Remarks to the Senate Committee on Finance

Good morning. Mr. Chairman, Mr. Baucus, Members of the Committee: thank you so very much for inviting me to testify today.

In my first two years at the Department we have made tremendous progress in our efforts to improve the health, safety, and well-being of the American people. We continue to make extraordinary progress in providing health care to lower-income Americans. Through waiver and state plan amendments granted to states, we have expanded access to health coverage for more than 2.2 million people, and have expanded the range of benefits offered to 6.7 million other Americans.

To expand on our achievements, the President proposes outlays for HHS of $539 billion. $539 billion represents an increase of $36.8 billion-or 7 percent-over last year's request, and an increase of more than $109 billion-or 25 percent-since 2001.

The discretionary part of the budget increases $1.64 billion-or 2.6 percent-to $65 billion of budget authority. This would be a program level increase of 1.5% over the enacted FY 03 appropriation.

$539 billion is a big number, and I have a solemn responsibility as Secretary to make sure every one of those dollars is put to good, effective use. I owe it to the people who pay the taxes-and I owe it to the people who consume the services.

One way to ensure these dollars are effective is to work with this Committee and other committees to improve and strengthen our two largest health programs: Medicare and Medicaid. These are the two topics I would like to outline for you this afternoon.

As you well know, Mr. Chairman, our nation's Medicare program needs to be strengthened and improved to fill the gaps in current coverage. The President has proposed numerous principles for Medicare enhancements to ensure that we are providing our seniors with the best possible care.

We have dedicated $400 billion over the next decade to achieve this ambitious goal, and we look forward to working closely with members of Congress to develop and pass a responsible and effective Medicare bill this year.

The budget proposes a prescription drug benefit that would be available to all beneficiaries, would protect them against high drug expenditures, and would provide additional assistance through generous subsidies for low-income beneficiaries to ensure ready access to needed drugs.

Passing Medicare legislation will be a huge task, and improving Medicaid is also urgent. In fact, Medicaid is growing even more rapidly than Medicare-the federal portion is $162.4 billion, and the program is growing about 9% a year. But state Medicaid programs are under tremendous financial pressure, and beneficiaries risk losing coverage. 2/3 of States have already made reductions or have reductions pending.

The President has proposed a plan to preserve coverage, make Medicaid more efficient, and provide better health care delivery.

We must begin by addressing the immediate fiscal needs of the states. President Bush's plan would meet the 9% base growth in the program and then forward funding by $3.25 billion for 2004 and $12.7 billion over seven years. The forward funding would help people during the current economic conditions, and the flexibility will put states in a better position to handle future economic downturns without having to cut people from Medicaid.

They will have the flexibility to make adjustments to weather the storm. I had a chance to discuss this proposal with many governors on Monday, and their reaction was very positive.

Let me be very clear about two things. First, state participation in the new program would be optional. Second, mandatory populations will continue to receive all of their mandatory benefits. The Medicaid entitlement for mandatory populations will be unchanged.

States will have more flexibility in covering optional populations, which account for a large part of Medicaid spending. They will gain the ability to target special needs populations, such as those suffering from mental illness and AIDS and those who prefer home and community based care.

If we do not improve Medicaid, a million Americans could lose coverage this year, and millions more next year. I look forward to working with Congress to make sure they keep it.

I'd like to take this opportunity to announce a new initiative at the Department to improve care for seniors with chronic diseases. Right now, 78% of Medicare beneficiaries have at least one chronic disease-and these patients account for 99% of Medicare spending each year. In 2000, total health care expenditures in our country reached an astounding $1.4 trillion. Of that colossal sum, chronic diseases accounted for more than 75%.

Many people with chronic diseases see a confusing variety of specialists, internists, and other providers, and many have trouble following all of their advice. This confusion often causes their conditions to get worse-and more expensive to treat. Unnecessary hospitalizations are not just expensive-they're unfair to the patient.

Another problem is that when physicians keep their patients healthy, the patients need less care, so the physicians get paid less under fee-for-service plans. It's not fair to physicians to give them a financial incentive that conflicts with their professional obligation.

We have a plan to eliminate this conflict by aligning these interests, and we will demonstrate this plan in the context of Medicare. Our system should be set up so that the best care for the patient is also good for the doctor-and the taxpayer.

I'm proud to announce this morning a capitated disease management demonstration project that will do just that.

This demonstration will help certain Medicare beneficiaries who suffer from chronic diseases by coordinating their care and monitoring their progress and behavior through a single organization. This great idea is called disease management.

Medicare will pay disease management organizations a fixed amount based on the needs of each patient instead of paying for services rendered. This will give providers a financial interest in the health of their patients, not the quantity of their services.

This demonstration will run for three years. If it succeeds, everyone wins. Patients will benefit from better-coordinated care. Providers will benefit because they will be able to focus on keeping patients healthy. And taxpayers may eventually benefit, too, if we can demonstrate a pattern of keeping costs under control.

While I'm here, I would like to mention one other item in our budget. President Bush recently announced a new initiative, Project Bioshield, that would help prepare the country for a bioterror attack. He would spend roughly $6 billion over ten years on new countermeasures. This proposal would speed up research and approval of vaccines and treatments and ensure a guaranteed funding source for their purchase-just the latest in our forward-looking efforts to protect the homeland.

The President has made improving our nation's health and health care one of his biggest priorities for the year, and by working together, we can make it one of our proudest achievements. I look forward to all the work, and I know our discussion this morning will get things rolling.

Thank you, Mr. Chairman.

Last Revised: March 3, 2003

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