to strengthen and improve the Medicaid and SCHIP programs.

In addition to structural reform, improving the fiscal integrity of the Medicaid program will continue to be a priority for the Administration and HHS. Among these efforts, the Administration proposes capping the reimbursement level to individual State and local government providers to no more than the cost of providing services to Medicaid recipients and restricting the use of certain types of intergovernmental transfers. The proposal would deem as "unallowable" certain Medicaid expenditures that result in Federal Medicaid payments returned by a government provider to the State. The proposal would not affect legitimate intergovernmental transfers that are used to help raise funds for the state share of Medicaid costs. Rather, this proposal would only apply to intergovernmental transfers that are used to recycle Medicaid payments through government providers.

Other Medicaid Legislation

Extension of the Qualified Individual (QI) Program

The Administration is committed to helping low-income seniors afford not only prescription drugs, but also health coverage through Medicare. Under current law, as authorized by MMA, Medicaid programs will pay Medicare Part B Premiums for qualifying individuals (QIs) through September 30, 2004. QIs are defined as Medicare beneficiaries with incomes of 120% to 135% of the Federal Poverty Level and minimal assets. The HHS budget would continue this premium assistance for one additional year.

Extension of Transitional Medical Assistance

As families make the transition from welfare to work, health coverage is an important component to ensure their success in contributing to, and remaining in, the work place. Transitional medical assistance (TMA) was created to provide health coverage for former welfare recipients after they entered the workforce. TMA extends up to one year of health coverage to families who lose eligibility for Medicaid due to earnings from employment. This provision will expire March 31, 2004. The Administration proposes a five-year extension of TMA with statutory modifications to simplify administration of the program for States. States would have the option to eliminate TMA reporting requirements; provide twelve months of continuous eligibility; and to request a waiver from providing the mandatory TMA program in their Medicaid program if their eligibility income level for families is set at 185 percent of the Federal Poverty Level or higher.

Partnership for long-Term Care

The budget request, Mr. Chairman, includes a proposal to eliminate the legislative prohibition on developing more partnership programs for long-term care (LTC). The partnership for LTC was formulated to explore alternatives to current LTC financing by blending public and private insurance. Four states currently have these partnerships in which private insurance is used to cover the initial cost of LTC. Consumers who purchase partnership-approved insurance policies can become eligible for Medicaid services after their private insurance is utilized, without divesting all their assets as is typically required to meet Medicaid eligibility criteria.

Refugee Exemption Extension

Under current law, most legal immigrants who entered the country on or after August 22, 1996, and some who entered prior to that date, are not eligible for SSI until they have obtained citizenship. Individuals eligible for SSI automatically are eligible for Medicaid. Refugees and asylees are currently exempted from this ban on SSI for the first seven years they reside in the United States. To ensure refugees and asylees have ample time to complete the citizenship process, the President's budget proposes extending the current seven-year exemption to eight years.

Special Enrollment Period in the Group Market for Medicaid/SCHIP Eligibles

This legislative proposal would make it easier for Medicaid and SCHIP beneficiaries to enroll in private health insurance by making eligibility for Medicaid and SCHIP a trigger for private health insurance enrollment outside of the plan's open season. This proposal will help States implement premium assistance programs in Medicaid and SCHIP.

Administration for Children and Families

I would like to congratulate the House on passing the Temporary Assistance to Needy Families (TANF) reauthorization. Building on the considerable success of welfare reform in this great Nation, the President's FY 2005 Budget maintains the framework of the Administration's welfare authorization proposal. Mr. Chairman, we are committed to working with the Congress in the coming months to ensure the legislation moves quickly and is consistent with the President's Budget

As the Committee may remember, President Bush announced in his State of the Union address an expanded initiative to educate teens and parents about the health risks associated with early sexual activity and to provide the tools needed to help teens make responsible choices. To do this, the President proposes to double funding for abstinence education activities for a total of $273 million, including a request of $186 million, an increase of $112 million, for grants to develop and implement abstinence educations programs for adolescents aged 12 through 18 in communities across the country; the reauthorization of state abstinence education grants for five years at $50 million per year as part of the welfare reform reauthorization; another $26 million for abstinence activities within the Adolescent Family Life program; and a new public awareness campaign to help parents communicate with their children about the health risks associated with early sexual activity.

Expanding Access to Health Care for Americans

One of the most important issues on which we can continue to work together, is expanding access to quality health care for all Americans. In 2001, the President launched an initiative to expand access to health care by creating 1,200 new or expanded health care sites and serving an additional 6 million people by 2006. Since the initiative inception in 2002, the Health Centers program has significantly impacted more than 600 communities, serving over 13 million patients, 3 million more than in 2001, 40 percent of whom have no health insurance coverage, and many others for whom coverage is inadequate. States also use Health Insurance Flexibility and Accountability (HIFA) demonstrations to expand health care coverage. As of January 2004, HIFA demonstrations expanded coverage to 175,000 people and another 646,000 were approved for enrollment. While we have made significant strides in this endeavor, there is still much work to be done.

In FY 2005, the President's budget request will continue to expand resources for Health Centers to a level of $1.8 billion, an increase of $219 million over FY 2004. This increase will result in increased services for an additional 1.6 million people in approximately 330 new and expanded sites. At this level, almost 15 million uninsured and underserved individuals, nearly 7 million from rural areas, will have access to comprehensive preventative and primary care services at over 3,800 health sites across the country.

Access to Recovery

Mr. Chairman, the FY 2005 budget represents the fourth year of the President's strong commitment toward leading our nation's battle against addiction. Current use of illicit drugs among students has declined by 11 percent between 2001 and 2003. However, there continues to be an unmet need for drug treatment services. The FY 2005 budget will provide 100,000 individuals with drug and alcohol treatment benefits by doubling the funding to $200 million for the Access to Recovery State Voucher Program. This initiative will allow individuals seeking clinical treatment and recovery support services to exercise choice among qualified community provider organizations, including those that are faith-based. The program's emphasis is on objective results and is measured by outcomes, including decreased or no substance use, no involvement with the criminal justice system, attainment of employment or enrollment in school, family and living conditions, and social support.

Disease Detection and Bioterrorism Preparedness

The FY 2005 request for HHS bioterrorism activities is $4.1 billion, an increase of $155 million above FY 2004, and $3.8 billion above the FY 2001 level. Funds will be redirected to carry out a new interagency bio-surveillance initiative to prepare against a potential bio-terrorist attack. The Centers for Disease Control and Prevention (CDC), in coordination with the Food and Drug Administration (FDA), the Department of Homeland Security, and the Department of Agriculture, will be working to improve the response to bioterrorism through early detection with the Bio- Surveillance Initiative. The goal of this program will be to develop new tools and procedures, which will allow us to identify potential disease outbreaks more rapidly.

We also continue our work in building the Strategic National Stockpile of drugs, vaccines and medical supplies that can be shipped anywhere in the country on short notice with a request for $400 million in FY 2005. The FY 2005 budget includes a three-year financing plan to expand our antibiotic stockpile to be able to provide post-exposure anthrax treatment from 13 million to 60 million people. In FY 2005, we have included a contingency provision that will allow us to transfer up to $70 million to the Stockpile from funds available for State and local preparedness should the added funds be needed.

Our nation's ability to detect and counter bioterrorism ultimately depends on the state of biomedical science, and the National Institutes of Health (NIH) will continue to ensure full coordination of research activities with other Federal agencies in this battle. The FY 2005 budget includes $1.74 billion for NIH biodefense research efforts, an increase of $120 million, or 7.4 %. Included with this biodefense total is $150 million to support the construction of extramural BioSafety laboratories to help develop medical protection from pathogens that could be used in bioterrorist attacks, and to create highly sophisticated laboratories that can aid federal and state authorities in the event of a public health emergency, such as a bioterror attack, or the emergence or re-emergence of a dangerous and infectious disease like SARS. Prior to FY 2002, only a few laboratories in the United States were capable of conducting research on potential bio-terrorism agents. The $150 million investment in FY 2005 will fund an additional 20 Biosafety Level 3 laboratories in locations throughout the country.

The ability to mitigate the health effects of radiation exposure in the event of the use of a limited nuclear or radiological device in a terrorist attack presents a critical challenge for which little progress has been made in the last forty years. For FY 2005, $47 million is requested in the budget for the Public Health and Social Services Emergency Fund, to be coordinated and managed by NIH. This new initiative will support targeted research activities needed to develop medical countermeasures to more rapidly and effectively treat nuclear or radiological injuries.

Influenza Vaccine

Throughout my time as Secretary, many steps have been taken to allow for improved access to vaccines for those in need and better methods to combat the spread of influenza viruses. The Medicare re-imbursement rate to physicians for the administration of the flu vaccine increased from $3.98 per dose in CY 2002, to $7.72 in CY 2003, an increase of +94 percent. In each of FY 2004 and FY2005, $40 million will be used for creating a stockpile of children's influenza vaccine to ensure this past year's shortages do not reoccur. While these previous measures have improved access to vaccines, we must also look toward future improvements. In an effort to further develop the capacity to respond swiftly to pandemic flu, the FY 2005 budget doubles our investment in pandemic flu preparedness to $100 million.

Childhood Vaccines

A significant goal toward improving the health of the nation is ensuring that at least 90 percent of all two-year olds receive the full series of vaccines to help meet their basic health needs. In an effort to improve immunization rates across the nation, the FY 2005 budget requests $1.9 billion for childhood immunization.

The Budget includes two legislative proposals in Vaccines for Children that I believe should be strongly supported by the members of this Committee. This legislation would enable any child who is entitled to receive vaccines under the Vaccines for Children (VFC) program 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 Community Health Centers and other Federally Qualified Health Centers. In the past, when these children went to a State or local public health clinic, they received vaccines financed through discretionary appropriations to the CDC. However, 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. The most recent information indicates that 19 States are limiting access to this important vaccine; this legislation would help solve this access problem.

Legislation is also needed to restore tetanus and diphtheria vaccines to the VFC program. The VFC authorization caps prices at such a low level that no manufacturer will bid on a VFC contract. As a result, the vaccines that are provided to VFC program children through the public health system have to be financed with scarce discretionary resources.

CDC will continue to build a six-month, vendor-managed stockpile of all routinely recommended childhood vaccines. Between FY 2004 and FY 2006, CDC plans to invest an additional $583 million to meet the target quantities needed for a six-month stockpile. Vaccines from the stockpile can be distributed in the event of a disease outbreak and will mitigate the effect of any potential manufacturing supply disruption.

Completion of the Doubling of NIH

Building on the momentum generated by the fulfillment of the President's commitment to complete the five-year doubling of the NIH budget, the FY 2005 request provides $28.8 billion for NIH. This is an increase of $764 million, or 2.7 percent, over the FY 2004 level. In FY 2005, over $24 billion of the funds requested for NIH will flow out to the extramural community, which supports work by more than 212,000 research personnel affiliated with 2,000 university, hospital, and other research facilities across our great nation. These funds will support a record total of nearly 40,000 research project grants in FY 2005, including an estimated 10,393 new and competing awards.

NIH remains the world's largest and most distinguished organization dedicated to maintaining and improving health through the use of medical science. Major advances in scientific knowledge, including the sequencing of the human genome, are opening dramatic new opportunities for biomedical research and providing the foundation for un-imagined results in preventing, treating, and curing disease and disability. Investment in biomedical research by NIH has driven these advances in health care and the quality of life for all Americans, and the FY 2005 budget request seeks to capitalize on the resulting opportunities to improve the health of the nation. In an effort to target research gaps and opportunities that no single NIH institute could solve alone, The FY 2005 budget allocates $237 million for the Roadmap for Medical Research initiative, an increase of $109 million or 85 percent over FY 2004. This initiative is set up in three core themes of establishing new pathways to discovery, inventing the research teams of the future, and re-engineering the clinical research enterprise.

Prevention Initiatives

More than 1.7 million Americans die of chronic diseases - such as heart disease, cancer, and diabetes - each year, accounting for 79 percent of all U.S. deaths. Although chronic diseases are among the most common and costly health problems, they are also among the most preventable. The budget includes $915 million for Chronic Disease Prevention and Health Promotion, an increase of $62 million.

The FY 2005 budget includes $125 million, an increase of $81 million, for the Steps To A Healthier US Initiative. This increase will fund the State and community grant program initiated this past September to reduce the prevalence of diabetes, obesity, and asthma-related complications, targeting those at high risk. Last year these funds reached 23 communities including seven large cities, one Tribal consortium, and 15 smaller cities and rural areas, and more areas will benefit during the upcoming year. Also a total of $10 million will be used to expand the Diabetes Detection Initiative, which targets at-risk populations. The aim of this initiative is to reach these populations where they live, work, and play through a customized, tailored approach with the aim of identifying undiagnosed diabetes.

The FY 2005 budget request for the National Breast and Cervical Cancer Early Detection Program (NBCCEDP) is $220 million, an increase of $10 million over FY 2004. NBCCEDP has helped to increase mammography use by women aged 50 and older by 18 percent since the program's inception in 1991. NBCCEDP targets low-income women with little or no health insurance and has helped to reduce disparities in screening for women from racial and ethnic minorities. With the requested increase, the NBCCEDP will provide an additional 32,000 diagnostic and screening services to women who are hard-to-reach and have never been screened for these cancers.

Mental Health Treatment

In meeting the President's goal of transforming the mental health system and increasing access to mental health services for some of our most vulnerable citizens, the FY 2005 budget includes $913 million for mental health services, a increase of $51 million over FY 2004, or +6 percent. As an important step in reshaping this delivery system, the budget proposes $44 million for State Incentive Grants for Transformation. These new grants will support the development of comprehensive State mental health plans to reduce system fragmentation and increase the level of services available to people living with mental illness.

Recent studies have found that 20 percent of individuals experiencing chronic homelessness also have a serious mental illness. This request proposes $10 million for the Samaritan Initiative, an Administration-wide initiative to reduce chronic homelessness, jointly administered with the Departments of Housing and Urban Development and Veterans Affairs. Through this initiative, States and localities will develop processes to better enable access to the full range of services that chronically homeless people need, including housing, outreach, and support services such as mental health services, substance abuse treatment, and primary health care.

Fighting HIV / AIDS

HIV is one of the most serious and destructive challenges facing humanity in our world today. No country, whether large or small, rich or poor, can escape the devastation it brings. All have citizens whose lives have been destroyed by this horrible disease, and our commitment to ending this pandemic is both strong and unwavering. No nation in history has ever committed the time, energy, and fiscal resources that the United States has invested in this effort. The FY 2005 HHS total budget will continue this emphasis with the request for HIV/AIDS funding of $15 billion, a 31 percent increase over FY 2001 for both domestic and global HIV/AIDS prevention, care, treatment and research activities.

Specifically, the FY 2005 budget includes $784 million for States to purchase medications for persons living with HIV/AIDS. At this level, monthly AIDS Drug Assistance Programs will increase from 93,800 clients in FY 2004 to 100,000 clients in FY 2005. Also included is $53 million for the HIV/AIDS in Minority Communities activities funded under my office, which reflects the first time the budget proposes an increase, to support innovative approaches to HIV/AIDS prevention and treatment in minority communities.

Food and Drug Administration

The FY 2005 request for the Food and Drug Administration (FDA) is $1.8 billion. Within this total, there are program increases of $179 million, partially offset by $30 million in management and other savings. The FY 2005 budget requests significant increases to ensure the safety and protection of our food supply; and accelerate the availability of new, safe and effective drugs and medical technologies, including biodefense medical countermeasures.

FDA has already dramatically expanded its work to prevent intentionally contaminated foods from entering the U.S. The budget requests a $65 million major expansion for a total of $181 million dedicated to FDA's efforts to protect Americans from risks of deliberate food contamination. The FY 2005 budget takes the next step, making the investments needed to accelerate Federal and State ability to detect contamination. FDA will work with the USDA Food Safety Investigation Service to substantially expand the laboratory capacity of their State partners, and will work to find faster and better tests to detect contamination, including ones that could be used on-site at ports, processing plants, and other food facilities.

Over the past three years, FDA has bolstered the nation's food defense through increase in port security, food import inspections, and additional food security personnel. Specifically, the Agency hired more that 655 additional food security personnel, and as a result, achieved a five?fold increase in field import examinations between FY 2001 and FY 2003.

The Animal Drugs and Feeds program protects the health and safety of all food producing, companion, or other non-food animals; and, assures that food from animals is safe for human consumption. This program is responsible for ensuring the availability of safe effective veterinary drugs and has a role in the prevention of Bovine Spongiform Encephalopathy (BSE) or "Mad Cow Disease" from being transmitted through animal feeds. The FY 2005 budget requests $30 million, an $8 million increase, to expand efforts to prevent BSE or "Mad Cow Disease." FDA will intensify its efforts to keep forbidden animal proteins out of cattle feed.

The budget seeks a $26 million increase in budget authority for FDA's Medical Devices program to ensure medical technologies are safe, effective, and available to Americans as quickly as possible. The requested increase is consistent with the intent of the Medical Devices User Fee and Modernization Act (MDUFMA) and meets the agreement communicated in an October 29th letter from OMB to the Congressional leadership. The increase will support the necessary investments, including hiring 50 FTE, to accomplish review goals that become increasingly aggressive through FY 2007. In FY 2005, FDA expects to meet goals related to the review of applications for improvements to existing devices and certain new devices that manufacturers claim are as safe and effective as ones currently in the marketplace. FDA will review 75% of applications for each of these application types within 180 and 90 days respectively. This percentage of applications reviewed will become more challenging each year through FY 2007. For breakthrough technologies and other new, innovative devices, ambitious review goals take effect in FY 2006, and in FY 2007 when decisions will be made on 90 percent of applications within 320 days. FDA has committed to meeting these performance goals - the original goals agreed upon in MDUFMA, as stated in the October 29th letter. Also, the Administration is willing to request similar funding levels in FY 2006 and FY 2007 and ensure the user fee program continues beyond FY 2005 by working with Congress to modify MDUFMA to preclude the requirement that funding amounts below the FY 2003 and FY 2004 intended levels must be made up in FY 2005.

Our budget also includes $499 million, an increase of $23 million for the Human Drugs program, and $173 million, an increase of $4 million in Biologics. Of the total spending on these activities, $253 million will be from industry specific user fees. These funds will ensure the safety and efficacy of new and existing human drugs and biologics - helping to make medicines safer, more affordable, and more available.

Management Improvements

Finally, I would like to update the Committee on the Department's efforts to use our resources in the most efficient manner. To this end, HHS remains committed to setting measurable performance goals for all HHS programs and holding managers accountable for achieving results. I am pleased to report that HHS is making steady progress. We have made strides to streamline and make performance reporting more relevant to decision makers and citizens. As a result, the Department is better able to use performance results to manage and to improve programs. By raising our standards of success, we improve our efficiency and increase our capability to improve the health of every American citizen.

Improving the Health, Safety, and Well-being of Our Nation

Mr. Chairman and members of the Committee, the budget I bring before you contains many different elements of a single proposal. The common thread running through these policies is the desire to improve the lives of the American people. Our FY 2005 HHS budget proposal builds upon our past successes to improve the Nation's health; to focus on improved health outcomes for those most in need; to promote the economic and social well-being of children, youth, families, and communities; and to protect us against biologic and other threats through preparedness at both the domestic and global levels. It is with the single, simple goal of ensuring a safe and healthy America that I have presented the President's FY 2005 budget today. I know this is a goal we all share, and with your support, we at the Department of Health and Human Services are committed to achieving it.

Last Revised: March 19, 2004