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S. Hrg. 103-168 ADMINISTRATION'S 1994 HEALTH BUDGET Y4.F 49: S. HRG. 103-168 A*ni»islr*tio»'s 1*94 Ilealtfc Budget. HEARING BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION APRIL 1993 1, ocr <?5 Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 70-096-CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-041401-6 S. HRG. 103-168 ADMINISTRATION'S 1994 HEALTH BUDGET I.F 49: S.HRG. 103-168 »istr*tiot's m<t Itealtk Burfjet... HEARING BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION APRIL 1, 1993 OCT ?5 Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 70-096—CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice,Washington.DC 20402 ISBN 0-16-041401-6 COMMITTEE ON FINANCE DANIEL PATRICK MOYNIHAN, New York, Chairman MAX BAUCUS, Montana BOB PACKWOOD, Oregon DAVID L. BOREN, Oklahoma BOB DOLE, Kansas BILL BRADLEY, New Jersey WILLIAM V. ROTH, Jr., Delaware GEORGE J. MITCHELL, Maine JOHN C. DANFORTH, Missouri DAVID PRYOR, Arkansas JOHN H. CHAFEE, Rhode Island DONALD W. RIEGLE, Jr., Michigan DAVE DURENBERGER, Minnesota JOHN D. ROCKEFELLER IV, West Virginia CHARLES E. GRASSLEY, Iowa TOM DASCHLE, South Dakota ORRIN G. HATCH, Utah JOHN B. BREAUX, Louisiana MALCOLM WALLOP, Wyoming KENT CONRAD, North Dakota Lawrence OT)onnell, Jr., StaffDirector Edmund J. Mihalski, Minority ChiefofStaff (II) CONTENTS OPENING STATEMENTS Page Moynihan, Hon. Daniel Patrick, a U.S. Senator from New York, chairman, Committee on Finance 1 Packwood, Hon. Bob, a U.S. Senatorfrom Oregon 3 Conrad, Hon. Kent, a U.S. Senatorfrom North Dakota 4 Grassley, Hon. Charles E., a U.S. Senatorfrom Iowa 4 Pryor, Hon. David, a U.S. Senator from Arkansas 5 Riegle, Hon. Donald W., Jr., a U.S. Senatorfrom Michigan 18 Breaux, Hon. John, a U.S. Senatorfrom Louisiana 20 Daschle, Hon. ThomasA, a U.S. Senator from South Dakota 22 Durenberger, Hon. Dave, a U.S. Senator from Minnesota 24 COMMITTEE PRESS RELEASE Finance Committee Schedules Hearing on Administration's 1994 Health Budget 1 ADMINISTRATION WITNESS Shalala, Hon. Donna E., Ph.D., Secretary, Health and Human Services, Washington, DC 6 PUBLIC WITNESSES Schenken, Jerald R., M.D., member, board of trustees, American Medical Association, Omaha, NE 29 Scheppach, Raymond, executive director, National Governors' Association, Washington, DC 31 Foreman, Spencer, M.D., president, Association ofAmerican Medical Colleges, and president, Montefiore Medical Center, Bronx, NY 32 Pollack, Rick, executive vice president for Federal relations, American Hos- pital Association, Washington, DC, accompanied by Jim Bentley, senior vice presidentfor policy 35 ALPHABETICAL LISTING AND APPENDLX MATERIAL SUBMITTED Baucus, Max: Prepared statement 41 Breaux, Hon. John: Opening statement 20 Conrad, Hon. Kent: Opening statement 4 Daschle, Hon. ThomasA: Openingstatement 22 Durenberger, Hon. Dave: Opening statement 24 Prepared statement 41 Foreman, Spencer: Testimony 32 Prepared statementwith attachments 42 Grassley, Hon. Charles E.: Openingstatement 4 Prepared statement 53 (III) IV Page Hatch, Hon. OrrinG.: Prepared statement 53 Mitchell, Hon. GeorgeJ.: Prepared statement 54 Moynihan, Hon. Daniel Patrick: Openingstatement 1 Packwood, Hon. Bob: Openingstatement 3 Pollack, Rick: Testimony 34 Prepared statement 55 Pryor, Hon. David: Openingstatement 5 Prepared statement 59 Riegle, Hon. Donald W.,Jr.: Openingstatement 18 Rockefeller, Hon. John D., IV: Prepared statement 60 Schenken, Jerald R.: Testimony 29 Prepared statement 61 Scheppach, Raymond: Testimony 31 Prepared statement 67 Shalala, Hon. Donna E.: Testimony 6 Prepared statementwith attachments 78 Responses to questions from Senators: Rockefeller 92 Chafee 98 Durenberger 101 Hatch 106 Wallop 108 Communications AmericanAssociation ofNurse Anesthetists 110 American Clinical LaboratoryAssociation 118 American College ofRadiation Oncology 122 American College ofRadiology 126 American HospitalAssociation 130 American Orthotic and ProstheticAssociation 135 American Physical TherapyAssociation 138 American PsychiatricAssociation 141 American Society ofAnesthesiologists 147 American Society ofInternal Medicine 157 Association ofFreestandingRadiation Oncology Centers 163 College ofAmerican Pathologists 165 TradeAssociation Healthcare Coalition 169 United MineWorkers ofAmerica Health and Retirement Funds 171 ADMINISTRATION'S 1994 HEALTH BUDGET THURSDAY, APRIL 1993 1, U.S. Senate, Committee on Finance, Washington, DC. The hearing was convened, pursuant to notice, at 10:10 a.m., in room SD-215, Dirksen Senate Office Building, Hon. Daniel Patrick Moynihan (chairman ofthe committee) presiding. Also present: Senators Pryor, Riegle, Daschle, Breaux, Conrad, Packwood, Danforth, Durenberger, and Grassley. [The press release announcing the hearing follows:] [PressReleaseNo.H-10,March24, 1993] Finance Committee Schedules Hearing onAdministration's 1994 Health Budget Senator Daniel Patrick Moynihan (D.-N.Y.), Chairman of the Senate Committee on Finance, announced today that the Committee will hold a hearing to examine the administration's health budgetforfiscal year 1994. Witnesses will include Health and Human Services Secretary Donna Shalala and representatives of the American Medical Association, the American Hospital Asso- ciation and theAmerican Association ofMedical Colleges. The hearing will begin at 10.-00 a.m. on Thursday, April 1 in room SD-215, Dirk- sen Senate Office Building. OPENING STATEMENT OF HON. DANIEL PATRICK MOYMHAN, A U.S. SENATOR FROM NEW YORK, CHAIRMAN, COMMITTEE ON FINANCE The Chairman. A very good morning to our distinguished witness, the Secretary of Health and Human Services, and to our guests. This is a hearing that will give Secretary Shalala the opportunity to expound on and explicate the President's proposals for the spending reductions and cost cutting in the Medicare and Medicaid aspect ofthe President's budget. I would take the liberty, if I can ask my colleagues' indulgence, to point out that in both respects these are provisions of the Social Security Act. And the centrality of Social Security to our social policy in the United States is easily overlooked. During this last phase of the budget resolution, at one point, we had a proposal to cut Medicare costs by a very large amount. The statement we were given on the Senate floor was that these cuts exclude Social Security. You had to make the point that we were talking about title XVIII ofthe Social Security Act. The connection isjust not made. (1) This is not just our most faceted program, but if my colleagues on this side will permit me to say so, it is perhaps the Democratic Party's greatest achievement in social policy. Franklin Roosevelt signed the bill 58 years ago this August. And Frances Perkins, who was very much around in the age ofthe Ken- nedy administration, she wrote in 1946 that Roosevelt always re- garded the Social Security Act as the cornerstone ofhis administration. I think he derived greater satisfaction from it than from any- thing else he achieved on the domestic front. And properly so, the program has all but eliminated poverty from among the aged. We have 41 million recipients, ofwhich 26 million are retired workers, 7 million survivors, 3 million disabled workers, and 5 million spouses and children of retired or disabled workers. There are about 135 million workers paying into the system. The system itself is in a excellent financial state. It will run a $65 bil- lion surplus this year. Medicare is in surplus. Every time you say that, you are told that one day it will not be. Well, one day, we will not be either. [Laughter.] There used to be a wonderful sign, in fact, over on the walls of the House Committee on Ways and Means in the 1960's. It said, "Owing to the shortage of experienced carpenters, the end of the world has been indefinitely postponed." But in the meantime in this veil oftears, there is a problem with the public perception of Social Security. The majority ofnon-retired adults do not think they will get their Social Security. And in one ofthe most memorable events that I have seen in my experience here, former administrators of the Social Security Ad- ministration, once a position of great trust, have begun, in my view, to abuse that trust by making money sending terrorist letters to the American public. Two of the last three administrators of Social Security have now joined really a rapacious organization that sends terrifying letters to senior people, telling them that the Social Security fund is broke, it has been looted, it has gone off, it has been abandoned, and they will be abandoned, and now all is lost unless you send $15 immediately. I refer to Ms. Martha McSteen and to Ms. Dorcas Hardy. There was a time when this would never have happened. Nobody who had been given the high honor and responsibility of that position would dream ofabusing it in this manner. They now do. We held a hearing on this. It has not deterred anyone. A new organization has been formed. The mailings from Ms. Hardy are now arriving. Mind you, we did not help when in 1984, President Reagan proposed making Social Security voluntary, which would mean to dis- establish it altogether. His budget director referred to it as a Ponzi scheme and closet socialism and said that the world's largest bank- ruptcy was about to take place. Then, in the 1992 campaign, the Democratic candidate proposed a form of taxation, a flat tax that would eliminate the Social Secu- rity payment altogether, and replace it with the benefit structure ofcontributory insurance. If we do not watch out, we will have discredited the most important social insurance system we have. We must learn something about this. There was a time when an administrator of the Social Security Administration would not dream of sending threatening letters, which is what they are. The U.S. Attorney, we do not have one right now, but if we had a U.S. Attorney, I wonder why one should not inquire as to the le- gitimacy ofthe extortion ofmoney by terrifying older persons. That would never have happened in an earlier time. But the So- cial Security Administration has become so isolated from the government. The decision to build the headquarters outside of Wash- ington was an important one. The new generation of American political leaders do not think this is as important as it elementally is. And it is in trouble. I say this to Dr. Shalala. She knows my views. I know her con- cerns. But it is now April. This administration was, in effect, elected on November 2, 1992. And we do not have a Social Security Adminis- trator. We do not have a name. We will evidently be getting one soon. And as soon as we get one, we will put one in place. But I think it is not inappropriate, as we begin to discuss Social Security provisions, to just say this statement of concern by the Senator from New York that we are frittering away a national treasure. I hope we will not do it. I know you, Secretary, would not dream of it, but events do not move with you, as you know. With that note, I conclude and ask Senator Packwood, if you would like to say something cheerful? OPENING STATEMENT OF HON. BOB PACKWOOD, A U.S. SENATOR FROM OREGON Senator Packwood. No. I think I will follow your lead. [Laugh- ter.] First, let me publicly thank you for the Oregon Medicaid wavier. I told you privately that we twisted and turned and did everything we could to get it out of the previous Administration unsuccess- fully. And we are very appreciative ofyour granting it rather expe- ditiously. Two, on the Medicaid and Medicare costs, they are now running close to 15 percent of our spending. They will go, by 1988, to 21 percent on a baseline. And even so far with the suggested reforms, it is 21 percent because it is a relatively modest trimming from a $1.65 trillion worth ofspending for these two programs in the next 5 years. And I know there is some argument that one way or another, perhaps they will be folded into a health care reform or we will get all of the cost—under control, but so far on Medicare and Medicaid—, we have been and I mean us, Congress, Presidents, everybody has been unsuccessful in controlling them. Third, if you look at just Medicare and Medicaid and then add to it Social Security, which the chairman has been talking about, and other retirement programs in the Federal Government, and this is mainly military and civilian retirement, just those four programs plus interest are now 54 percent of the budget. And in 10 years, they go to 69 percent ofthe budget. That is not to say these programs are insolvent. I do not want to run up a red flag of surrender, but it does mean that they are going to take an ever increasing portion of our total spending unless we increase taxes to accommodate other programs that will get cut out or cut back ifwejust go on a baseline basis. So I would appreciate your thoughts on that. And lastly, I have been very intrigued with the statements I have been reading in the paper and what I have heard that you may have said privately or that Mr. Magaziner said is price controls, that they do not work. And it is my understanding that you may have indicated to some people that you think they do not work. And I would be interested in your thoughts as to whether or not price controls will work to control prices in any kind of health reform bill that we may pass. Thank you, Mr. Chairman. The Chairman. Thank you, sir. Senator Danforth. Senator Danforth. I will wait for the witness. The Chairman. Senator Conrad. OPENING STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA Senator Conrad. Well, I thank the chair. I just very briefly want to say that we are very pleased that the Secretary is coming to North Dakota to participate in a series of health hearings with the North Dakota Congressional Delegation. And I think that is going to be very valuable. The Secretary has a tie to the State ofNorth Dakota because her sister is married to a North Dakota farmer. And so she is going to have a chance to spend some family time in North Dakota as well. I am looking forward to our April break. The Chairman. Are you going to be skiing? No. You do not have ski slopes. [Laughter.] Senator Conrad. Yes. We have what we call cross-country skiing. [Laughter.] I thank the chair. The Chairman. Senator Grassley. OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, AU.S. SENATOR FROM IOWA Senator Grassley. Well, I am going to put a long statement in the record and read right now two short sentences. I am particularly concerned about the Administration's proposal for the Medicare program and about how those proposals might af- fect rural hospitals in my State. I am sure that Senator Conrad has the same concern. So you will be obviously looking at that. As I understand it, the administration has included a proposal to extend the Medicare Dependent Hospital Program. If this is cor- rect, that is good news. In a budget, in which there is not much good news. And I have 55 hospitals in my State that fall into this category.