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REMARKS BY:		DONNA E. SHALALA , SECRETARY OF HEALTH AND HUMAN SERVICES
PLACE:			American Association of Health Plans Policy Conference, Washington, D.C.
DATE:			February 25, 1997

Being here reminds me of the story about the little girl who wanted her mother to take her to the doctor. She had only one question for mom: Does Dr. Seuss belong to our HMO?

If only it was that simple. No sickness that some green eggs and ham can't cure. Nothing wrong that some cat in the hat can't make right.

Unfortunately, as we grow up, we find out that good health -- and good health care -- are far more complicated.

And never more so than today.

I don't have to tell any of you about the revolutions taking place in our health care delivery system. We see the explosion of information, technology, and new delivery systems. We see the lines between payers, providers, and insurers continue to blur.

As America continues to age, we see a seismic shift from acute to chronic care. We see too many Americans locked out of the best health care system in the world -- as the ranks of the uninsured swell to 40 million strong. We see biomedical research continue to push the frontiers of science -- raising new hopes and new ethical dilemmas.

We see more and more consumers playing an active role in their health care -- and demanding that quality and choice not be pushed aside in the race for efficiency. And, through it all, we see a revolution in managed care -- a revolution that if done right -- can help us meet these and other challenges in the 21st century.

I am a big believer in managed care. In fact, I was a member of an HMO 25 years ago -- back at a time when most people had never even heard the term.

Think back to the early days of the Mayo Clinic, to the vision of Henry Kaiser and other managed care pioneers. Back then, who would have imagined that almost 75 percent of Americans with employer sponsored insurance would be covered by managed care plans? Who would have imagined that 13 percent of Medicare beneficiaries and 40 percent of those in Medicaid would be enrolled in managed care health plans?

The fact is, managed care is the present. And it is most certainly the future. The question is, what will that future hold? And the answer is up to us. It is up to you.

Last week, the TV show Chicago Hope showed a character coming to Washington to fight for health insurance for children. Like that character, you come here to share your ideas and hold our feet to the fire. And like that character, you are the real architects of reform. You can lead every day without legislation.

As the President said last Thursday, you have taught us new ways to make prevention count, keep costs low, and improve care.

And, on issues of quality. On issues of consumer protection. On issues of access, you are proving that, when done right, managed care can help bring our system into the 21st century with changes that are good for business and good for health.

As we make these changes, we must ensure that every fee-for-service provider and every new and emerging health plan are held to the same standards as HMOs. The same tough standards.

Because I want to be clear: I'm not here to criticize managed care. But, I'm not here to say that everything is perfect either.

We may not always agree on the path -- but we share a common vision.

So I have come here to call upon your expertise, your commitment and your leadership to help turn that vision into a reality by working with us to meet three key challenges.

First, we must enact a budget that preserves Medicare and modernizes it for the 21st century. As you know, the President's budget saves $100 billion in Medicare and extends the solvency of the Medicare trust fund until 2007 -- a full 10 years from today.

But let me be crystal clear: Reforming our Medicare program is not simply an exercise in numbers.

Our proposals include sound policies and real reforms. Many of them are modeled on innovations taking place in the private sector. And all of them make sense.

None of us would drive cross country in a car built in 1965. Likewise, we cannot move into the 21st century with a Medicare program that hasn't been overhauled in more than 30 years.

That's why to save Medicare, we must first modernize it.

The President's budget does this in six ways:

First, we're putting our money where the science is.

We're expanding our benefit package to include new preventive benefits -- from annual mammograms with no cost-sharing to screenings for colon cancer.

Second, we're giving consumers in Medicare two new choices in their health plans: preferred provider organizations and provider sponsored organizations.

Third, we're protecting our low-income Medicare beneficiaries -- who already spend 21 percent of their out of pocket incomes on health care -- by holding Part B premiums at 25 percent.

Fourth, we're providing additional assistance to rural facilities and new incentives for health plans and others to do business in these communities.

Fifth, we're continuing to crack down on the waste, fraud, and abuse that robs our health care programs and our taxpayers.

And finally, to become a more prudent purchaser of health care services, we propose a series of payment reforms that are aimed at those parts of the Medicare program where we are currently overpaying.

That includes hospital spending. That includes home health spending. And that includes spending on managed care.

I know that some of you - perhaps all of you - feel that these savings are too large. But let me say this: If I believed these savings could not be supported by the facts, and if I believed these savings would cause damage to your industry, I would not propose them and I would not support them.

In fact, I asked Medicare's independent actuary to conduct an analysis of our proposals to determine their impact on managed care enrollment.

If our plan is enacted, he predicts that more than 23 percent of Medicare beneficiaries will be enrolled in managed care plans by the year 2002. That's 10 percent more than today. And it's about 3 percent more than if we maintained the current law.

Let me walk you through our proposals and give you a feel for where we are trying to go.

First, we would carve out of the current Medicare payment formula , those funds dedicated to graduate medical education and disproportionate share hospitals. While those funds are now included in your payments, the hospitals insist they are not flowing through to them.

Therefore, when those hospitals provide care to beneficiaries covered by managed care plans, we will make payments directly to them. And, as your relationship with academic health centers continues to evolve, I am confident that you will work together to reach your common goals.

Second, as we reduce the growth in spending for fee-for-service care, the consequent reduction in the AAPCC calculation will also achieve savings in payments to managed care plans.

And, finally, beginning in the year 2000, we propose reducing the Medicare payment from 95 percent of the AAPCC to 90 percent.

We base these proposals on very clear evidence that we are now overpaying managed care plans that are participating in Medicare. In fact, according to independent studies we may be making up to $1 billion a year in these overpayments.

At the same time, we recognize that many plans are not being paid enough by Medicare.

To address that problem, we are raising the floor on managed care payments to $350 a month. And we are gradually reducing the regional variation in payments to plans across the country.

We are also making sure that this transition to a new payment system doesn't disproportionately hurt individual plans. That is why we guarantee that no plan will be paid less per month in 1998 or 1999 than they were in 1997. And every plan will be guaranteed at least a 2 percent increase in their payments in 2000 and beyond.

You and I know that the current Medicare payment is a crude mechanism for paying managed care plans. And that this refined system, while better, will not be enough. That is why HCFA is moving aggressively to design a payment system that is much more sensitive to your needs.

Through our Medicare Choices demonstration, we are working to create a system of risk adjusters to counter selection bias. We plan to have it ready as early as 1999 and begin putting it in place in 2001.

And HCFA recently began a demonstration project in Denver that will test the effectiveness of competitive bidding for managed care services.

The point is: We may differ on the best way to get there, but I believe we have a common goal of creating a payment system that is more sophisticated, more sensitive, and more accurate in its ability to match payments to the services you provide and the needs of our beneficiaries.

Which brings me to my second challenge: We must ensure that high quality care is always our bottom line.

Now, there are some who claim that quality is not a valuable commodity in today's tough marketplace. They should look at the rebirth of the American auto industry, which made changes to offer better quality cars at competitive prices. And they should look at the revolution in the kinds of foods being manufactured today.

The fact is, as more and more consumers learn about good nutrition, and as the food label helps them to shop and compare, food companies are competing -- and winning -- by offering low-fat, low-cost foods that taste good.

Because that's what consumers are demanding.

Likewise, in her new book, Market Driven Health Care, Harvard Business School professor Regina Herzlinger predicts that the future changes in our health care system will be driven by consumer demands.

So what do consumers want? I once heard a health care CEO joke that Americans want "the best health care that someone else will pay for." But seriously, no longer are patients tabula rasas waiting for their physicians and their health plans to simply tell them what to do.

Consumers are asking tough questions, surfing the web, calling 800 numbers, reading articles, comparing plans, talking to friends. They're becoming more and more active in their health care -- and they're demanding that we offer lower costs and higher quality.

And that's what we must deliver -- in every health plan offered in America.

Because if we don't make quality count economically, there will be a race to the bottom and a collapse of our health care system that could take decades to rebuild.

The question is, what is quality health care? Quality, unlike obscenity, can't simply be defined as: "I know it when we I see it."

Taking our cues from science, we must give Americans the tools they need to measure quality -- and compare quality. Not by simply focusing on process -- but by using our best research to measure real outcomes and real consumer satisfaction across all providers. So that we're comparing apples to apples -- and making sure that our citizens are the winners.

With your help, that's exactly what we're working to do.

The consumer survey we're developing will help us find out what Americans think about their health care plans -- so they can shop among plans armed with insights from their peers.

By using the Health Plan Employer Data Information Sets (HEDIS) for Medicare and Medicaid, we are providing performance measurements that will further help beneficiaries make smart choices for themselves and their families.

And not just in managed care. We are working to apply the same approach to all types of health plans. And, as part of the Foundation for Accountability, we're developing sophisticated outcome measures that will allow us to compare the quality of care provided in managed care and fee-for-service settings.

But, we must do much more than that.

Because whenever I'm traveling, people approach me to confess that they're worried about their health care. And, frankly, what they're often worried about is their managed care plans. They're worried that somehow the quest for the almighty dollar will leave them without the care they need.

It is our job -- yours and mine -- to reassure them. Not simply with words, but also with action.

We must work together to ensure that managed care and quality care are always one and the same, that managed care sets the example for other plans to follow, and, that all plans provide patients with the care they need and the peace of mind they deserve.

As the largest purchaser of health care, we've done that by protecting against financial incentives that could lead health professionals to skimp on care.

We have said that gag rules will not be tolerated in Medicare and Medicaid.

And we have made it clear that decisions about what is and is not medically necessary care should be made by doctors and their patients.

We must make these changes in all plans -- public and private, managed care and fee-for-service.

I know that none of us wants to see clinical health issues -- like length of stay -- legislated piece by piece. We know we need a framework. And the President will soon announce a new Advisory Commission on Consumer Protection and quality to give us that framework.

And I promise that you will have a strong voice on that panel.

But, until then, it is in all of our interests to stop egregious practices that undermine our health care system and our citizens' confidence in it.

I want to applaud you for the steps you've taken to do that -- to ensure that patients always come first and that medical practices that trouble all of us end. And I want to challenge you to keep it going.

I challenge you to do more than cover preventive services. Help our nation educate Americans about why they need them. Help us address the needs of special populations. Help us ensure that mental illnesses are treated just as seriously as physical illnesses. Help us deliver the best possible chronic care. And help us protect the treasure of our academic health centers by continuing to team up with them to meet our mutual goals.

Which brings me to my third challenge: To make sure that good health insurance is within the reach of more Americans -- especially children.

When we came together before, we enacted the Kassebaum-Kennedy law so that workers don't lose their insurance just because they change their jobs.

Now, we must come together again.

Because today, there are 10 million children in America who don't have health insurance -- and the vast majority of them are in families where parents work hard and play by the rules.

We are dedicated to covering up to 5 million of those children by the year 2000.

I have only one question for you: Will you help us? I know you will.

It was the HMOs who came to me and explained how tough it is to cover the one million kids who float in and out of Medicaid eligibility. And, it is the HMOs who are finding innovative ways to cover children in low-income families -- from Kaiser in Colorado to Blue Cross in Pennsylvania.

So, when it came time to develop our strategy, we listened to your counsel and followed your example. We knew that there was no silver bullet. We knew we needed a comprehensive strategy that brought together health plans, employers, states, health care professionals, and other leaders -- both public and private.

And that's what we have proposed.

First, we're helping workers between jobs get up to 6 months of coverage for themselves and their families. This will help insure 700,000 children.

Second, we're dedicating $750 million in state partnership grants to help cover children whose families earn too much to qualify for Medicaid and not enough to afford private insurance.

Third, we're allowing states to provide one year of continuous Medicaid coverage for all children who qualify for it.

Fourth, we're adding one million adolescents to the Medicaid rolls over the next four years.

And fifth, we're teaming up with the public and private sectors to reach out to the three million children who qualify for Medicaid -- but aren't enrolled.

This challenge -- like the others I have posed today -- will never be met by any of us acting alone.

Gone are the days of Marcus Welby, the days when good health care was a doctor telling a patient what was wrong and how to fix it. Today good health is a team effort, a community effort. Old boundaries must be taken down, new partnerships must be built up. And everyone must have a seat at the table.

That great duo, Gilbert and Sullivan, didn't always agree -- and neither will we. But, their relationship gave birth to extraordinary achievements. And so will ours.

Thank you.