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March 13, 2002

Good Morning Mr. Chairman and members of the Sub-Committee. I am honored to appear before you today to discuss the President’s FY 2003 budget for the Department of Health and Human Services. I am confident that a review of the full details of our budget will demonstrate that we are proposing a balanced and responsible approach to ensuring a safe and healthy America.

The budget I present to you today fulfills the promises the President has made and proposes creative and innovative solutions for meeting the challenges that now face our nation. Since the September 11th attacks we have dedicated much of our efforts to ensuring that the nation is safe. HHS was one of the first agencies to respond to the September 11th attacks on New York City, and began deploying medical assistance and support within hours of the attacks. Our swift response and the overwhelming task of providing needed health related assistance made us even more aware that there is always room for improvement. The FY 2003 budget for the Department of Health and Human Services builds on President Bush’s commitment to ensure the health and safety of our nation.

The FY 2003 budget places increased emphasis on protecting our nation’s citizens and ensuring safe, reliable health care for all Americans. The HHS budget also promotes scientific research, builds on our success in welfare reform, and provides support for childhood development while delivering a responsible approach for managing HHS resources. Our budget plan confronts both the challenges of today and tomorrow while protecting and supporting the well being of all Americans.

Mr. Chairman, the HHS budget request for FY 2003 totals $488.8 billion in outlays, an increase of $29.2 billion or +6.3 percent over the comparable FY 2002 budget. The discretionary component totals $64.0 billion in budget authority, an increase of $2.4 billion , or +3.9 percent over FY 2002. Let me now discuss some of the highlights of the HHS budget and how we hope to achieve our goals.


Mr. Chairman, as you know, the Department of Health and Human Services is the lead federal agency in countering bioterrorism. In cooperation with the States, we are responsible for preparing for, and responding to, the medical and public health needs of this nation. The FY 2003 budget for HHS bioterrorism efforts is $4.3 billion, an increase of $1.3 billion, or 45 percent, above FY 2002. This budget supports a variety of activities to prevent, identify, and respond to incidents of bioterrorism. These activities are administered through the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH), the Office of Emergency Preparedness (OEP), the Substance Abuse and Mental Health Services Administration (SAMHSA), the Health Resources and Services Administration (HRSA) and the Food and Drug Administration (FDA). These efforts will be directed by the newly established Office of Public Health Preparedness (OPHP).

On January 31, 2002, HHS announced plans for making $1.1 billion available to States. This funding is available for hospital preparedness, laboratory capacity, epidemiology, and emergency medical response. Approximately 20 percent of this total either has already been provided (or will be provided within the next few weeks) for immediate expenditure to all eligible entities in base awards that will be used to establish core programs and address current needs for bioterrorism preparedness. The remaining 80 percent will be made available for expenditure once the Secretary has approved the States’ work plans for their awarded funds. States will submit plans which will be reviewed by the HHS staff to ensure that funding is used wisely for bioterrorism efforts.

In order to create a blanket of preparedness against bioterrorism, the FY 2003 budget provides funding to State and local organizations to improve laboratory capacity, enhance epidemiological expertise in the identification and control of diseases caused by bioterrorism, provide for better electronic communication and distance learning, and support a newly expanded focus on cooperative training between public health agencies and local hospitals.

Funding for the Laboratory Response Network enhances a system of over 80 public health labs specifically developed for identifying pathogens that could be used for bioterrorism. Funding will also support the Health Alert Network, CDC's electronic communications system that will link local public health departments in covering at least ninety percent of our nations’ population. Funding will be used to support epidemiological response and outbreak control, which includes funding for the training of public health and hospital staff. This increased focus on local and state preparedness serves to provide funding where it best serves the interests of the nation.

An important part on the war against terrorism is the need to develop vaccines and maintain a National Pharmaceutical Stockpile. The National Pharmaceutical Stockpile is purchasing enough antibiotics to be able to treat up to 20 million individuals in a year for exposure to anthrax and other agents by the end of 2002. The Department is purchasing sufficient smallpox vaccines for all Americans. The FY 2003 budget proposes $650 million for the National Pharmaceutical Stockpile and costs related to stockpiling of smallpox vaccines, and next-generation anthrax vaccines currently under development.

Another important aspect of preparedness is the response capacity of our nation’s hospitals. Our FY 2003 budget provides $518 million for hospital preparedness and infrastructure to enhance biological and chemical preparedness plans focused on hospitals. The FY 2003 budget will provide funding to upgrade the capacity of hospitals, outpatient facilities, emergency medical services systems and poison control centers to care for victims of bioterrorism. In addition, CDC will provide support for a series of exercises to train public health and hospital workers to work together to treat and control bioterrorist outbreaks.

The FY 2003 budget also includes $184 million to construct, repair and secure facilities at the CDC. Priorities include the construction of an infectious disease/bioterrorism laboratory in Fort Collins, Colorado, and the completion of a second infectious disease laboratory, an environmental laboratory, and a communication and training facility in Atlanta. This funding will enable the CDC to handle the most highly infectious and lethal pathogens, including potential agents of bioterrorism. Within the funds requested, $12 million will be used to equip the Environmental Toxicology Lab, which provides core lab space for testing environmental samples for chemical terrorism. Funding will also be allocated to the ongoing maintenance of existing laboratories and support structures.

The FY 2003 budget also includes $60 million for the development of new Educational Incentives for Curriculum Development and Training Program. The goals of this program will be the development of a health care workforce capable of recognizing indications of a bioterrorist event in their patients, that possesses the knowledge and skills to best treat their patients, and that has the competencies to rapidly and effectively inform the public health system of such an event at the community, State and national level.


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. Much of this can be attributed to the groundbreaking work carried on by, and funded by, the National Institutes of Health (NIH). Our FY 2003 budget enhances support for a wide array of scientific research, while emphasizing and supporting research needed for the war against bioterrorism.

NIH is the largest and most distinguished biomedical research organization in the world. The research that is conducted and supported by the NIH offers the promise of breakthroughs in preventing and treating a number of diseases and contributes to fighting the war against bioterrorism. The FY 2003 budget includes the final installment of $3.9 billion needed to achieve the doubling of the NIH budget. The budget includes $1.75 billion for bioterrorism research, including genomic sequencing of dangerous pathogens, development of zebra chip technology, development and procurement of an improved anthrax vaccine, and laboratory and research facilities construction and upgrades related to bioterrorism. With the commitment to bioterrorism research comes our expectation of substantial positive spin-offs for other diseases. Advancing knowledge in the arena of diagnostics, therapeutics and vaccines in general should have enormous impact on the ability to diagnose, treat, and prevent major killers-diseases such as malaria, TB, HIV/AIDS, West Nile fever, and influenza.

The FY 2003 budget also provides $5.5 billion for research on cancer throughout all of NIH. Currently, one of every two men and one of every three women in the United States will develop some type of cancer over the course of their lives. New research indicates that cancer is actually more than 200 diseases, all of which require different treatment protocols. Promising cancer research is leading to major breakthroughs in treating and curing various forms of cancer. Our budget continues to expand support for these research endeavors. The FY 2003 budget also includes a total of $2.8 billion for HIV/AIDS-related research. NIH continues to focus on prevention research, therapeutic research to treat those already infected, international research, and research targeting the disproportionate impact of AIDS on minority populations in the United States.


As a result of our investment in biomedical research through the NIH, new breakthrough drugs and medical treatments will be discovered to treat and cure serious diseases afflicting millions of Americans. A major mission for the Food and Drug Administration is to determine which of these therapies are safe and effective and to get these on the market quickly. The Prescription Drug User Fee Program known as PDUFA, enacted by Congress in 1992, has been enormously successful in speeding up drug approval times. This program is due for reauthorization this year and is one of the top priorities of the Administration. I commend you, Mr. Chairman, and the Members of this Committee, for your leadership in this area and we appreciate your bipartisan commitment to act quickly to reauthorize this key program during this fiscal year and to ensure that enactment of this legislation is not put at risk by the inclusion of controversial provisions.

As you are aware, the FDA and the drug and biologics representatives have agreed upon a blueprint containing the proposed specifications for the reauthorization of PDUFA III with input from consumer and patient groups, health professionals, and other organizations. This proposal calls for significant increases in user fees to put the program on sound financial footing and make the collection of fees more predictable. The proposed drug user fee amount would be $222.9 million in FY 2003 with increases in the out years to $259.3 million in FY 2007. The FY 2003 request is approximately a $90 million increase over the $133 million that was collected for FY2001. The PDUFA III proposal includes several important new initiatives. One of the more significant among these is the agreement to use industry fees to significantly expand the capacity of FDA to conduct risk management activities during the first few years after drugs are approved. We expect that this will lead to more targeted and effective drug prescribing patterns by physicians and fewer adverse effects for patients.


The FY 2003 budget includes $25 million for a Healthy Communities Innovation Initiative - a new interdisciplinary services effort that will concentrate Department-wide expertise on the prevention of diabetes and asthma, as well as obesity. Of this amount, $20 million is available in HRSA. The purpose of the initiative is to reduce the incidence of these diseases and improve services in 5 communities through a tightly coordinated public/private partnership between medical, social, educational, business, civic and religious organizations. These chronic diseases were chosen because of their rapidly increasing prevalence within the United States. In addition there is $5 million in CDC for a national media campaign to promote physical fitness activities, with an emphasis on families and communities.

More than 16 million Americans currently suffer from a preventable form of diabetes. Type II diabetes is increasingly prevalent in our children due to the lack of activity. In a recent study conducted by NIH, participants that were randomly assigned to intensive lifestyle intervention experienced a reduced risk of getting Type II diabetes by 58 percent. HHS plans to reach out to women and minorities to help make this initiative a success.


Of all the issues confronting this Department, none has a more direct effect on the well being of our citizens than the quality and accessibility of health care. Our budget proposes to improve the health of the American people by taking the steps to increase and expand the number of Community Health Centers, strengthen Medicaid, and ensure patient safety.

Community Health Centers provide family oriented preventive and primary health care to over 11 million patients through a network of over 3,400 health sites. The FY 2003 budget will increase and expand the number of health center sites by 170, the second year of the President’s initiative is to increase and expand sites by 1,200 and serve an additional 6.1 million patients by 2006. We propose to increase funding for these Community Health Centers by $114 million in FY 2003. Our long-term goal is to increase the number of people who receive high quality primary healthcare regardless of their ability to pay. With these new health centers, we hope to achieve this goal.

In addition to expanding Community Health Centers, we are seeking to expand the National Health Service Corps by $44 million. Currently, more than 2,300 health care professionals are providing service to health centers patients and others in under-served communities.

The Medicaid program and the State Children’s Health Insurance Program (SCHIP) provide health care benefits to low-income Americans, primarily children, pregnant women, the elderly, and those with disabilities. The FY 2003 budget we propose strengthens the Medicaid and SCHIP programs by implementing essential reforms in the way we pay for prescription drugs, by extending expiring SCHIP funds, and by testing solutions to barriers in community living for disabled children and adults.

We propose to extend coverage of Medicare Part B premiums for people with incomes between 120 and 135 percent of the Federal poverty level, also known as Qualifying Individuals (QI-1s), for one year until September 2003. Currently, States through the Medicaid program must pay for the Medicare premiums and cost sharing for certain low-income Medicare beneficiaries. The funding to pay for Part B premiums for QI-1s expires in September 2002. This proposal would ensure no interruption of current benefits while discussions take place about how better to integrate the QI-1 programs with other Medicaid programs that also pay Medicare premiums.

For FY 2003, we propose to continue Transitional Medicaid Assistance for an additional year and provide families with an important incentive to work. Currently, States are required to provide up to one year of Medicaid for families who, due to work, would otherwise lose Medicaid eligibility. The provision is due to expire in September 2002. We propose to allow families to continue to take those first steps toward self-sufficiency – often in jobs without health insurance – without fear that their medical bills will leave them worse off than before. The initiative would cost $350 million.

Also, we propose to work with stakeholders to develop legislative proposals that build on the Health Insurance Flexibility and Accountability (HIFA) demonstration in order to give states the flexibility they need to design innovative ways of increasing access to health insurance coverage for the uninsured. The Administration’s plan also would allow at State option those who receive the President’s health care tax credit to increase their purchasing power by purchasing insurance from private plans that already participate in their State’s Medicaid, Children’s Health Insurance, or State employees’ programs. This could help keep costs down and provide a more comprehensive benefit than plans in the individual market. Further, this will give tax credit recipients a range of choices among insurance products, which the new tax credit program will make affordable.

Additionally, as part of the New Freedom Initiative, a nationwide effort to support community based models of care that help remove the barriers of equality that face individuals with disabilities, we propose four demonstrations to test solutions to many of the barriers to community living for disabled children and adults. Two demonstrations will provide Medicaid respite services to caregivers of disabled adults and to caregivers of significantly disabled children. A third demonstration will allow home and community-based services as an alternative for children receiving care in a residential treatment facility. All three of these demonstrations will help the Administration evaluate the feasibility of providing such services under the Medicaid program. A fourth demonstration will address the shortage of direct service workers.

We also need to make an effort to narrow the drug treatment gap. As reflected in the National Drug Control Strategy, Substance Abuse and Mental Health Services Administration estimates that 4.7 million people are in need of drug abuse treatment services. However, fewer than half of those who need treatment actually receive services, leaving a treatment gap of 3.9 million individuals. Our budget supports the President’s Drug Treatment Initiative, and to narrow the treatment gap. We propose to increase funding for the initiative by $127 million. These additional funds will allow State and local communities to provide treatment services to approximately 546,000 individuals, an increase of 52,000 over FY 2002.


The FY 2003 budget dedicates $190 billion over ten years for immediate targeted improvements and comprehensive Medicare modernization, including a subsidized prescription drug benefit, better insurance protection, and better private options for all beneficiaries. Last year, President Bush proposed a framework for modernizing and improving the Medicare program that built on many of the ideas that had been developed in this Committee and by other Members of Congress.

That framework includes the principles that:

  1. All seniors should have the option of a subsidized prescription drug benefit as part of modernized Medicare.
  2. Modernized Medicare should provide better coverage for preventive care and serious illness.
  3. Today’s beneficiaries and those approaching retirement should have the option of keeping the traditional plan with no changes.
  4. Medicare should make available better health insurance options, like those available to all Federal employees.
  5. Medicare legislation should strengthen the program’s long-term financial security.
  6. The management of the government Medicare plan should be strengthened to improve care for seniors.
  7. Medicare’s regulations and administrative procedures should be updated and streamlined, while instances of fraud and abuse should be reduced
  8. Medicare should encourage high-quality health care for all seniors.

The President’s FY 2003 Budget also includes a series of targeted immediate improvements to Medicare, which can be implemented as part of comprehensive Medicare legislation, to provide both immediate benefit improvements for seniors and to help implement a Medicare drug benefit and other long-term improvements more effectively.

The improvements the President and I have proposed include not only a subsidized drug benefit as part of modernized Medicare, but also providing better coverage for preventive care and serious illness. The program’s lack of drug coverage is just one example of its outdated benefits and it will have even more difficulty giving beneficiaries modern and appropriate treatment for their health problems in the future. We propose that preventive benefits have zero co-insurance and be excluded from the deductible. We must make these improvements to more effectively address the health needs of seniors today and for the future.

Let me assure you, the President remains committed to framework he introduced last summer, and to bringing the Medicare program up to date by providing prescription drug coverage and other improvements. We cannot wait: it is time to act. Recognizing that there is no time to waste, the President’s Budget also includes a series of targeted immediate improvements to Medicare.

As you know, last year the President proposed the creation of a new Medicare-endorsed prescription drug card program to reduce the cost of prescription drugs for seniors. This year, HHS will continue working to implement the drug card, which will give beneficiaries immediate access to manufacturer discounts on their medicines and other valuable pharmacy services. The President is absolutely committed to providing immediate assistance to seniors who currently have to pay for prescription drugs.

Assistance, however, will not come only through the prescription drug card program. The budget proposes several new initiatives to improve Medicare’s benefits and address cost. This budget proposes additional federal assistance for drug coverage to low-income Medicare beneficiaries up to 150% of poverty – about $17,000 for a family of two. This policy would eventually expand drug coverage for up to 3 million beneficiaries who currently do not have prescription drug assistance, and it will be integrated with the Medicare drug benefit that is offered to all seniors once that is in place. This policy helps to establish the framework necessary for a Medicare prescription drug benefit and is essentially a provision that is in all of the major drug benefit proposals to be debated before Congress. That is, the policy provides new Federal support for comprehensive coverage of low-income seniors up to 150 percent of poverty. And in all the proposals, the Federal government would work with the states to provide this coverage, just as we are proposing with this policy.

In addition, I recently announced a model drug waiver program—Pharmacy Plus—to allow States to reduce drug expenditures for seniors and certain individuals with disabilities with family incomes up to 200 percent of the federal poverty level. This program is being done administratively. The Illinois initiative illustrates how we can expand coverage to Medicare beneficiaries in partnership with the federal government. The program we approved will give an estimated 368,000 low-income seniors new drug coverage.  

The President’s budget also includes an increase in funding to stabilize and increase choice in Medicare+Choice program by aligning payment rates more closely with overall Medicare spending and paying incentives for new types of plans to participate. Over 500,000 seniors lost coverage last year because Medicare+Choice plans left the program. Today close to 5 million seniors choose to receive quality health care through the Medicare+Choice program. Because it provides access to drug coverage and other innovative benefits, it is an option many seniors like, and an option we must preserve. The President’s budget also proposes the addition of two new Medigap plans to the existing 10 plans. These new plans will include prescription drug assistance and protect seniors from high out-of-pocket costs.

Some of these initiatives give immediate and tangible help to seniors. But, let me make clear: these are not substitutes for comprehensive reform and a universal drug benefit in Medicare. They are immediate steps we want to take to improve the program in conjunction with comprehensive reform, so that beneficiaries will not have to wait to begin to see benefit improvements. I want to pledge today to work with each and every member of this Committee to fulfill our promise of health care security for America’s seniors- now and in the future.


I am committed to being proactive in preparing the nation for potential threats of bioterrorism and supporting research that will enable Americans to live healthier and safer lives. And, I am excited about beginning the next phase of Welfare reform and strengthening our Medicare and Medicaid programs. Ensuring that HHS resources are managed properly and effectively is also a challenge I take very seriously.

For any organization to succeed, it must never stop asking how it can do things better, and I am committed to supporting the President’s vision for a government that is citizen-centered, results oriented, and actively promotes innovation through competition. HHS is committed to improving management within the Department and has established its own vision of a unified HHS -- One Department free of unnecessary layers, collectively strong to serve the American people. The FY 2003 budget supports the President's Management Agenda.

The Department will improve program performance and service delivery to our citizens by more strategically managing its human capital and ensuring that resources are directed to national priorities. HHS will reduce duplication of effort by consolidating administrative management functions and eliminating management layers to speed decision-making. The Department plans to reduce the number of personnel offices from 40 to 4 and consolidate construction funding, leasing, and other facilities management activities. These management efficiencies will result in an estimated savings of 700 full time equivalent positions, allowing the Department to redeploy staff and other resources to advance primary missions.

HHS continues working to improve budget and performance integration in support of the Government-wide effort. Although we work in a challenging environment where health outcomes may not be apparent for several years, and the Federal dollar may be just one input to complex programs, HHS is committed to demonstrating to citizens the value they receive for the tax dollars they pay.

By expanding our information technology and by establishing a single corporate Information Technology Enterprise system, HHS can build a strong foundation to re-engineer the way we do business and can provide better government services at reduced costs. By consolidating and modernizing existing financial management systems our Unified Financial Management System (UFMS) will provide a consistent, standardized system for departmental accounting and financial management. This "One Department" approach to financial management and information technology emphasizes the use of resources on an enterprise basis with a common infrastructure, thereby reducing errors and enhancing accountability. The use of cost accounting will aid in the evaluation of HHS program effectiveness, and the impacts of funding level changes on our programs.

HHS is also committed to providing the highest possible standard of services and will use competitive sourcing as a management tool to study the efficiency and performance of our programs, while minimizing costs overall. The program will be linked to performance reviews to identify those programs and program components where outsourcing can have the greatest impact. Further, the incorporation of performance-based contracting will improve efficiency and performance at a savings to the taxpayer.


Mr. Chairman, the budget I bring before you today contains many different elements of a single proposal; what binds these fundamental elements together is the desire to improve the lives of the American people. All of our proposals, from building upon the successes of welfare reform, to protecting the nation against bioterrorism; from increasing access to healthcare, to strengthening Medicare, are put forward with the simple goal of ensuring a safe and healthy America. I know this is a goal we all share, and with your support, we are committed to achieving it.

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Last revised: March 13, 2002