[Senate Hearing 107-531]
[From the U.S. Government Publishing Office]
S. Hrg. 107-531
THE ECONOMIC DOWNTURN AND ITS IMPACT
ON SENIORS: STRETCHING LIMITED DOLLARS
IN MEDICAID, HEALTH, AND SENIOR SERVICES
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
MARCH 14, 2002
__________
Serial No. 107-21
Printed for the use of the Special Committee on Aging
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WASHINGTON : 2002
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SPECIAL COMMITTEE ON AGING
JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas MIKE ENZI, Wyoming
EVAN BAYH, Indiana TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware PETER G. FITZGERALD, Illinois
DEBBIE STABENOW, Michigan JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri CHUCK HAGEL, Nebraska
Michelle Easton, Staff Director
Lupe Wissel, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Larry E. Craig...................... 1
Prepared Statement of Senator John Breaux........................ 3
Prepared Statement of Senator Debbie Stabenow.................... 3
Panel I
Dr. Jack Riggs, Lieutenant Governor, State of Idaho, Boise, ID,
accompanied by Karl Kurtz, Director, Idaho Department of Health
and Welfare, Boise, ID......................................... 4
Gail Wilensky, John M. Olin Senior Fellow, Project HOPE,
Bethesda, MD, and Former Administrator, Health Care Financing
Administration................................................. 26
Barbara Lyons, Deputy Director, Kaiser Commission on Medicaid and
the Uninsured, Washington, DC.................................. 44
Vernon K. Smith, Principal, Health Management Associates, and
former Medicaid Director, State of Michigan, Lansing, MI....... 66
Panel II
Joan W. Lawrence, Director, Ohio Department of Aging, Columbus,
OH............................................................. 89
Barry Donenfeld, Executive Director, Mid-Willamette Valley Senior
Services Agency, and President, National Association of Area
Agencies on Aging, Salem, OR................................... 98
(iii)
THE ECONOMIC DOWNTURN AND ITS IMPACT ON SENIORS: STRETCHING LIMITED
DOLLARS IN MEDICAID, HEALTH, AND SENIOR SERVICES
----------
THURSDAY, MARCH 14, 2002
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 9:37 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Larry E.
Craig, presiding.
Present: Senators Craig and Carper.
OPENING STATEMENT OF SENATOR LARRY E. CRAIG
Senator Craig. Good morning, everyone. The Senate Special
Committee on Aging will convene.
Today we will be examining what I think is a very critical
issue to our Nation's seniors. I also want to thank Senator
John Breaux, the chairman of the committee, for facilitating
this hearing and allowing me to chair the hearing this morning.
Of course, all of us are hopeful that the recession, which
began last year, is at last beginning to ease. Sadly, however,
for many, the downturn's repercussions remain very, very
serious. For seniors, the recession's painful effects are
perhaps nowhere more starkly evident than in the Medicaid
program. Contrary to the perception of some, Medicaid is not
just a lifeline for America's poorest citizens, but rather, for
America's seniors, Medicaid is now also very much a middle
class program. Funded jointly by States and the Federal
Government, Medicaid today pays nearly two-thirds of all
nursing home and long-term care bills. So when Medicaid is in
trouble, so too is middle America. In trouble it is. As the
economy has contracted, so too have tax revenues, leaving
States facing a collective $40 billion deficit this year--a
near record level.
Regrettably, these shortfalls are now colliding painfully
with the demands of State Medicaid programs, which have been
growing rapidly in recent years. Last year, national Medicaid
expenditures jumped about 10 percent, and similar increases are
expected this year. In my home State of Idaho, the rate is even
higher--approximately 15 percent. Nationally, Medicaid is now
growing between two to three times faster than other key State
programs, including higher education and corrections.
Most troubling perhaps are Medicaid's prescription drug
costs, which are rising much faster than the program as a
whole, by approximately 20 percent annually.
Caught in a catch-22 of rising Medicaid costs and sharply
declining growth in State revenues, at least 42 of the 50
States are now projecting Medicaid budget shortfalls this year.
In the face of these pressures, States are turning to an
increasingly aggressive array of strategies to control costs
and stretch limited dollars. Many of these will be discussed by
our witnesses today.
I am especially pleased to have with us today Dr. Jack
Riggs, Lieutenant Governor of my home State of Idaho, along
with Karl Kurtz, Director of our State's Department of Health
and Welfare.
Our second panel will discuss similar pressures confronting
America's area agencies on aging and our State units on aging.
Finally, before we start, let me stress that it is always
easy to look at problems like these and just say the answer is
more money. However, in lean times, the reality is that big new
expenditures, whether Federal or State, are extremely unlikely.
Rather, our challenge is to find effective ways to work within
our limited resources to deliver the best services we possibly
can for our seniors.
Again let me thank our witnesses for being with us today.
[The prepared statement of Senator Craig follows along with
prepared statements of Senator Breaux and Senator Stabenow:]
Prepared Statement of Senator Larry Craig
Good Morning, and thank all of you for joining us here this
morning to discuss the economic downturn and its effects on
America's seniors. Thank you, too, Senator Breaux for
facilitating my chairing this morning's hearing.
Of course, all of us are hopeful that the recession that
began last year is at least beginning to ease. Sadly, however,
for many, the downturn's repercussions remain very, very
serious.
For seniors, the recession's painful effects are perhaps
nowhere more starkly evident than in the Medicaid program. And
contrary to the perceptions of some, Medicaid is not just a
lifeline for America poorest citizens. Rather, for America's
seniors, Medicaid is now also very much a middle class program.
Funded jointly by the states and the federal government,
Medicaid today pays nearly two-thirds of all nursing home and
long-term care bills. So when Medicaid is in trouble, so too is
middle America.
And in trouble it is. As the economy has contracted, so
too, have tax revenues, leaving states facing a collective $40
billion deficit this year, a near-record level. Regrettably,
these shortfalls are now colliding--painfully--with the demands
of state Medicaid programs that have been growing rapidly in
recent years. Last year, national Medicaid expenditures jumped
about 10 percent, and similar increases are expected again this
year. In Idaho, the rate is even higher, approximately 15
percent. Nationally, the Medicaid is now growing between two
and three times faster than other key state programs, including
higher education and corrections. Most troubling, perhaps, are
Medicaid's prescription drug costs, which are rising must
faster than the program as a whole, by approximately 20 percent
annually.
Caught in a Catch-22 of rising Medicaid costs and sharply
declining growth in state revenues, at least 42 of the 50
states are now projecting Medicaid budget shortfalls this year.
In the face of these pressures, states are turning to an
increasingly aggressive array of strategies to control costs
and stretch limited dollars. Many of these will be discussed by
our witnesses today. I am especially pleased to have with us
today Dr. Jack Riggs, Lt. Governor of my own state of Idaho
together with Karl Kurtz, director of our state's health and
welfare programs. Also, our second panel will discuss similar
pressures confronting America's area agencies on aging and our
state units on aging.
Finally, before we start, let me stress that it's always
easy to look at problems like these and just say the answer is
more money. However, in lean times, the reality is that big new
expenditures, whether federal or state, are extremely unlikely.
Rather, our challenge is to find effective ways to work within
our limited resources to deliver the best services we possibly
can for our seniors.
Again, sincere thanks to our witnesses for coming today,
and I look forward to your testimony.
------
Prepared Statement of Senator John Breaux
Good morning and thank your for being here today. This
committee has held a series of hearings on long-term care and
will continue to examine the questions surrounding financing
and delivery of care for older Americans. Today's hearing,
which will explore how best to stretch dollars when it comes to
services for seniors, is a timely one. I want to thank Ranking
Member Craig for calling today's hearing and thereby allowing
us to delve into this issue further, as it is clearly one with
no easy answers.
In a time of declining state revenues and limited resources
at the federal level, states are struggling to find ways to cut
costs. States are being forced to make some difficult choices--
including cutting back on services affecting seniors. The
Medicaid program-which is a primary payor of long-term care--
has not been spared from this cost-cutting in the states.
Today we will hear data, demographics, statistics and
projections--all of which are necessary to understand the scope
of this issue. It is not enough, however, to simply lay out the
problem. We are facing a national crisis when it comes to the
questions surrounding long-term care. States' financial woes
are especially pressing in light of the wave of baby boomers
who will be needing long-term care services in the decades
ahead. We must continue our dialogue and explore potential
solutions, which I plan to do in this Committee's upcoming
hearings.
Today's hearing is just one more step in our efforts to
stimulate debate and discussion regarding how best to reform
long-term care for our nation's seniors. I look forward to
having our witnesses share their thoughts on this vital and
increasingly challenging question. This committee's broader
series of hearings and efforts to stimulate discussion
hopefully will help us to formulate ideas to ensure that long-
term care will be available to each of us should we ever need
it.
Thank you.
------
Prepared Statement of Senator Debbie Stabenow
Chairman Breaux and Senator Craig, thank you for holding
today's hearing on the ``Economic Downturn and Its Impact on
Seniors: Stretching Limited Dollars in Medicaid, Health, and
Senior Services.'' As a member of the Budget Committee, and a
strong support of many health care and senior programs, I think
is critically important that we examine these issues.
It is my pleasure to introduce one of today's witnesses,
Vernon Smith, Ph.D. Dr. Smith is from Michigan where he has
been an expert on Medicaid and other health issues for a very
long time. As the former Director of Michigan's Medicaid
program, he has a comprehensive understanding of the program
and will provide valuable information for the committee.
Currently, Dr. Smith is a Principal with Health Management
Associates, where he conducts research on economic, health
care, and public policy trends and their impacts on many
important health programs. Most recently, Dr. Smith has
published reports on the effect of the economic downturn on
Medicaid and S-CHIP (entitled MIChild in Michigan) and other
programs such as welfare reform. I know that his work provided
important background for the committee as we prepared to hold
this hearing and we are all looking forward to your testimony
today.
I would like to take a few minutes to highlight some
important points before we begin. We have known for some time
that the funding structure for Medicaid could lead to hardship
during economic downturns. When state's face declining revenues
they often must debate making cuts to the program. The irony is
that these cuts must be considered when demand is increasing.
States also face the difficult reality that for every dollar
they cut from their own budgets for Medicaid; they lose, on
average, the $1.33 federal match as well. In other words, for a
limited saving to the state, dramatic cuts in the program could
be the result.
This committee is especially concerned about cuts to
Medicaid because many low income seniors are covered through a
combination of Medicaid and Medicare. Through this coverage,
some seniors are very fortunate because they have coverage for
prescription drugs. Ensuring that all seniors who are eligible
for Medicare get good prescription drug coverage is one of my
top priorities. States are currently considering many options
to slow their Medicaid spending and it would be especially
devastating if states opted to limit prescription drug
coverage.
Related to that issue, I would like to mention that I
intend to introduce a bill, the Senior Nutrition Act, that
would help seniors account for the high cost of their
prescription drugs when they are seeking food assistance
through important USDA nutrition programs. I urge my colleagues
to contact my office if you are interested in getting more
information and joining me as an original cosponsor.
In closing, I know we are discussing a complex and
important issue. Many have suggested that we need to reexamine
the basic funding structure for Medicaid so that resources are
not limited during economic downturns when the need for this
important health care program is at its highest. I think this
committee will provide an excellent forum to begin that debate
and I look forward to hearing from all of our witnesses today.
Our first panel this morning, as I have mentioned, includes
Lieutenant Governor Jack Riggs of Idaho and Karl Kurtz, the
Director of the Idaho Department of Health and Welfare; Gail
Wilensky, who is the John M. Olin Senior Fellow, Project HOPE--
and former Administrator of the Health Care Financing
Administration; Barbara Lyons, Deputy Director, Kaiser
Commission on Medicaid and the Uninsured; and Vernon Smith, a
principal with Health Management Associations and former
Medicaid Director for the State of Michigan.
Governor, I will turn to you and allow you to direct your
testimony. I understand that you and Director Kurtz will
participate jointly here.
Please begin.
STATEMENT OF DR. JACK RIGGS, LIEUTENANT GOVERNOR, STATE OF
IDAHO, BOISE, ID; ACCOMPANIED BY KARL KURTZ, DIRECTOR, IDAHO
DEPARTMENT OF HEALTH AND WELFARE, BOISE, ID
Dr. Riggs. Thank you, Mr. Chairman. It is certainly an
honor and privilege to be before you today on these important
matters.
I come before you in the dual role as both a physician and
as an elected official in the State, looking at the policy
issues. I will make opening comments, defer to the director,
and then have a few closing thoughts.
When looking at any complex problem, my initial approach is
to do the analysis first, and of course, in current times, it
seems like much of the news is bad.
There are some things that I think are very obvious. First,
we are in a recession, and many of the existing systems and
models in health care delivery seem to be failing, and we have
an ``age wave'' coming just a few short years away.
Of course, I would say fundamentally that the economy,
through our tax structure which creates the revenues, is--and
it may be overly simplistic--but I think it is important for us
to remember, that it is the economy that provides the revenues
for any of the programs that we have, and I believe it is a
very direct correlation. When the economy is flat or in
recession, there will be a direct correlation and a direct
decrease in the level of services to our existing models.
Typically, I believe, my observation of the legislative
process is that when there is a flattening of the economy and a
decease in revenues, the initial approach is to cut budgets,
and therefore, services will be directly hampered.
My concern there, of course, is that when--and I speak now
as a physician--when you displace individuals who are receiving
Medicaid benefits, especially in long-term care, they will have
a diminished health response and will probably end up in our
medical system in inpatient hospitals. So I would actually
expect to see Medicare costs go up. If you are displacing those
who are receiving long-term care or getting prescription drug
benefits through Medicaid, especially the elderly, they will
end up in Medicare, and I think that that is very clear.
When you cut reimbursement to providers, or as we are
seeing the possibility in the prescription drug market, when
you cut the reimbursement and go below what is overhead, access
will certainly be hampered. Of course, then you get into a
vicious cycle, because when you diminish access, the health of
the individual, and collectively, will decline, which will then
cause greater costs on the Medicare side, because you will have
people who are basically more unhealthy.
Of course, as you mentioned, for States, the typical
approach is to ask for more money, and we in Idaho certainly
recognize that this is probably not the best time for that,
because we do recognize the national situation.
I think part of the approach, therefore, needs to be that
we should as policymakers help address some of what should be
the expectations in the public. My sense as a physician over
the years has been that the individual patients I have dealt
with have grown to have great expectations not only of our
system and our Government but also of technology, that it will
keep them alive forever. Unfortunately, as a physician, I have
to remind people over and over that we are born, and we live,
and we die, and that is the natural order of things, and if we
get later in years, and the end is inevitable, it is probably
better to recognize that and to approach it gracefully.
I do believe that without a doubt, as people age, if they
can stay at home, it is far better, and I think home-based
services is clearly the best approach. And the money spent in
preventive care is much better than waiting for the emergency
to occur and the patient to wind up in the hospital.
I would suggest that looking at efficiencies in our current
programs is really the first step, and that is something that
we are doing in Idaho. I will turn to Director Kurtz, because I
know he wants to share some ideas and things that we are doing
looking for those efficiencies.
Mr. Kurtz. Good morning, Mr. Chairman, and I thank you for
the opportunity to come and talk about the impact of our aging
population on our State budgets.
It used to be that Idaho's economy followed the Nation's,
but it always took us a couple years to catch up. That is no
longer true. The economic downturn has hit Idaho hard. As the
Lieutenant Governor said, tax revenues are shrinking, budgets
are being cut, and as we all know, medical costs and therefore
Medicaid spending are headed in the opposite direction.
Every State agency in Idaho has been forced to cut back,
Medicaid, and the elderly who depend upon Medicaid are not
immune. For the past several years, Idaho's Medicaid
expenditures, as you noted, have gone up at a 15 percent annual
increase. In a strong economy, it is difficult to keep up with
that kind of spending increase; in a recession, it is
impossible.
The Governor and the Idaho legislature have directed our
agency to limit Medicaid growth to a 6 percent increase in the
coming year. To do this, we must reduce the scope of our
Medicaid coverage. Senior citizens are not targeted
specifically, but they will feel the impact. We will reduce
pharmacy costs, restrict adult dental coverage to emergency
services, and limit what Idaho pays when a Medicaid patient is
covered by both Medicare and Medicaid.
In the interest of time, I will only discuss that pharmacy
changes. I have presented written testimony about the other
three areas, but I will limit my comments primarily to the
pharmacy.
According to a 1998 Medicaid study, 12 percent of Medicare
enrollees rely on Medicaid to pay for their prescriptions. The
cost of prescription medications is spiraling out of control.
In 1999, Idaho Medicaid spend $64 million prescriptions. That
level of spending ranked it as the third-largest expenditure
category in our Medicaid program. Two years later, in 2001,
that cost had gone up 58 percent, topping $101 million.
Idaho individuals age 65 and older account for less than 6
percent of Medicaid enrollees, but they account for nearly 25
percent of our prescription drug costs. Those costs continue to
climb. We project spending on medications to be $121 million
this year, ending June 30, and it will be our No. 1 expenditure
in our Medicaid program next year, at over $139 million. In 4
short years, our prescription drug costs have more than
doubled.
The proportion of dollars spent on senior citizens will
rise even faster. In the 1990's, according to the recent
Census, the growth rate in the number of citizens 65 and older
in Idaho was higher than 37 other States, so that population is
increasing.
The dollar figures that I have quoted may sound small in
comparison with other figures that you hear on a daily basis
here, but let me assure you that in Idaho, that money is a
large sum. In fact, our total Medicaid budget in Idaho is
second only to the appropriation for public education.
So what are we doing to control Idaho's Medicaid pharmacy
costs? No. 1, we will reduce the drug acquisition payment that
pharmacists receive. We will intensify our review of pharmacy
claims. We will deny prescription refills until an individual
has used 75 percent of the previous prescription. The fourth
step is a big one--we will implement a prior authorization
system that kicks in after a Medicaid client has four
prescriptions in any one month. Prior authorization will be
required for anything above four. About 10,000 Medicaid
clients, many if not most of whom are senior citizens, have
more than four prescription drugs.
A Medicare drug benefit will help Idaho and all other
States as we try to gain some control over Medicaid spending.
With that, Mr. Chairman, this concludes my testimony.
Again, I appreciate the opportunity to provide an Idaho
perspective on this critical issue of Medicaid and its impact
on seniors.
Senator Craig. Thank you, Karl.
Dr. Riggs. Thank you, Mr. Chairman. I have just a couple of
closing thoughts.
I think that a fundamental question that we as policy
setters need to be asking is ``where are we headed?'' I think
we have a clash of the past and the future that is occurring,
and we are seeing that right now. By ``the past,'' I mean some
of those models that were created many years ago, in fact
decades ago, of our health care delivery system and especially
the Medicare and Medicaid models.
What is happening is that you are being asked to put more
money, in fact billions of dollars, into what I would call a
very old model, and I do not believe you would be asked to put
billions into 50-year-old technology in communication,
transportation, or defense.
By ``the future,'' I am referring to the age wave. The baby
boomers, who are just a few years away from being Medicare age,
is a wave in our demographics that I believe will overwhelm the
system. I would use the analogy that many people criticized the
Y2K preparation for the future. I would argue that because of
that preparation, that is what really averted a real problem. I
think there is still time for such preparation for the age
wave, but we are seeing the front end of that wave right now.
One or two examples of innovation--the Eden Alternative of
Dr. William Thomas, which is the alternative where pets and
children are brought into nursing homes, I think is being very
well-received and is an example of an innovation. I would point
to medical savings accounts; changing the attitude of younger
people so that as they look toward their later years, they are
actually being prepared for and thinking about the future. I
would propose, as I am sure other people have, that a redesign
of Medicare, which I know is a politically contentious
discussion, really needs to be done, because that model cannot
continue.
In closing, I would say that keeping our economy strong
regardless of the model is critical. So whenever there is a
discussion, if we can be proactive at keeping our economy
strong, that is the revenue stream that funds whatever system
exists, so that is critical.
The age wave that is coming, I would really characterize as
a tidal wave that will crush our existing models, and it is
only a few years away.
The encouraging point that I want to leave with you is that
I believe there is still time to act, but there has to be
innovation in that action.
Thank you, Mr. Chairman, and I am certainly happy to
respond to any questions that you might have.
Senator Craig. Governor and Director Kurtz, thank you both
very much. That is a pretty stark reality that Idaho faces and
that we all face.
[The prepared statements of Lieutenant Governor Riggs and
Mr. Kurtz follows:]
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Senator Craig. Now, once again, let me introduce Dr. Gail
Wilensky to the committee. She is former Administrator of the
Health Care Financing Administration and currently John M. Olin
Senior Fellow of Project HOPE, where she is one of the
country's foremost authorities on health care, Medicaid, and
Medicare.
Here come the solutions. Gail, welcome to the committee.
STATEMENT OF GAIL R. WILENSKY, JOHN M. OLIN SENIOR FELLOW,
PROJECT HOPE, BETHESDA, MD AND FORMER ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION
Dr. Wilensky. Thank you, Mr. Chairman, for inviting me
here.
As you indicated, I am at Project HOPE now. I also co-chair
the Presidential Task Force to Improve Health Care Delivery for
our Nation's Veterans. But I am here today to share ideas as a
health economist and a former HCFA Administrator, and I am
going to try to make about half a dozen points.
First, we all need to recognize that States are caught in a
double-bind. They are finding their revenues squeezed because
of the economic downturn at the same time that they are finding
themselves pressed because of the rapid increase in Medicaid
expenditures--11 percent this year, and the Congressional
Budget Office predicts next year 9.5 percent, not quite so bad,
but still quite steep.
Part of that increase reflects deliberate actions on the
part of the States. In the last several years, States have
expanded benefits, they have included populations that were not
previously included, they have expanded their outreach, and
they have increased payments to providers. I do not say these
are bad things. I think these are basically good things that
States did. They are now struggling because of the change in
the economy, and because of increases, in some areas that one
not their doing increased health care spending across the
country for hospitals in particular and for prescription drugs,
as we have heard, in Idaho as well as elsewhere.
There is no question that the States are finding themselves
hard-pressed, and unlike the Federal Government, most States by
then constitutions are required to be in balance at all times,
which is facing them to act.
When you look at what the States are doing, they are mostly
relying on reductions in payments to providers as a way to do a
quick fix. Looking around the country, you see this going on in
Indiana, where payments for nursing homes, hospitals, and
pharmacies were cut in the fall, and more proposals are being
made to continue these reductions. Some States are using
preferred drug lists, some requiring prior authorization, as we
have heard Idaho is going to be doing. Maine is also proposing
to reduce reimbursements, and Illinois is proposing some
additional reductions to reimbursements.
The problem, of course, is that Medicaid has typically been
the lowest payer around, so the reductions in provider payments
raises the question about whether access will be affected. In
general, probably in the short term, it will be OK, although I
am worried about nursing homes. This is an area that has been
of particular concern to this committee because of the frail
nature of the vulnerable populations in nursing homes. It is
particularly a problem because unlike the other areas, Medicaid
is the dominant payer for nursing homes--a point that you have
already made--so that if Medicaid reduces payment, there are
not a lot of other places to turn to to make up those payments.
In fact, a recent report have seen from Lewin Associates,
confirms what most people have suspected, which is that
Medicare has been cross-subsidizing Medicaid's underpayments in
nursing homes. If some of the extra Medicare payments for
nursing homes are not continued this year, as may happen, it is
likely to catch the nursing homes particularly short, an
industry that has already proven itself to be quite fragile.
In the short term, I am very concerned and would encourage
the committee to continue its vigilance in providing oversight
for the nursing home population.
States need to be careful about how they proceed. Some of
their strategies can backfire. We have seen this happen in the
past. A decade ago, one of the States limited the Clozerol, one
of the antipsychotic drugs, and had schizophrenics ending up
back in institutions--hardly humane treatment for the
schizophrenics and certainly not cost-saving for the State.
There was a report in The Wall Street Journal a couple of
weeks ago about a state that had required the use of generics
whenever available, only to find out that sometimes, branded
drugs that have just come off patents are actually cheaper than
generics.
So state have to act very carefully. The better ideas
unfortunately are not quick fixes. They involve looking at
clinical protocols to try to have the best use of some of the
new, expensive therapeutics; they require using disease
management for high-cost illnesses such as congestive heart
failure and diabetes.
There is an interesting proposal called a ``partnership
program.'' It encourages middle-class individuals to protect
their assets by not having to count their value as part of
their spend-down if they buy long-term care insurance, thereby
lessening the likelihood that they will end up on Medicaid if
in fact they need extensive long-term care.
But none of these, to be perfectly honest, is the kind of
quick fix that many States need right now. I am a trustee of
the United Mine Workers Health and Retirement Fund. They have a
very old and frail population and are using a combination of
generic drugs, preferred products, geriatric case management
and disease management for diabetes and congestive heart
failure. This program seems to have saved some money, and I
believe it has improved health care, but in all honesty, it has
taken a couple of years to implement.
The Federal Government had better watch out. My experience
as a HCFA Administrator is that when States get pressed, they
become very fiscally creative. When I was there, it was called
``provider taxes'' and ``voluntary donations.'' Now it is
called ``upper payment limit,'' where the States basically bill
Medicaid for more than they are actually reimbursing; some of
the public facilities get the increased match, either make and
get back or do not make the increased payment to the public
facilities, and only the Feds have spent more money.
If the Federal Government wants to temporarily increase the
match rate under Medicaid, it ought to do so outright so that
everybody plays by the same rules, and all States benefit
appropriately. The Federal Government ought to be very careful
not to tolerate, these other types of strategies, even
understanding the States' fiscal crisis.
Finally, it is obvious that a Medicare prescription drugs
benefit would help the States a lot. I believe that
prescription drug coverage ought to be part of a reformed
Medicare program, but inadequate and unfair benefits are not
Medicare's only problems. You heard reference to the ``age
wave'' which is coming, the 78 million baby boomers who will
start to retire at the end of the decade. Medicare has already
made many promises and it is not clear how it will be able to
pay for all these promises. While is is important to reform
Medicare, adding a new benefit to a fiscally fragile program,
without tackling the rest of reform Medicare needs, is a bad
idea, and I encourage you not to do it.
Senator Craig. Gail, thank you very much for your insights
that I know come from current and past experience. Your studies
are very valuable to us.
[The prepared statement of Dr. Wilensky follows:]
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Senator Craig. Now let me once again introduce Dr. Barbara
Lyons, Deputy Director of the Kaiser Commission on Medicaid and
the Uninsured, an organization that has focused heavily on the
interplay of the economic forces of health care delivery.
Barbara, welcome before the committee.
STATEMENT OF BARBARA LYONS, DEPUTY DIRECTOR, KAISER COMMISSION
ON MEDICAID AND THE UNINSURED, WASHINGTON, DC
Ms. Lyons. Thank you for the opportunity to testify this
morning on Medicaid's role for seniors.
Medicaid is the nation's major program for financing health
and long-term care for 44 million low-income Americans,
including over 4 million seniors. Low-income seniors depend on
Medicaid for help in three primary areas--paying for
medications, paying for long-term care, and paying for
Medicare's financial obligations.
The downturn in the economy, coupled with the increased
pressure on State budgets, place Medicaid's protections at
risk. The scope of Medicaid assistance for seniors today varies
by income and by State. The poorest elderly receive coverage
for the full range of Medicaid benefits. These beneficiaries,
known as ``dual-eligibles,'' rely on Medicaid primarily for
wrap-around benefits not covered by Medicare, namely,
prescription drugs and long-term care. A smaller share of
seniors receive Medicaid help primarily for the payment of
Medicare premiums, referred to as ``buy-in assistance.''
The elderly comprise 10 percent of Medicaid beneficiaries
overall, but account for one-quarter of Medicaid spending,
largely due to their intensive use of acute and long-term care
services. In fact, nearly three-quarters of Medicaid spending
on the elderly is devoted to long-term care services.
As was stated earlier, Medicaid is the only program that
covers ongoing nursing home care, paying for nearly half of
nursing home costs nationally and financing care for over two-
thirds of the nation's nursing home residents.
Medicaid assistance with community-based long-term care has
been growing but remains limited, with fiscal concerns
constraining the broader development of these efforts.
States' fiscal condition began to deteriorate at the end of
2000. The slowing of State revenue growth combined with
increasing Medicaid costs has created significant budget stress
in many States. These trends are projected to continue, with
Medicaid projected to increase at an average annual rate of
about 8 to 9 percent over the next several years. Spending on
services, especially nursing home care, prescription drugs, as
well as the buy-in subsidies for the elderly, are all factors
in Medicaid spending growth.
According to our analysis of CBO's spending projections,
the increased cost of caring for the elderly was the second-
largest factor, following the disabled, behind the $12.4
billion increase in Federal Medicaid spending last year.
The trends in Medicaid expenditures track the trends in
private health care spending. Cost increases in the private
market put pressure on Medicaid to keep pace. To maintain
access, Medicaid programs are pushed to raise payment rates for
providers and to pay for the escalating costs of prescription
drugs.
Medicaid long-term care spending has also been rising and
may reflect the pressure to improve nursing home quality. As
Gail stated, low Medicaid payment rates to nursing homes have
historically limited access, and longstanding concerns about
the quality of care in nursing homes persist.
Federal law gives States broad discretion to restrain
Medicaid expenditures, but decisions to trim eligibility,
reduce benefits, or cut payments to providers are not easy.
States must also consider the implications of losing the
Federal matching funds to their health care financing systems.
Some States are trying to hold the line and not reduce funding
this year, but others have already initiated budget reduction
actions for fiscal year 2002.
Historically, States look to cutting provider payments to
hospitals and nursing homes as a first step in reducing
spending. As States prepare their budgets for fiscal year 2003,
many are again likely to turn to curbing provider payments,
with implications for access and quality. In addition, as was
heard earlier today, most States are focusing on controlling
prescription drug spending, adopting strategies including prior
authorization, capping the number of prescriptions, higher
copayments, and reducing payments for prescription drugs and
dispensing fees.
It is unclear what the ultimate effect of some of these
strategies will be on overall spending and quality or whether
they will have the unintentional effect of limiting access to
essential medications. Low-income elderly beneficiaries often
require multiple prescriptions to manage health conditions and
therefore constitute a substantial portion of those most
affected by these strategies.
The pressure on Medicaid resulting from the aging of the
population and rising health care costs is unlikely to abate.
Consideration of short- and long-term alternatives to assure
adequate coverage and financing are likely to be essential to
Medicaid's future success in serving as this nation's safety
net program.
To conclude, budgetary problems, coupled with the pressure
of rising health care costs, portend difficult times ahead.
Medicaid is an essential source of coverage for seniors but
also for low-income families and others with disabilities.
Given the vulnerability of the population served by Medicaid,
it is critical that attempts to constrain costs not compromise
the quality of care available even in tough economic times.
Thank you. I look forward to working with the committee on
these issues in the future.
Senator Craig. Dr. Lyons, thank you very much.
[The prepared statement of Ms. Lyons follows:]
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Senator Craig. Now, our last speaker on the first panel,
Dr. Vernon Smith, who is currently a principal with Health
Management Associates but also, as I mentioned, formerly
Medicaid Director for the State of Michigan. He has done
extensive work counseling States and others regarding Medicaid
and related health, economics, and budgetary issues.
Doctor, thank you for being with us this morning.
STATEMENT OF VERNON K. SMITH, PRINCIPAL, HEALTH MANAGEMENT
ASSOCIATES, LANSING, MI; AND FORMER MEDICAID DIRECTOR, STATE OF
MICHIGAN
Mr. Smith. Thank you, Mr. Chairman, members of the
committee. I am very pleased to be here today to talk with you
about the effects of the economic downturn on Medicaid and on
the seniors and others whom the program serves.
Medicaid is of course a critically important program in the
Nation's health care safety net for seniors and others on
Medicare. Medicaid is extremely important, because Medicaid
pays premiums, coinsurance, deductibles, for services, notably
prescription drugs and long-term care, that Medicare does not
cover.
Medicaid's role in supporting persons on Medicare has grown
to the point where 35 percent of Medicaid spending is for
persons also on Medicare.
Medicaid is now the largest health program in America, even
larger than Medicare. In terms of the number of beneficiaries,
this fiscal year, Medicaid will serve 44 million persons, and
Medicare will serve 40 million persons.
In terms of expenditures, if my estimates are correct, this
year, total Medicaid expenditures will be $250 billion; for
Medicare, a total of $249 billion, and net of premium receipts,
around $227 billion.
The economic downturn has caused State revenues to take a
nose dive just when Medicaid expenditures are skyrocketing. The
State revenue outlook is not good at all. With the decrease in
revenues this year at the State level, it would take an
increase in State revenues of 8 or 9 percent in 2003 from this
year for States just to achieve the same level of revenue in
inflation-adjusted terms that they had 2 years before in 2001.
This is extremely unlikely. In fact, States say they will be
lowering their revenue forecasts still further this spring.
What this means is more pressure for across-the-board State
budget cuts, and the current round of Medicaid cuts may be just
the beginning. Already States have decided or are in the
process of deciding to make major cuts in an effort to slow the
growth in Medicaid spending. Examples abound across the
country, and Barbara and others have described those already,
in terms of cutting or freezing payment rates, cutting or
restricting benefits, or cutting eligibility, in some cases,
specifically, eligibility for persons with high medical bills
who qualify under the medically needy category of Medicaid.
The current economic downturn has forced States to reduce
Medicaid spending even if it means cutting services that have
obvious value and even when the cutbacks have obvious adverse
impacts on seniors and health care providers who serve them,
and for States, the frustrating thing is that the total
spending cuts may be double or triple the general fund savings
that are realized in order to make the budget reduction
targets, because states must also cut federal matching funds.
When Medicaid was adopted by the U.S. Congress in 1965, no
one expected Medicaid to become one of the largest programs in
State budgets; no one expected Medicaid to allocate 35 percent
of its spending to low-income Medicare beneficiaries, and no
one expected States to have the fiscal capacity to finance a
program whose costs would increase at twice the rate of State
revenues over the long run. But that is what has happened.
States seemingly have run out of strategies to control the
growth in Medicaid spending. The prospect is that simple
economics will put States under increasing pressure to scale
back their programs. To the extent that that does occur, the
brunt of program cutbacks will be borne by those on whose
behalf most current expenditures are made--and those are low-
income persons who are disabled and elderly.
Mr. Chairman, I am very pleased to have the chance to talk
with you about this and look forward to working with you. I am
happy to answer any questions.
[The prepared statement of Mr. Smith follows:]
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Senator Craig. Doctor, thank you very much.
I do have some questions of all of you.
As you know, this committee is not an authorizing
committee, it is an oversight committee. But we do believe that
we play a valuable role with hearings like this and with
testimony and the building of a record that clearly evidences
the reality that we all face, both at the Federal level and at
the State level. As health care progresses as rapidly as it
has, and the costs occur, the programs that we are dealing with
here are being rapidly outpaced. Then, of course, as you have
mentioned, with economic downturns and States facing the
reality of mandatory balanced budgets we run into some very
difficult circumstances.
This question would probably be for you, Governor, and
Director Kurtz. You described Idaho's recent and I think
ambitious, plan to restrain Medicaid spending growth.
You have done this without fundamentally cutting core
benefit eligibility other than prescription drugs; is that
correct?
Mr. Kurtz. Mr. Chairman, that is correct. We have looked at
coverage areas rather than eligibility.
Senator Craig. Do you believe that that is going to get you
where you need to go?
Mr. Kurtz. Mr. Chairman, I do not think it will. As Dr.
Smith said, our Medicaid program has been increasing about 15
percent a year. Our State revenues on a very good year increase
4.5 to 5 percent. So you have this gap, and to cut that gap, we
need to look at how can we impact that line of increase, and we
will have to look at eligibility as one of those criteria.
Right now, our Medicaid program is right at the minimum in
terms of our pregnant women and children programs, our CHIP
program; our basic Medicaid program is at the minimum, so we
are going to have to work with the Federal Government in terms
of how do we impact those eligibility requirements.
Senator Craig. A few questions of you, Karl, and probably
Gail. Some of these things States are doing in relation to
cutting the benefit or at least payment to providers is short-
term or might work. In the long term, providers begin to deny
services simply because they cannot afford to provide them, and
that ultimately comes about.
Overall, the analysis that we are going to have to have 8
or 9 percent annual increases in state revenues just to stay
current with growing Medicaid costs. And yet, returning to such
high revenue growth is just not going to happen under almost
any estimate, although we might see substantial comeback in
state revenues--Karl, you just mentioned the reality that even
with a robust economy Idaho experienced, Medicaid was outpacing
that, and to get back to that level will be quite an
accomplishment by next fiscal year if we can get there.
I guess I am speaking generally but I would like all of you
to comment on this difficult set of circumstances, and the
reality that we are moving very slowly here as it relates to
any form of Medicare prescription drug reform, although they do
seem to be linked together in most policymakers' lexicon today
here on Capitol Hill.
Dr. Wilensky. I don't think the longer-term projections for
Medicaid growth are double-digit; It is less than the 9.5
percent growth that CBO is projecting next year. The growth may
be faster than State revenues growth, but my understanding is
that it is more in the 6 or 7 percent range.
Senator Craig. What is slowing that?
Dr. Wilensky. For one thing, there is pressure not to use
the upper payment limit, which has artificially increased
spending--it was basically free money on the part of the
State--and some of the benefit expansions that we had seen
earlier are going to slow down; the increased payments. Some of
the causes that increased were good spending in the late 1990's
will not continue that is basically the rationale that the
Congressional Budget Office is providing.
I think there are ways that States can slow down Medicaid
spending by doing things better. The problem is that the are
not quick fixes. In the 1990's, most States used managed care
strategies for their acute care population and for a while
slowed down the expenditures. They have run that gamut in my
estimation, almost all of the States that could reasonably do
that.
There has been less effective innovations in long-term care
treatment. Arizona has tried to use managed care and other
strategies in long-term care. You are going to hear from the
Ohio aging director about some ideas that we were discussing
that they are considering or doing in Ohio. The types of
disease management programs that are sometimes being instituted
for high-cost, high-volume diseases really do slow down
spending. Health care spending, as you know, tends to be highly
concentrated with relatively small numbers of people using very
large volumes of dollars.
So there are some creative strategies. I am attracted to
the long-term care partnering program which encourages middle-
class individuals to buy insurance to protect their assets that
are now counted in spend-down. This discourages attempts to
distributing assets for people who realize they are going to
have substantial long-term care needs.
None of them is going to be a silver bullet in the next
year or two as States find themselves in a fiscal crunch, but
they could allow for smarter spending over a longer period. But
of course, there is the broader issue that was alluded to,
which is whether Medicaid as we now know it really is the
program for the 21st century in much the same way that people
are asking whether Medicare as we now know it is the right
program to accommodate the retirement of the baby boomers.
Those are difficult questions. These programs have provided
important services for the populations they were intended to
serve, but I think it is fair to say that what might have been
sensible for 1965 might not make it for 2010.
Senator Craig. Thank you.
Dr. Smith, you follow this, you discuss strategies, you
advise States.
Mr. Smith. The States face a very, very difficult prospect
for the future. The long-term forecast for Medicaid expenditure
growth from CBO through 2012 is 9 percent per year. There is no
State that could possibly expect its revenues to continue to
grow that rate.
Medicaid has continued to increase as a share of State
expenditures whether you measure it in terms of general funds
expenditures or as total expenditures. The prospect is only
that under the current financing structure, Medicaid will
continue to take funds away from other worthwhile public
purposes that are funded by State dollars, whether it be
corrections, public health, education, or whatever.
That is not a good prospect, and it does suggest, as Gail
indicated, that perhaps there needs to be some evaluation of
the financing structure of the program, especially one where
the program relies so critically on the availability and
stability of State funding as the primary source of funding.
All the important decisions about Medicaid programs are made by
the States, and they depend on the availability of State
revenues. The fundamental problem is whether States can sustain
this program, which they believe in and want to support and
have demonstrated their commitment to year after year by making
appropriations even though it took money away from other
worthwhile purposes. But even in the most optimistic of
projections, the growth in Medicaid costs will far outstrip
growth in State revenues.
Senator Craig. Let me add another question that you might
want to respond to, and then I will turn to you, Barbara. Can
we cut further without seriously risking further provider
defections from the program?
Mr. Smith. I think it is fair to say that every time
Medicaid makes a cut, it does have consequences. It has
consequences in terms of the health care services that States
make available. Medicaid only pays for services which people
need, and when you make cuts, whatever they may be, it has an
effect on the people who are served by the program. It also has
an effect on the providers who provide those services and have
a commitment to serve the low-income populations.
I think it is inevitable that when States are forced to
make cuts in provider payments--especially, as Gail pointed
out, when Medicaid is already kind of the low-dollar payer--
that that does have the effect of diminishing even further the
pool of providers who are willing to serve and accept Medicaid
as a source of payment.
So it is sometimes dramatic when you see a large group--in
the newspapers in the last couple days, there has been some
discussion about pharmacies possibly dropping out because of
cuts in payment rates--but it is not just pharmacies, it is
nursing homes, all of whom do not participate in Medicaid,
hospitals, all of whom do not participate in Medicaid, doctors,
dentists who do not participate in Medicaid. When Medicaid is
forced to make these cuts as they inevitably will have to under
the current structure, it will only further erode the
participation of the providers.
Senator Craig. Thank you.
Dr. Lyons.
Dr. Lyons. Yes, I would concur with what Vernon has said.
Thinking about the program, again, the majority of the spending
in Medicaid is on elderly and disabled folks; these are people
with serious, complicated, multiple health and long-term care
needs. So any discussions of cutting the program could have
very serious impacts on these populations who need access to
health care services.
Medicaid is also an important source of Federal funds to
the States, so I think that Vernon's testimony actually very
clearly lays out how much more money you lose by making a cut
in State funding because you lose those Federal funds as well,
and that money is very important to States' health care systems
that serve elderly and disabled populations.
Thinking about the future, I do think there are short-term
strategies which need to be considered which run the gamut from
trying to achieve more cost-efficient care, but also looking at
options to provide fiscal relief to the States, including
raising the Federal match rate, increasing savings through the
prescription drug rebate program, and providing some relief to
States for senior prescription drug spending.
I think those are important things that could be done
relatively quickly that would help States in the immediate
timeframe. Longer-term, certainly there needs to be a broader
discussion of whether there are better ways to provide care for
these populations as we look toward the future. That could
involve shifting responsibility from the States to the Federal
Government for certain aspects of Medicaid.
But those discussions are complicated, they are hard, they
affect States differently. They have implications for the State
budgets as well as implications for the Federal budget and so
require lots of discussion and debate to get to that point. But
looking at the budgetary problems that we are facing and the
aging of the population, these are discussions that we also
need to engage in.
Senator Craig. Karl.
Mr. Kurtz. Yes, Mr. Chairman. In terms of looking at
provider payments, I think that what we really need to look at
coverage areas--do we cover a service rather than reducing
provider payments--because the key element is that we have
adequate providers and providing access to that care.
I think the other challenge we need to work on, and we are
attempting to do, is getting our recipient enrollees engaged in
their own health care, and making their own decisions around
health care. That is one of the real encouragements I see in
terms of our Children's Health Insurance Program, is working
with those children--it is a long-term investment, as Gail
said--but getting those children healthy and getting them
educated about how do you become a good user of health care, so
it is not a crisis, but it is health prevention and wellness.
It is a long-term solution--it is not a quick fix--and some of
us need some quick fixes.
We have a number of proposals from advocates, providers,
and other groups for expanding Medicaid, and we have put a
freeze on those. We are not going to be covering new services
and/or new classes of people coming into the Medicaid program.
Senator Craig. Governor.
Dr. Riggs. Thank you, Mr. Chairman.
On the reference to quick fix, I agree there are no quick
fixes, because as I alluded to, I think the quick fix in the
legislative process is just to cut reimbursement. I think the
good news here is that I do believe there are greater
efficiencies. There are ultimately better ways to do these
programs. If there is some light at the end of the tunnel,
hopefully, what we are being squeezed by right now will get us
to be more innovative, because traditionally, we shift the
budget here, do this and that.
I would point out what I would call the confusion of having
Medicare, a program for those over 65, a medical program, and
yet if you have particular financial liabilities or lack of
funds, you also qualify for Medicaid. I think it is very
confusing not only for providers but for the recipients to have
this blending of programs. Then, of course, we get into the
debate of whether it is the Federal responsibility or the State
responsibility, so we have a blended--and a not very well-
blended--program of which criteria do you meet.
I would say that it would be far simpler if you are over
65--or whatever the age should be--you have Medicare, and if
you have means-testing, then you get the extended care services
and so on, rather than forcing this distortion of two models
that now overlap.
Let me add on the access issue that I do not think there is
any question that as things get tighter, access also gets
tighter. I would say that in Idaho, we have seen it, I have
seen it. I have known of physicians who have always accepted
Medicaid and Medicare who, with cuts in both programs, say it
is to the point of being below the operation overhead cost, and
they are just at a point--and we all know there is a nursing
shortage now nationally--so those costs have actually gone up.
You have forces that cannot coexist, and something has got to
give, and for some, it is access, just saying, ``I just cannot
afford to see Medicaid or Medicare patients any longer.''
Senator Craig. Concluding thoughts by any of you? I will give
you a minute.
Gail.
Dr. Wilensky. You have hit on one of the biggest weakness
in Medicaid, is the dual-eligible program. I agree with
Lieutenant Governor Riggs that having Medicaid and Medicare
overlapping programs is exceedingly expensive, is very clumsy,
and does not provide the best source of care. I would very much
rather have a Medicare program that had differential support
for differing income levels so that people were on one program.
We need to decide whether Medicaid should continue as a
Federal-State matching program. I thought the jig was up in the
nineties because of provider taxes and donations. The
foundation for cost control has been the State's share. States
have indicated that when pressed, State share does not mean
what the Feds think State share means. I believe we need to
rethink the right program for the low-income population.
Finally, who gets to pay for long-term care. The proposals
used to be that the Feds would take acute care, and the States
would take long-term care. I was amused to notice in the last
round of the National Governors' Association proposals, they
proposed giving long-term care to the Feds, and they would take
acute care. We clearly have not yet had a fulsome discussion
about where long term care should be, who should control it,
and who should pay.
Senator Craig. Concluding remarks from anyone else?
Dr. Smith.
Dr. Smith. I would just like to build on what Gail said and
what Lieutenant Governor Riggs also said in terms of the
blending or the coordination between Medicare and Medicaid. I
think this is really one of the key issues that needs to be
looked at today. These two programs, established by the same
Federal law, based on the Social Security Act, should work
together; but in fact they do not work so well together. There
needs to be some effort, which would require some change in
Federal law, in order to have these programs work in a
coordinated way so they work together, and they work together
for the good of the patients as well as the providers.
I would also suggest that there are some things just in
terms of thinking about how to deal with the solution. Gail
referenced who is responsible for what, but I think you could
certainly build a case that the Federal Government has
responsibility for the seniors, and that might in fact be a
place where States could be provided some of the fiscal relief
that they need if in fact the Federal Government were to assume
the greater share of financing for the services that Medicaid
provides to this group.
We do have a situation that needs to be looked at. When
States have this shortage--I was just thinking about Idaho and
the other 10 or so States that have Federal matching rates for
Medicaid at around 70 percent--when the State budget dictates
that cuts have to be made, States have to cut. In the case of
Idaho and these other 10 States, to save $1 million for State
funds to apply to the shortage, you have to cut the budget by
around $3.5 million. And it is the $3.5 million that has the
impact on the providers and on the beneficiaries in those
States. If there is some way that we can address that so that
States can better finance the program, that would be good.
Senator Craig. We have just been joined by one of my
colleagues and a member of the committee, Senator Carper, and I
will turn to him, before we release you, for any opening
comments he might have or questions of you.
Senator.
Senator Carper. Thank you, Senator.
I want to welcome each of you. Thanks for joining us today.
It is nice to see some of you again and to meet others for the
first time. I understand one of you is from Idaho, and you
might even know the Governor there, who used to serve here. I
had the pleasure of serving with him when I was Governor of
Delaware and a member of the National Governors' Association.
Would you give him a message for me?
Dr. Riggs. Certainly.
Senator Carper. I used to encourage him to consider at some
point in time seeking the chairmanship of the National
Governors' Association, which as you know rotates from Democrat
to Republican. The current chairman is John Engler of Michigan,
and succeeding him will be a Democrat, Paul Patton of Kentucky,
and there will be a vacancy for the position of vice chairman,
which will go to a Republican. Just tell your Governor that I
cannot think of a better candidate than him.
Dr. Riggs. I will relay that back.
Senator Carper. I used to encourage him to do that; I said
he was just made for the job. He will do a great job. Give him
my best.
Dr. Riggs. I will relay that message this evening.
Senator Carper. Thanks very much.
I apologize for arriving a bit late. We have been holding a
hearing over in the Commerce Committee, where I testified with
respect to future passenger rail service for our country.
I am not going to ask each of you to repeat your testimony;
I have a copy of it and will have a chance to review it later.
What I will ask you to do is to take 30 seconds apiece, and
say, if there is nothing else that the Senator from Delaware
walks out of here with, I want him to keep this in mind. Just
take 30 seconds. If he remembers noting else, this is what I
would like him to keep in mind. I will just ask each of you to
give me your best 30 seconds for the long haul, please.
Lieutenant Governor, do you want to take the first shot?
Dr. Riggs. Certainly. I would say that with the coming
``age wave,'' if we think we have problems now, we have no idea
what a few years will hold for us. It is just time to do a
redesign of both Medicare and Medicaid and really create some
efficiency and look at the whole system and build a better
model. It is time.
Senator Carper. Thank you.
Mr. Kurtz. Senator, I am Karl Kurtz from Idaho. Looking at
how we can get a handle around prescription drugs, the impact
that seniors have on our Medicaid program in the area of
prescription drugs, would be a take-home message; how do we as
a partnership between Federal and State, our providers, and the
clients that we serve build a better mousetrap in terms of
prescription drugs.
Senator Carper. Thank you.
Dr. Wilensky. In the short time the States have to respond,
they are probably going to respond by reducing provider
payments. I think the biggest danger is for nursing homes,
where Medicaid is the dominant payer. There is not a lot left
there.
In the medium term, you can have better delivery of
services. There are smarter ways through disease management and
other kinds of programs, clinical protocols for the better use
of new prescription drugs. But ultimately, we have to decide
what Medicare should look like and what Medicaid should look
like--Medicare for the baby boomers and Medicaid because it is
not clear that the Federal-State partnership that was set up in
the 1960's makes sense for the 21st century.
Senator Carper. Thank you.
Ms. Lyons.
Ms. Lyons. Medicaid is an essential source of coverage for
low-income seniors, families, and others with disabilities. As
we try to deal with these current budget stresses, I think it
is critical that we remember that if States are forced to cut
back either by lowering provider payments or cutting
eligibility, the needs do not go away; so it shifts those needs
to families and to providers who do not get compensated
adequately for providing care. So policymakers need to address
the financing of Medicaid to shore it up and strengthen it as
the safety net program it has been for the past 35 years.
Senator Carper. Thank you.
Mr. Smith.
Mr. Smith. Medicaid has grown so fast over the last decade
that it has become as large as Medicare, even larger in terms
of the number of persons served--44 million compared to 40
million. The costs of the program have put stress on the States
and their ability to continue to finance the program. As a
result, they have had to undertake serious reductions in the
program, and there needs to be a review of the structural
financing of the program if it is to be successful into the
future as it has been in the past.
Senator Carper. Last week, we voted by a fairly wide margin
to pass an economic stimulus package and sent it to the
President, which he has signed. I did not support it. I
actually supported a more expensive package back in October,
November, and December, but I thought March 8 was a little bit
late. The package that we passed, I said to one of our
reporters back in Delaware that if I were the Governor of a
State right now, especially a State that was hurting for
revenues, I would be having a heart attack; and if I were the
budget director for a State that was having a tough time with
revenues, I would be in intensive care, given the effects,
specially for those States that piggyback on the Federal Tax
Code, and given I think the very positive effect that the
accelerated deprecation will have on business investment that
we need, by the same token, it serves to undercut State tax
revenues rather considerably in my State and I know in other
States.
In earlier versions of the bill, we had an offset to help
States particularly on the health side, but we could not work
out a consensus there.
In Idaho or any other States that are represented here, how
are you going to deal with the impact on your revenues and your
mounting Medicaid costs?
Dr. Riggs. You pose an excellent question, and I am not
sure that we have an excellent answer. We pieced together our
budget for this year--the legislature will probably adjourn
tomorrow--and it is razor thin. We have gone to every available
source of revenue that we had, the budget stabilization funds
and those sorts of thing, and there just is not money sitting
anywhere.
The only approach left for those who want more services,
whether it be in this area or in education in Idaho, would be
to raise taxes. Clearly, there is nowhere else to go. So it has
been a challenge.
Again, you all know the state of the Federal budget just a
year ago; to see such a drastic change in 12 months has been
truly remarkable, and it has been a challenge. That is why my
sense is that we are going to squeak by right now, but with the
problems that we see looming in the very near future, we will
not be able to get by because of the number of elderly that are
going to be coming into the system. It will not work.
Senator Carper. Other comments?
Mr. Kurtz. Looking specifically at the impact on our State
revenues, there are estimates between $25 and $75 million over
the 3-year period. In a State where we only generate a little
over $1.9 billion in tax revenues anyway, that is a significant
item. We were haggling between the departments and the
legislature about $1 million quite often; so a $25 million
swing is a significant point of discussion.
Senator Carper. I am sure it is.
Lieutenant Governor, go ahead.
Dr. Riggs. If I could add--and this was part of my
testimony before you arrived--my fundamental belief is that
whatever system we have, it is the economy through our tax
structure that creates the revenues for whatever the system is.
So that most fundamentally, I believe that whatever we can
do to keep the economy strong is very, very critically
important. I see obviously the relationship that----
Senator Carper. Yes. Unless you have a strong economy and
the jobs and revenue that flow from that, you do not have much.
I understand that in Delaware, and clearly you do in Idaho.
It is good to see you all. Thank you very much for joining
us today and for your testimony.
Senator Craig. Let me thank the first panel for being here
and for your contribution. We greatly appreciate it.
Thank you.
Let me ask our second and final panel to come forward,
please.
Thank you both for being here. Our second panel this
morning will focus on senior services programs. We will hear
from Joan Lawrence, Director, Ohio Department of Aging, and
Barry Donenfeld, Executive Director, Mid-Willamette Valley
Senior Services Agency, as well as the current President of the
National Association of Area Agencies on Aging. We thank you
both for being here.
Joan, please proceed.
STATEMENT OF JOAN W. LAWRENCE, DIRECTOR, OHIO DEPARTMENT OF
AGING, COLUMBUS, OH
Ms. Lawrence. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before this committee, whom we in the
aging network count on for the kind of oversight you do and the
ideas that you generate.
We are glad you chose Ohio to be part of the panel. We
think we are really representative of the Nation in many ways.
We are very diverse--we are rich, we are poor, we are urban, we
are rural; and I think something that a lot of people do not
know is that one-third of our counties are Appalachian, so we
have a significant number of problems that accrue to being in
that area.
I am Director of a Cabinet-level agency, but I am not the
Medicaid agency. We have a contract with the Medicaid agency
for our home health program. It represents nearly two-thirds of
our budget at this time, and it is fast-growing--or, it was
fast-growing, at least. We were serving 25,000 nursing home-
eligible seniors. That may change a bit with the funding
changes.
Our funding in the department is basically 58 percent
Federal, 42 percent State, and at the local level, 51 of our 88
counties have senior levies of some kind to enhance services.
I am hitting my 71st birthday this year, so I am one of
those seniors who is healthy and generally enjoying life, but I
am here today to represent the others who are not.
I was glad--no one picked up on it in Lieutenant Governor
Riggs' testimony--he referred to a proposal to change the way
we look at seniors in Medicare to a group called ``pre-
seniors'' who are 65 to 75. I like that.
Senator Craig. I am soon going to like that also.
Ms. Lawrence. Well, there is a lot of truth to it, too, and
we should look at the populations differently. Eighty-five and
over is where the problem really hits home the most.
The economic downturn has had a significant effect on
Ohio's seniors. We have had, as has everyone else, shrinking
personal income and sales tax revenues. Before the budget was
even cold, in addition to a 1.5 percent cut we made through the
budget process, another 6 percent cut. For the first time in
some time, our in-home health program, which we call Passport,
was affected. Normally, we have been protected from those cuts.
The 6 percent cut produced waiting lists immediately. It was
drastic--going from 700 per month enrollment to 500--and
managing that enrollment is very difficult. In just 2 months,
we had over 1,000 on the waiting list, and of that 1,000, 15
percent, or 150, entered nursing homes directly.
Interestingly, we are going to be able to demonstrate to
the Governor--and I hope it will do some good--that the amount
of general revenue we saved in our home health program is going
to be equal to the amount we spend on the increased nursing
home placement, even though it is only 15 percent. So I am
hoping that that might make a difference in the future.
It is compromising our ability to implement the Olmstead
decision and will continue to do so. Our waiver cost is about
$11,200 including administration. Nursing home average is
$52,000. So the difference in cost is quite significant. Here
is where we come to you. Part of the problem is that the
Medicaid program is biased and has been since it was created
toward institutionalization. Medicaid will pay--it is an
entitlement--if you are Medicaid-eligible, nursing home-
eligible, Medicaid pays, there is no question about it.
There are cheaper alternatives to nursing home placement,
but because Medicaid does not pay for it--it does not pay for
room and board, does not pay for other services--we cannot use
that opportunity for some of our clients.
The Governor is very eager to implement our report on
``Ohio Access for Persons with Disabilities'' and is severely
limited in doing so because of the way we fund these services.
We are hoping that some of that will change. I talked to
someone recently who is working with getting people out of
nursing homes who could live at home if they had the ability to
have the money follow them. She has 25 people waiting, and she
is struggling to find housing and other services.
We even have a waiver in our State budget to allow 200
people to get some extra money so they can move out of nursing
homes if they are able to, with health and safety, and we can
hardly find 200 because the funding to pay for the housing is
just simply not there.
I thought--and I feel like I want to say it because at this
point, no one has mentioned it--Illinois just recently got a
waiver from CMS for prescription drug coverage, and CMS did
something that I think is very helpful. They said that if any
other State wants to follow exactly what Illinois proposed,
they could do it without going through the waiver process. I
think that is a step in the right direction, and I hope they
will continue along that track.
I have several examples of how senior services have been
affected--I will let you read them--but one thing that really
surprised us was that the waiting lists for home-delivered
meals have doubled in some areas of the State just in the
recent period of time.
So what we suggest to you in general is that we should help
people help themselves. Most long-term care is done by friends,
neighbors, family, as you know, and I think Congress can be
very, very proud of the National Caregiver Support Program that
was enacted with the reauthorization of the Older Americans
Act. It is making a big difference. I think you are going to
see good results. It really does help people who are doing all
the work.
We have to give people real choice in long-term care. That
is a real challenge for you, and you have heard that you really
do have to look at Medicare and Medicaid together--you just do.
When I hear our Medicaid director suggest that a program does
not make any difference in Ohio because it saves Medicare
money--that it does not save Medicaid anything--that is
something I think we need to somehow nip in the bud.
We have to support people in their efforts to plan for
long-term care. We just put on the web last week a Long-Term
Care Consumer Guide that incorporates not only the regulatory
information and the basic facts about nursing homes--all of
them--but includes for the first time family satisfaction
surveys, and it will include by the end of the summer resident
satisfaction surveys; we are in the process of doing those now.
Finally, I will just agree with everyone else about
prescription drugs. It would be a critical place to start. The
Governor is trying to get a drug discount card in place through
the legislature, a little different from what the President is
proposing, and we are having trouble. The pharmacists claim it
will drive them out of business and similar things that you
have probably heard.
So the effort goes on in Ohio and in the rest of the
Nation, and I thank you for listening.
Senator Craig. Joan, thank you very much.
[The prepared statement of Ms. Lawrence follows:]
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Senator Craig. Now let us turn to Barry Donenfeld,
Executive Director, Mid-Willamette Valley Senior Services
Agency, and currently President of the National Association of
Area Agencies on Aging.
Thank you, Barry.
STATEMENT OF BARRY DONENFELD, EXECUTIVE DIRECTOR, MID-
WILLAMETTE VALLEY SENIOR SERVICES AGENCY, AND PRESIDENT,
NATIONAL ASSOCIATION OF AREA AGENCIES ON AGING, SALEM, OR
Mr. Donenfeld. Thank you, Senator.
Ranking member Senator Craig, Senator Carper, good morning.
I am pleased and honored to be able to visit with you for a few
minutes this morning.
I am the Area Agency on Aging Director for Marion, Polk,
and Yamhill Counties in Northwest Oregon. My testimony today
will have three parts--sharing with you from NAAAA's national
perspective some reflections on the difficulties older persons
are having due to the economic downturn; briefly describing
Oregon's community-based approach to long-term care; and
discussing some innovative and cost-effective ways that our
agency has stretched limited resources, improved and enhanced
services, and prepared for the future.
As I discuss these different topics, I will try to just
touch on important themes and refer you to my detailed written
testimony for lots more information and lots of statistics.
I will start with information gathered by NAAAA. AAAs
typically serve older women having difficulties with daily
tasks like bathing, eating, and dressing. AAAs throughout the
country report that they are working more and more with
vulnerable and hard-to-teach individuals as well as persons
with disabilities.
For the last year and a half, NAAAA has heard repeatedly
from AAA directors through the country that things are tough
and that seniors are needier than ever. The economic downturn
is definitely affecting older people. Here are a few anecdotal
snapshots from around the country.
New York City--and I would like to qualify this by saying
that very little of this is related to the events of September
11; these events were in play prior to those horrible events--
New York City has a $36 million cut to their Department of
Aging. To absorb those budget cuts, they are eliminating
weekend meals, they are shutting down seven senior centers,
they are eliminating plans to build four new senior centers,
they are eliminating service contracts, and they are reducing
all of their contracts across the board.
In Alabama, it has been reported that there is a 50 to 75
percent increase in requests by seniors for employment
assistance, with the greatest increase occurring since August
of last year.
My home State of Oregon has been hit hard as well. We have
the highest unemployment rate in the country, and we are not
recovering yet. At my agency, we have experienced a projected
20 percent annual growth rate in requests for public
assistance. Our local utility companies report between a 16 and
37 percent increase from this same time last year in requests
for payment assistance, and many of the individuals requesting
such assistance are in fact seniors.
My State of Oregon has a reputation for long-term care
innovation. Most of that results from listening to our older
residents and realizing from our own experience that nursing
homes cost four times more than community-based care. I talk to
lots of seniors, as I am sure the distinguished Senators do. I
have never heard a senior say to me--and you probably never
have, either--``I want to go to a nursing home.'' It simply
does not happen.
Using Federal Medicaid waivers, Oregon has figured out a
way to minimize nursing home placements while maximizing
community-based options. We save lots of money, and we use it
to serve lots more people in the ways that they want to be
served.
We are the only State in the country that has fewer people
in expensive nursing home care than we did 20 years ago. The
Oregon long-term care system serves seniors and people with
disabilities with a one-stop shopping approach. Most of the
system is administered through local AAAs like my own, whose
staff serve as navigators and gatekeepers.
Also, as we developed options for Medicaid clients, these
choices became available for older adults and people with
disabilities who are not eligible for Medicaid, allowing them
to stretch their personal resources further and delay or
eliminate reliance on public resources.
A final part of my testimony today will focus on ways in
which our agency has strategically viewed threats such as
funding decreases and other challenges such as demographics as
opportunities for innovation and creativity.
Oregon is graying faster than most States. People 85 and
older are the fastest-growing age group in our State. They will
double in 20 years. Nearly one in five is low-income, and 50
percent have significant long-term care needs. As this group
ages and the boomers join them, the demands and pressures, as
you have heard from previous witnesses, on the long-term care
system will be staggering.
At our agency, we have taken a variety of actions to
respond to these pressures. We have developed lease-purchase
arrangements that will allow us to own two buildings and land
after 15 years. For both buildings, planning began with
feasibility studies that revealed that the cost of purchasing
an operating space would actually cost less than continuing to
lease commercial space. In 15 years, when we are no longer
paying rent, we will have $500,000 a year to plow back into our
programs.
Ten years ago, we began an innovative way of stretching
limited Title III-C nutrition funds by developing a seven-
county partnership with two other AAAs, Oregon Cascades West
and Lane Council of Governments. Currently, this partnership
provides 650,000 meals a year to about 11,000 seniors in 32
communities. The economy of scale created immediate financial
rewards for all three agencies. The initial rate for the meals
was down 12 percent. Today, 10 years later, we pay 69 cents
less per meal than if the consolidation had not occurred.
During this project, the three programs have realized a savings
in excess of $1.8 million--a lot of money in a small State like
Oregon.
If all we had done was save money, this consortium approach
to Older Americans Act nutrition services would have been a big
success. But we were not only able to cut costs but also to
improve and enhance the actual meals service through the
reinvestment of savings. We started a dual-entree system,
including one ``heart-healthy'' choice per day. We have a high-
quality program featuring from-scratch cooking tailored to the
tastes of Northwest seniors, and we started a frozen meal
program that provides weekend meals, serves rural communities
too small for a meal site, and gets homebound meals to
geographically isolated individuals.
Since this frozen meal program began in 1996, it has grown
by nearly 62 percent, all paid for with savings from the
reinvention of how we contract for the noon lunch program.
Building upon the successful food service consortium, we
are jointly contracting for in-home services with the same
partners. We do not expect to leverage the same type of savings
as the food project, but we have already stabilized costs and
made sure that we are always likely to have a stable in-home
services contractor in place.
Thank you for the opportunity to share this information
with you. I hope I have offered you some suggestions that can
be replicated in other parts of the country. I look forward to
answering your questions.
[The prepared statement of Mr. Donenfeld follows:]
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Senator Craig. Barry, thank you very much. I have watched
Oregon from Idaho for a good number of years, and I know that
in the areas that you are involved with, there has been a great
deal of effort to innovate and create different approaches.
This would be a question for both of you. First, Joan, and
then, Barry, you mentioned that you had ``saved lots of
money.'' But Joan, in your testimony, you cited a startling
statistic that Ohio's home- and community-based Passport
Medicaid waiver program keeps people out of nursing homes and
in their homes for about $11,000 per year versus $52,000 a year
that a nursing home would cost--and yet you testify that Ohio
this year is cutting the Passport program and not nursing home
care.
If the cost-effectiveness of home-based care is as dramatic
as you say, I guess I would have to ask why is the legislature
doing that? But I would also then ask the question of Barry,
can you give us some similar analyses, particularily because
you have spoken to similar savings that have occurred in Oregon
by shifting away from institutional care and toward home and
community-based care?
Ms. Lawrence. Thank you, Mr. Chairman.
Actually, the 6 percent cut came from the administration.
As you know, States have to have a balanced budget, so it was
simply that we had to come up with--I think it was $1.5 billion
that they were looking for. They protected Medicaid from cuts--
--
Senator Craig. So it was a holdback based on budgets?
Ms. Lawrence. Yes. There was no real discussion of whether
or not to cut nursing homes per se. There is going to be
conversation not just about nursing homes but about hospitals.
We have already negotiated, as some of the other speakers have
alluded to, a change in our prescription drug reimbursement. We
are going from the average wholesale price minus 11 to average
wholesale price minus 9--or am I saying it the wrong way--in
any event, the way it saves more money. The pharmacists are
challenging that, but I suspect it will hold up.
So our Medicaid director has listed a variety of things
that might keep us in check. She did, however, testify at the
legislature a week or so ago that she felt that through the end
of this fiscal year, through June 30, she would not have to
propose additional cuts. Next year, the Governor is assuming
that some of the cuts will continue, including ours. When I
said I was hoping I could get him to change his mind, it was
for next year; I am going to be saying just what I said here.
Senator Craig. I see.
Barry.
Mr. Donenfeld. In our State, I think we have had the
opposite experience. We have been on a 20-plus-year journey of
essentially having as many of the people who qualify for
Medicaid long-term care be in community-based settings as
opposed to nursing homes, to the point where now only one in
four of our Medicaid long-term care clients are in a nursing
home setting, and the other 75 percent are in some type of----
Senator Craig. But comparatively speaking, how much does
community-based care save over what would be a contemporary
nursing home cost?
Mr. Donenfeld. Our community-based rate, which is then a
blend of all the different community settings, some higher and
some lower, runs at about $785 a month, and our nursing home
runs at around $2,800 a month--so roughly four-to-one. That has
been fairly consistent over the 20 years. The rates, of course,
over that period of time have all gone up due to inflation, but
that ratio has remained fairly constant.
We have also learned that any time we have attempted to
reduce access to community-based options, the nursing home
counts do in fact go up, and you wind up spending the same or
more dollars because of the entitlement to the nursing home
placement than you do, and you are serving people in ways that
they do not wish to be served.
So we have deliberately, I think, in a bipartisan way in
Oregon prioritized maintaining the community-based side of the
long-term care system as a very high priority.
Senator Craig. One last question before I turn to my
colleague. Mr. Donenfeld, you singled out specific ways that
you and your programs have stretched existing dollars to better
maximize service to seniors, and I am particularly interested
to your approach of pooling resources and purchasing among
different area agencies on aging in your region.
In your experience in Oregon and as the national President
of the Association of Area Agencies on Aging, do you believe
that this kind of pooled approach could or should be used more
widely nationwide, and can such pooling and group purchasing be
done in the absence of special waiver circumstances such as you
have in Oregon?
Mr. Donenfeld. Let me try to answer all of those questions.
Yes, I believe it could be done in many parts of the country.
This is an Older Americans Act program, so it does not require
any special waivers. It is something that each State could do,
depending on the view of the State Unit on Aging toward these
arrangements. Our State Unit on Aging was extremely receptive
and extremely cooperative, and I would imagine that most of the
State Units on Aging would be with a project like this that has
the ability to both stretch resources and actually improve the
daily quality of the program at the same time.
Should it be used? I think that in our area, it was
relatively easy to make that decision because the population
dynamics of the seven counties are very similar. The profile of
the older people who live in the seven counties, even though
they are served by three different agencies, is very similar.
So I think that in places where those kinds of similar
profiles would exist, it would be very simple to take this
approach. In other parts of the country--take the San Francisco
Bay area, where there are multi-ethnic and cultural groups,
many of which have separate meal programs that serve ethnic
food based on the diversity that exists there--it might be much
harder to take that kind of approach, because a contractor
would not get the economy of scale that he got from being able
to cook the same menu for essentially three times as many
people as he would if each of us had bid our program
separately.
Senator Craig. I see. Good point.
Mr. Donenfeld. So I think that is applicable in many parts
of the country where there are geographically contiguous areas
with similar profiles; in other areas, it may not be so
applicable.
Senator Craig. Thank you.
Let me turn now to my colleague, Senator Carper.
Senator Carper. Ms. Lawrence, where do you live?
Ms. Lawrence. I live just north of Columbus.
Senator Carper. In Worthington?
Ms. Lawrence. Close.
Senator Carper. Where?
Ms. Lawrence. Southern Delaware County; close to
Worthington.
Senator Carper. No kidding. I am from Delaware.
Ms. Lawrence. Whom do you know in Worthington?
Senator Carper. I went to Ohio State; I know a lot of
people there. I went to Whetstone High School, graduated from
Whetstone High School.
Senator, if you will just indulge me, I went back to my
high school reunion about 2 years ago. I was Governor then, and
I drove in with a State trooper. We were trying to find this
golf club where they were having the reunion for Whetstone High
School. It was getting close to 7 o'clock, and at 7 o'clock,
they were supposed to take the class picture, and the last
thing I wanted to do was to miss being in the class picture
having driven all the way from Delaware to be there for the
event.
If you know where the Columbus zoo is, this golf course was
close to the Columbus zoo. We found the zoo, but we could not
find the golf club. So it was 6:45, and time was bearing down
on us, and we decided to stop at a convenience store and get
directions.
A friendly looking fellow was coming out of the convenience
store, and I said, ``Sir, we are trying to find my high school
reunion. It is at such-and-such golf course. Could you tell us
where it is?'' He said, ``It is not far away. Go down there,
take a left, then a right, and it is about a mile.'' We said
thanks a lot, and he asked, ``Where are you from?'' I said, ``I
am from Delaware.'' He said, ``What do you do there?'' At the
time, I was Governor of Delaware, and I said, ``I am the
Governor.'' Keep in mind, for people who do not know, that
Delaware is a little town 30 miles north of Columbus. He said,
``Well, I work in Delaware almost every day of the week.'' I
could just see this guy going to work on Monday morning,
saying, ``I did not know we had our own Governor. I thought
Taft was Governor. I met this guy at the convenience store, and
he said he was the Governor.'' [Laughter.]
Ms. Lawrence. I believe it--and I think, by the way, in
Delaware County at last count, we had 30 golf courses, so no
wonder you could not find it.
Senator Carper. I served with Bob Taft, your Governor, and
he is a good friend, he and Hope, so when you see him, give him
our best from the ``other'' Delaware, if you would.
Would each of you take a minute and describe for us the
prescription drug assistance programs that your States offer to
senior citizens?
Ms. Lawrence. Well, my description, Mr. Chairman, Senator
Carper, is not going to be very long because unless they are on
Medicaid, we do not do much. We do have in our department a
Golden Buckeye Card program which offers 10 percent discounts
in retail stores that participate, and many of the pharmacies
do.
The Governor this session of the legislature has been
trying to get, with our help, an extension of that discount so
that it could be more like 20 percent, or 25 percent, with help
from the pharmacists and with help, we hope, from the
manufacturers with rebates through, perhaps, a prescription
benefit manager. But that bill has not yet made it through the
process, largely because the pharmacists and the retail chains
are very upset that some of that discount comes out of their
pockets.
We are still hopeful that we can get it. I keep thinking we
should be able to turn the argument, because the pharmacists do
grant those discounts to everybody who has insurance coverage
or who is on Medicaid, but this last full-paying customer, the
senior without coverage, is to pay full price so that they can
protect their profit margin.
In any event, we do hope we get it. Unfortunately, I do not
have any other piece of decent news. There are a lot of people
talking about the tobacco money, so they set aside $500,000 for
prescription benefit assistance, but no one has been able to
figure out how to use it effectively. They are considering
using it now for advertising the existing discount card
programs, which most seniors do not know exist.
So that is not a very good answer, I am afraid.
Senator Carper. But a straight answer. Thank you.
Mr. Donenfeld.
Mr. Donenfeld. Senator Carper, Senator Craig, my answer
would be very similar. Unfortunately in Oregon, we do not have,
other than as Joan mentioned, for Medicaid beneficiaries a
prescription drug assistance program at all. Our legislature in
its last session set aside some funds to start one next fiscal
year, which have been cut as a result of our recent budget
crisis. It was a very small amount of money, and it was going
to provide limited assistance to the poorest of the poor, and
now that is not going to happen at all.
So I do not know--given our current budget deficit, with
the changes that you referred to, Senator, from the economic
stimulus package--there was a report in our local paper
yesterday that Oregon is going to lose $148 million from those
changes, which brings our budget deficit up to about $1
billion. I do not think we will get there any time soon.
Senator Carper. OK. In our State, we have taken a
combination of funds from a foundation, moneys that are donated
by a foundation for the purpose of providing for some of the
medical needs of our poorest elderly citizens, and we have
added to that a portion of moneys that we have received through
the tobacco settlement, and we provide prescription assistance
to senior citizens, people 65 and over, people who are disabled
and unable to work, up to about 200 percent of poverty. In our
little State, we have about 750,000 people, but we are able to
literally serve the needs of thousands and thousands of people
now.
We do not use all the tobacco money for this purpose, but I
would say maybe a bit less than half of it. That will probably
grow over time.
Delaware is not alone in providing that kind of
prescription assistance. Our neighbors in Pennsylvania and
other States do as well. Senator Craig, Senator Breaux and I
and others are mindful of the interest and I think compelling
need for a prescription drug program within Medicare. I think
that if we were inventing Medicare anew today, we would include
in it a prescription assistance program, because there are so
many things that we can do with prescription medicines today
that we could not do in, say, 1965.
I think of my own mom, who is an Alzheimer's patient and
lives in a nursing home now in Kentucky, close to my sister and
close to my mother's sister. She takes any number of
prescription drugs which help keep her alive that frankly were
not around when Medicare was created. They actually help to
give her a pretty decent quality of life given the fact that
she has fairly advanced Alzheimer's disease.
We are only going to get better at developing new
pharmaceuticals to treat, whether it is Alzheimer's or
Parkinson's disease or a variety of other maladies which make
the later years of our lives, and sometimes not so later years
of our lives, pretty unpleasant. It is important that we have
the ability to ensure that as those medicines are developed and
can help keep people out of nursing homes or keep people out of
hospitals, they are made affordable and available to those who
need them.
One of the challenges for us--and it always comes down to
money; we have talked about that already, but it always comes
down to money--one of the challenges for us is to take the
roughly $300 billion that we put in our budget resolution a
year ago for Federal prescription drug assistance and to use
that to help meet a portion of the need. It does not begin to
meet all of the need that exists.
Someone told me last year that if you added up all the
expected or anticipated prescription costs for people 65 and
over for the next decade, it would add up to several trillion
dollars. Well, let us just say that that several trillion is $3
trillion--it might be a little more, it might be a little less;
we will just assume that it is $3 trillion--and he Federal
Government comes in with $300 billion. There are a lot of
people in our country who get prescription benefits from an
employer; they are retired, and they receive some help from
their employers. What is important for us is that we actually
do agree on a prescription assistance program, and if it is
$300 billion or $350 billion or $250 billion, what is really
critical is for us to design something so that we do not induce
other States to pull out and withdraw their coverage, or that
we do not induce other employers--in my own State, Dupont,
Hercules, Chrysler, General Motors--they need to stay in the
game, providing prescription assistance for their retirees, and
for foundations, like the Nemours Foundation in my States,
which helps as well.
So the key for us--and it is a tricky one--is, as we
develop a program for the Federal Government to provide
assistance to some of the neediest people, that we do not
provide an incentive for others to cut and run. Right now for
States, given the kind of revenue situations that a lot of our
States are facing, if there were a Federal program and States
had the opportunity to cut their costs in this area and simply
shift the burden over to the Federal Government, my guess is
that one or two would.
Ms. Lawrence. You would hear the great sucking sound.
Senator Carper. You surely would. That is one of the
challenges that we face and one that, as we go forward, we
would welcome your help in addressing.
Ms. Lawrence. Mr. Chairman, Senator, you are absolutely
right, and the more you leave us hanging out here without
prescription drug coverage, the more of us will attempt to come
up with something. The maintenance of effort is going to be
real challenge. There are some good programs. I wish we could
do what Delaware did, but we are a bigger State, and it makes a
difference in the ability to even dream about it.
I read recently about an individual city in Kentucky that
has put together the kind of package Delaware did--a foundation
and then manufacturers' rebates--and they are covering everyone
up to 200 percent of poverty. No one has to worry about a
prescription. That is good, but of course, it is just that
city.
Senator Carper. It is really good unless you are at 201
percent of poverty, and you have a huge prescription drug need.
You cannot wipe every tear from every eye, but we are doing our
best to help where we can.
Ms. Lawrence. Mr. Chairman, Senator Carper, you are right.
The hard part is for you to design something that does not take
away all that is already going into it, but I want to go back
to something I said about nursing home placement versus home
and community-based care and the need for alternatives.
One of the questions we get from the Federal level but also
from the State level is if we were to add an ability to pay for
assisted living to some extent as a first step--we keep people
in home and community-based care, and 50 percent of them
eventually do go to a nursing home, but if half of that 50
percent could go in the interim for a year or whatever they
could to an assisted living facility, that is a savings right
there. How do you keep that from expanding to a much bigger
coverage group? Well, one way would be to tie it to the waiver
program recipients; start with the people who are already
receiving in-home care and can no longer safely stay at home
and let them use another system in between.
That would be one way to try to control the costs but do
something that is cost-effective.
Senator Carper. Thank you.
Thank you, Mr. Chairman.
Senator Craig. Thank you, Tom.
Joan, Barry, thank you very much for your time and your
testimony. It is extremely valuable as we wrestle with this
sizable problem in our country that begs for a solution now.
Tom has mentioned his interest, and I share that interest.
I hope we can step back from the politics of the issue and look
at it anew and design a new Medicare prescription drug program
for this country that accomplishes what we want to accomplish
as far as seniors and still allows that level of community
participation that you are talking about, which is every bit as
important for the payment. What is most important is the
community involvement in the caring for our seniors. I do not
think we ever want to create a Federal program that just does
it all, the character of our country being what it is. I think
community involvement will be an extremely valuable part of any
solution--the dynamics of those communities, large and small,
who reach out, provide for, and participate in the caring for
this particular demographic group which is a pretty darn
valuable group.
Thank you all very much. The committee will stand
adjourned.
[Whereupon, at 11:21 a.m., the committee was adjourned.]
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