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Testimony on FY 97 Labor/HHS/Education Appropriations by The Honorable Donna E. Shalala
U.S. Department of Health and Human Services

Before the House Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies
April 18, 1996

Good morning, Mr. Chairman and Members of the Subcommittee.
Thank you for the opportunity to discuss President Clinton's FY
1997 Budget for the Department of Health and Human Services.

This budget is built on a remarkably strong foundation of
accomplishments that have resulted from carefully chosen
investments in the health and independence of all Americans.
Time and time again these investments have paid off.

For example, childhood immunization rates have reached an
all- time high and the incidence of childhood infectious diseases
is declining.

Welfare case loads are down by more than 1.4 million, a
decrease of 10 percent, since March 1994; child poverty is down
and child support enforcement collections are up.

Our investments in biomedical research have helped lead to
the discovery of three genes linked to hereditary breast cancer.

We have also witnessed the first drug treatment for severe
sickle cell anemia and the first treatment for the most common
form of stroke.

And our investment in medicine has helped scientists win
approval for five new anti-viral drugs for people living with
HIV/AIDS, including three very promising protease inhibitors, two
of which were approved in record time.

We have already granted waivers to 37 states that are now
reforming welfare for 10 million parents and their children -
that's about 70 percent of all AFDC recipients.

With this strong foundation in mind, we have designed a
budget to help Americans help themselves in pursuing more healthy
and independent lives.

This FY 1997 budget requests a total of $222 billion in
spending for programs that fall under the jurisdiction of this
Subcommittee. Of this request, discretionary spending totals $31
billion, which is an increase of 5 percent over the FY 1996
policy level. The FY 1996 policy level is based on levels of the
ninth continuing resolution, including an incremental policy

The President believes that we can balance the budget in
seven years, ensure fiscal accountability, reform welfare, and
strengthen and improve Medicare and Medicaid.

Our budget for FY 1997 helps us do just that.

The President's Medicare plan reduces the growth of projected
spending by a net $124 billion over seven years, and guarantees
the solvency of the Hospital Insurance Trust Fund for more than a
decade. We are reforming Medicare to make it more efficient and
responsive to beneficiary needs, to give seniors more choices
among private health plans, to attack fraud and abuse, to cut the
growth of provider payments, and to hold the Part B premium to 25
percent of program costs.

The President's budget also reforms Medicaid the right way:
it maintains a strong federal-state partnership, while giving
states unprecedented flexibility to meet the needs of their
citizens. The plan would save $59 billion over seven years while
retaining nursing home quality standards, and maintaining
Medicaid's national guarantee of health care for our most
vulnerable citizens.

We also have a tough plan to guarantee program integrity and
fiscal accountability in the Medicare and Medicaid programs.

In FY 1995, the HHS Inspector General (OIG), Health Care
Financing Administration (HCFA), and the Administration on Aging
teamed up with officials in five key states to crack down on
health care fraud and abuse. This program is called Operation
Restore Trust. We want to expand this program to every state
over three years.

Our FY 1997 budget calls for an expenditure of $597 million
to give HCFA and the OIG the secure and stable funding they need
not only to punish health care fraud and abuse, but also to stop
it before it occurs. Our budget would increase spending to
eliminate fraud, waste and abuse with expected net savings to the
trust funds of $3.4 over seven years.

Our budget also includes President Clinton's comprehensive
welfare reform plan that promotes work and responsibility and
achieves $40 billion in program savings. The President's plan
would replace the AFDC program with a conditional entitlement
with tough time limits and work requirements, while retaining a
strong national safety net for children.

Mr. Chairman, we're changing the way we do business at HHS -
not only in Medicare, Medicaid and welfare but throughout the

As part of the President's plan to dramatically shrink the
size of the federal government, we reduced our staff by nearly
3,300 FTE, a full 5 percent, between FY 1994 and FY 1995 alone.
To meet the goals of the President's plan, we have committed
ourselves to a seven-year right-sizing effort that will reduce
the department's personnel by 7,000 FTE (from the FY 1993 level)
by the year 2000.

In March 1995, we successfully launched the Social Security
Administration (SSA) as an independent agency, thanks to the
careful planning of both HHS and SSA staff.

Based on this change and on the implementation of the Vice
President's Reinventing Government program, we have streamlined
the structure of our Department. We merged some of our
operations and eliminated entire management layers - we have
freed the Assistant Secretary for Health from day-to-day
management responsibilities in order to strengthen this
absolutely critical leadership and policy role in the
Department's public health and science agenda.

We also have merged the operations of the Assistant Secretary
for Management and Budget with the Assistant Secretary for
Personnel Management. The final result of these reorganizations
is a lean, tightly organized Office of the Secretary.

We also have created an innovative new agency, the Program
Support Center (PSC), whose sole purpose is to provide
administrative services on a fee-for-service basis for HHS and
other federal agencies. This agency is internally financed and
competitive, and it is offering its services on a low-cost
fee-for-service basis. Fees and service levels will be approved
by a Board consisting of representatives of both customers and
service providers.

After a nationwide search, I have just appointed Lynnda Regan
as the first Director of the PSC. Ms. Regan is a highly
respected executive from Westinghouse and brings to the
Department valuable private sector knowledge and experience.
With Ms. Regan's leadership and the management structure we have
created, the PSC is really a model built for the future. It
represents our fundamental commitment to business-like management
throughout the Department.

Mr. Chairman, perhaps most important, our FY 1997 budget
continues its wise investment in the future health and well-being
of all Americans.

Today's young people are tomorrow's leaders. Thus, we are
committed to the goal of building Strong Foundations and
providing Safe Passages for all children and youth. Strong
Foundations are the building blocks of success for children and
families, while Safe Passages provide some of the tools for
navigating the often turbulent journey from childhood to young

One such Strong Foundation is our Head Start program. Head
Start is a program that, when done right, works to give children
who are most at-risk a hand up on the educational ladder and a
hand up in life.

Let me take a moment to tell a story about Head Start that I
think best exemplifies the kind of vision and tough-minded
management approach that we've brought to this department during
the past three years.

At the beginning of our Administration, we discovered that in
some communities, Head Start wasn't always being done right.

So, we brought in the best experts in the country - and asked
them for a candid assessment of what needed to be improved. And
then, we rolled up our sleeves and got right down to work. With
those experts and bipartisan support in Congress, we set quality
standards, provided resources to help centers meet these
standards, and enforced strict penalties for those who fail.

Since 1993, we've helped 100 grantees improve their programs
and provide quality services to their children.

Our philosophy concerning Head Start is that we reward and
demand quality from all of our programs. For those that can't,
or won't meet these demands, we will have closed and close or
reform their programs. Indeed, since October 1993, approximately
40 grantees have been terminated or have relinquished their
grants for failure to meet quality standards.

For FY 1997, we have proposed an increase of $447 million
over the FY 1995 level to serve 46,000 more children than we
served in FY 1995. As part of this enrollment increase, between
FY 1995 and FY 1997 an additional 7,400 infants and toddlers will
be able to participate in the Early Head Start program.

The President believes strongly that the best safety net for
our children is - and will always be - strong families. And,
whether they're struggling to get jobs or keep them, we know that
families need good child care to keep their children safe.

That's why the President is requesting over $1 billion for
the Child Care block grant - so that more children from
low-income families can have high quality child care and their
parents can have peace of mind while they work, train or go to

We've all heard the horror stories: abused children;
neglected children; forgotten children. The President wants to
work with states and communities to stop these tragedies. That's
why he's requesting $419 million in discretionary spending to
help abused and neglected children - by encouraging parental
responsibility when possible and providing foster care and
adoption when necessary.

Our commitment to children doesn't stop there. The President
believes that we must help parents guide their children along the
right path - the healthy path - the safe path - in life.

That means increasing our investment in AIDS prevention by
$34 million. It means building on the President's historic
children's tobacco initiative by supporting innovative community
partnerships that give children the facts about a deadly
addiction that could take years off their lives.

It means working with the White House Drug Policy
Coordinator, General Barry McCaffrey, to ensure that all engines
of our drug strategy - prevention, treatment, research,
interdiction and law enforcement - are working together.

And, when it comes to preventing teen pregnancy, it means
building on our success, from targeted demonstration grants to
welfare waivers that require teen mothers to stay in school and
live with a responsible adult.

To help ensure a clear message of abstinence and
responsibility, while simultaneously addressing the broader
health, social, education and employment needs of young people,
our budget includes a new $30 million initiative that will help
communities all over America implement local strategies with
promising track records of reducing teen pregnancy.

A second key component of our FY 1997 budget is to maintain
cutting edge health and science programs. To that end, we have
requested $310 million for a revitalized Warren G. Magnuson
Clinical Center at the National Institutes of Health (N I H).

This new state-of-the-art clinical center will house nearly
half of all clinical research beds in the country and provide new
and promising research opportunities for intramural and
extramural scientists.

Our budget also provides $6.6 billion to NIH to fund a record
total of 25,400 extramural research grants. With regard to AIDS
research, we request a separate appropriation of $1.4 billion,
nearly 34 percent over 1993 levels, which the Office of AIDS
Research will direct to the most promising areas of scientific

We also must be on guard against new and emerging infectious
diseases that threaten all of us - in our water, in our air, and
in our food. Therefore, the President's budget almost increases
to $88 million CDC's national research, surveillance and
prevention efforts against such diseases in 30 states. We also
request $4 million to renovate and repair critical containment
laboratory space at the Centers for Disease Control and
Prevention in Atlanta - laboratories that are the first line of
defense against these deadly diseases.

Further highlights of our FY 1997 budget are as follows:

- Health Resources and Services Administration (HRSA) - The
FY 1997 budget request for HRSA is $3.1 billion. A total of $807
million is proposed for Ryan White activities, a $32 million, or
4 percent increase over the FY 1996 level. This will continue our
commitment to improve the quality and availability of care for
individuals and families with HIV and AIDS. The request for the
Consolidated Health Centers cluster provides $757 million for
grants to local health centers that serve vulnerable underserved
populations, including migrant workers, homeless individuals, and
residents of public housing. This funding level maintains our
commitment to ensure that they receive quality health care. In
keeping with the Department's strong commitment to investing in
programs that support Strong Foundations and Safe Passages for
our Nation's children, the HRSA budget supports funding for
several programs with the sole mission of improving the health of
women of childbearing age and their children. These programs
include the Maternal and Child Health Block Grant ($681 million);
Healthy Start ($75 million); and the Title X Family Planning
program ($198 million).

Centers for Disease Control and Prevention (CDC) - The FY
1997 request for CDC provides a $2.3 billion level of spending.
Of that amount, $488 million will be spent on CDC discretionary
programs for childhood immunization to continue increasing the
percentage of two- year-olds fully immunized, which has increased
from 55 percent in 1992 to 75 percent in 1995. These funds, when
combined with the Vaccines for Children (VCF) entitlement
program, bring the total HHS childhood immunization expenditures
to approximately $1 billion. A total of $617 million, an
increase of $34 million (6 percent) over FY 1996, is requested
for CDC's HIV/AIDS prevention programs. The request includes $20
million for applied HIV/AIDS research to identify effective
interventions for specific populations.

National Institutes of Health (NIH) - The FY 1997 request for
NIH totals $12.4 billion, an increase of $467 million, or 4
percent, over the FY 1996 level. This includes an additional
$274 million for facility construction and renovation, primarily
for the Warren G. Magnuson Clinical Research Center and an
additional $193 million for research activities. NIH has
constructed its budget request to minimize the impact on research
project grants of this onetime extraordinary facilities cost. An
additional $99 million is requested for FY 1997 to emphasize
research on the biology of brain disorders; on new approaches to
pathogenesis, the study of disease origins and development; on
new preventive strategies against disease; on genetics of
medicine; and on advanced instrumentation and computers in
medicine and research. The highest research priority of NIH is
the support of basic biomedical research through
investigator-initiated research project grants (RPGs). These
grants support new and promising ideas cutting across all areas
of biomedical research. In FY 1997, the NIH budget provides $6.6
billion to support a record total of 25,400 RPGs, including 6,827
new and competing RPGs. The FY 1997 budget request continues to
include all of NIH's AIDS-related funds-$1.4 billion-in a single
account for the Office of AIDS Research (OAR), as these funds
were appropriated in FY 1995. The Director of OAR will transfer
AIDS funds to the Institutes in accordance with the comprehensive
plan for AIDS research developed by the OAR along with the
Institutes. The Administration strongly supports a consolidated
AIDS appropriation as a vital part of ensuring a coordinated and
flexible response to the AIDS epidemic.

Substance Abuse and Mental Health Services Administration
(SAMHSA - The budget request for SAMHSA totals $2.1 billion.
This request will provide important substance abuse and mental
health services to thousands of pregnant women and their
children, high risk youth, and other underserved Americans. This
budget request for FY 1997 focuses on the treatment of chronic
substance abusers who are responsible for most of the crime
related to drugs and for the use of 75 percent of all illegal
drugs brought into this country. An increase of $244 million is
requested to treat and prevent mental illness and substance
abuse, and therefore, addressing recent trends in these areas.
Also proposed is $1.5 billion for both the Substance Abuse and
Mental Health Performance Partnership state grants that give
states maximum flexibility to develop treatment systems that
ensure access, quality, and improved outcomes for substance
abusers, particularly in areas of high incidence and prevalence
of substance abuse.

Agency for Health Care Policy and Research (AHCPR) - The FY
1997 request for AHCPR provides a program level of $144 million.
Consistent with a Department-wide HHS Survey Integration Plan,
AHCPR will fully fund the Medical Expenditure Panel Survey
(MEPS)-replacing the National Medical Expenditure Survey
(NMES)-at $45 million, as well as continue to fund its highest
priority ongoing research commitments, the Research on Health
Care Outcomes and Quality program at $48 million, and the Health
Care Systems Cost and Access program at $48 million.

Health Care Financing Administration - HCFA is the largest
purchaser of health care in the world. In FY 1997 Medicare and
Medicaid expenditures will be about $319 billion for 72 million
beneficiaries. The FY 1997 request for HCFA program management is
$2.2 billion. Of this request, 73 percent will go to 77 private
sector insurance companies throughout the United States who pay
for the care given to Medicare beneficiaries. Only about 16
percent (i.e., $359 million) of the requested amount will go to
fund federal employees and activities (about one tenth of 1
percent of total projected Medicare and Medicaid outlays). These
activities will maintain and strengthen the Department's
commitment to develop more efficient operating systems; manage
programs to fight fraud, waste and abuse; and promote and monitor
managed care spending and quality of care. To deal with the level
of growth in the number of health care facilities, an additional
$28 million is included in the request for the Survey and
Certification program.

Administration for Children and Families (ACF) - ACF is the
Department's lead agency for programs serving America's children,
youth, and families. For FY 1997, we are seeking $7.7 billion for
discretionary programs that promote healthy children, supportive
families, and vibrant communities. Investing in Head Start and
expanding enrollment are key Presidential priorities. The FY 1997
budget request of $3.98 billion for Head Start will serve an
additional 46,000 children, establishing strong foundations for a
total of nearly 800,000 children and their families. The budget
request for the Child Care and Development Block Grant is $1.049
billion. This request is a component of the Administration's
continued commitment to promoting family self-sufficiency by
helping states fund child care services for more children from
low-income working families. ACF is requesting $419 million for
a range of discretionary programs that help states and local
communities to protect children by strengthening families and
preventing abuse; intervening when families are in crisis; and
when necessary, making placement decisions to ensure children's
safety. To address a serious social problem for our nation, teen
pregnancy, the Department will launch a $30 million Teen
Pregnancy Prevention Initiative in FY 1997. These funds will be
used to implement and evaluate promising prevention strategies in
communities that have demonstrated a commitment to community
problem solving. This effort is an important step forward to
ensure safe passages for our Nation's adolescents.

Administration on Aging (AoA) - The FY 1997 budget for AoA
provides $828 million for programs aimed at improving older
Americans' quality of life. For FY 1997, AoA requests $451.2
million for Nutrition Programs, designed to continue providing
the 240 million congregate and home-delivered meals served to
needy senior citizens. This request also includes $295 million
to provide funding for a network of 57 state units, 670 Area
Agencies on Aging, approximately 6,000 senior centers and more
than 27,000 service providers, and $16 million for 215 Indian
tribal organizations throughout the country. A total of $9.2
million is requested for in-home services for the frail elderly.
The Long-Term Ombudsman Program will be funded at $4.5 million
and will serve 1.5 million nursing home residents. To improve
service and to streamline administration, the request provides
for the transfer of USDA's Nutrition Program for the Elderly
(NPE) and the Department of Labor's Senior Community Services
Employment Program (SCSEP) to AoA.

Departmental Management (DM) - The DM budget includes
requests for three separate appropriations-General Departmental
Management ($145 million), Office for Civil Rights ($22 million),
and Policy Research ($9 million)-that fund activities to provide
leadership, policy, legal, and administrative guidance to HHS
components; carry out the Department's civil rights and
nondiscrimination enforcement programs; and support research to
develop policy initiatives and improve existing HHS programs.

Office of Inspector General (OIG) - The OIG requests $75
million, an increase of $1 million above the FY 1996 level. OIG
will focus its resources in the following areas: reviewing our
efforts to improve children's welfare and child support
enforcement collection initiatives; evaluating providers and
services in the Medicare and Medicaid programs; ensuring the
effectiveness of the public health delivery programs; auditing
management control systems and financial operations; and the
final phase of Operation Restore Trust. The Medicare Anti-fraud
and Abuse Program (MAAP) is a proposed initiative to restore
trust and accountability to the Medicare program. This
initiative would build on the proven effective aspects of
Operation Restore Trust, enhance general Medicare fraud
protection activities, allow the OIG to pursue innovative
antifraud initiatives, enhance data systems to assess trends and
identify possible fraud and abuse, and expand OIG resources by
retraining and adding staff to those parts of the country where
fraud schemes are unfolding. Should this legislation be enacted,
an additional $54 million in mandatory funding will be added to
supplement OIG's current effort.

In summary, Mr. Chairman, we present a FY 1997 budget that:

- builds on and maintains the President's commitment to
balance the budget in seven years;

- adheres to the goals of,the Vice President's National
Performance Review by "right-sizing" our management structure and
developing new business approaches to delivering administrative
services in a low-cost, efficient manner;

- provides critical social and health services to vulnerable
children and families; and

- maintains our national commitment to cutting-edge health
and science programs.

Our FY 1997 budget represents a strong, well thought out, and
fiscally prudent blueprint to guide us into the 21st century.
It's about balancing the budget, being tough managers, and making
a sustained investment in the health and human service programs
that all of our citizens-from the youngest to the oldest-will
need to thrive in the 21st century.

We look forward to working with this Subcommittee on our FY
1997 budget requests. Thank you again, Mr. Chairman, for the
opportunity to present our budget to the Subcommittee. I will be
happy to answer your questions.

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