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Full text of "Departments of Labor, Health and Human Services, Education, and Related Agencies appropriations for 1996 : hearings before a subcommittee of the Committee on Appropriations, House of Representatives, One Hundred Fourth Congress, first session"

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DEPARTMENTS OF LABOR, HEALTH AND HUMAN 
^^^i SERVICES, EDUCATION, AND RELATED AGENCIES 
■ < APPROPRIATIONS FOR 1996 



Y 4.AP 6/l:L 11/996/PT.2 

JNGS 

Departnents of Labor/ Health and Hu. . . eie a 

iouj->v^v>'i*xivxx J. 1 JliJlj Or Irlrj 

COMMITTEE ON APPROPRIATIONS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

FIRST SESSION 



SUBCOMMITTEE ON THE DEPARTMENTS OF LABOR, HEALTH AND 
HUMAN SERVICES, EDUCATION, AND RELATED AGENCIES 

JOHN EDWARD PORTER, Illinois, Chairman 

C. W. BILL YOUNG, Florida DAVID R. OBEY, Wisconsin 

HENRY BONILLA, Texas LOUIS STOKES, Ohio 

ERNEST J. ISTOOK, Jr., Oklahoma STENY H. HOYER, Maryland 

DAN MILLER, Florida NANCY PELOSI, CaUfornia 

JAY DICKEY, Arkansas NITA M. LOWEY, New York 
FRANK RIGGS, CaUfornia 
ROGER F. WICKER, Mississippi 

NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking 
Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

S. Anthony McCann, Robert L. Knisely, Susan E. Quantius, Michael K. Myers, 
and Joanne L. Orndorff, Subcommittee Staff 



PART 2 
DEPARTMENT OF HEALTH AND HUMAN SERVICES 

I Page 

Technical Briefing 1 

Secretary of Health and Human Services, 
Departmental Management, and the Office for Civil 

Rights 93 

Health Care Financing Administration 295 

Social Security Administration 555 

Administration for Children and Families 791 

Administration on Aging 1327 

Office of Inspector General 1431 

Special Tables 4Jik*^f<'tJ>.i4&;.. 1498 



Printed for the use of the Commiti 



WS tTT^' 



DEPARTMENTS OF LABOR, HEALTH AND HUMAN 

SERVICES, EDUCATION, AND RELATED AGENCIES 

APPROPRIATIONS FOR 1996 

HEAEINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

FIRST SESSION 



SUBCOMMITTEE ON THE DEPARTMENTS OF LABOR, HEALTH AND 
HUMAN SERVICES, EDUCATION, AND RELATED AGENCIES 

JOHN EDWARD PORTER, Illinois, Chairman 

C. W. BILL YOUNG, Florida DAVID R. OBEY, Wisconsin 

HENRY BONILLA, Texas LOUIS STOKES, Ohio 

ERNEST J. ISTOOK, Jr., Oklahoma STENY H. HOYER, Maryland 

DAN MILLER, Florida NANCY PELOSI, California 

JAY DICKEY, Arkansas NITA M. LOWEY, New York 
FRANK RIGGS, CaUfomia 
ROGER F. WICKER, Mississippi 

NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking 
Minority Member of the Full Committee, are authorized to sit as Members of al! Subcommittees. 

S. Anthony McCann, Robert L. Knisely, Susan E. Quantius, Michael K. Myers, 
and Joanne L. Orndorff, Subcommittee Staff 



PART 2 
DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Page 

Technical Briefing 1 

Secretary of Health and Human Services, 
Departmental Management, and the Office for Civil 

Rights 93 

Health Care Financing Administration 295 

Social Security Administration 555 

Administration for Children and Families 791 

Administration on Aging 1327 

Office of Inspector General 1431 

Special Tables 1498 



Printed for the use of the Committee on Appropriations 



U.S. GOVERNMENT PRINTING OFFICE 
91-1780 WASHINGTON : 1995 

For sale by the U.S. Government Printing Office 
Sujjerintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-047306-3 



COMMITTEE ON APPROPRIATIONS 

BOB LIVINGSTON, Louisiana, Chairman 



JOSEPH M. McDADE, Pennsylvania 

JOHN T. MYERS, Indiana 

C. W. BILL YOUNG, Florida 

RALPH REGULA, Ohio 

JERRY LEWIS, California 

JOHN EDWARD PORTER, Illinois 

HAROLD ROGERS, Kentucky 

JOE SKEEN, New Mexico 

FRANK R. WOLF, Virginia 

TOM Delay, Texas 

JIM KOLBE, Arizona 

BARBARA F. VUCANOVICH, Nevada 

JIM LIGHTFOOT, Iowa 

RON PACKARD, CaUfornia 

SONNY CALLAHAN, Alabama 

JAMES T. WALSH, New York 

CHARLES H. TAYLOR, North CaroHna 

DAVID L. HOBSON, Ohio 

ERNEST J. ISTOOK, Jr., Oklahoma 

HENRY BONILLA, Texas 

JOE KNOLLENBERG, Michigan 

DAN MILLER, Florida 

JAY DICKEY, Arkansas 

JACK KINGSTON, Georgia 

FRANK RIGGS, CaUfornia 

RODNEY P. FRELINGHUYSEN, New Jersey 

ROGER F. WICKER, Mississippi 

MICHAEL P. FORBES, New York 

GEORGE R. NETHERCUTT, Jr., Washington 

JIM BUNN, Oregon 

MARK W. NEUMANN, Wisconsin 



DAVID R. OBEY, Wisconsin 

SIDNEY R. YATES, Illinois 

LOUIS STOKES, Ohio 

TOM BEVILL, Alabama 

JOHN P. MURTHA, Pennsylvania 

CHARLES WILSON, Texas 

NORMAN D. DICKS, Washington 

MARTIN OLAV SABO, Minnesota 

JULL^J"! C. DKON, Cahfomia 

VIC FAZIO, California 

W. G. (BILL) HEFNER, North Carolina 

STENY H. HOYER, Maryland 

RICHARD J. DURBIN, lUinois 

RONALD D. COLEMAN, Texas 

ALAN B. MOLLOHAN, West Virginia 

JIM CHAPMAN, Texas 

MARCY KAPTUR, Ohio 

DAVID E. SKAGGS. Colorado 

NANCY PELOSI, CaUfornia 

PETER J. VISCLOSKY, Indiana 

THOMAS M. FOGLIETTA, Pennsylvania 

ESTEBAN EDWARD TORRES, CaUfornia 

NITA M. LOWEY, New York 

RAY THORNTON, Arkansas 



James W. Dyer, Clerk and Staff Director 



DEPARTMENTS OF LABOR, HEALTH AND 
HUMAN SERVICES, EDUCATION, AND RE- 
LATED AGENCIES APPROPRIATIONS FOR 
1996 



Thursday, January 12, 1995. 
DEPARTMENT OF HEALTH AND HUMAN SERVICES 
TECHNICAL BRIEFING 

WITNESSES 

DENNIS P. WILLIAMS, DEPUTY ASSISTANT SECRETARY, BUDGET 

JUNE GIBBS BROWN, INSPECTOR GENERAL 

CLAIRE V. BROOME, M.D., DEPUTY DIRECTOR, CENTERS FOR DISEASE 

CONTROL AND PREVENTION 
HOWARD ROLSTON, DIRECTOR, OFFICE OF POLICY AND EVALUATION, 

ADMINISTRATION FOR CfflLDREN AND FAMILIES 

Mr. Porter. I have just been informed that the Republican Con- 
ference is still going for another 15 minutes. Since we have asked 
you to come here not particularly to enlighten me but to enlighten 
our new Members, I think we really have no choice but to wait for 
them. So I apologize, but they said they would be over as soon as 
the Conference breaks, and it looks like it will be — why don't we 
simply say we are going to attempt to restart at 10:30 so everyone 
can take a break. 

[Recess.] 

Mr. Porter. Since they got here earlier than we thought, we will 
go ahead and proceed, Dennis. 

The Subcommittee will come to order. We continue this morning 
with the third of our technical or overview briefings by our Cabinet 
Departments, and we are very happy to welcome Dennis Williams, 
the Chief Budget Officer of the Department of Health and Human 
Services here this morning. 

If you would, Dennis, introduce the people who are with you and 
then proceed. 

Introductions 

Mr. Williams. Thank you, Mr. Chairman. It is a pleasure to be 
back before this committee. 

I am accompanied today, on my right, by the Inspector General 
from the Department of Health and Human Services, June Gibbs 
Brown. On my left is Dr. Claire Broome; she is the Deputy Director 
of the Centers for Disease Control and Prevention. And on my far 

(1) 



left is Howard Rolston, who is the Director of the Office of PoHcy 
and Evaluation at the Administration for Children and Families. 

We were asked to come here today to provide some budget infor- 
mation and statistics, trends in health care and poverty and sum- 
maries of some of our audit activities in the Department. We hope 
that this information will help the Committee as it evaluates our 
programs in the coming months. We are not here to present poli- 
cies, but we do hope that the information we give you will help you 
as you evaluate our programs. 

With your permission, we would like to start with the Inspector 
General, who will talk to you about some of the audit activities in 
the Department. 

OVERVIEW OF THE OFFICE OF INSPECTOR GENERAL 

Ms. Brown. Good morning, Mr. Chairman. Thank you for the op- 
portunity to appear before you today. 

Members of the Committee, let me begin by a brief overview of 
the Office of Inspector General. The OIG was created in 1976 to 
protect the integrity of the Department's programs and promote 
their economy, efficiency and effectiveness. We do that through a 
comprehensive program of audits, evaluations and investigations. 
We have a staff of about 1,250 people in our headquarters and 
eight regional offices and 65 field offices. 

In fiscal year 1994, we had 1,169 successful prosecutions, and 
1,334 administrative sanctions against individuals and entities that 
defrauded and abused our programs. We also generated $8 billion 
in savings, fines, restitutions, penalties and recoveries. And that 
represents $80 in savings for each dollar spent and $6.4 million, on 
average, per OIG employee. 

Based on our work, we believe that overall, the Department's 
programs are operating substantially as intended. However, correc- 
tive actions are needed in a number of areas to stop abusive prac- 
tices, correct vulnerabilities and to make programs more effective. 

HEALTH CARE FINANCING ADMINISTRATION 

Let me summarize our major concerns within each of the Depart- 
ment's Operating Divisions. The first is HCFA that administers the 
Federal Medicare program and, with the States, the Medicaid pro- 
gram, two of the largest and most dynamic programs in the De- 
partment. 

Over the years. Medicare has instituted many significant reforms 
to improve the efficiency and reduce vulnerabilities. For example, 
the prospective payment systems for inpatient hospital care, a fee 
service schedule for physician services, regional consolidation of 
claims processing for durable medical equipment and Medicare con- 
tractor fraud units. We have testified many times about health care 
fraud, noting that fraud usually takes one of the following forms: 
billing for services not rendered, misrepresentation of services ren- 
dered, or kickback and physician self-referrals. While these are 
often complex types of fraud that permeate the entire health care 
arena, we are particularly concerned about abuses and lack of over- 
sight in two areas: nursing homes and home health agencies. 

An ongoing study found that Medicare paid separately as much 
as $70 million annually to skilled nursing facilities for enteral nu- 



trition services, surgical dressings and incontinence care items that 
should have already been covered under Medicare's global pay- 
ments to the facilities. Inhome health agencies: We observed sev- 
eral types of fraud in these agencies, including cost report fraud, 
excessive nonrendered services, use of unlicensed or untrained 
staff, falsified plans of care and forged physician signatures and 
kickbacks. 

We are also concerned that Medicare and Medicaid are well man- 
aged with financial program integrity and high quality of care. We 
have testified many times about the statutory improvements need- 
ed to protect citizens and health care programs from unscrupulous 
providers. For example, many exemptions and adjustments to hos- 
pital payment methodologies are not justified by the higher hos- 
pital costs. Medicare should also be a more prudent purchaser of 
medical equipment and services, such as oxygen concentrators and 
ambulance services, both of which we have testified on. To accom- 
plish this goal, we recommend allowing competitive billing and 
changing the inherent reasonableness test. 

PUBLIC HEALTH SERVICE 

Under the second operational area, the Public Health Service is 
the focal point for identifying and preventing acute and chronic dis- 
ease and disabilities and for promoting the health of the American 
people. It includes the National Institutes of Health, Food and 
Drug Administration, Centers for Disease Control and Prevention, 
Indian Health Service, Health Resources and Services Administra- 
tion, Substance Abuse and Mental Health Services Administration, 
Agency for Toxic Substances and Disease Registry and Agency for 
Health Care Policy and Research. 

Our concerns in PHS concentrate on the needs for better man- 
agement controls, improved program monitoring and sufficient data 
and information systems. We have found problems with PHS agen- 
cies' ability to monitor grantee compliance with requirements for 
biomedical research funding. For example, NIH has limited its 
oversight of grantees extramural research inventions. We are also 
concerned about possible conflicts of interest in Federal-sponsored 
biomedical research and with vulnerabilities in financial disclosure 
requirements for the principal investigators. Recent NIH and FDA 
activities to improve oversight in these areas are very encouraging. 

Finally, we continue to conduct a number of PHS-wide oversight 
activities in property management, travel, preaward and recipient 
capability audits and evaluation of PHS's information resource 
management. 

ADMINISTRATION FOR CHILDREN AND FAMILIES 

The third operating area is the Administration for Children and 
Families. ACF provides funding for State, local and private human 
service programs, and it includes Aid to Families with Dependent 
Children, Child Support Enforcement, Head Start and Foster Care 
and Adoption Assistance. 

In many reviews of cost and program effectiveness in the ACF 
programs, we have recommended such improvements as criteria 
and procedures for appropriate foster care case referral to child 
support agencies and also systems for tracking and monitoring sta- 



tus and outcomes of the job opportunity and basic skills program. 
We found some highly effective examples of cooperation among 
Federal, State and local governments, such as using community re- 
sources for educating and training jobs participants. 

One area of continuing concern is the funding system for welfare 
administrative costs. The current method for reimbursing States 
for welfare administrative costs is unwieldy, inefficient and unpre- 
dictable with much disparity among States. We are examining op- 
tions for funding administrative costs with AFDC, Food Stamp and 
Medicaid programs, and will have a final report available the end 
of January. 

SOCIAL SECURITY ADMINISTRATION 

The fourth operational area is the Social Security Administra- 
tion. Of course, SSA will become independent from HHS on March 
31. By statute, it will have an OIG and the new office will be 
drawn from the HHS OIG. We expect to transfer 263 people, in- 
cluding three executive positions, to staff of the new office. 

Overall, the SSA is an efficient agency issuing over $334 billion 
in cash benefits to 43 million beneficiaries in the Old Age, Survi- 
vors and Disability Insurance Trust Fund programs. SSA also over- 
sees a general revenue, needs-based program called Supplemental 
Security Income, or SSI, which provides monthly payments to over 
six million aged, blind and disabled individuals and amounts to 
about $25 billion annually. 

Last year we testified before Congress on several issues. One was 
SSA notices. We had previously recommended improvements in 
SSA notices, but acknowledge the positive action SSA has taken in 
improving its communication with beneficiaries. This is evidenced 
by an overall customer satisfaction rate of 77 percent based on our 
annual survey of SSA clients. 

Under disabled children, as a result of a Supreme Court decision 
known as the Zebley decision, the criteria for childhood disability 
was expanded, resulting in an increase of the disabled children on 
the rolls from 296,000 in 1989 to 847,000 in 1994. We found that 
while SSA is complying with the law, clarification of Congressional 
intent is needed. If Congress intended that the program help chil- 
dren overcome their disabilities rather than merely paying them 
cash assistance, then changes are needed. 

Another SSI program is for drug addicts and alcoholics. The 
number of drug addicts and alcoholics on the rolls rose from 24,000 
in 1990 to over 80,000 last year. We noted that few were ever leav- 
ing the rolls. Legislation passed last year places more emphasis on 
monitoring whether these recipients are actively participating in 
treatment programs, and it limits their benefits to three years. 

Interpreter fraud is another area that we have drawn attention 
to in Congress. SSA's reliance on community translators to assist 
non-English-speaking claimants has been exploited in some cases 
by translators that are conspiring with physicians to submit false 
evidence. This has been concentrated mainly in southern Califor- 
nia, and we are working with SSA to identify such cases and con- 
tain the problem. SSA is making progress in arranging for more le- 
gitimate, reliable translation services. 



Another perennial problem is the disability claims backlog. We 
have assisted SSA in its disability reengineering process and be- 
lieve they are moving toward an improved claims processing sys- 
tem. One disability area we have studied is the high level of deci- 
sion reversals by administrative law judges. We found that dispar- 
ity in the decision criteria used by State disability determination 
services, which make the initial disability decisions, and the ALJ's. 
We found unanimous support by both groups for uniform disability 
standards in disability decision-making. We presented our findings 
to SSA's disability process reengineering team. 

In closing, I would like to acknowledge the cooperative relation- 
ship I have had with the Department in my tenure as IG. Having 
served in four major departments now as Inspector General, I note 
that sometimes the IG's work can place them in an adversarial po- 
sition with program managers. I am pleased that that has not been 
the case at HHS. 

The issues I have discussed are summarized in our semiannual 
reports to Congress. In addition, we have two compendia of pend- 
ing OIG recommendations which you might find useful. The Red 
Book, or Cost-Saver Handbook as we call it, is a major monetary 
recommendation — summary of major monetary recommendations; 
and The Orange Book is a summary of significant nonmonetary 
recommendations which have not yet been implemented. Our 1995 
editions will be available soon. 

Thank you for the opportunity to be here today, and I would be 
happy to answer any questions you may have. 

[The prepared statement and biography of June Gibbs Brown 
follow:] 



Department of Health and Human Services 
OFFICE OF INSPECTOR GENERAL 



Statement of 

The Honorable June Gibbs Brown 
Inspector General 

before the 

Subconunittee on Labor, HHS and Education 
Committee on Appropriations 
U.S. House of Representatives 



January 12, 1995 






Good morning. I welcome this opportunity to appear before you with the other 
representatives of the Department to provide a summary of the Office of Inspector General's 
audits, evaluations and investigations of the Department of Health and Human Services' 
programs and operations. 

OFFICE OF INSPECTOR GENERAL OVERVIEW 

I would like to begin with a brief overview of the Office of Inspector General (OIG), since 
our work may be new to some of you. Created in 1976, the OIG is statutorily charged with 
protecting the integrity of departmental programs, as well as promoting their economy, 
efficiency, and effectiveness. The OIG meets this challenge through a comprehensive 
program of audits, program evaluations, and investigations which are designed to improve 
the management of the Department and to protect its programs and beneficiaries from fraud, 
waste, and abuse. Our role is to detect and prevent fraud and abuse and ensure that 
beneficiaries receive high quality, necessary services, at appropriate payment levels. 

Within the Department, the OIG is an independent organization, reporting to the Secretary 
and communicating directly with the Congress on significant matters. We carry out our 
mission through a field structure of 8 regions and 65 field offices and with a staff of over 
1,200 auditors, evaluators, and investigators. 



Jaouuy 12. 1995 Briefing for House ApproprialiooB SubcommJtlee oo Labor. HHS & Education 



8 

The OIG has accomplished much in the fight against fraud, abuse and waste in HHS 
programs and operations. In Fiscal Year (FY) 1994, we had 1,169 successful prosecutions 
and 1,334 administrative sanctions against individuals or entities that defrauded or abused the 
Department's programs and/or beneficiaries. Last year, the OIG also generated savings, 
fines, restitutions, penalties, and receivables of over $8 billion, which represents $80 in 
savings for each Federal dollar invested in our office, or $6.4 million in savings per OIG 
employee. 

DEPARTMENTAL OVERVIEW 

The general conclusion of our work is that while, overall, the programs of the Department 
are operating largely as intended, corrective actions, or program modifications, are needed in 
a number of areas to stop abusive practices, correct potential vulnerabilities, and/or make 
programs more effective. 

Before I discuss our specific concerns in each of the Department's major operating divisions, 
I would like to point out that we have enjoyed a very cooperative relationship with the 
Department. Having served as IG at four major agencies, I realize that the nature of OIG 
work can place us in an adversarial position with those operating programs. This, I am 
happy to report, has not been the case during my tenure as IG at HHS. 



Bricrmg for House Appropn&tiooi Subcommittee on Labor. HHS & Education 



Health Care Financing Administration 

I will begin with one of our largest and most dynamic program areas. Medicare and 
Medicaid are administered by the Health Care Financing Administration (HCFA). Medicare 
Part A covers hospital and other institutional care for approximately 36 million persons age 
65 or older and for certain disabled persons. Fiscal Year (FY) 1995 expenditures for Part A 
are estimated at $112 billion. Medicare Part B, which covers most of the costs of medically 
necessary physician and other non-institutional services, has estimated FY 1995 expenditures 
of $66 billion. 

The Medicaid program provides grants to States for medical care for approximately 35 
million low-income people. Medicaid outlays have risen dramatically, making Medicaid the 
fastest rising portion of both Federal and State budgets. Federal Medicaid spending is 
expected to reach $92 billion in 1995. 

Over the years. Medicare has instituted many significant reforms to improve program 
efficiency and reduce vulnerabilities to fraud and abuse. Such reforms include (1) 
implementation of a prospective payment system (PPS) for inpatient hospital services and a 
fee schedule for physician services, (2) regional consolidation of claims processing for 
durable medical equipment (DME), and (3) establishment of fraud units at Medicare 
contractors. The HCFA's Medicare administrative costs have also been low as a proportion 
of overall program costs: 1 percent of Part A claims and 3.5 percent of Part B claims. 
About 4 percent of Medicaid funds are for administrative expenses. The HCFA continues to 

Jinuuy 12, 1995 BrieTing for Houae Appropriatiom SubcommiBec on Labor, HHS & Education HHS/OIG-P>ge 3 



10 



make improvements, including implementation of the Medicare Transaction System (MTS) 
which should further streamline claim processing fiinctions. 

We have testified numerous times during each congressional session about the overall 
problems of health care fraud and about specific areas that are most vulnerable to wasteful 
practices or to health care providers that are intent on defrauding Medicare and Medicaid. 
We have noted tiiat fraud in Uiese programs often takes one of the following forms: 

• Billing For Services N ot Rendered -- A significant proportion of our investigative 
caseload involves billings for services not rendered. These cases are readily accepted 
for prosecution by the United States Attorneys and are responsible for a large number 
of the convictions obtained in the healtii care field. 

• Misrepresentation of Se rvices Rendered -- The Medicare program loses money when 
providers submit claims that do not reflect the services actually performed or the 
supplies actually delivered. Some providers try to "game" the program by unbundling 
and upcoding charges. Unbundling involves separate billing for the subcomponent 
parts of an item or service rather tiian billing for the complete item or service and can 
result in inflated charges far above the appropriate level. For example, the 
component parts of a $4 incontinence care kit can be separately billed to Medicare for 
$20. Upcoding is the practice of billing for a more intensive service than the one 
actually delivered. 



Bricnng for Houae Appropriatiou Subcammittce on Labor. HHS & Education 



11 



• Kickbacks and Physician Self-referral ~ A widespread problem in the fee-for-service 
area is the problem of kickbacks and physician self-referral. A kickback is the 
payment or receipt of anything of value as an inducement for the referral of health 
care business. Physician self-referral is an overlapping and similar problem in which 
any item or service is referred by a physician who has a "financial relationship" with 
that entity, and where the physician does not directly provide the item or service. 
The overall concern with kickbacks is that fmancial, rather than medical, factors may 
affect physician decisions about providing medical care to patients. 

While these types of fraud permeate the entire health care field, fraud in three health care 
sectors have become of particular concern to us: 

• Inadequate Nursing Home Oversight - Recent OIG research has identified certain 
abusive practices in nursing home administration. We are specifically concerned that 
there may not be adequate oversight over nursing home patients because in many 
cases there is no one looking out for the patient's best interest. An ongoing OIG 
study indicates that current Medicare policy may inadvertently allow substantial 
Medicare payments (as much as $70 million annually) to be made to skilled nursing 
facilities for enteral nutrition services, surgical dressings, and incontinence care 
items — items that should be part of the global (i.e., comprehensive) Medicare 
payment to the facility. We also recently reported that information from nursing 
hqyes indicates that durable medical equipment suppliers engage in questionable 



Bnefing for Hoiue Appropriations Subcoaimitlfc on Labor. HHS & Education HHS/OlG-hfeS 



12 

marketing practices that result in beneficiaries receiving unnecessary or non-covered 
supplies. 

Poor Control over Home Health Agencies (HHAs) - Home health care allows people 
with limited mobility to live independently while still receiving professional health 
care services. Home health care is one of the fastest growing segments of health care 
and Medicare payments will total about $16 billion this year. Medicare paid $7.1 
billion in 1992. Because HHAs provide care in the patient's home, with limited 
supervision, there is a vulnerability to fraud schemes. We have observed several 
types of fraud in HHA operations including cost report fraud, excessive services or 
services not rendered, use of unlicensed or untrained staff, falsified plans of care and 
forged physician's signatures, and kickbacks. Ongoing audit work by our office has 
found an alarming rate of Medicare claims for home health services in Florida did not 
meet Medicare coverage guidelines. For these reasons, both the OIG and HCFA have 
decided to devote significant resources to assess Medicare payments in this area. 

Potential Vulnerabilities of Managed Care - Given the growth and evolution of the 
Medicare and Medicaid managed care programs and the growing interest and support 
for managed care programs as a means to control costs, we plan on devoting 
significant resources to this area. I would note that the incentives for fraud and abuse 
in a managed care environment are very different from those in a fee-for-service 
environment. While a fee-for-service environment encourages over-utilization, 
problems associated with managed care can actually encourage under-utilization or 

2.1995 Briermg for House Appropmliona Subcotnmiaee on Labor. HHS & Educslion HHS/OIG-P>ec 6 



13 



disenroUing individuals that tend to be high users of health care services. We plan to 
undertake a number of reviews to address issues involving program integrity, quality 
and access to care, rate setting, accuracy of payments, and financial integrity. 

In addition, certain statutory and regulatory changes could be made to make Medicare a more 
prudent purchaser of medical equipment and services. When Medicare started, it paid most 
health care providers their reasonable charges or costs. New rate-setting methods have been 
established for a variety of providers and have represented significant improvements in 
program management. Some payments, however, are still too high. I have recently testified 
on items such as oxygen concentrators and ambulance services. As an illustration, our 
reviews found that Medicare was paying over twice as much for oxygen concentrators as the 
Department of Veterans Affairs and other prudent purchasers. We recommend that the 
Congress consider allowing competitive bidding and changing provisions related to "inherent 
reasonableness. " 

Public Health Service 

Next, I would like to address another major focus of OIG efforts. The activities conducted 
and supported by the Public Health Service (PHS) represent this country's primary defense 
against acute and chronic diseases and disabilities. PHS programs provide the foundation for 
the Nation's efforts in promoting and enhancing the continued good health of the American 
people. In Fiscal Year 1995, PHS expects to spend over $21 billion on about 200 programs 



JwHiuy 12, 1995 Briefing for Hoimc Aiy m prb li om Suboommittccoo Labor. HHS tt Eduotfiop 



14 



to promote the health of U.S. citizens. Most PHS activities are administered through grants 
to colleges and universities, State and local governments, and non-profit organizations. 

Our concerns in PHS focus broadly on the need for management controls to guard against 
fraud, waste, abuse, and mismanagement. In many instances, the weaknesses include 
inadequate program monitoring and insufficient data and information systems within the 
agency. 

For example, our work has indicated problems with PHS agencies' ability to monitor grantee 
compliance with requirements governing biomedical research funding, substance abuse, 
Indian health services, drug approval processes and community health center programs. In 
one case, involving oversight of extramural research inventions, we found that: the National 
Institutes of Health (NIH) have limited its oversight of grantees by not requiring 
documentation for some Federal requirements; lacks a systematic process for ensuring that 
grantees submit all required invention information; and does not fully utilize its invention 
database to monitor grantee compliance. The Federal Government is entitled to royalty 
income on patents developed from research funded wholly or in part with Federal dollars. 
Our audit of an NIH grantee, Scripps Research Institute (SRI), found that NIH was unaware 
of 45 SRI patents that resulted from Federally funded research. We are pleased, however, 
with the strides made by NIH in addressing the myriad management problems identified in 
our past OIG studies. 



jMwuyU, I99S BncTcw for HouKAivnipriaiioaiSubcsavuattaa Labor, HHSAEducMaoa 



15 



In addition, we are concerned about possible conflict of interest in biomedical research 
funded with Federal dollars, and with current requirements governing financial disclosure by 
principal investigators conducting clinical studies of products submitted for Food and Drug 
Administration (FDA) approval. As the Government's investment in Federal research dollars 
continues to rise, it is important to safeguard American citizens against inappropriate 
fmancial interests in commercial products under study in PHS-supported clinical trials. 
Moreover, it is equally important to ensure that outcomes of clinical trials involving drugs 
and medical devices are not compromised by the fmancial interests of clinical investigators. 
One OIG investigation, for example, found that a medical device firm made investment 
proposals to physicians who were also conducting clinical trials of the efficacy of new 
medical device designs. The results of these tests would be critical for FDA approval. The 
conflict of interest created by this situation could potentially compromise the investigators' 
objectivity since FDA approval of the product could mean huge profits for the firm and its 
investors. Recent NIH and FDA activities to improve their oversight of these critical areas 
are encouraging and we support the agency efforts. 

Finally, we continue to conduct a number of PHS-wide oversight activities involving property 
management; travel, including employee abuses of government frequent flyer benefits; 
preaward and recipient capability audits; and evaluation of PHS's information resources 
management activities. Our oversight work has provided valuable recommendations to 
program managers for strengthening the integrity of PHS policies and procedures. 



iMMy 12. 1995 BiiefiPtfiirHoMieAfptopril i o—Suhrn nini illrBoaLjbor. HHSft EducUion 



16 



Administration for Cliildren and Families 

The Administration for Children and Families (ACF) provides Federal direction and funding 
for State, local and private organizations, and for State-administered programs to promote 
stability, economic security, responsibility and self-support for families. It also oversees a 
variety of programs that provide social services to children, youth and families, persons with 
developmental disabilities and Native Americans. 

Major types of family support payments to States encompass: Aid to Families with 
Dependent Children (AFDC), a cooperative program among Federal, State and local 
governments which reaches nearly 4.7 million families each month; and the Child Support 
Enforcement (CSE) program, which provides grants to States to enforce obligations of absent 
parents and establishing and enforcing child support orders. The Head Start program 
provides comprehensive health, educational, nutritional, social and other services primarily to 
preschool children and their families who are economically disadvantaged. The Foster Care 
and Adoption Assistance program provides grants to States to assist with the cost of foster 
care, special needs adoptions, administrative costs, and training for staff. Other programs 
include Community Services, Job Opportunities and Basic Skills Training (JOBS), and 
Refugee Resettlement. 

We have reviewed the cost-effectiveness of the ACF social services and assistance programs, 
including determining whether authorized services are provided to recipients at the lowest 
cost. As the result of our work, we identified opportunities to improve the delivery of 

Juuuy 12, 199S Bricfmf for Houk ApproprmlioM Subcommituc od Labor. HHS & Educatioo HHS/OIG-F>(e 10 



17 



program services, such as: require States to develop criteria and implement procedures for 
assuring that appropriate foster care cases are referred to State child support enforcement 
agencies; encourage States to track and monitor the status and outcomes of the various 
aspects of the JOBS program; and encourage better Federal, State and local coordination of 
program implementation. 

We have found some highly effective examples of collaboration among Federal, State and 
local governments, such as using community resources for educating and training JOBS 
participants. We surveyed 27 States and 12 local communities and found three factors that 
contributed to the successful use of community resources for JOBS programs: (1) 
interagency cooperation among Federal, State and community agencies is vitally important 
for successful JOBS programs; (2) private sector resources boosted the quality of training in 
two selected communities; and (3) providing support services (i.e., child care, transportation, 
etc.) allowed and encouraged participation in JOBS education and training. 

Specifically, focusing on maximizing the dollar value of the social services and assistance 
program dollar, we have recommended, for example, basing child support incentive 
payments on the States' demonstrated ability to meet performance objectives and limiting 
Foster Care administrative costs. 

One area of continuing concern to us is how to improve the funding system for welfare 
administrative costs. The Federal Government pays for half of the administrative costs for 
most types of administrative activities in the AFDC, Food Stamp, and Medicaid programs. In 

Juiuuy 13, 199S Briering for HouaeAppropriatioon Subcommittee on Labor, HHS & Educuioa HHS/OIG-Pacc 1 > 



18 



FY 1993, administrative costs were 5.8 percent of the total benefit payments of these three 
programs. States have considerable latitude in defining their administrative costs, i.e., 
"reasonable and necessary" as outlined in 0MB Circular A-87, "Cost Principles for State and 
Local Governments. " The current method for reimbursing States for welfare administrative 
costs is unwieldy, inefficient, and unpredictable. Further, there is much unexplained 
disparity in these costs among States and a significant risk of increase in administrative costs 
overall. 

We are now examining options for funding administrative costs in the AFDC, Food Stamp, 
and Medicaid programs. 

Social Security Administration 

Although the Social Security Administration (SSA) will become independent from HHS on 
March 31, I wanted to give you an overview of our recent findings and concerns about SSA. 
By statute, SSA will have an Office of Inspector General, and the new office will be drawn 
from the HHS OIG. We expect to transfer approximately 260 people, including 3 executive 
positions to staff the new office. 

Overall, the SSA is a reasonably efficient agency, which will issue in FY 1995 over $334 
billion in cash benefits to more than 43 million beneficiaries. While most of the benefits 
SSA oversees are from the Social Security Trust Funds, which are financed almost entirely 
from payroll taxes, SSA also administers the needs-based Supplemental Security Income 

Juuwy 12, 1995 Bficrmg for Houae AppropruliooB Subcofninince oo Ubor, HHS & Educslion HHS/OIG-Page 12 



19 



(SSI) program, which is financed from general revenues. The SSI program provides monthly 
payments to over 6 million aged, blind and disabled individuals and amounts to about $25 
billion annually. 

We regularly review a number of areas within SSA's programs and operations, such as: 
client satisfaction with SSA services, the quality of service provided in SSA field office, the 
disability determination process, the Social Security number enumeration process, and 
systems modernization. We also provide oversight of SSA's financial management by 
auditing its fmancial statements, reviewing internal controls and reporting on the status of 
debt management activities. Included are reviews of tax policy issues that affect Social 
Security programs. 

Recently, work has focused on assessing the SSI program, particularly regarding disabled 
children, drug addicts and alcoholics, and interpreter fraud. We testified before Congress on 
our concerns in these areas: 

• SSA Notices - The concern regarding notices is whether SSA is able to communicate 
complex eligibility information to beneficiaries in a clear and simple manner. It is 
important that people understand the notices because they may need to provide 
information or take certain actions which affect eligibility. Also, they need to 
understand their appeal rights. The SSA has made positive strides in improving its 
communication. This is a continuous process which must be monitored and 
encouraged. We address this issue every year when we survey beneficiary 

)uuuy 12. I99S Brierme for House Appropruliooa Subcommittee od Labor, HHS & Education HHS/OIGPage 13 



20 



satisfaction with how SSA administers its programs. In the 1994 report, we noted 
that overall satisfaction had leveled off after a few years of decline. Over 77 percent 
of respondents rated service as good or very good. 

• Disabled Children - The concern regarding disabled children stems from a U.S. 
Supreme Court decision, the Zebley decision, which expanded the criteria by which 
SSA assessed childhood disability. This resulted in the number of children on the 
rolls growing from about 296,000 in 1989 to more than 847,000 in mid-1994 at a 
total annual cost of about $4.6 billion. We studied a sample of cases and found that 
while SSA is complying with the law and the Zebley decision, clarification of 
congressional intent is needed. If Congress intended that the SSI program provide 
only cash assistance to children with mental impairments, then the program is 
successful. However, if Congress intended that the SSI program should help children 
overcome their disabilities, and grow into adults capable of engaging in substantial 
gainful activity, changes are needed. As we recommended, the Social Security 
Independence and Program Improvement Act of 1994 required the establishment of a 
Commission to evaluate disability issues for children. The SSA will be working with 
the Commission to address the issue of intended program outcomes. 

• Drug Addicts and Alcoholics - The concern regarding drug addicts and alcoholics 
(DA&As) also stemmed from substantial program growth. The number of DA&As 
rose from about 24,000 in 1990 to over 80,000 last year. We studied the issue and 
observed early on that whatever the reason for the growth in the DA&A populations, 

January 12. I99S BrieTinf lot Houae Approprulioiu Subcoauniltcc oo Labor. HHS & Educatioo HHS/OIG-P>f e 14 



• 



21 



it was abundantly clear that very few were leaving the rolls. Those who did leave the 
rolls did so for reasons not related to rehabilitation or recovery. Some left because 
they received a higher benefit from another source, and many died. Few were 
rehabilitated. Legislation passed last year limits eligibility to 3 years and places more 
emphasis on monitoring whether DA&As are actively participating in treatment 
programs. 

Interpreter Fraud - Regarding interpreter fraud, the issue there was SSA's reliance on 
community translators to assist non-English speaking claimants to file claims and 
applications for benefits. There were instances where the translators provided false 
information to influence the disability decision in favor of their client. In some cases, 
the translators conspired with physicians to submit false evidence. Physicians were 
involved because in most States, SSI beneficiaries have automatic eligibility for 
Medicaid. While we have found this kind of fraud to some extent throughout the 
country, it was most concentrated in Southern California. We have been assisting 
SSA to identify such cases and to prevent the spread of the problem. The best 
solution seems to be in increasing SSA's ability to communicate directly with its non- 
English speaking clients. The agency is making great progress in arranging for more 
legitimate translation services. 



Another perennial SSA issue is the backlog of disability claims, which in recent years has 
also been a major concern for SSA and the Congress. We have been assisting in SSA's 
disability reengineering process and believe they are moving toward an improved claims 

Januuy 12, 199S Bnefing for Hoiuc Appropriatioiu Subcomminee on Labor, HHS & Education HHS/01G*Pige IS 



22 



processing system. One area we studied was the reason for high levels of decision reversals 
by administrative law judges (AUs). We found that the Disability Determination Services 
which make the initial decisions follow SSA's Program Operations Manual System, while 
AUs directly interpret statutes and regulations and apply Federal court decisions. In Fiscal 
Year 1993, the DDSs granted benefits at the initial level in 39 percent of cases while AUs 
allowed benefits in 68 percent of cases appealed to them. In surveying 54 State DDSs and a 
sample of 156 AUs, we found that there is almost unanimous support for the application of 
uniform disability standards by AUs, and DDSs. Both groups supported creation of a Social 
Security disability court, but they disagreed on the need for other structural changes to the 
process. We presented our findings to SSA's disability process reengineering team to assist 
in their redesign of the disability process. 

Departmentwide Responsibilities 

Finally, I should also mention that the OIG has responsibility for reviewing Departmentwide 
management areas and performing mandated audit work. These responsibilities include 
conducting financial statement audits under the Chief Financial Officers Act, reviewing and 
assisting in the Department's implementation of the Financial Managers' Financial Integrity 
Act, and, more recently, the Government Management Reform Act. We have worked 
closely with the Department to assure that these responsibilities are carried out as intended by 
Congress, while trying to streamline their implementation and reduce paperwork and labor- 
intensive requirements. 



Jaauaiy 12. I99S Briefiiig for Houac Appropriatiofu SubcMnmiOee on Ubor, HHS & Ediuatioa HHS/OIG-Page 16 



23 

CONCLUSION 

The OIG audit, investigation and evaluation findings which form the basis for my remarks 
are summarized in our semiannual reports to Congress. In addition, we annually publish two 
compendia of our recommendations. The Cost-Saver Handbook, also known as "The Red 
Book," summarizes all of our major dollar recommendations that have not been substantially 
implemented. "The Orange Book," Program and Management Improvement 
Recommendations, is a compendium of our significant, unimplemented nonmonetary 
recommendations. The 1995 editions of these compendia will be available soon, and we will 
provide both to the subcommittee. 

Thank you for the opportunity to appear before you today. I look forward to a cooperative 
relationship with the new subcommittee as the congressional session continues. I will be 
happy to respond to any questions you may have. 



jMuiyia. I99S BrierntforHoiMAiipraprMaaiSiibcoaimiaeeoaUbor. HHSAEducMioa HHS/OIO-[yf< 17 



24 







JUNE GIBBS BROWN 

Inspector General 
Department of Health and Human Services 



June Qibbs Brown was sworn in as Inspector General, Depanment of Health and Human Services (DtHHS), 
November 5, 1993. 

As Inspector General, Ms. Brown has responsibility for audits, evaluations and both criminal and civil 
investigations for DHHS as well as the imposition of sanctions, when necessary, against health care providers 
under the Program Fraud Civil Remedies Act The DHI-IS is the largest civilian agency of the Federal 
Government having the largest budget and more than 250 programs. 

Before coming to IHHS, Ms. Brown sensed as Inspector General of the Navy's Pacific Fleet at Pearl Hartx>r, 
Hawaii. She has sensed in a variety of other management and Inspector General positions in the Federal 
Government since 1972. She was Inspector General of the interior Department from 1979-1981, Inspector 
General of NASA from 1981-1985 and Inspector General of the Department of Defense from 1987-1989. 
Ms. Brown has also held a vanety of positions in private industry. 

Ms. Brown currently serves as the Vice Chair of the President's Council on Integrity and Efficiency (PCIE). 
Ms, Brown has also been affiliated with other organizations, including the President's Management Council 
(PMC), and she is a fellow In the National Academy of Public Administration. She was the national president 
of the Association of Government Accountants, and has served on the Boards of Directors of the Federal Law 
Enforcement Training Center, the Interagency Aud'itor Training Program at the Department of Agriculture 
Graduate School, the National Contract Management Association and the Hawaii Society of CPAs. She was 
also the national chairperson of the Interagency Committee on Information Resources Management. 

Ms. Brown received her Bachelor's and Master's of Business Administration from Cleveland State University, 
and her Juris Doctor from the University of Denver School of Law. She is a graduate of the Harvard 
Advanced Management Program, and a Certified Public Accountant. 

Throughout Ms. Brown's government career she has received many honors and awards, including: the 1994 
Leadership Award from the Government Executive Magazine and the National Capitol Area Chapter of the 
American Society of Public Administration, the Department of Defense Distinguished Service Medal, Women 
in Aerospace's Outstanding Achievement in Aerospace Award, NASA Exceptional Service Medal, the Joint 
Financial Management Improvement Program's (JFMIP) Financial Management Improvement Award, and the 
Association of Government Accountants' Robert W. King Award. 



January 1995 



25 

Mr. Williams. Mr. Chairman, I would now like to ask Dr. 
Broome from the Centers for Disease Control to make a presen- 
tation on health statistics. 

Ms. Broome. Good morning, Mr. Chairman and Members of the 
Subcommittee. I am Dr. Claire Broome, Deputy Director of the 
Centers for Disease Control and Prevention; and with me today is 
Mr. Jack Anderson, who is acting Deputy Director of CDC's Na- 
tional Center for Health Statistics, NCHS. NCHS is the source of 
much of the data I will present to you today. 

We are pleased to be here on behalf of the Public Health Service, 
and I am especially pleased to have the opportunity to talk with 
you about the state of the Nation's health and how public health 
works to improve it. 

LEADING CAUSES OF DEATH 

First, I would like to provide a broad overview of the leading 
causes of death in the United States. And if I could have the first 
chart, please, this shows what diseases and conditions are killing 
Americans, looking at it in two different ways, by percentage of 
death on the left and by years of life lost before age 65 on the right. 

When we look at the overall deaths, chronic diseases, heart dis- 
ease, cancer, stroke and lung disease claim the greatest number of 
lives each year. Injuries are number five and HIV/AIDS has moved 
up to number eight for the total population. 

When we look at years of potential life loss before age 65, which 
is an indicator of deaths to our Nation's youths and ones that are 
largely preventable, unintentional injuries, half of which are motor 
vehicle crashes, moves up to number one. Intentional injury, which 
means homicide and suicide, becomes number three, and HIV/AIDS 
moves up to number five. While these charts give a broad picture 
of the Nation's most significant health problems, we also need to 
look at the underlying causes of the Nation's most significant 
health problems. 

The next chart shows the work of Michael McGinnis and Bill 
Foege, two public health leaders. They synthesize the vast lit- 
erature on what is known about the underlying nongenetic causes 
of death. They concluded that over half of the 2.1 million deaths 
in the United States in 1990 could be attributed to nine factors. To- 
bacco, diet, physical activity, alcohol, and infectious agents are all 
lethal agents. 

However, this chart also suggests some good news. Many of these 
risks to good health can be modified. Recognizing this fact, the pub- 
lic health community has focused a large portion of its attention on 
reducing the harmful effects of these agents. 

HEALTHY PEOPLE 2000 OBJECTIVES 

One mechanism we use to track our progress in improving the 
Nation's health is through the Healthy People 2000 National 
Health Promotion and Disease Prevention Objectives, and I have 
provided a copy of the report for all of the Members. These health 
objectives were developed collaboratively by a consortium of about 
300 national organizations and all State health departments in an 
effort led by the Public Health Service. The objectives, which are 
laid out in 22 priority areas — for example, physical activity and fit- 



26 

ness, cancer, mental health, and environmental health — are each 
specific, measurable and believed to be attainable. 

For instance, an objective of Healthy People 2000 for prevention 
of heart disease and stroke is to increase to at least 30 percent the 
proportion of people age six and older who engage regularly in light 
to moderate physical activity. Another objective to accomplish this 
goal is to decrease mean serum cholesterol levels to 200 milligrams 
per deciliter. We are well over halfway to the cholesterol objective. 
We have gone from a mean value of 213 to 205 in 1991, on our way 
to the target of 200. But we need to make better progress with in- 
creasing physical activity levels. 

The National Center for Health Statistics, NCHS, measures 
progress toward these objectives and publishes an annual sum- 
mary. I have brought copies of that document for each of you. The 
document shows that the Public Health Service is committed to 
programs that will achieve the Nation's health objectives and is 
committed to measuring progress toward those goals. 

APPROACH TO PUBLIC HEALTH PROBLEMS 

How do we actually solve public health problems? I thought it 
might be useful to go through some examples of how we approach 
the public health problems that face our Nation. First, we have a 
chart which is a schematic of the four steps, and that is on the sec- 
ond easel. These are the four steps that we use in approaching pub- 
lic health problems. 

First, we define the problem, identify the risk factors, develop 
and test prevention strategies, and implement nationwide preven- 
tion programs based on those prevention strategies that are effec- 
tive. 

I would like to give you some specific recent examples which will 
show how public health experts do their job. Before I begin, I would 
like to emphasize that everything in public health is done in col- 
laboration. We work with our partners in State and local health de- 
partments, national and community-based organizations, academia, 
business and labor. 

HANTAVIRUS 

The first example I would like to present is that of hantavirus. 
Public health has a key responsibility to be prepared to define new 
disease threats to the American people and to develop preventive 
measures. During the summer of 1993, physicians detected un- 
usual, fatal cases of respiratory disease in previously healthy young 
adults in the southwestern United States. Local and State health 
agencies, the Indian Health Service and CDC jointly launched an 
investigation of the outbreak, involving more than 20 investigators 
in the field and dozens more working on the surveillance and lab- 
oratory investigations in Atlanta. 

Within 26 days of the outbreak detection, extensive testing of 
clinical specimens using state-of-the-art techniques showed that 
the disease was caused by a previously unknown hantavirus. 
Ecologic studies showed that the deer mouse, a widely distributed 
rodent in North America, is the major natural carrier of 
hantavirus. 



27 

By late July, public health experts had developed guidelines for 
preventing the disease. The diagnostic test which was developed for 
hantavirus that summer, can now be used to test for the disease 
across the United States. 

Interestingly enough, as this chart shows, we have discovered 
that hantavirus is a national problem, not a problem just of the 
southwestern United States. I believe the scenario is an impressive 
example of how public health responded rapidly to an unknown 
threat. The speed and the state-of-the-art technology used to tackle 
hantavirus are needed to address the continuing challenges of new 
emerging diseases and antibiotic resistance. 

VACCINE FOR HAEMOPHILUS INFLUENZAE VIRUS TYPE B 

The second example is the development and evaluation of a new 
vaccine for Haemophilus influenzae virus type B. On the next 
chart, the purple line is the rate of Haemophilus meningitis in this 
country back to 1980. It used to be the most common cause of bac- 
terial meningitis in children in the United States. 

About 20,000 cases of serious Haemophilus B disease occurred 
each year. About 5 percent of children died, 20 percent of the survi- 
vors of meningitis had residual neurologic problems, such as severe 
mental retardation up to mild hearing loss. 

The first-generation vaccine, which came into use in 1985, is 
shown by the blue bars at the bottom of the chart. This was devel- 
oped by the Public Health Service. However, cases of disease were 
reported in vaccinated children. And as you can see, the disease did 
not fall very much upon introduction of this first-generation vac- 
cine. The Public Health Service, however, was prepared and con- 
ducted rigorous studies. These showed that the vaccine was about 
50 percent effective, less than hoped for, but still useful. 

Shortly thereafter, the second generation of vaccines were li- 
censed for routine use in U.S. children. As demonstrated in this 
graph, the increased use of the Haemophilus B conjugate vaccine 
shown in the red bars has reduced the rate of meningitis precipi- 
tously. It has decreased by over 90 percent since 1988. This collabo- 
rative effort by government, academia and industry is saving the 
lives of 1,000 children each year in the U.S. and reducing serious 
disability of many thousands more. 

CHILDHOOD LEAD POISONING 

What about environmental hazards? The third example I would 
like to discuss with you is childhood lead poisoning. This has been 
shown to cause mental impairment and decreased IQ in children. 
Over the past two decades, the public health community has expe- 
rienced tremendous success in reducing the blood lead level in the 
general population. The unique samples available from NCHS's na- 
tional health examination survey, together with state-of-the-art 
laboratory testing at CDC, have provided an accurate assessment 
of the extent of blood lead poisoning in this country. 

From 1976 through 1991, the average blood lead level for persons 
in the U.S. dropped 78 percent. This decline can be directly attrib- 
uted to the elimination of lead from paint and from gasoline. From 
1976 to 1990, 99.8 percent of lead was removed from gasoline. 
However, these assessments also let us know that there is still a 



28 

problem; 1.7 million U.S. children under six years of age still have 
blood lead levels that are a health concern. However, we are now 
able to target where that problem is, and the final chart shows that 
black children and low-income children who live in urban areas are 
still at risk for lead exposure. 

I know you won't be able to see the individual numbers, but the 
chart shows that 37 percent of non-Hispanic black children living 
in large urban areas have blood lead levels shown to be associated 
with mental impairment. Consequently, the public health commu- 
nity is developing strategies which focus on those populations most 
vulnerable to this harmful disease. 

I hope these examples have helped illustrate how we in public 
health are working to improve the health of the Nation's people. I 
will be glad to answer any scientific questions you may have. 

[The prepared statement and biography of Dr. Claire Broome 
follow:] 



29 



Summary of Testimony 

by Dr. Claire Broome, Deputy Director 

Centers for Disease Control and Prevention 

Good morning. I am Dr. Claire Broome, D^uty Director of the Centers for Disease Control and 
Prevention (CDC). With me today is Mr. Jack Anderson, Acting Deputy Director of CDC's 
National Center for Health Statistics (NCHS). 

I would like to provide a broad overview of the leading causes of death in the United States. This 
chart shows what diseases and conditions are killing Americans in two ways: by percent of deaths 
as well as by years of life lost. There is another way to look at the nation's most significant health 
problems. Michael McGinnis and Bill Foege, two public health leaders, synthesized the vast 
literature on what is known about the underlying, non-genetic causes of death. 

One mechanism we use to track our progress in our fight against lethal agents is through the Healthy 
People 2000 National Health Promotion and Disease Prevention Objectives. When you look at this 
document, you wUl see that the Public Health Service takes very seriously its commitment to 
measuring progress that results from its work in public health and to achieving the nationally 
developed health objectives. 

We solve public health problems by applying a series of four steps we have laid out on this chart: 
Define the problem; identify risk factors, develop and test prevention strategies, and implement 
nationwide prevention programs. I would like to give you some specific examples that will show 
how public health experts do their jobs. 

Hantavirus. Public health must be prepared to define new disease threats. An excellent example is 
the detection of hantavirus. The diagnostic test for hantavirus that was developed that summer is 
being used for detecting cases across the United States. As this chart shows, hantavirus is a national 
problem, not a problem of the southwestern U.S. alone. The speed and state-of-the-art technology 
we used to tackle hantavirus are needed to address the continuing challenges of emerging new 
infections and antibacterial resistance. 

Haemophilus influenzae type b. The Haemophilus influenzae type b (Hib) bacteria used to be the 
most common cause of bacterial meningitis in children in the United States. As demonstrated in this 
graph, increased use of the Hib conjugate vaccines has reduced the rate of meningitis caused by this 
bacteria by over 90% since 1988. 

Childhood lead poisoning. Over the past two decades, the public health community has witnessed 
tremendous success in reducing the blood lead level in the general population. The unique samples 
available from NCHS' national health surveys, together with state-of-the-art lab work at CDC, have 
provided an accurate assessment of the extent of blood lead poisoning in this country. From 1976 
through 1991, the average blood lead level for persons in the United States dropped 78%. This 
decline can be directiy correlated with primary prevention efforts to eliminate lead hazards in paint 
and remove lead from gasoline: from 1976 to 1990, 99.8% of lead was removed from gasoline. 

I hope these examples have helped illustrate how we in public health are working to improve the 
health of the nation's people. 



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36 



Claire V. Broome, BiUD. 
Deputy Director, Centers for Disease Control and Prevention 
Deputy Administrator, Agency for Toxic Substances and Disease Registry 



Dr. Claire V. Broome was appointed deputy director of the Centers for Disease 
Control and Prevention (CDC) and depu^ administrator of the Agency for Tosic 
Substances and Disease Registry (ATSDR) on June 20, 1994. 

As deputy director of CDC, Dr. Broome assists in leading the agency of the U.S. 
Public Health Service responsible for promoting health and preventing disease, injury 
and premature death. CDC's 10 Centers, Institute, and Program OfClces work 
closely with local, state, and other federal agencies to protect the public health. As 
deputy administrator of ATSDR, Dr. Broome assists in administering the PHS agency 
created by the Superfund law to prevent or mitigate adverse hiunan health effects 
and diminished quality of life resulting from exposure to hazardous substances in the 
environment. 

Dr. Broome served as CDC's associate director for Science from 1990-1994, and also 
as acting director, National Center for Iiyury Prevention and Control, from 
1992-1993. She was chief of the Special Pathogens Branch in the National Center 
for Infectious Diseases from 1981-1990. 

Dr. Broome began her career at CDC in 1977 as an Epidemic Intelligence Service 
Officer. 

Dr. Broome is a member of various professional societies and she has won vaany 
professional awards including the PHS Meritorious Service Medal and the prestigious 
Squibb Award for Excellence of Achievement in Infectious Diseases from the 
Infectious Disease Society of America. 

She graduated magna cum laude from Harvard University and received her M.D. 
from Harvard Medical School. She trained in internal medicine at the University of 
California, San Francisco, and in infectious diseases at Massachusetts Greneral 
Hospital. 

Dr. Broome was bom in Timbridge Wells, England. She resides in Atlanta with her 
husband John Head and their two children. 



June 23, 1994 



37 

Mr. Williams. Our third presenter will be Howard Rolston, who 
will make a presentation on poverty statistics and trends. 

POVERTY RATES 

Mr. Rolston. Mr. Chairman, Members of the committee, I am 
pleased to be here this morning. I understand you would like us 
to update some of the data we presented two years ago. Because 
it provides the background and context for many of our programs 
and because it relates to other important trends, I will focus on the 
child poverty rate, although I will deal with other rates, also. 

The first chart that I put up tracks three different poverty rates. 
The red line represents the poverty rate for the elderly. The blue 
line represents the poverty rate for families with children. And the 
green line represents the overall poverty rate, the poverty rate for 
all persons. 

If you look at the green line, you see a declining trend in poverty 
throughout the 1960s, basically a flat trajectory in the 1970s and 
then gradually rising poverty in the 1980s and beyond. There is 
clearly in that later period a relationship to the business cycle with 
it trending up and down. But if you look at the 1970s, compared 
to the 1980s, early 1990s, the latter period is clearly higher. 

One of the important aspects of this trend is that if you look at 
the period from 1959 to 1973, the declining period, and then look 
at the period from 1979 to 1993, 20 years later, the rate of growth 
in the Gross Domestic Product was twice as great in the earlier pe- 
riod. So most analysts attribute part of the changes in poverty 
trends to the economy. 

POVERTY RATE FOR ELDERLY 

Looking at the elderly, one sees a pattern that goes in the direc- 
tion that most people would like to see. Poverty declined sharply 
in the 1960s and continues to trend down, with blips up and down, 
in a reasonably steady rate up until the present. The poor actually 
go from being the segment of society which by far was the poorest 
segment of society to the segment of society which has the lowest 
poverty rate. 

Did I say the poor? The elderly, I meant to say. 

And, of course, as has been remarked by very many people. 

POVERTY RATE FOR CHILDREN 

If you look at children, one sees the opposite happening. Families 
with children go from having the lowest poverty rates, although 
their poverty rates do come down sharply in the 1960s, to having 
the highest poverty rates in 1993. And what one sees there is a 
pattern that reaches the low point around 1970. I think it is 1969. 
It trends upward somewhat in the 1970s and more sharply so 
again with the business cycle built in. 

If we go to the next chart, I think we begin to get a clearer un- 
derstanding of what has contributed to the increase in child pov- 
erty. Here, the lines for the overall population, the red line and the 
green line, are the same. They are just a slightly different scale. 
And what we have done here is take the poverty rate for families 
with children and segmented it into two parts. The upper line, 



38 

which has the very high poverty rates, are female-headed house- 
holds with children under 18. The line at the bottom that is sort 
of purple, pink line, is the line for all other families, which are pri- 
marily two-parent families, although not exclusively so. And what 
one sees there, of course, is a dramatic difference in the well-being 
from the perspective of official poverty of female-headed households 
and other households. 

What the blue line, of course, illustrates is that poverty rates 
have been consistently higher for female-headed households, that 
they came down in the 1960s, but essentially — with some blips up 
and down, they have been essentially level from 1966 to the 
present, with very little change. 

If you look at the line at the bottom of the chart, the reddish, 
pinkish, purplish line — whatever that is — one sees that families 
with children, on the other hand, have consistently been the seg- 
ment of the population that has the lowest rate, again made up pri- 
marily of two-parent families. It tracks the general poverty rate 
quite closely, but at a lower level. 

If one now begins to think about the increase in poverty for chil- 
dren that were shown on the previous chart, two things emerge 
from looking at this table. On the one hand, we all know that there 
are now more children than there were previously represented up 
in the blue line in female-headed households. In 1960, 8 percent of 
all children were in female-headed households. By 1990, it ap- 
proached 22 percent. So we have seen kids shift from that lower 
poverty rate group to the higher poverty rate group, and that has 
clearly contributed to the increase in child poverty. 

The other thing that, because the family differences there are so 
stark, you have to look a little more closely at to see, is that al- 
though the poverty rate for nonfemale-headed households for chil- 
dren is much lower that it is on a generally upward trend — much 
more subtly than say the downward trend for the elderly in the 
1960s, but it is on an upward trend. If you look at the low point, 
which occurred in 1973, and you look at the current point on that 
chart, it is actually 70 percent higher in the most recent period 
than it was in the period of 1973. I think that is probably more a 
reflection of changes that have occurred in the economy and the 
ability of parents, even in two-parent families, to raise their chil- 
dren above the poverty level. 

One way to think about this is that although approximately 14 
percent of children over the period of time from 1960 to 1990 shift- 
ed from the pink-purple line to the blue line, still most children, 
over three-fourths of them, are down there in the pink-purple line. 
So they still tend to dominate the statistics. 

I think what this clearly shows is that two trends are really im- 
portant ones that work in increasing child poverty — I should men- 
tion that there are other ones that decrease child poverty; ones like 
more maternal employment, for example, or higher education gen- 
erally of the work force — the demographic kinds of changes that 
have been going on, and the changes in the economy. 

The next chart begins to illustrate what some of the latter 
changes are. It is kind of a crude one. If I had a little more time, 
I probably could have come up with a better fit than that shows. 
But the red line is the child poverty rate for children — families 



39 

with children, and the green line represents the proportion of all 
workers who work full-time, but earn less than the poverty level 
for a family of four. And as you can see, that percentage over the 
same period — this doesn't go quite as far back — but through the 
1960s through to about 1973, the low point is 1974 — is on a down- 
ward trend. It levels off in the 1970s and begins to increase toward 
the end of the 1970s. And I think what this reflects is the ability 
of individuals to garner higher wages which have the potential to 
bring their families above the poverty line. 

I think one way to think about this and the previous chart is in 
the notion that parents can bring income to bear and earnings to 
bear to raise their children above the poverty level, and what has 
happened over time are two things. One is the ability of fathers, 
particularly, to earn money to do that in intact families, and of 
course, the increasing absence of fathers from the household. 

COMPOSITION OF POOR CHILDREN 

I now want to turn to the composition of poor children. We so far 
have looked at trends and the proportion of the population of chil- 
dren who are poor. This chart illustrates who the poor children are. 
There are 15.7 million of them, according to official poverty num- 
bers. In fact, what the first bar shows is that the majority of them, 
about 54 percent, are in female-headed households, although there 
are a substantial minority in married couple families. 

Again, there is a substantial minority that are nonwhite, but 
about 62 percent of poor children are white. Many of them do live 
in central cities, about 45 percent, but the majority live in either 
suburbs or rural areas. And finally, if we look at the work behavior 
of other household members, fully one-fourth of those poor children 
live in households where at least one person works full-time. Some- 
what over one-third, 36 percent, live in a household — where there 
is no adult working at all and actually the largest percentage 
among this group has somebody who is working part of the time. 
So there is work in about two-thirds of poor families with children. 

The next chart looks not at children at a point in time and their 
poverty status, but at the notion of what poverty looks like over the 
course of a child's childhood. A child, we think, who spends one 
year out of their childhood in poverty probably has a quite different 
history than a child who spends all 18 years of their childhood in 
poverty. 

This chart comes from a study that looked at children in their 
first 15 years of life. And what we see is about two-thirds of chil- 
dren experience no poverty in those 15 years. Of the one-third that 
do experience poverty, about two-thirds of them, the largest group, 
experience poverty for a relatively brief period of time. So if we pic- 
ture poor children as kids who are poor from year 1 to year 18, that 
is not really what the typical poor child looks like. The t3rpical poor 
child is likely to spend several years in poverty, but not their whole 
childhood. 

It is really only at the tail of the distribution, approximately one- 
eighth of children who experience substantial poverty — more than 
five of their first 15 years of life that they spend poor. 



40 

FAMILY STRUCTURE AND PERSISTENT POVERTY 

And finally, I would like to present information on family struc- 
ture and persistent poverty. What this chart does is to look at 
length of poverty for three different categories of children. The 
green bar represents children who spent — and this covers the first 
10 years of children's life — who spent all 10 years in a two-parent 
family. The blue bar represents children who spent some of those 
years in a two-parent family and some of the years in a single-par- 
ent family, and the purple bar represents those children who spent 
their entire first 10 years in a single-parent family. The patterns 
I think are really very clear and startling. 

If you were, a child in a two-parent family for all 10 years, you 
only had about a one-fifth probability of it being poor at all. And 
if you did experience poverty, the one in seven children who are — 
it is likely that it was transient poverty, not persistent poverty. 

About one in seven children experience one to three years of pov- 
erty. Extended poverty is relatively rare in a two-parent family. 

If you begin then to look at the blue line which illustrates chil- 
dren who were sometimes in a two-parent family and sometimes in 
a single-parent family, you see that the most typical form of pov- 
erty is brief poverty, transient poverty. Approximately two-fifths of 
such children spend one to three years in poverty. One-third escape 
it altogether. Only a quarter are in lengthy poverty. 

It is clearly very different for children who spent their entire 
first 10 years in a single-parent family. Fully three-fifths of them 
will be persistently poor for seven to ten years, and four to six 
years of poverty will be the case for another one-fifth. So fully four 
out of five such children will experience extended poverty, and cer- 
tainly that is something which studies suggest is likely to be det- 
rimental to their well-being. Clearly this is something we need to 
be concerned about. 

The latest statistics suggest that 30 percent of children are bom 
out of wedlock and are thus more likely to be in that area, and I 
think that is one of the things that is relevant to looking at persist- 
ent poverty. 

So I think, in summary, what the data suggests is that there are 
both substantial economic and demographic changes that are af- 
fecting the proportion of children in poverty. I will be glad to an- 
swer any questions that you may have. 

[The prepared statement and biography of Howard Roslton 
follow:] 



41 



POVERTY STATISTICS 

Howard Rolston 

Director, Office of Policy and Evaluation 

Administration for Children and Families 

After decreasing through the sixties and early seventies, poverty 
rates began to increase after 1973, and rose more sharply in the 
eighties. This trend was particularly pronounced for children, 
whose poverty rates declined from 27.3% in 1959 to 14.4% in 1973, 
and then rose from 16.4% in 1979 to 22.7% in 1993. Underlying this 
trend is a combination of economic and demographic factors. As 
measured by a number of different economic indicators, economic 
growth in the United States slowed in the 1970's, relative to the 
fairly rapid growth of the 1950 's and 1960's. For example, real 
per capita Gross Domestic Product from 1979 to 1993 increased at 
only about half the rate of the period from 1959 to 1973. At the 
same time, changes in family structure were also influencing child 
poverty rates. In 1959, among families with children, married- 
couple families outnumbered female-headed families nearly ten to 
one. By 1993, this ratio had fallen to only three to one. This 
change has had a significant effect on the overall child poverty 
rate because the poverty rate for female-headed families is more 
than five times as great as that for married-couple families. 
Furthermore, children in single-parent families not only experience 
higher rates of poverty, they also do so for longer periods of 
time. This is particularly true for children who are never in a 
two-parent family. 

In 1993, the most recent year for which poverty statistics exist, 
there were about 15.7 million poor children in the United States; 
about two out of every nine children are poor. This is the 
greatest number, and the highest rate, of poor children since 1964. 
Who are these children? First of all, about 62 percent of poor 
children are white. Also, while most live in female-headed 
families, a substantial minority — 37 percent — live in married- 
couple families. Fewer than half live in central cities of 
metropolitan areas, about one third live in metropolitan suburbs, 
and about one fourth live outside metropolitan areas. In more than 
60 percent of poor families with children, at least one person is 
employed; about 20 percent have a year-round, full-time worker. 



42 



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48 



HOWARD L. ROLSTON 

DIRECTOR OF POLICY AND EVALUATION 

ADMINISTRATION FOR CHILDREN AND FAMILIES 

DEPARTMENT OF HEALTH AND HUNAN SERVICES 

Howard Rolston is currently the Director of Policy and 
Evaluation in the Administration for Children and Families. 

He has been a career civil servant at the U.S. Department of Health 
and Human Services for the past 19 years. Since 1978 Howard has 
had responsibilities in policy and research areas related to 
welfare, child support enforcement, and other children and family 
issues. 

Prior to joining the Department in 1975, Howard was Assistant 
Professor of philosophy at Georgetown University. He was awarded 
a doctorate in philosophy at Harvard University in 1971. 



49 

Mr. Williams. Finally, Mr. Chairman, I would like to move to 
the easel and give you a brief overview of the budget for the 
Department. 

OVERVIEW OF DEPARTMENT BUDGET 

In 1995, the Department of Health and Human Services will 
spend about $682 billion, an increase of about 7 percent over 1994. 
Altogether, the Health and Human Services budget represents 
about 45 percent of the total Federal budget, which in 1995 will be 
approximately $1.5 trillion. 

SOCIAL SECURITY ADMINISTRATION 

The biggest part of our budget is accounted for by the Social Se- 
curity Administration — including the old-age survivors insurance 
program, disability insurance program, SSA represents about — just 
about half of the budget. That is this part of the pie here. 

Congress enacted legislation last summer, making Social Secu- 
rity an independent agency. We are in a period of transition now, 
and by the end of March, Social Security will be leaving the De- 
partment and ofT on its own. The size of the HHS budget that re- 
mains will be significantly smaller. All of this will go to Social Se- 
curity and there are also some social security programs up in this 
other entitlement piece. 

HEALTH CARE FINANCING ADMINISTRATION 

The next two major programs in the Department are managed by 
the Health Care Financing Administration; the Medicare program 
and Medicaid represent about 37 percent of our budget. The other 
entitlement slice includes the Supplemental Security Income pro- 
gram, which is also managed by the Social Security Administration 
and will go with it. The Black Lung program is also part of Social 
Security. 

Staying with us will be the Aid to Families with Dependent Chil- 
dren program, the JOBS program, the Foster Care program; and 
the Social Services Block Grant program — some of our other major 
entitlement programs. 

DISCRETIONARY PROGRAMS 

Lastly, but not insignificantly, about 5 percent of our budget is 
what is known as discretionary programs. I will be spending a fair 
amount of time talking with you about this. The Public Health 
Service budget, some of which you heard about a little earlier, is 
included in there, along with programs in the Administration for 
Children and Families, like Head Start. 

Another way to look at our budget is to see how much of our 
budget is appropriated on an annual basis, and how much of our 
budget is permanently appropriated — not requiring annual action 
by the Congress. Most of our Social Security programs — ^the Old- 
age and Survivors Insurance, Disability Insurance represented in 
blue — have permanent appropriations. They do not require annual 
action by the Congress unless the Congress wishes to change the 
nature of the program. In the yellow is the Medicare program 



50 

which also does not require annual appropriations. These two to- 
gether account for about $495 billion. 

The appropriated entitlements we talked about earlier, which are 
shown in red, do require annusd appropriations and come before 
this committee every year. Medicaid and AFDC are the major pro- 
grams there; they account for about 22 cents of every dollar we 
spend. 

Finally, the discretionary part of our budget, 5 cents on the dol- 
lar, also comes before this committee, with two exceptions: The In- 
dian Health Service — which is part of the Public Health Service 
that goes before the Interior Subcommittee and the Food and Drug 
Administration, also managed by the Public Health Service, which 
goes before the Agriculture Subcommittee. 

Let's turn to that 5 percent discretionary slice that comes before 
this committee. It is about $33 billion in 1995, a 3.5 percent in- 
crease over 1994. With over $18 billion the Public Health Service 
is the major part of this discretionary spending, starting with the 
Health Resources and Services Administration, all the way down to 
the Agency for Health Care Policy and Research and the Office of 
the Assistant Secretary for Health, which is here. All of this is 
managed by the Public Health Service. 

The Health Resources and Services Administration is about $3.1 
billion and includes the Community and Migrant Health Centers 
Program, the Maternal and Child Health Block Grants, and the 
Ryan White program. 

The next and biggest slice is the National Institutes of Health, 
which represents $11.3 billion. The Substance Abuse and Mental 
Health Services Administration, where most of our mental health 
programs are managed, is here, also with the Agency for Health 
Care Policy and Research and the Office of the Assistant Secretary 
for Health. 

The Health Care Financing Administration discretionary slice in- 
cludes the dollars to manage and administer the Medicare and 
Medicaid programs. It is about $2.2 billion, or 7 percent of our total 
discretionary budget. 

The administrative money to manage the Social Security pro- 
grams is about $3.1 billion, roughly 10 percent of our budget. The 
Administration for Children and Families is $7.6 billion, including 
Head Start, the largest program there, the Child Care Develop- 
ment Block Grant, the Low Income Home Energy Assistance Pro- 
gram, Community Services programs, the Refugee Resettlement 
progfram. 

The Administration on Aging, at just under a billion, provides 
services to the elderly including home-delivered meals. 

Finally, this thin red slice at the top represents Departmental 
Management, the Office of the Inspector Greneral and the Office for 
Civil Rights, which sire the primary agencies administering the 
Department. 

If you look at our budget, our discretionary budget, in the context 
of the total discretionary spending in the government, defense/mili- 
tary is clearly the largest slice of discretionary spending in the gov- 
ernment. We are about third in size, somewhat smaller than the 
Department of Transportation and bigger than Housing and Urban 



51 

Development. Our $35 billion in outlays represents about 6 percent 
of the total discretionary spending in the government. 

TRENDS IN DISCRETIONARY BUDGET 

We would like to give you a sense of the trends of our discre- 
tionary budget over the last 10 years. This chart plots year-to-year 
rates of growth in discretionary spending. The green line rep- 
resents total discretionary spending in the government; the blue 
line at the top tracks the HHS discretionary spending over this pe- 
riod of time. 

We have, in general, grown somewhat faster than the overall dis- 
cretionary budget. This high peak towards the end of the period 
represents the beginning of the Budget Enforcement Act, which has 
constrained total discretionary spending since it was enacted. Total 
discretionary spending in the last three or four years has actually 
been negative. Our budget has also become more constrained as a 
result of the Budget Enforcement Act, but growth has remained 
positive. 

In 1995, growing limitations on discretionary dollars that 
brought -us closer to the average, as well. If you look at the overall 
statistics, the total discretionary spending over this period of time 
grew at an average annual rate of 1.2 percent, with a fair amount 
of variations in there. Defense spending, which is included in here, 
grew at a negative rate, at minus 1.2 percent on an average annual 
basis. Domestic discretionary spending grew about 5.6 percent per 
year; and HHS grew just underneath that rate at 5.4 percent per 
year. 

If you look at the last five years, in terms of discretionary spend- 
ing, the Department has grown by about $12 billion. This chart 
tries to illustrate where most of that $12 billion has gone. 

The biggest increase, starting from the bottom of this chart, has 
gone to Head Start and other children's programs, which have had 
significant increases in spending since 1990. The next biggest slice 
is the National Institutes of Health, which has maintained steady 
growth throughout the last five or six years. NIH has grown from 
about an $8 billion program to about $11 billion over this period 
of time. 

The Social Security Administration, after being relatively stag- 
nant for most of the 1980s, has grown quite a bit in the last five 
years, largely in response to the rising number of disability claims 
and the need to try to keep up with that work load. Other areas 
of growth include CDC prevention programs, including tuberculosis 
control, AIDS and immunization, health services, including the Ma- 
ternal and Child Health Block Grant, which grew by about $250 
million over this period. 

The Ryan White program increased by $548 million and 
SAMHSA programs grew by over $500 million during this period. 

This chart illustrates our personnel levels and displays what will 
happen on March 31. This represents not all department personnel 
but the personnel for programs that come before this committee, so 
we have left out personnel that manage the Indian Health Service 
and the Food and Drug Administration. 

We have been relatively static although there was a dip in the 
late 1980s and early 1990s than a slight rise. On March 31, 



52 

though, a significant part of the Department will become independ- 
ent, leaving us significantly smaller. And as we go out to 1999, we 
are scheduled also to drop about 7 percent more, leaving us by 
1999, just a little over 35,000 people. 

SPENDING MECHANISMS 

Finally, we waited to talk to you a little bit about how we spend 
our money. Where does our money go? And what are the mecha- 
nisms we use to get the money out the door? 

If you look at our mandatory programs, about $500 billion goes 
largely as direct payments to individuals. Through the Social Secu- 
rity program, and the Medicare program, we are really providing 
funding to individuals for health care services, or directly in the 
case of Social Security checks. 

In many of our other entitlement programs, we are actually pro- 
viding grants to States which provide that assistance to individ- 
uals. We are not providing that assistance directly, but help fi- 
nance State programs, as well. 

For our discretionary dollars, the $34 billion that we spent in 
1994, about $9 billion of that went out in grants to States. Some 
of the major programs include: the Low Income Home Energy As- 
sistEince Program, the Child Care Block Grant, Aging grants, the 
Maternal and Child Health Block Grant, Refugee programs — ^these 
are examples of money we actually send out to States. 

We also pay money to community organizations — the Head Start 
program, for example, is probably the biggest example there. In ad- 
dition, we provide assistance both in the form of grants and con- 
tracts to universities and other research institutions, primarily 
through the National Institutes of Health, but also through HRSA. 

Finally, we provide money to contractors who help manage our 
programs instead of Federal employees. The Medicare program, for 
example, is largely administered by insurance companies. We pro- 
vide a little over $2 billion to insurance companies to help manage 
the Medicare program. We also rely on State agencies to help us 
process claims for the Disability Insurance program. We also rely 
on States to survey health care providers to see whether they meet 
standards of participation for both Medicare and Medicaid. 

We also spend money directly ourselves like the $4 billion we 
spend to manage the Social Security Administration. For intra- 
mural research at the National Institutes of Health, as well as at 
CDC, we spend about $2 billion. And then for the remaining part 
of the Department and its employees, we spend about $3 billion. 

That completes our presentation, Mr. Chairman. We would be 
glad to answer any questions you might have. 

[The prepared statement and biography of Dennis Williams 
follow:] 



53 



INTRODUCTORY STATEMENT OF DENNIS P. WILLIAMS 

BEFORE THE LABOR, HHS APPROPRIATIONS SUBCOMMITTEB 

JANUARY 12, 1995 



Thank you for inviting me to talk with you this morning 
about the structure, history and trends of the HHS budget. 

I'd 1 ike to attempt a broad overview of what our budget 
looks like today, what it looked like yesterday, and a glimpse of 
what we will look like tomorrow — all of which will hopefully help 
with your work as you oversee implementation of the 1995 
appropriation and begin preparing for arrival of the 1996 budget. 

I want to start by presenting our larger $682 billion budget 
picture, which includes mandatory programs, to give you a sense 
of the scope of programs encompassed within our entire budget, 
and its place within the overall federal budget. 

I will then focus on the more narrow, but equally important 
$33 billion discretionary portion of our budget, which consumes 
the bulk of this Subcommittee ' s time and then close by trying to 
give a sense of our past and future staffing levels. 



54 















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62 



DB1IVI8 P. WILLIAMS 

DEPUTY ASSISTAMT SECRETARY 

FOR B0D6BT 

DBPARTMEHT OF HEALTH AMD HDNAM SERVICES 

Dennis Wlllieuns has served as Deputy Assistant Secretary for Budget 
since 1984. 

Dennis provides advice and assistance to the Assistant Secretary for 
Management and Budget, and the Secretary, on program policy and 
management issues dealing with the Department's budget. He is 
responsible for the formulation of the budget for HHS and its 
presentation to the Office of Management and Budget and to Congress. 

From 1982 until 1984 he served as the Director, Division of Welfare 
Budget Analysis in HHS. Before that, starting in 1980 until 1982 he 
served as Chief, Health Care Financing Branch, Division of Health 
Budget Analysis. 

From 1977 iintil 1980 Dennis was a Program Analyst in the Division of 
Health Budget Analysis. 

Prior to his appointment at HHS, Dennis served from 1968 until 1971 
as a Program Specialist with the Office of Economic Opportunity and 
from 1965 to 1967 with the Peace Corps in Turkey. He was awarded a 
doctorate in International Relations at the Johns Hopkins School of 
Advanced International Studies in 1976. 



63 

Mr. Porter. Dennis, thank you very much. 

You all have done an excellent job, I might say. You are always 
great with charts, Dennis. It is really very helpful to us, particu- 
larly our newer Members, to see the breakout of what the Depart- 
ment does. 

You are going to be mighty lonely over there with 65,000 people 
being out from under your control; and Social Security will go from 
being part of HHS to one of our independent agencies, larger than 
all the other departments of government in terms of the funding 
it handles. 

HEAD START 

I would like to focus for a minute with Ms. Brown on Head Start. 
It is a program that has increased — it has more than doubled over 
the last five years from about $1.5 billion in 1990 to about $3.5 bil- 
lion in fiscal year 1995. I wonder if you have been tracking this 
growth and what problems you have seen in the program during 
the last five years or so. 

Ms. Brown. If I may ask my Deputy, Mike Mangano, who does 
those studies, or did in his former position, I think he would be in 
a better position to tell you. 

Mr. Porter Fine. 

Mr. Mangano. We have undertaken a number of studies in the 
Head Start program over the last couple of years, and some of 
them requested by the Secretary himself under Dr. Sullivan and 
followed through by Secretary Shalala. We did find a number of 
growing pains with the programs. 

We found that with such a dramatic growth, as might be the 
kind of growth you would expect in a private sector company that 
had such an expansive growth over these years, that they were 
having some troubles. They were having problems with transpor- 
tation of kids. They were having trouble finding new facilities. 
With such an expansive growth, a number of new kids had to be 
accommodated into the program. With that came problems in find- 
ing new space. 

There were problems with the social services networks in the 
local communities with such growth in the number of kids in the 
programs. Social services — Head Start works very hard to get kids 
in the necessary social services — had to be expanded in local 
communities. 

A number of these problems all came to light with a couple of 
our reports, about two years ago, pointing to some of these 
problems. 

We also had problems in the health care field with children — par- 
ticularly in the area of immunizations. There were disagreements 
as to what level of immunization rate there should be for Head 
Start children in comparison to the rest of the community. 

The Secretary, at that point, took all of those problems together, 
along with the Administration for Children and Families, and cre- 
ated a commission to study those management problems that we 
had found. We came up with — and that commission also came up 
with — a number of recommendations that the Administration for 
Children and Families and the Head Start program heve been 
addressing. 



64 

So, we think the short answer to your question is that we found 
a number of management problems with the rapid growth of the 
Head Start program. But we do beheve that the approach that the 
Head Start program has taken to address those issues has been a 
satisfactory one. 

Mr. Porter. Could you give us an idea of the magnitude of the 
problems you found? 

Mr. Mangano. Well, in the area of health care statistics for chil- 
dren, in the Head Start program, they had been using the stand- 
ards that have been developed by the American Pediatric Associa- 
tion. When we then looked at the local community programs of 
Head Start, they had been adopting, in many cases, local or State 
standards or standards that were of a lesser level. We were finding 
that the accurate rate of immunization, for example, was much 
lower than what it should have been for that particular program. 
One could question whether the lower level, though, was an appro- 
priate level for those children. In those States, they felt it was; we 
didn't feel it was in comparison to national statistics. 

Mr. Porter. What about problems other than management? 
Were there problems of fraud or waste or other — well, waste is 
probably management. But what about fraud? Were there any dif- 
ficulties there? 

Mr. Mangano. We have not identified a significant amount of 
fraud in the Head Start program. That is not to say that it doesn't 
exist. But we haven't come across very much of it. 

We would also like to add though that we have been devoting 
most of our resources to the areas that have the largest dollar val- 
ues in our program, and that would be in the Medicare, Medicaid, 
and Social Security areas. Head Start is still a small portion of our 
budget, so we haven't been out there looking for a great deal of it, 
and we haven't found very much. 

EFFECT OF CHILD SUPPORT ENFORCEMENT ON CHILD POVERTY RATES 

Mr. Porter. A question for Mr. Rolston. 

Looking at the child poverty statistics that you presented, has 
there been any study as to the effect of vigorous child support en- 
forcement on those rates? In other words, in the last five or six 
years, we have really made a much greater effort to help the Fed- 
eral Government to help States enforce child support orders and to 
find individuals who were not supporting their families; and I won- 
der how much of a difference that has made in the statistics, if you 
have tracked that. 

Mr. Rolston. I am not personally aware of it, but I will look into 
that and find out. As you said, from a theoretical point of view, it 
should; and we certainly are collecting more money all the time, 
and it should be making that kind of difference. Whether that has 
actually been studied directly, I don't know. I will find out. 

Mr. Porter. I would like to see what effect that has had. 

[The information follows:] 

Child Support Enforcement and Child Poverty 

I checked with a number of knowledgeable individuals both inside and outside the 
Department and was unable to identify any study that addresses the question of 
what effect child support enforcement has had on child poverty. The Bureau of the 
Census collects data biennially on child support collections, and tabulates amounts 



65 

of child support collected by poverty status of the mother. These tabulations include 
any child support collected in the calculation of poverty status. To date, nobody ap- 
parently has tabulated the data in such a way tnat it shows the poverty rate with- 
out counting the child support, so that the impact of child support on poverty could 
be estimated. 

Mr. Porter. Ms. Pelosi. 

Ms. Pelosi. Mr. Chairman, thank you. You know what? I think 
I will pass on the first round. 
Mr. Porter. Thank you. 

Ms. Pelosi. And hear the other line of questions. Thank you. 
Mr. Porter. Mr. Istook. 

CHANGE IN DEFINITION OF POVERTY LEVEL 

Mr. Istook. Thank you, Mr. Chairman. Let me follow up. 

The Chairman mentioned some things on poverty levels. I guess 
this will probably go to you, Mr. Rolston. You have a chart, of 
course, graphing percentages of children or families considered to 
be in the poverty level. 

Do you have any similar chart that has been prepared that 
shows the changes in the definition over the years of what con- 
stitutes "poverty level'? 

Mr. Rolston. Well, I think one of the virtues of the poverty level 
is that the definition of it has been relatively stable over time. 

Almost everybody, in one way or other, finds fault with the pov- 
erty level. It is either too high or too low; and there are certainly 
a lot of arguments that you can make, ways in which it is higher 
or lower, but the definition is relatively steady. 

There are a number of other experimental — t5rpically what Cen- 
sus has done, when issues come up, is start a new experimental se- 
ries, and we certainly could provide some of those to you. But in 
the interest of having something that is stable over time, the defi- 
nition has been relatively stable. 

[The information follows:] 

Changes in the Definition of Poverty 

The poverty statistics 1 used in my presentation are based on a definition devel- 
oped by the Social Security Administration (SSA) in 1964 and revised in 1969 and 
1981 by interagency committees. The original poverty index provided a range of in- 
come cutoffs adjusted by such factors as family size, sex of the family head, number 
of children under 18 years old, and farm-nonfarm residence. 

As a result of deliberations of a Federal Interagency Committee in 1969, the fol- 
lowing two modifications to the original SSA definition of poverty were rec- 
ommended: (1) that the SSA thresholds for nonfarm families be retained for the 
base year 1963, but that annual adjustments in the levels be based on changes in 
the Consumer Price Index (CPI) rather than on changes in the cost of food included 
in the economy food plan; and (2) that the farm thresholds be raised relative to the 
nonfarm levels. The combined impact of these two modifications resulted in an in- 
crease of 360,000 poor families in 1967 

In 1980, another interagency committee recommended three additional modifica- 
tions, which were implemented beginning with the 1981 poverty statistics: (1) elimi- 
nation of separate thresholds for farm families, (2) averaging of thresholds for fe- 
male-householder and "all other" families, and (3) extension of the poverty matrix 
to families with nine or more members. 

Mr. Istook. Well, of course, "relative" is all in the eye of the be- 
holder, but that is why I ask if you do have something that shows 
changes. And sometimes, of course, one definition incorporates 
other definitions, and maybe this definition may not change, but 
some of those that are incorporated might. But I would be very in- 



66 

terested in receiving something that charts definitional changes in 
what constitutes poverty levels, because I think that is important, 
to understand the graphs over a period of years. 

Also, in relation to that, are there — do you track also — and use 
whatever definition you will. Of course, a frequent criticism of pov- 
erty level definitions is that it fails to incorporate the benefits that 
are received from different government programs and services. 

Do you have similar statistics that when you incorporate public 
benefits — whether it be Medicaid, whether it be SSI, whether it be 
food stamps, housing subsidies, you name it? Do you have a similar 
chart that showshe relative number of people that are living — who 
are actually living at certain levels of — I mean, I would consider 
that — of course, myself a necessary part of the definition. But do 
you track that? 

Can you provide us similar information that breaks down the 
people who, if you did not consider government benefits, would still 
be in poverty, as opposed to those when you do count those 
benefits? 

[The information follows:] 

Poverty Rates Using Various Definitions of Income 

Table N from the 1993 poverty statistics released by the Bureau of the Census 
last October is attached. It shows poverty rates for the population as a whole, as 
well as various subgroups, using a variety of definitions of income. Looking at the 
overall population, for example, the official poverty rate (Definition 1) is 15.1 per- 
cent. Taking out government transfers (Definition 2) raises the poverty rate to 23.4 
percent. Using Definition 8, which adds capital gains and employer-paid health in- 
surance and takes out FICA and Federal and state income taxes gives a poverty 
rate of 23.2 percent. Adding in non-means-tested government cash benefits (Defini- 
tion 9) lowers it to 16.1 percent. Non-means-tested non-cash benefits (Definition 11) 
lower it further to 15.6 percent, and means-tested cash and non-cash benefits (Defi- 
nition 14) bring the poverty rate down to 12.1 percent. 



67 



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75 

Mr. ROLSTON. One thing I would — a couple things I would clarify. 

One is in terms of my tracking. I am a user of these data, as oth- 
ers are; it is Census who actually generates them. But they do gen- 
erate that kind of information. Actually what Census and the offi- 
cial poverty level does count is cash income. So SSI, for example, 
would be counted in the calculation of official poverty. Things like 
food stamps would not be, because they are in-kind benefits. But 
for a long period of time 

Mr. ISTOOK. AFDC is not counted? 

Mr. RoLSTON. It is counted. 

Mr. ISTOOK. It is counted? 

Mr. RoLSTON. It is counted in the poverty level. But food stamps 
or housing subsidy which do not come as cash are not. For many 
years, over a decade. Census has published what the poverty rate 
would be like doing, if you included those elements in it. Aiid, of 
course, including those would lower the poverty rate. There are 
things on the other side which are also not counted. 

Census looks at gross income. It doesn't net out taxes, for exam- 
ple. And they produce a series. It shows what would happen if you 
included taxes, which, of course, moves it in the other direction. 

So their publication presents a number of these differently cal- 
culated rates, and we will be glad to provide them to you. 

Mr. ISTOOK. But I gather from the fact that it was not included 
in the presentation that for purposes within HHS, maybe nobody 
pays attention to the actual living level of people, as opposed to 
just incorporating that definition that does not include these 
noncash benefits. 

Mr. ROLSTON. Well 

Mr. ISTOOK. I am troubled by that fact that there has been noth- 
ing of that in the presentation. 

Mr. ROLSTON. The reason that I only include the official poverty 
level is, I was trying to show trends over time and relationships of 
different categories of individuals. And the relationships are pretty 
much the same, whether you include these things or not. 

The levels may be different and for different purposes — that, of 
course, can be a very important fact — ^but I was simply trying to 
show what some of the relationships were; and I don't think using 
definitions — different definitions will change those relationships 
very much, although they would change the levels. 

Mr. ISTOOK. Sure. And certainly showing noncash benefits would 
certainly change the relationship between someone that you might 
consider as living in poverty when compared to the standard of liv- 
ing of other Americans. I think that would be a very important 
relationship. 

Is there — I notice, of course — the dramatic linkage, of course, 
with poverty statistics and the presence or absence of both parents 
in a family situation. There was a very significant distinction in 
the chart on that. Is there anything that anyone here is aware of 
within HHS and its programs that makes a distinction between 
States that have laws that make divorce simpler, as opposed to 
those that may seek to make it more difficult, whether it be with 
counseling requirements, waiting periods or other legal restric- 
tions? Are there any programs that distinguish between the State 



76 

policy on trying to hold marriages together? I am not aware of any 
myself, and I gather it has not 

Mr. Williams. I don't think we can think of any of those. 

Mr. ISTOOK. And the — well, I think I have taken my five minutes 
there, so I will pass for now. 

Mr. Porter. Mr. Miller. 

Mr. Miller. Thank you all for coming. For those of us who are 
new, we have a large learning curve on this topic. I have a series 
of questions, but I will ask what I can in the time I have. 

fraud and abuse 

We are going through the balanced budget debate now, and a lot 
of American people think there are three ways to balance the budg- 
et — the most prevalent suggestion is to get rid of the waste and 
fraud in the Federal Grovemment. Waste and fraud is an issue I 
have to approach since I have a larger number of seniors than any 
other congressional district, in Sarasota, Florida. I have people con- 
stantly say, just get rid of this. 

People are very upset. What are the independent estimates of 
fraud and waste in programs such as Medicare? The big dollars are 
usually bigger organizations. A single doctor can't really cause that 
much fraud, as opposed to a medical equipment company; that is 
large dollars. 

Ms. Brown. Of course, we have no reliable estimates because we 
don't know what all the fraud is, but GAO has made an estimate 
of 10 percent. And I have no reason to doubt that figure, although 
I don't think they could 

Mr. Miller. You hear numbers of 40 percent. I know people are 
grabbing numbers out of the air; then they repeat them, and it be- 
comes fact. 

Ms. Brown. I don't think it is anywhere close to that. Although 
we have found institutions, individual institutions that we have 
prosecuted where it has been that high or higher, where a major 
part of their billing was fraudulent. So I suppose people who might 
come in contact with one of these places might be very 

Mr. Miller. You feel 10 percent is accurate? Do other people ac- 
cept the 10 percent number? 

Ms. Brown. You know, people usually categorize fraud, waste 
and abuse in one category. 

Mr. Miller. Right. 

Ms. Brown. And there are, of course, significant differences in 
the three. A lot of the things that would be considered wasteful, I 
think have been tightened up considerably by putting, for instance, 
set dollar amounts on a given type of care when somebody enters 
the hospital. The hospitals have found ways to 

Mr. Miller. Have DRGs reduced fraud?. Is that an illustration 
of an impact on the fraud — going to a DRG-type reimbursement 
system rather than the fee-for-service? 

Ms. Brown. Well, the fee for service, of course you have one set 
of conditions. If you have managed care facilities, then it is the flip 
of that. You are not concerned about people generating services 
that aren't needed and getting paid for them. You are more con- 
cerned about them denying services that the people might be enti- 
tled to. 



77 

Mr. Miller. But historically going away from the fee-for-service 
medicine has that made any major changes in the waste and fraud 
that has been measured? 

Ms. Brown. No. 

Mr. Miller. You would think it would. 

Mr. Mangano. We believe it does. Because by establishing the 
prospective payment system the way the hospitals are paid, there 
is a set fee for a particular ailment that someone gets. So there is 
no reason for the hospital to add on additional charges for other 
kinds of services because they are only going to get one set fee. And 
as long as their patient load has an average cost level at that level, 
it is helpful. 

It also drives hospitals to become more efficient because to make 
a profit or to even make ends meet, they have got to be able to 
service their beneficiaries, the people who come into the hospitals, 
at that particular set level. 

The Congress has also expanded beyond hospitals into things 
like fee schedules for laboratory services, fee schedules for other 
kinds of things. And I think that is good, but it is sort of like a 
big bubble. If you push in at one end, sometimes the other side 
comes out. 

When we went to the prospective payment system for hospitals, 
that pretty much took care of the in-hospital care side of it, and 
we think that is pretty safe. But then outpatient services all of a 
sudden started to grow dramatically. The outpatient services are 
not paid on a prospective basis, but they are paid on a fee-for-serv- 
ice basis. 

USE OF "red book" 

Mr. Miller. These red and orange books you talked about, what 
happens to those books? Does Congress look at them? I know you 
are going to give us a copy, but does anyone ever have hearings on 
these things? 

Ms. Brown. Yes. Traditionally they have looked at them. 

Mr. Miller. Like whom? The Energy and Commerce Committee, 
the Health Committee? Is that who addresses it, or this committee? 

Mr. Mangano. Basically two things happen with our Red Book. 
The Red Book is the Cost-Saver Handbook, which is an anthology 
of all the different cost-saving recommendations that we have made 
that have not been implemented at the current time. Those go to 
the administration. So they go to the Department. 

When Mr. McCann was the Assistant Secretary of Management 
and Budget, every year when he had to put together cost-saving 
proposals, he would go down that book and take a look at which 
ones made sense. 

The books also come over to the Congress, and we invite you to 
take a look at those proposals and see which ones seem to make 
sense from your perspective and implement those that do. 

Mr. Miller. Does Congress ever look at them? 

Mr. Mangano. We believe they do, yes. In some of the Omnibus 
Budget Reconciliation Acts, most of the cost-saving items were in- 
cluded from our Red Book proposals. 

Mr. Miller. A couple more quick questions. 



78 

When SSA moves over, is that still going to be under this 
Committee? 
Mr. Porter. Yes. 
Mr. Mangano. Yes. 

CONSUMER PRICE INDEX 

Mr. Miller. I saw on the news last night, and I haven't read to- 
day's papers yet, that the CPI increased — 2.7 percent, I think it 
was — but health care increased 4.9 percent. Is that a correct num- 
ber? I know it is going down to single digits, but that is a big drop, 
isn't it? 

Maybe you all were expecting it; however, I was expecting a little 
higher than that. 

But is that right? Are you aware of that number? It will affect 
the whole budget, especially Medicaid and Medicare. 

Mr. Williams. It has a potentially dramatic effect on spending. 
Health care spending over the last number of years has always run 
significantly higher, than inflation. But as inflation itself has come 
down, health care costs have come down £ind that has slowed the 
rate of growth in Medicare — and Medicaid. Although, for other rea- 
sons, Medicaid has grown. But at least on the cost side, this has 
had a dramatic effect on spending. 

MANAGED CARE 

Mr. Miller. There is an article in The New York Times yester- 
day about managed care under Medicare and about how it really 
isn't saving us much money. Did you see that article — a front-page 
article? 

Mr. Williams. I am aware of the article. I haven't read it. 

Mr. Miller. You reimburse Medicare people 5 percent less than 
the average, under Medicare? 

Mr. Williams. That is right. 

Mr. Miller. And yet the people that are going into the program 
are the healthier, younger Medicare people. So we are actually re- 
imbursing them and the older, sicker ones are staying under the 
fee-for-service. In effect we are not really gaining anything finan- 
cially, at least right now? But I guess, of course, that is part of the 
learning process working on managed care. 

I have a question. I want to go back on this issue of doubling re- 
scission on Medicare. I am confused, but I will pass. 

AIDS SPENDING 

Mr. Dickey. Mr. Williams, how much does your department 
spend on AIDS? 

Mr. Williams. We spend, in the Centers for Disease Control, we 
spend about, just under $600 million a year for various AIDS and 
HIV-related activities; and in the National Institutes of Health, we 
spend — I don't have a precise figure with me, but we spend over 
a billion a year for research at the National Institutes of Health 
related to AIDS. 

I can provide you some more precise figures for the record. 

[The information follows:] 



79 

Estimated FY 1995 AIDS Spending 

In fiscal year 1995, the Department estimates it will spend approximately $6 bil- 
lion for AIDS in its mandatory and discretionary programs. The Public Health Serv- 
ice portion of this spending will amount to about $2.7 billion. 

Mr. Dickey. What is the justification for the increasing expendi- 
tures as compared to heart disease and cancer and things like 
that? 

Mr. Williams. I think in the last few years, the rate of growth 
for expenditures in this area has leveled off and has not grown as 
rapidly. It grew much more rapidly in the early years of the disease 
as we became aware of its significance and the cost associated with 
its treatment. 

The Department and other agencies of government have spent a 
lot of time trying to understand the disease and trjdng to find ways 
to prevent it and to prevent the costs that society is incurring with 
it. I think it is the dramatic growth in this disease and the fact 
that we have no way to prevent it at the moment that has led to 
the decision to draw these kind of resources to this purpose. 

NUMBER OF AIDS CASES 

Mr. Dickey. Do we know how many people have AIDS right now 
in the United States? 

Mr. Williams. Yes, we do. 

Ms. Broome. CDC has undertaken a number of approaches to 
try to get accurate information on this. The cumulative number of 
AIDS cases since the beginning of the epidemic is now about 
400,000. We estimate that about a million persons currently alive 
are infected with the virus and the vast majority of those will even- 
tually develop AIDS. 

Mr. Dickey. That is all. 

Mr. Porter. Mr. Wicker. 

spending on aids vs. cancer vs. heart disease 

Mr. Wicker. Thank you, Mr. Chairman. Let me just continue 
with that line. 

How much are we spending on AIDS and HIV as compared to 
heart and cancer? While they are conferring is this being charged 
to my time? 

Mr. Williams. Why don't we try to provide you 

Mr. Porter. Afraid so. 

Mr. Williams. We can provide you a more precise estimate for 
the record. 

As I said before, we are spending approximately $2 billion a year 
in the Public Health Service on AIDS-related programs something 
of that magnitude. Cancer actually is also one of our largest; the 
National Institutes of Health is spending over two billion dollars a 
year on cancer. And for heart disease, somewhat less. But we can 
provide a more specific answer for the record. 

[The information follows:] 

Estimated Spending on AIDS vs. Cancer vs. Heart Disease 

In fiscal year 1993, the latest year for which we have these comparisons, the Pub- 
lic Health Service estimates that it spent $2,076 billion on AIDS research, preven- 



80 

tion, education and treatment. This compares with an estimated $2,140 billion for 
cancer and $759 miUion for heart disease, excluding stroke-related expenditures. 

Mr. Wicker. So, proportionately of course, we are spending a lot 
more on HIV in proportion to the number of Americans who are in- 
fected with this disease; is that correct? 

Ms. Broome. I think I would like to return to the chart that I 
showed you initially. We obviously feel that heart disease and can- 
cer are major health problems for the American people. But when 
you look particularly at the number of years of potential life lost 
before age 65, HIV/AIDS has now become the number five cause 
of years of potential life loss. It does affect predominantly children 
and adults in the 15-44 year-old age range. And it also clearly is 
an area where we need to know a lot more about what works. 

The investment that NIH is making in basic research is crucial 
in terms of developing an effective vaccine and improving our pre- 
vention methods. We at CDC need to know how to get the preven- 
tion methods we know about adopted more widely. With something 
like AIDS, which is almost invariably fatal in young persons, and 
relatively poorly understood, we feel that it does warrant substan- 
tial investment. 

Mr. Williams. Let me see if I can be more precise since I have 
a table. 

For the National Cancer Institute, NIH in 1995 will spend about 
$1.9 billion. For the National Heart, Lung, and Blood Institute, 
which would be one of the Institutes primarily responsible for 
doing research on heart disease, we are going to be spending just 
under $1.3 billion in 1995. 

And in NIH, for AIDS, across all the Institutes, we will be spend- 
ing roughly $3 billion for AIDS in addition to approximately $600 
million in CDC for various AIDS-related activities. These numbers 
are for dollars targeted specifically at those diseases, but all of the 
Institutes engage in basic research which will affect these diseases 
in one way or another. But I think those probably understate how 
much research we are really doing with respect to cancer because 
the National Genome Institute and research in other Institutes 
could very well affect our understanding of the nature of cancer 
and its progression. 

Mr. Porter. I would say to the gentleman from Mississippi and 
the gentleman from Arkansas, these are very good questions to 
bring up with NIH personnel when we visit on Tuesday. They will 
have some additional information to share with you. 

Mr. Wicker. Do I have a minute or two more? 

Mr. Porter. Yes. Sure. 

Mr. Wicker. All right. 

treatment costs of aids vs. cancer vs. heart disease 

Now, you mentioned, though, Mr. Williams, the cost to society. 
Are you saying that in terms of dollar amounts, AIDS is a much 
more costly disease at this point to treat? Are you saying that you 
could quantify it in terms of dollars as compared to heart and can- 
cer? 

Mr. Williams. I am not sure I can at this moment. I think we 
have some understanding of what it costs to treat an AIDS patient 
and what it costs to treat an average cancer patient. AIDS is a dis- 



81 

ease which has a very long progression. Without any way to cure 
it, hospitalization and other medical costs can be quite high simply 
because towards the end of the disease, there is a lot of interaction 
between the patient and the health care system. 

Mr. Wicker. Well, are you saying that it is a lot more costly than 
heart disease? 

Mr. Williams. I am not sure I am qualified to make that state- 
ment. I can again provide you for the record a comparison of the 
cost. 

Mr. Wicker. Can you do that? 

Mr. Williams. It is costly. Whether it is a lot more costly and 
what the proportion is for treating heart disease, on average, I 
don't know. But I think we could provide you that information. 

[The information follows:] 

Estimated Treatment Costs of AIDS vs. Cancer vs. Heart Disease 

The Department has not conducted the longitudinal studies that would allow for 
a true comparison of treatment costs across these diseases. However, separate re- 
search studies showed the following: 

Cancer: $25,000-$84,000 depending on stage diagnosed (early vs. late). 

Source: Swartz, R.M., and Rollins, P. Business and Health, 1985, 85, 24-26. 
Medstate, Ann Arbor, Michigan. 

HlV/AIDS: $119,000 lifetime medical cost after diagnosis. 

Source: Journal of the American Medical Association, July 28, 1993. 

Heart: $51,211 for five years of care after initial heart attack (or death, whichever 
comes first). 

Source: American Journal of Cardiology, 1990. 

TRENDS IN HIV/AIDS CASES 

Mr. Wicker. One other quick question about HIV. If the present 
trend continues, where will we be five years from now? HIV is now 
eighth on your list. If the present trends continue, where will it be? 

Ms. Broome. We have some tentative good news in that the rate 
of increase of new cases seems to be slowing down so that whereas 
previously we had an increase of 5 percent per year, we are down 
to about 3 percent per year. We continue to try to refine our projec- 
tions and make as accurate estimates as we can. We do think that 
we have had some successes in preventing further spread of the 
virus in certain subpopulations. 

There are other areas, particularly among some high-risk popu- 
lations of intravenous drug users and their sex partners, and the 
children of those sex partners, where we are still seeing increases. 
We need to target high-risk populations to try to do an improved 
job of preventing transmission. 

Mr. Wicker. Are you able, though, to answer the specific ques- 
tion about the current trend of 3 percent continuing? 

Ms. Broome. Three percent continues. Again, you have to dif- 
ferentiate between the reservoir of infected people who have not de- 
veloped the disease, and those are the hardest for us to get a han- 
dle on. 

Actually, we had a workshop last year which was charged with 
revising our estimates of the number of infected persons. At this 
point, I don't have the precise number, but we will get it for you. 
But as I have said, the rate of increase does seem to be slowing 
down. 

[The information follows:] 



82 

Number of Persons Infected With HIV 

CDC's most recent estimate of the number of U.S. residents infected with HIV (in- 
cluding those who have already developed AIDS) was 1,000,000 persons, with a 
plausible range of 800,000 to 1,200,000. That estimate was made in 1990. CDC is 
cvurently revising the estimate and we expect to have the new number in the 
spring. 

Mr. Wicker. Thank you. 

Thank you, Mr. Chairman. 

Mr. Porter. Ms. Pelosi. 

Ms. Pelosi. Thank you. 

Mr. Porter. Who has been very patient. We will give you some 
extra time. 

Ms. Pelosi. Thank you, Mr. Chairman. I appreciate that. 

Mr. Dickey I wish you wouldn't leave, because I want to follow 
up on some of your questions regarding AIDS. I appreciate the in- 
terest that my colleagues have shown in this issue and their very 
good questions. I would like to comment and ask questions, as well. 

I think it is important for us to stipulate that AIDS is a public 
health crisis; would you not say? 

Ms. Broome. Right. 

Ms. Pelosi. Because of the nature of the manner in which HIV 
is transmitted, that is that HIV is an infectious disease. 

Would you also agree with Dr. Varmus who says that when you 
are allocating research dollars, two factors to consider are urgency 
and scientific opportunity? I think we have to keep these two issues 
in mind when we see how dollars are spent on research. 

Would you agree that urgency and scientific opportunity are 
there in the case of HIV? 

Ms. Broome. Absolutely. There are opportunities, but also if we 
don't prevent transmission, we are going to have a much larger 
problem. 

hiv/aids prevention 

Ms. Pelosi. I would like to pick up on that word, because I think 
"prevention" is very important; and I hope my colleagues will look 
landly on legislation that I have introduced in the last Congress, 
and initiatives that we brought to this committee in a bipartisan 
fashion last year for increased funding for prevention. Because 
when I say "prevention," we certainly would like to have a vaccine 
that will prevent people from getting HIV, and we certainly want 
to cure, to save those who are already infected. 

But prevention in terms of behavioral change and getting the 
message out about change of behavior, et cetera, that is appro- 
priate for different regions of the country and different at-risk pop- 
ulations is, in my view, one of the best dollars that we can spend. 
Because, Mr. Wicker, when you say "cost to society," we cannot 
only just refer to cost in terms of what it costs to treat people, and 
income support and the rest that goes with it, but also cost to soci- 
ety. And I think that is what was referenced in your remarks when 
you said "cost to society" by sa3dng that many of these people will 
die — teenagers, 20s, 30s, even in their 40s. And that is a cost to 
society because we are deprived of those other years of productive 
contributions to our society in addition to the financial cost. 



83 

Was that cost to society referenced? Wasn't that the cost that you 
were also addressing in your remarks? 

Ms. Broome. It certainly is included, and that is why having the 
measures of years of life lost before age 65, in some ways, is a very 
useful picture of the impact of these diseases. 

Ms. Pelosi. And I agree with you completely in terms of what 
you said about the budget. If we don't prevent and do these things, 
our costs are going to be so much more. So whatever our philo- 
sophical reaching for agreement may be on this issue — and I know 
this will be pursued when we have the scientists before us in the 
near future — that we all agree that separate from the personal as- 
pects of it or the compassionate aspects of it, but just looking at 
it from a budgetary stand, from a fiscal standpoint, it is absolutely 
essential that we invest in prevention so that fewer people are in- 
fected and, therefore, contract the disease. 

It is absolutely essential that we do the research to find the cure 
and the vaccine, et cetera, to prevent it from spreading in terms 
of what it — the impact on the Federal budget. And I think it is ab- 
solutely essential that we do so also. Because once someone is in- 
fected or diagnosed with HIV — having full-blown AIDS, then there 
is also a cost in terms of care and income support, et cetera. 

So I — of course, I am a strong advocate for prevention. I hope you 
will join me in that. But the dollars spent on HIV, I think you will 
find as we pursue this, are a good investment and they are a fis- 
cally responsible way to go. 

Mr. Dickey, I hope you are interested in my next question. But 
if you are not — oh, yes, sir. 

Mr. Dickey. May I be excused? 

Ms. Pelosi. Thank you, Mr. Dickey. I appreciate you taking the 
time. 

Mr. Dickey. You did a good job. 

Ms. Pelosi. Thank you. 

I had one other question, Mr. Chairman, if I may. 

Mr. Porter. Yes. 

APPROPRIATED ENTITLEMENTS VS. DISCRETIONARY SPENDING 

Ms. Pelosi. It was more of a process question. I testified the 
other day in Ways and Means as a Member of the Appropriations 
Committee about the Contract With America and what I thought 
the problems were about moving the entitlements to discretionary 
appropriations. 

In other words, in your chart, you have, as you know, these dif- 
ferent categories; and one of them, I believe by the Contract — cor- 
rect me if I'm wrong, Mr. Chairman — would move entitlements 
over to discretionary appropriations, for SSI and AFDC in particu- 
lar. I view that pessimistically because, with the budget cap as a 
consideration. We like to describe our work here as "lamb eats 
lamb" because everything is so good in our jurisdiction. However, 
this would be, I think, devastating to the programs that we are 
talking about. And I was wondering if you would be able to com- 
ment on this proposal contained in the Contract With America. 

Mr. Williams. I think there has been some discussion — if this is 
the proposal you are referring to, there has been some discussion 
in the context of welfare reform of moving some programs, which 



84 

are appropriated entitlements, like AFDC, and providing them as 
grants to States, sort of like block grants. 

Ms. Pelosi. Right. 

Mr. Williams. That would be described as discretionary. The 
main characteristic of the current programs and the way they oper- 
ate is, in many cases we are basically matching — in the case of 
Medicaid, for example, we match State expenditures. There are cer- 
tain program requirements, the minimum standard requirements 
to participate in the program. The States decide how much they 
are willing to spend in that program, and then the Federal dollar 
matches that. But it is basically open ended to the extent the State 
is prepared to spend money. 

Ms. Pelosi. If I may, just for a moment; my colleagues, the chart 
I was fumbling for is number two on the — in 1995, HHS pie chart, 
then the next one here. And the question I had related to the cat- 
egory, annually appropriated entitlement. That would be AFDC 
and SSI moving over to annually appropriated discretionary, and 
my concern related to the cap, and one of the welfare reform pro- 
posals was referenced. 

The Contract calls for block grants. I just wanted to have my col- 
leagues understand which chart I was referring to, since I was 
groping for the terminology earlier. But please continue. 

Mr. Williams. I would say the main distinction here is that in 
many instances the decision on how much is spent on these pro- 
grams is largely a State decision. The States will decide how much 
they will spend. The Federal dollar will match within certain rules. 
If they are — if these programs are converted to discretionary pro- 
grams, then the amount of money the Federal Government would 
decide to spend presumably would be related to decisions that 
would be made here and would be subject to annual decisions as 
part of the Federal budget, how much money would be available 
and how much money would be made available through these 
grants to the States. That is one aspect of this that would be in- 
cluded in this change. 

Ms. Pelosi. Would all the States have to tell us a year in ad- 
vance how much they intended to spend the next fiscal year so that 
we could match it in appropriations? 

Mr. Williams. I suppose that depends on how the legislation is 
drafted. But if you take a block grant as it is today, we would not 
necessarily ask the States how much they intend to spend, but the 
Federal Government would decide how much it is prepared to 
spend and make that money available to the States. 

How much the States would like to have, what their require- 
ments are, what their needs are, presumably would be a factor in 
the decision on how much would be appropriated, but the decision 
would really lie here, as opposed to in the State. 

Ms. Pelosi. What about in terms of the caps, the budget cap? 
Would that present a difficulty? 

Mr. Williams. To the extent that these programs were also sub- 
ject to discretionary spending caps as exist today, then those grants 
would have to compete with all other programs in that discre- 
tionary category for a fixed dollar amount. 

Ms. Pelosi. And from your perspective, do you see that as a 
problem? 



85 

Mr. Williams. That depends on how the caps were adjusted to 
bring in these programs. Obviously, as I showed you in the discre- 
tionary spending chart that demonstrated changes over time, the 
Budget Enforcement Act, which went into effect in 1991, has clear- 
ly restrained discretionary spending. The rates of growth have 
dropped significantly since that time. So the caps were designed to 
constrain spending, and they have in fact done that. 

Ms. Pelosi. Mr. Chairman, may I ask you a question? Do you 
think that they would increase? Would the Contract intend to in- 
crease the caps significantly to accommodate this new discretionary 
designation or would this be more competition for the same dollar? 

Mr. Porter. Well, I am not really prepared to answer that ex- 
cept to say that there may be room made in the budget by cuts in 
other areas of discretionary spending that will allow these tjqjes of 
block grants. 

Ms. Pelosi. But not in our committee? 

Mr. Porter. Perhaps. 

Ms. Pelosi. Perhaps? 

Mr. Porter. Perhaps. 

Ms. Pelosi. Thank you, Mr. Chairman. 

Thank you all very much for your very fine testimony. It was 
very helpful. 

Mr. Porter. Does anyone on my left side have any further 
questions? 

Mr. ISTOOK. I did have a little bit of follow-up, if I may. 

Mr. Porter. Please proceed. 

Mr. ISTOOK. I want to clarify, and I appreciate it. 

I think we left it, Mr. Rolston, that there are some things that 
you can get to me regarding the noncash benefits and some break- 
downs that show — I don't know if you call it "income levels" or "liv- 
ing standards." I am not quite sure what is the correct terminology. 
But I would appreciate that. 

COMPARISON OF POOR AND NON-POOR LIVING STANDARDS 

I would like to ask also, in that I have seen different portrayals 
taking people who are defined as living in poverty compared to 
those who are not defined as living in poverty and comparing it on 
the basis of other factors. It may be square foot — square feet of liv- 
ing space per resident of the household. It may be nutrition levels. 
It may be in calories per day intake. It may be number of medical 
visits per year. If you have any of that type of information, I would 
appreciate receiving that, also. 

[The information follows:] 

Comparisons of Poor and Non-Poor on Factors Other Than Income 

The draft report "Measuring Income, Emplojonent, and the Support of Children," 
by Susan E. Mayer, was presented recently at a DHHS-sponsored conference. Tables 
6 and 9 in particular seem to address the issue you have raised, although they 
present the comparison in terms of children in various income quintiles and deciles, 
rather than poor versus non-poor children. 



86 



Table 6 

Percent of Children at Different Incone Levels Living in Bones 

with Selected ProhlesB: 1970 to 1990 



Maasure 


Inoane 
EilBt 


decile 
Seccrvd 




Income eiuintil« 


e 






Second 


niird 


Pcjurth 


Fifth 


Meai 


DESIOI IRADEQIIACIE8 














Tnnrnf)l«fta plunfaing^ 
















1970 


20.5 


15.5 


6.6 


2.4 


1.9 


.6 




1980 


5.5 


4.1 


1.9 


.9 


.5 


.1 




1990 


3.2' 


i.3 


.9 


.5 


.4 


.3 




Changs 


-17.3 


-14.2 


-5.7 


-1.9 


-1.5 


-.3 




Inrrmplete bathiocn? 
















1973-75 


11.4 


7.5 


3.2 


.9 


.4 


.3 


2.9 


1977-79 


7.4 


4.6 


2.5 


1.1 


.4 


.2 


2.1 


1981-83 


6.1 


4.1 


2.2 


1.0 


.4 


.2 


1.8 


1985-89 


2.5 


2.2 


.8 


.7 


.6 


.6 


1.1 


Change 


-8.9 


-5.3 


-2.4 


-.2 


.2 


.3 


-1.8 


No seMBT or 
















aeptic syston 
















1973-75 


8.1 


. 5.1 


2.1 


.6 


.3 


.1 


2.0 


1977-79 


4.9 


3.0 


1.5 


.6 


.2 


.1 


1.2 


1981-83 


2.7 


1.9 


.9 


.3 


.1 





.7 


1985-89 


1.7 


.9 


.2 


.1 








.3 


Change 


-6.4 


-4.2 


-1.9 


-.5 


-.3 


-.1 


-1.7 


No central heat 
















1973-75 


46.2 


42.9 


30.3 


18.7 


12.3 


6.8 


22.5 


1977-79 


39.3 


40.2 


28.6 


18.8. 


12.3 


6.1 


21.1 


1981-83 


35.7 


38.1 


31.9 


22.2 


14.7 


9.1 


22.9 


1985-89 


32.3 


34.7 


28.1 


21.4 


14.9 


9.6 


21.5 


Change 


-13.9 


-8.2 


-2.2 


2.7 


2.6 


2.8 


- 1.0 


No elwTtrir outlets 
















in cne or mace rccoB 
















1973-75 


12.1 


10.0 


5.9 


3.5 


2.6 


1.9 


5.0 


1977-79 


8.4 


6.7 


5.0 


2.8 


1.6 


1.4 


3.4 


1981-83 


9.3 


6.S 


4.7 


3.1 


2.2 


1.6 


3.9 


1985-89 


6.0 


6.0 


3.8 


2.4 


2.0 


1.1 


3.1 


Change 


-6.1 


-4.0 


-2.1 


-1.1 


-.6 


-.8 


-1.9 


MHIHTAmafCE PROBLBMS 














Boles in floor 
















1973-75 


8.2 


5.6 


2.9 


1.8 


.8 


.6 


2.6 


1977-79 


8.2 


5.5 


3.7 


1.5 


1.0 


.6 


3.4 


1981-83 


8.9 


7.3 


4.2 


1.6 


.8 


.6 


3.9 


1985-89 


7.0 


5.8 


2.6 


1.4 


.8 


.6 


3.1 


Change 


-1.2 


.2 


-.3 


-.4 








.5 


Open cradGS in 
















vail or oeninq 












' 




1973-75 


17.9 


14.3 


8.9 


5.6" 


3.8 


2.8 


7.5 


1977-79 


18.5 


14.4 


9.4 


5.0 


3.5 


2.5 


7.4 


1981-83 


19.2 


16.2 


10.5 


5.4 


3.7 


2.6 


8.0 


1985-89 


19.9 


15.9 


10.6 


6.3 


4.2 


3.2 


8.4 


Change 


2.0 


1.6 


1.7 


.7 


.4 


.4 


.9 



c:\kids\irpkid. \ll/l/94 (WEIGHTED ZY KIDS; 

SOURCE: Knutson, Newtb55.1dd, 9-17-5-!; Veenstza, Kidwtqnt.lst, 9-29-94 



87 



T^ble 6 oontiiBied 



Maasure 


IncxoB 
Fixst 


decile 
Secxnd 




Inocne pmni-il^ 






and vear 


Second 


TMrd 


Ftaurth 


Fifth 


Iteai 


Laal^ roof 
















1973-75 


16.5 


14.2 


9.9 


7.2 


5.7 


5.3 


8.6 


1977-79 


14.5 


13.5 


10.3 


7.1 


5.6 


4.9 


8.3 


1981-83 


14.9 


12.8 


9.9 


7.0 


6.0 


4.9 


8.3 


1985-89 


11.9 


12.5 


10.1 


8.5 


7.7 


7.3 


9.1 


Change 


-4.6 


-1.7 


.2 


1.3 


2.0 


2.0 


.5 


HEIOHBORS 
































nei^ibarfaood 
















1973-75 


18.9 


IS.l 


17.1 


16.5 


16.4 


16.6 


17.1 


1977-79 


18.9 


16.0 


15.4 


14.4 


13.3 


13.5 


14.8 


1981-83 


19.1 


18.7 


15.8 


14.4 


14.4 


14.5 


15.6 


19853 


26.3 


19.6 


17.0 


14.1 


13.3 


U.8 


16.0 


Change 


7.4 


.5 


-.1 


-2.4 


-3.1 


-4.8 


-1.1 


CROHDIHO 
















Mace than ons pecBOD 


N 












per xocm (ABS) 
















1973-75 


31.6 


34.7 


26.5 


19.0 


15.6 


11.6 


21.2 


1977-79 


26.1 


28.5 


22.1 


14.9 


U.l 


8.5 


16.8 


1981-83 


22.7 


26.7 


21.0 


13.5 


8.0 


5.9 


14.6 


1985-895 


19.2 


23.4 


17.6 


10.9 


7.3 


5.3 


12.5 


Change 


-12.4 


-11.3 


-8.9 


-8.1 


-8.3 


-6.3 


-8.7 


ONSERSHZP .• 








. 








'Tenant (ABS) 
















1973-75 


62.5 


54.5 


38.3 


23.9 


15.2 


9.1 


29.1 


1977-79 


67.0 


58.8 


39.6 


21.6 


12.7 


7.2 


28.8 


1981-83 


67.8 


62.2 


44.6 


24.8 


14.6 


7.6 


31.4 


1985-89 


78.2 


68.9 


50.0 


31.0 


18.0 


8.1 


36.2 


Change 


13.7 


14.4 


11.7 


7.1 


2.8 


-1.0 


7.1 



SOURGBS: Maasuxes shown for 1970.. 1980, and 1990 aze Li.ua the dwnpnninl 
Census (tabulations by David Knutscr.) , while those shown far 1973 thzou^ 
1989 eu?e frcm the ABS (tabulations by Tim Veenstra) . In the Census, the 
unwei^ited sanple sizes for the bottcrr. dacile aze between 2,700 and 
3,500. In the ABS they are 7,653 ir. 1973-75, 5,033 in 1977-79, 4,424 in 
1981-83, and 4,027 in 1985-89. "Riz AHS inocne data are for fanriliBB 
rather than hcauseholds. 

1. Hot and oold water, sink, toilet, arid shoMsr or tub for the exclusive 
use of household luaiLeiB . Plunising facilities need not be inside 
respondent's apartment in 1970, but cirst be in the building. 

2. Ccnplete plunfaing located ir. a sir.gle roccn within, the unit. 

3. Respondent's jtxignent. Data not available after l985. 

4. RocDi count increased sli^itly in 1985 du3 to questionnaire change. 



c:\kids\irpkid.\ll/l/94 {VEKSTTZD ZY KIDS) 

SOURCE: Knutson, NeMtb55.kid, S-2T-?1; Veenstra, Kidwtqnt.lst, 



9-29-94 



88 



Tabla 9 

PBXcent of Childnn at Diffannt Inocna Lb««1s %dth Salactad 

rr^mmmr Duzafale* and Ttelgphona Secvics: 1970 to 1990 



Mfwunre 
and year 






Motor vehicle {PBS) 

1973-75 62.6 

1977-79 61.5 

1981-83 63.9 

1985-89 56.8 

Change -5.8 



Motor v<ducle 

1970 

1980 

1990 

Change 



(Census) 



59.8 
58.6 
57.3 
-2.5 



tuo or scire vehicles 

(Census) 

1970 13.2 

1980 14.2 

1990 17.3 

Change 4.1 

Air oanditioning (ABS) 

1973-75 27.5 

1977-79 30.9 

1981-83 36.6 

1985-89 41.5 

Change 14.0 



Clothes vaabex 
1972-73 
1984-89 
Change 



(CEX) 



62.8 
57.8 
-5.0 



80.5 
80.2 
76.6 
77.5 
-3.0 



76.4 

78.1 

82.1 

5.7 



20.0 
21.0 
34.3 

14.3 



31.8 
33.6 
39.6 
47.4 
15.6 



72.8 
61.4 
-11.4 



Inecne ouintile 



91.6 
92.2 
91.9 
92.7 
-.9 



90.4 

89.7 

91.7 

.7 



32.3 
35.3 
56.4 

24.1 



41.1 
45.2 
49.1 
57.9 
16.8 



84.2 
78.6 
-5.6 



97.3 
98.1 
97.9 
97.8 
.5 



95.6 

95.7 

97.0 

1.4 



44.4 

50.7 
75.3 
30.9 



48.9 

53.1 
57.3 
64.9 
16.0 



91.5 
84.4 
-7.1 



98.5 
99.3 
99.2 
99.0 
.5 



97.6 

97.7 

98.0 

.4 



57.6 
64.7 
86.6 
29.0 



55.2 
58.3 

63.7 
69.7 
14.5 



95.3 
92.8 
-2.5 



Dishuasher 

1972-73 

1984-89 

Change: 

1972-90 



(CEX) 



9.1 
16.5 



7.4 



10.1 
16.0 

5.9 



18.0 
25.8 



7.8 



31.0 
41.6 

10.6 



45.5 
58.2 

12.7 



jmb 



99.2 
99.7 
99.5 
99.3 
.1 



98.8 

98.4 

99.0 

.2 



74.8 
76.6 
92.9 
18.1 



62.2 

65.1 
69.2 
72.8 
10.6 



96.3 

97.1 

.8 



Clothes dryer (CEX) 

1972-73 , 23.3 38.3 59.6 73.9 83.1 91.0 

1984-89 37.5 38.0 62.0 75.2 88.9 94.6 

Change 14.2 -.3 2.4 1.3 5.8 3.6 



68.7 
79.7 

11.0 



Mean 
(to 



continued next page 



89 



Tlable 9 oontixBiad 



Maasuxv 


First Seoond_ 




Jjf;rt^ ^liTl^il• 






Seooni 






Fifth 


Tslephcne (Census) 














1970 


60.8 


66.9 


83.0 


91.7 


95.0 


98.5 


1980 


72.1 


80.2 


88.7 


95.8 


98.3 


99.0 


1990 


68.7 


79.7 


90.8 


96.5 


98.3 


99.5 


Qiange 


7.9' 


12.8 


7.8 


4.8 


3.3 


1.1 



SOURCES: For Census and ABS data see Ttable 6. Data en clothes washers, 
clothes dryers, and dishuBshers are fron the OiwrnwRr Bxiwmditure Survey 
(tabulations fay Jtidlth Levins and Soott Hinship using tapes prepared fay 
John Sabelhaus). Ihe uzMci^ited sanple sizes foo: the bottcm dwcile in 
the CEX are rou^ily 800 in 1972-73 and 640 in 1984-89. TbtB CEX inoonB 
data are far the rvw\taimanr unit. 



c: \)cLds\irpkid. \ll/l/94 

SOURCE; CEX (ffei^its far total eanpLe times N of Kids) . 

Levine-Winship, 70n3ffil£9, TAEDLE 9. 



90 

ZEBLEY DECISION 

Mr. ISTOOK. And I did want to ask from the Inspector General, 
I know in your report you mentioned, of course, the Zebley decision, 
the explosion of SSI and that. I did want to ask regarding the cost 
figures of SSI, does that include the cost of the Medicare for SSI 
recipients? Would that be totally separate? 

Ms. Brown, No. That is separate, and they are entitled to Medic- 
aid. 

Mr. ISTOOK. I am sorry. I said Medicare. Medicaid. 

Ms. Brown. Medicaid. 

Mr. ISTOOK. Is there anyone who has the cost of Medicaid recipi- 
ents for SSI and then, in particular, those who are on SSI because 
of the Zebley decision? I would like to have some figures that show 
not only the cost SSI expends pursuant to Zebley but also the cost 
of the Medicaid expense that goes with that. I am not quite sure 
to whom I should address that request. 

Mr. Williams. I will be glad to take that request. I don't think 
I have that information with me at the moment. But we know that 
and we can provide that to you. 

[The information follows:] 

SSI/Medicaid Costs for Zebley 

SSA does not specifically track the payment for children receiving benefits fi"om 
the Zebley court case. However, as of January 1995, there have been approximately 
123,500 allowances from the Zebley class members, although some of these Zebley 
allowances involve children who are now over age 18 and no longer meet the defini- 
tion of "child". However, based on the FY 1994 average SSI monthly blind/disabled 
pajonent of $358, estimated costs for these 123,500 would be about $530 annually. 

The Federal share of Medicaid costs for those 123,500 Zebley cases are estimated 
at about $525 million for FY 1995. The total Federal share of Medicaid costs for 
FY 1995 for all SSI cash recipients is estimated to be $24.2 billion. Within that 
total, disabled adults will have Medicaid costs of $19.2 billion, and disabled children 
about $2.5 billion. 

Mr. ISTOOK. Very good. Thank you. I appreciate that. 
Thank you, Mr. Chairman. 

Mr PriRTITR Mr Millor 



inanK you, Mr. unairm 
Mr. Porter. Mr. Miller 



PROGRAM ADDITIONS AND ELIMINATIONS 

Mr. Miller. One question is, yesterday we had the people from 
the Department of Education here asking questions. I remember 
one of the interesting points brought out was the Administration 
requested the elimination of 33 programs in the Department of 
Education. Congress eliminated 13, but added 17. 

What happened in your Department as far as how many pro- 
grams the Administration requested elimination of, and how many 
did the Congress react to, eliminate, how many did they add? Or 
maybe you don't have the same type of — they have small programs; 
you may not have the same type of programs. 

Mr. Williams. Well, we have many programs. I don't recall off 
the top of my head in 1995 how many programs we actually asked 
for elimination. We certainly asked for reductions in spending in a 
large number, some of which were followed by this committee; oth- 
ers weren't. I don't think we requested that many for actual elimi- 
nation. We have generally asked for — in more recent years, asked 



91 

for reductions in spending, rather than total eHmination of any 
given program. 
Mr. Porter. Mr. Wicker. 

ZEBLEY DECISION 

Mr. Wicker. Yes. Ms. Brown, when was the Zebley decision? 

Ms. Brown. I believe it was 1989, or about that time. 

Mr. Wicker. And was it based on an interpretation of the statute 
or was there some constitutional problem with it? 

Ms. Brown. Well, SSA had a different definition of disability for 
adults and children. And so to correct that, it was a Supreme Court 
ruling that the child that had this condition, that did not meet a 
medical listing — that then SSA should determine whether or not 
the condition was of comparable severity to that that an adult 
would have. 

Then the court defined that as being age-appropriate behavior. 
So the result of it was that if a child, for example, had a learning 
deficit disorder or an attention deficit disorder, why they may be 
defined as disabled under this decision. 

Mr. Wicker. Okay. Well, I want to discuss that. 

Ms. Brown. They get not only their Medicaid, but they also get 
this income, which is meant to replace earnings income. That is 
what SSI is. It is really an earning income replacement. 

Mr. Wicker. Are you saying in your testimony that the cash pay- 
ments we make under SSI oftentimes have no relationship with the 
cost to the family of having the child with that particular condi- 
tion? 

Ms. Brown. They aren't based on that relationship. 

Mr. Wicker. And are you able to say how much of a possibility 
of savings we have here? 

Ms. Brown. Well, of course, it is up to the Congress to determine 
whether or not those are the people they want to offer this to. But 
we could certainly come up with a figure that would show the 
growth in the number of eligible children after the Zebley decision 
and show what that cost would be. In 1989, it was 296,000 chil- 
dren, where in 1994, it went up to 847,000 children. 

Mr. Wicker. Do you think there is still much coaching going on? 
Do you think you catch most? 

Ms. Brown. We have done several studies. We have not been 
able to prove or find any significant evidence of coaching. However, 
there certainly are obvious incentives that would keep the child 
from improving because they lose their income when they improve 
and get over this disorder that they have. So it appears the incen- 
tives might be in the wrong place. 

Mr. Wicker. Does your office keep track of how much coaching 
you find? You say, not much. But do you find many cases per year? 
Can you give me that figure? 

Mr. Mangano. I would like to interject something. The way the 
program operates is that the State disability determination agen- 
cies actually do the assessment of the children. They are an exten- 
sion of the Social Security Administration. Social Security funds 
those State disability determination offices. They are the offices 
that actually go out and identify, meet with the family, the chil- 



92 

dren and determine whether the child is disabled. That is really 
where the interface is with the government. 

Our office really would not get involved in a case like that except 
if there is an allegation of fraud, and we have not seen very signifi- 
cant activity at all. In fact, over the last six months, with the 
shows on TV that have exposed some children that were suspected 
of coaching, the Social Security Administration had the disability 
determination service go down and check every one of the children 
that were identified in those stories and even they found very, very 
few incidences of coaching. 

So I am not saying that there isn't coaching going on. The dis- 
ability determination office would be the place where they would 
find it, and they have not found much. 

Mr. Wicker. Thank you. 

Mr. Porter. Mr. Williams and members of the panel, we very 
much appreciate your coming this morning to shed some light on 
the subject of your Department and appreciate each one of your 
presentations. And we look forward to having you back again when 
we have the 1996 budget before us. 

Thank you all very much. 

Mr. Williams. Thank you. 

Mr. Porter. We will stand in recess until 2:00 p.m. 



Wednesday, March 8, 1995. 
SECRETARY OF HEALTH AND HUMAN SERVICES 

WITNESS 
HON. DONNA E. SHALALA, SECRETARY 

Mr. Porter. The subcommittee will come to order. We begin 
hearings today on the fiscal year 1996 budget of the Department 
of Health and Human Services, and we are delighted to welcome 
the Secretary, Donna Shalala, who has been doing such a fine job 
for the Administration. 

I want to apologize in advance. Madam Secretary. At about 10 
minutes of 11:00 it will be necessary for me to leave and to go to 
the Floor of the House Chamber to welcome Rabbi Rachel Mikva, 
the daughter of Abner Mikva, the Counsel to the President, who 
held the seat that I now hold, against whom I ran in 1978. He won 
by 650 votes, just to prove that every vote counts in our system. 

And Rachel will be giving the opening prayer to the House of 
Representatives. So I want to go and welcome her. I ask your for- 
giveness for being absent for that time. 

Madam Secretary, why don't you proceed in any way you wish 
with your opening statement, and then we will follow with 
questions. 

Opening Statement 

Secretary Shalala. Thank you very much, Mr. Chairman, Mem- 
bers of the committee. I have a lengthy statement, and I have cut 
it down for purposes of my oral presentation, but I have submitted 
my lengthy statement for the record. 

Thank you for the opportunity to discuss the President's 1996 
budget for the Department of Health and Human Services. Our 
budget for fiscal year 1996 actually achieves reductions in spending 
by first slowing the projected growth of Medicare and Medicaid, by 
consolidating discretionary activities, by cutting programs and by 
streamlining the administrative structure of the Department. At 
the same time, we believe that this budget wisely and selectively 
invests in the future health and well-being of all Americans. 

Our 1996 budget requests a total of $231 billion in spending for 
programs that fall under the jurisdiction of this subcommittee. Our 
request for discretionary spending totals $34 billion. 

Mr. Chairman, to be responsive to the demands of American citi- 
zens for a government that is smaller and more efficient, we are 
changing the way we are doing business. Let's start with Medicare 
and Medicaid. 

Under the Clinton Administration estimates for projected five- 
year spending on these programs, indicate that the spending will 
drop $212 billion for the periods 1994 to 1998. This change marks 

(93) 



94 

a significant contribution to lowering the deficit. This extraordinary 
drop is due in large part to the President's historic deficit reduction 
measures. I will give you a sense of this, because it is significant 
in terms of our ability to control spending. 

This is an extraordinary drop. The reason for it is, first, a strong 
economy with low inflation; second, the 1991 bipartisan legislation 
limiting the use of Medicaid taxes and donations. We have also im- 
proved program efficiency and choice for Medicaid and Medicare 
beneficiaries. 

One way we have done this is by working with the governors for 
Medicaid State waivers. With these waivers, more and more States 
are taking advantage of opportunities to offer managed care pro- 
grams under Medicaid. Last year, Medicaid had a 63 percent in- 
crease in the number of people enrolled in managed care, from 4.8 
million in 1993 to 7.8 million in 1994. The number of older Ameri- 
cans choosing managed care through the Medicare programs also 
grew by 16 percent, from 2.7 million people in 1993 to more than 
3.1 million in 1994. And we expect the current rate of growth in 
the number of elderly moving to managed care will continue rap- 
idly this year. 

On the discretionary side of the budget, we plan to do more with 
less by consolidating certain activities into performance partner- 
ships. Most notably, in the Public Health Services, we are propos- 
ing combining 107 activities. 

You will remember, Mr. Chairman, in my last hearing I made 
reference to the fact that we would be consolidating and combining 
a number of our activities. We are estimating a savings of $218 
million in administrative costs alone, and more than 700 FTE over 
the next five years. 

In other efforts to hold the line on spending, we have proposed 
reductions in funding for 69 programs, taking them below the lev- 
els approved by Congress in last year's appropriation; and we plan 
to freeze an additional 57 activities at 1995 levels. 

We are also reexamining the administrative structure of the De- 
partment in the field, eliminating some of our regional overhead 
functions and returning administrative responsibilities to our 
agencies. 

Mr. Chairman, while Americans want a leaner, more efficient 
government, they will continue to expect us to promote economic 
opportunity and security and to help protect their health and the 
health of their children. That is why the President's budget targets 
increases in a few key investment areas that have shown signifi- 
cant payoffs. 

One of these is Head Start. In 1996, we are requesting an addi- 
tional $400 million to improve the program quality and increase 
the number of children served, as recommended by the bipartisan 
Head Start Advisory Committee and required by the Head Start 
Reauthorization Act of 1994. With these resources, we will create 
nearly 7,000 slots to serve a total of more than 25,000 children 
under the age of three in the early Head Start initiative. 

We will also create more than 25,000 new slots for current part- 
day programs; and to respond fully to the needs of working fami- 
lies, we intend to expand 22,000 current part-day slots into full- 



95 

day, full-year services. We are continuing to make strides in im- 
proving the quality of local Head Start programs. 

And this budget reflects the President's commitment to children 
and families in other ways as well. In 1996, we are requesting an 
additional $100 million to help States provide safe, affordable and 
higher quality childcare for even more working families, which are 
goals that we all share. 

And we are making sure that our children are immunized. In 
1996, we are requesting $843 million for our childhood immuniza- 
tion initiative, which has taken dramatic strides in building public- 
private partnerships. Now, thousands of private doctors in this 
country enrolled to make certain that no child fails to be immu- 
nized in this country because of cost or lack of access to health care 
providers. 

The 1996 budget also continues this Administration's commit- 
ment to the elderly and disabled. Investments in the Social Secu- 
rity Administration and the Health Care Financing Administration 
will allow these agencies to do their work better and faster. SSA 
will be able to greatly improve the time it takes to process disabil- 
ity claims, and additional funds will move us one step closer to 
having the technology we need to handle the workload increases 
projected for the turn of the century. 

For those who receive assistance from Medicaid or Medicare, we 
are reissuing the Medicare Handbook, and we are beginning to de- 
velop a new communications tool known as HCFA On-line to help 
them make informed choices about their health care. 

New resources directed to the Administration on Aging will go to 
States to enhance home- and community-based long-term services. 
And of course one of the most important ways we fulfill our mission 
to promote the health of all Americans is by committing an addi- 
tional $468 million, a 4 percent increase, to biomedical research at 
the National Institutes of Health. Our NIH budget balances spe- 
cific, targeted research with investments in basic biomedical and 
behavioral research. We have witnessed many impressive gains be- 
cause of our bipartisan commitment to excellence in research. 

Our firm commitment to women's health has resulted in major 
breakthroughs in breast cancer research, including the discovery of 
BRCA-1 gene. We recently announced the NIH funded discovery of 
the first drug treatments for severe cases of sickle cell anemia, and 
last year an NIH-sponsored clinical trial demonstrated that when 
administered during pregnancy, AZT can reduce by 67 percent the 
risk of HIV transmission from mother to infant. 

HIV research involving the blood/brain barrier has led to a better 
understanding of the mechanism by which infectious agents spread 
into the nervous system. These discoveries go beyond HIV, though. 
These discoveries offer important insights into other disease such 
as Alzheimer's, multiple sclerosis and meningitis. 

Mr. Chairman, we believe that biomedical research is ultimately 
the key to winning the war against AIDS, and that is why the 
President's budget includes $1.4 billion for AIDS research at the 
National Institutes of Health. But until we find an AIDS vaccine 
and a cure, we must also make strong investments in the Ryan 
White program, which provides vital services for people living with 
AIDS. 



96 

In 1996, we are proposing an increase of $91 million. This is a 
critical national investment. Roughly 40 percent of the more than 
440,000 AIDS cases reported since 1981 were reported in 1993 and 
1994, and AIDS is now the number one cause of death for all 
Americans between the ages of 25 and 44. The funds we are re- 
questing for Ryan White will assure that all eligible communities 
receive vital resources to help them treat people living with AIDS 
and HIV infection. 

Mr. Chairman, we believe these are smart investments. They are 
crucial to the future of this country, and they will achieve demon- 
strable results. That is why we are very concerned with some of the 
1995 rescission proposals. They threaten some of our most impor- 
tant efforts. 

For example, over 35 percent of the proposed 1995 rescission for 
the Department, $135 million, will come from programs that offer 
children the chance to grow up healthy and safe, programs such as 
foster care and community schools. 

Then there is the $60 million rescission in rural health programs 
like the National Health Service Corps and rural health research, 
which takes us backward in our efforts to bring quality health care 
to rural areas. 

I am also deeply concerned about the proposed welfare legislation 
that undermines values to which we are all committed — work, pa- 
rental responsibility, the protection of children and State flexibility. 
We won't emphasize work without practical and effective work re- 
quirements. We won't move people into jobs if families don't have 
access to child care. We won't have real change unless we hold both 
parents responsible for supporting their children. And we can't re- 
form welfare in this country by punishing poor children for their 
parents' mistakes. 

We need a bold plan to end the welfare status quo and to make 
sure that everybody who can work does so. We look forward to 
working with Congress to end welfare as we know it, as the Presi- 
dent wishes. 

What I have, obviously, just described is more than a budget. It 
is a new way of honoring our commitment to work for the public 
good. We have made tough choices, and we believe our choices will 
produce measurable results. We look forward to working with the 
committee. And I greatly appreciate the opportunity to testify be- 
fore you this morning. I would be happy to answer any questions 
you may have. 

[The prepared statements and biographies of Secretary Donna E, 
Shalala and other Department officials follow:] 



97 



TESTIMONY 

OF 

DONNA E. SHALAIiA 

SECRETARY OF HEALTH AND HUMAN SERVICES 

AT 

HOUSE APPROPRIATIONS COMMITTEE 

LABOR-HHS-EDUCATION SUBCOMMITTEE 

MARCH 8, 1995 



98 



Good morning, Mr. Chairman and Members of the Committee. 

Thank you for the opportunity to discuss President Clinton's 
1996 Budget for the Department of Health and Human Services. 

Our budget for Fiscal Year 1996 achieves reductions in spending 
by slowing the projected growth of Medicare, consolidating 
discretionary activities, cutting programs, and streamlining the 
administrative structure of the Department. At the same time, this 
budget wisely invests in the future health and well-being of all 
Americans. 

Our 1996 budget requests a total of $231 billion dollars in 
spending for programs that fall under the jurisdiction of this 
subcommittee. Our request for discretionary spending totals 
$34 billion dollars. 

Mr. Chairman, to be responsive to the demands of American 
citizens for a government that is smaller and more efficient, we're 
changing the way we do business — all of our business, from Medicare 
and Medicaid to public health programs to the administration of the 
Department . 

Let's start with Medicare and Medicaid. 

Under the Clinton Administration, estimates for projected five- 
year spending on these programs have dropped $212 billion for the 
period 1994-1998. This change marks a significant contribution to 
lowering the deficit. 

This extraordinary drop is due in large part to the President's 
historic deficit reduction measures, a strong economy with low 
inflation, and the 1991 bipartisan legislation limiting the use of 
Medicaid taxes and donations. 

We have also improved progrcun efficiency and choice for 
Medicaid and Medicare beneficiaries. One way we've done this is 
through Medicaid State waivers. 

We know that States are attempting to develop effective health 
care solutions that meet their local needs. That's why this 
Administration has approved more health care waivers than any other 
Administration in history. 

With these waivers, more and more States are taking advantage 
of opportunities to offer managed care programs under Medicaid. 

Last year, Medicaid had a 63 percent increase in the number of 
people enrolled in managed care — from 4.8 million 
in 1993 to 7.8 million in 1994. 

The number of older Americans choosing managed care through the 
Medicare progrcuns also grew — by 16 percent — from 2.7 million 
people in 1993 to more than 3.1 million in 1994. 

And we expect that the current rate of growth in the number of 
elderly moving to managed care will continue this year. 

On the discretionary side, we plan to do more with less by 
consolidating certain activities into Performance Partnerships. 

Most notably, in the Public Health Service, we've proposed 
combining 107 activities, saving an estimated $218 million in 
administrative costs and more than 700 FTE over the next five years. 



99 



Program consolidations not only save money — if done wisely, 
they allow States and grantees to have greater control, flexibility, 
and accountability in managing critical services. 

In other efforts to hold the line on spending, we've proposed 
reducing the funding for 69 programs, taking them below the levels 
approved by Congress in last year's appropriation. And we plan to 
freeze an additional 57 activities at 1995 levels. 

We are also re-examining the administrative structure of the 
Department in the field. 

Some of our regional overhead functions actually will be 
eliminated. And some administrative responsibilities will be 
returned to our agencies, reducing our FTE and generating $24 million 
in administrative savings over 5 years. 

Mr. Chairman, while Americans want a leaner, more efficient 
government, they will continue to expect us to promote economic 
opportunity and security, and to help protect their health and the 
health of their children. 

That's why I am proud to say that this budget reaffiinns the 
Clinton Administration's core value of putting people first. It 
targets increases in a few key investment areas that have shown 
significant payoffs — one of these is Head Start. 

In 1996, we are requesting an additional $400 million to 
improve program quality and increase the number of children served — 
as recommended by the Head Start Advisory Committee and required by 
the Head Start Reauthorization Act of 1994. 

With these resources, we'll create nearly 7,000 slots to serve 
a total of more than 25,000 children under the age of 3 in the Early 
Head Start initiative. 

We'll also create more than 25,000 new slots for current part- 
day programs. 

And to respond fully to the needs of working families, we'll 
expand 22,000 current part-day slots into full-day, full-year 
services. 

We are continuing to make strides in improving the quality of 
local Head Start programs. 

We've learned a very important lesson in the last 30 years: 
the sooner we make the benefits of Head Start available to children 
and the earlier we help parents to become capable partners in the 
education of their children, the stronger our families and our 
country will be. 

This budget reflects the President's commitment to children and 
families in other ways as well. 

In 1993, over 700,000 children were served through our Child 
Care and Development Block Grant. 

In 1996, we're requesting an additional $100 million to help 
States provide safe, affordable and higher quality child care for 
even more working families — goals we all share. 

And we're making sure that our children are immunized. In 
1996, we are requesting $843 million for our Childhood Immunization 
Initiative — which has taken dramatia strides in building public- 
private partnerships with thousands of private doctors to make sure 
that no child fails to be immunized because of cost. 



100 



In 1993, 67 percent of our two-year-olds were immunized with 
the most important vaccinations — the highest percentage in our 
history. But we won't stop there. 



1996 goal 



With our request, we will make further progress towards our 
roal of immunizing 90 percent of children under age 2 with the 
.mportant vaccinations. 



x^^o goax or unmunxzi-ng rtu p 
most important vaccinations. 



The 1996 budget also continues this Administration's commitment 
to the elderly and disabled — a commitment to provide high quality 
services. 

Our budget request includes an additional $648 million for the 
Social Security Administration. 

Forty percent of this will continue SSA's $1.1 billion 5-year 
investment in automation. This critical investment will improve the 
effectiveness, efficiency and economy of SSA's operations, while 
dealing with major workload increases projected for the turn of the 
century. 

Most of the balance of the increase would support SSA's efforts 
to address the rapid 4-year growth in the number of disability cases 
— cutting by one-third the number of days people will have to wait 
for initial claims to be processed. 

Additional funds will also be used to more than double SSA's 
1994 level of effort for processing continuing disability reviews. 

For those who receive assistance from Medicaid or Medicare, we 
are reissuing the Medicare Handbook and beginning to develop a new 
communications tool known as HCFA on-line to help them make more 
informed choices so they can avoid unnecessary and often costly 
treatments. 

New resources directed to the Administration on Aging will go 
to States to enhance home and community-based long-term-care 
services. 

One of the most important ways we fulfill our mission to 
promote the health of all Americans is by committing an additional 
$468 million — a 4 percent increase — to biomedical research at the 
National Institutes of Health. 

Our NIH budget balances specific targeted research with 
investments in basic biomedical and behavioral research. 

We have witnessed many impressive gains because of our 
bipartisan commitment to excellence in research. 

Major breakthroughs in breast cancer research include the 
discovery of the BRCA-1 gene. 

We recently announced the NIH-funded discovery of the first 
drug treatment for severe cases of sickle cell anemia. 

And I am particularly proud of our research accomplishments 
over the past two years in the area of HIV/AIDS. 

Just last week, we announced that researchers at NIH have 
discovered that a minute level of naturally occurring substances 
known as cytokines can boost the number of infection-fighting cells 
in patients infected with the AIDS virus. This discovery has the 
potential to greatly enhance AIDS treatment. 



101 



Last year, an NIH-sponsored clinical trial demonstrated that 
when administered during pregnancy, AZT can reduce by 67 percent the 
risk of HIV transmission from mother to infant. 

This is a remarkable development in retroviral research, 
marking the first time that we have been able to use a therapeutic 
agent to block transmission of the AIDS virus — or any virus — from 
mother to child. 

And HIV research involving the blood/brain barrier has led to a 
better understanding of the mechanism by which infectious agents 
spread into the nervous system. These discoveries offer important 
insights into other diseases such as Alzheimer's, Multiple Sclerosis, 
and meningitis. 

Mr. Chairman, I believe that biomedical research is ultimately 
the key to winning the war against AIDS. That is why the President's 
budget includes $1.4 billion for AIDS research at the NIH. 

But until we find an AIDS vaccine and a cure, we must also make 
strong investments in the Ryan White program which provides vital 
services for people living with AIDS. In 1996, we're proposing an 
increase of $91 million. 

We've only recently seen signs of the extent to which the AIDS 
epidemic has penetrated our society. Roughly 40 percent of the more 
than 440,000 AIDS cases reported since 1981 were reported in 1993 and 
1994. 

Last year, nearly 81,000 Americans were diagnosed with AIDS and 
more than 40,000 lost their lives. AIDS is now the number one cause 
of death for all Americans between the ages of 25 and 44. 

AIDS is spreading rapidly in women and adolescents. Last year, 
14,000 women in the U.S. were diagnosed with AIDS. And of the 
estimated 40,000 Americans who were infected with HIV last year, one- 
quarter were under the age of 20. 

The funds we are requesting for Ryan White will assure that all 
eligible communities receive vital resources to help them treat 
people living with AIDS and HIV infection. 

Mr. Chairman, we believe these are all smart investments. They 
are crucial to the future of this country and they will achieve 
demonstrable results. 

That's why we are very concerned with some of the 1995 
rescission proposals — they threaten some of our important efforts. 

For example, over 35 percent of the proposed 1995 rescission 
for the Department — $135 million — will come from programs that 
offer children the chance to grow up healthy and safe — programs 
such as foster care and community schools. 

And then there is the $60 million rescission in rural health 
programs — which takes us backward in our efforts to bring quality 
health care to rural areas. 

For the past 20 years, the National Health Service Corps has 
been vital to our efforts to recruit primary care givers to practice 
in isolated communities. The proposed rescission would cut this 
program by 10 percent — far below its 1994 level — which means that 
at least 300,000 people in isolated communities will not receive 
care. 

Rescinding funds for rural health, especially research, will 
hurt our efforts to develop and evaluate innovative technology — 



102 



which would assure that all Americans have access to the most current 
information availcUsle and to the highest equality of care. 

I am also deeply concerned about proposed welfare legislation 
that undermines these American values to which we are all committed. 

We do not emphasize work if we do not have practical and 
effective work rec[uirements. We cannot end welfare by punishing poor 
children for their parents' mistakes. We cannot hope to move people 
from welfare to work if families do not have access to adequate and 
appropriate child care. 

And we cannot reform welfare if we do not hold both parents 
responsible for support of their children. 

I want to emphasize that the President looks forward to working 
with Congress to overhaul our broken welfare system. We need a bold 
plan to end the welfare status (juo and to make sure that everybody 
who can work does so. 

The Administration shares the commitment of the Congress and 
the American people to real welfare reform that emphasizes work, 
parental responsibility. State flexibility and the protection of 
children. 

*** 

What I have just described is more than a budget. It is a new 
way of honoring our commitment to work for the "public good." It 
makes tough choices. And it will produce measurable results. 

We look forward to working with this Committee, and I greatly 
appreciate the opportunity to testify before you this morning. I'd 
be happy to answer any questions. 

Thank you. 



103 




DONNA E. SHALALA 

Sacratiiy c/ H«aMi and Himan Sarvicas 

It is no coincidence the Washington Post chose a sports metaphor when it wrote that HHS Secretary 
Donna E. Shalala has asseml)led the t>est team since the 1927 Yankees.' 

Shalala is t>oth a fine athlete and energetic competitor who, as the first woman to lead a Big 10 University, took 
a losing football team at the University of Wisconsin at Madison and turned it into a Rose Bowl champion. 

At HHS, the 'people's department,' she has adhered to the same rrtanagement philosophy. 

1 pick the t>est people, give them the support they need and hoM them accountable for results,* she says. 

The future Secretary entered pubic ife in 1075 as treasurer of the Municipal Assistance Corp.. which rescued 
New York City from the brink of bankruptcy. 

She was an assistant HUD secretary in the Carter Administration and, in 1980, became the youngest wonoan 
to lead a major U.S. college as presMent of Hunter Collage in New York. In 1988, she became ChanceVor of the 
University of Wisconsin-Madison, the natkm's largest put>lc research university. 

An acknowledged scholar of state and k>cal government and finance. Shalala eamed her Ph.D. from the 
Maxwell School of Citizenship and Pubic Affairs at Syracuse University in 1 970. She has also served as a Peace 
Corps volunteer in Iran and taught poitical science at Syracuse, Columbia, Hunter and Wisconsin. 

Shalala succeeded Hillary Rodham Cfnton as ctiair of the Chiklren's Defense Fund in 1992. 

Like her mother. Edna, the national 80-year-okl women's tennis cttampion, Shalala plays a competitive game 
of tennis. In her spare time, she also reads, golfs, Nkes and cfimbs mountains, among them the Himalayas. 

Undoubtedly, however, the biggest mountain she's cSmt)ed is HHS, the Cabinet department responsible for 250 
health, welfare, food, drug safety and income-assistance programs. 

There. Shalala has won plaudits for her leadership on health care and welfare reform, and for refocusing and 
re-energizing such programs as Head Start, women's health, chiMhood immunization, biomedical research and AIDS 
prevention. 



April 1994/S 



104 



STATEMENT OF ELIZABETH M. JAMES 

Mr. Chairman and Members of the Subcommittee; 

I am ElizeUseth M. James, Acting Assistant Secretary for 
Management and Budget. I am pleased to be here today presenting to 
you the fiscal year (FY) 1996 budget request for the General 
Departmental Management (GDM) appropriation. 

General Departmental Management 

Let me briefly discuss the important role that activities 
funded under the GDM appropriation perform in the Department. The 
GDM appropriation is the principal source of funding to support the 
Secretary in her role as chief policy officer and general manager of 
the Department. This account also provides funding for the 
operations of eight of the eleven Staff Divisions (STAFFDIVs) in the 
Office of the Secretary, which carry out essential policy and support 
functions in such areas as legal services, public affairs, 
legislative liaison, intergovernmental affairs, planning and 
evaluation, personnel administration, and management and budget. The 
OS Working Capital Fund is a revolving fund under which the GDM 
STAFFDIVs provide various administrative services to the Department's 
five Operating Divisions (OPDIVs). 

The Department's Continuous Improvement Program — designed to 
meet the priorities of Vice President Gore's National Performance 
Review (NPR) — is an important example of the kind of agency-wide 
initiatives that can be coordinated at the Department level only 
through organizations funded under the GDM account. Cross-functional 
teams are now in place, implementing NPR management recommendations 
and identifying other means to improve HHS management. Streamlining 
efforts are underway in the STAFFDIVs and OPDIVs to reduce full-time 
equivalent (FTE) employment by twelve percent by FY 1999 through 
organizational delayering, organizational and program consolidations, 
re-engineering, and delegations of authority. The results of this 
effort will have far-reaching consequences both for the Department 
and for the activities funded under this account. 

Rationale for the GDM Reduction 

The FY 1996 budget request for GDM proposes total funding of 
$119,704,000 and 1,265 FTE positions — decreases of $698,000 (or 0.6 
percent) and 78 FTE (or 5.8 percent) below comparable FY 1995 levels. 
This request reflects the impact of the FTE reductions mandated by 
Executive Order 12839 — GDM staffing levels decrease by a total of 167 
FTE (or 11.7 percent) between FY 1993 and FY 1996. In FY 1995, FTE 
usage in GDM is currently estimated at 1,325 FTE, or 18 FTE below the 
FY 1995 target. 

This budget request also includes resources which are to be 
transferred to the Social Security Administration (SSA) on April 1, 
1995, as required by P.L. 103-296, the Social Security Independence 
and Program Improvement Act of 1994. These resources are primarily 
FTE and Old-Age, Survivors and Disability Insurance (OASDI) trust 
funds. 

In FY 1995, organizational changes carried out within the 
framework of the Department's Continuous Improvement Program have had 
an important impact on the activities funded under this 
appropriation : 



105 



• Continued Personnel Streamlining — Reinvention efforts, 
streeunlining reductions, and functional transfers will result 
in GDM staffing levels being decreased by 167 FTE (or 11.7 
percent) from FY 1993 to FY 1996, exceeding the FY 1993-1999 
reductions mandated by Executive Order 12839. 

• Regional Office Restructuring and Transfer of Functions — The 
National Performance Review recommended that HHS conduct a 
comprehensive review of its organizational structure and 
management systems, to determine the appropriate balance 
between centralized and decentralized functions. In an initial 
effort, the Department proposes to divest regional 
administrative support and overhead functions to the OPDIVs and 
STAFFDIVs. The purpose of this change is to reduce 
duplication, align support functions more closely with customer 
agencies, and increase the use of cross-servicing arrangements 
instead of maintaining large administrative support structures 
in OS. In FY 1996, these changes will result in the transfer 
of 203 FTE in the Working Capital Fund to the OPDIVs and 
STAFFDIVs, with resulting savings of 54 FTE and $24 million 
over the next five years. 

• Process Reenoineerino — All STAFFDIVs are exeunining their work 
processes to increase efficiency without sacrificing quality. 

• Next Steps — The second phase of HHS reinvention — to be 
completed over the next 90-120 days — will focus on the 
appropriate field and headquarters structure for the STAFFDIVs 
and OPDIVs following SSA independence. 

Working Capital Fund 

The Working Capital Fund (WCF) is a revolving fund that 
provides various administrative services to the Department's five 
OPDIVs on a centralized basis. Use of the Fund results in the costs 
of such services as payroll, personnel, accounting, and reprographics 
being borne by the actual recipients, while also allowing the OPDIVs 
to have a voice in the selection and quality of the services they 
receive. The Fund is under the stewardship of a Board of Governors, 
which is composed of representatives from both the OPDIVs and the 
three GDM STAFFDIVs which provide services. The WCF operates on a 
fully-funded, business-like basis and recovers the full cost of Fund 
services in billings to the Department's OPDIVs. One hundred percent 
of Fund activities are on a fee-for-service basis, so that the 
charges to the client organizations are based on their actual usage 
levels, rather than on an allocation formula. 

The staffing reductions associated with the regional office 
restructuring I mentioned before are reflected in the Fund's FY 1996 
budget estimates. Of 257 FTE reductions associated with these 
changes, 54 represent positions that have been eUaolished; the 
remaining 203 are FTE which have been transferred to the STAFFDIVs 
and OPDIVs in relation to the transferred functions, and those 
positions are included in the OPDIVs' budget submissions. 

In summary, I believe that the FY 1996 budget request for the 
General Departmental Management appropriation will provide sufficient 
resources to operate effectively and efficiently. I will be happy to 
answer any questions you may have about this appropriation request. 



106 





ELIZABETH M. JAMES. Ph.D. 

PRINCIPAL DEPUTY ASSISTANT SECRETARY 

FOR MANAGEMENT AND BUDGET 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Dr. Elizabeth M. (Betty) James was named Principal Deputy Assistant 
Secretary for Management and Budget in 1987. In this capacity. 
Betty acts as a focal point for the integration of the numerous 
functions for which the Assistant Secretary for Management and 
Budget (ASMB) is responsible. She provides the ASMB with advice 
and assistance on administrative and financial management issues, 
and aids with the development of the Department's budget. Betty 
is also responsible for policy development guidance in areas such as 
information resources management, contracts and grants. 

Before joining HHS, Betty served as the Chief, Policy and Systems 
Division, at the Office of Personnel Management. From April 1984 
to February 1985 she was the Deputy Assistant Director for 
Strategic Program Design in the Office of Training and Development. 
Between November 1979 and April 1984, she was the Director, 
Governmental Affairs Institute, in the Office of Executive and 
Management Development. 

In addition to her public service career, Betty has served as a 
Lecturer with Georgetown University from 1981 to present. Between 
1968 and the present, she has served as a professor of political 
science at Trinity College. 



107 



STATEMENT OF DAVID T. ELLWOOD 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to present the fiscal year (FY) 1996 budget 
request for the Office of the Assistant Secretary for Planning and 
Evaluation (ASPE) and for the Policy Research program we manage. 
This is a time of change — in many cases dramatic change — in the 
administration and delivery of health care and human services in 
America. The role of government, particularly the Federal 
government, is undergoing deep review. 

The impetus and direction of change is increasingly toward 
decentralization, with the private sector and State and local 
governments often leading the charge. Welfare reform efforts are 
already undeirway in many States. The Administration has granted 
waivers to nearly half the States, and all welfare reform bills call 
for granting States far more control and flexibility over their 
welfare systems. The nature of health systems in both private and 
public programs is shifting rapidly toward managed care and 
competitive strategies. 

In such a rapidly shifting environment, the need for 
coordinated, objective, and high quality evaluation, policy research 
and data collection and analysis is more critical than ever — both to 
inform choices and to understand the overall impacts of those 
choices. Information is essential for helping individuals, private 
firms, communities. State and local governments, the Administration 
and the Congress understand the choices they must make. 

Just as important, the lessons of one community's decisions 
should be available when another faces similar questions. We need to 
identify the most cost-effective and customer-responsive practices so 
that others can learn from them. 

Evaluation, research, and data are also critical in determining 
what effect policies have had, both locally and in the nation. When 
dramatic changes occur in the structure and delivery of health and 
human services, it is especially critical to learn — in detail — what 
the impact of these changes have been on the people and institutions 
they touch. We also need to assess the impact of the myriad of 
decentralized decisions on the families and individuals served, on 
the providers and managers of services, and on the efficiency of the 
American economy and government. 

FY 1996 Funding and Goals 

The Policy Research program, and the $12.4 million requested in 
funding for it, is key to the goal of obtaining objective and high 
quality information for national. State, local and private decision- 
making. We are aggressively pursuing ways to use the program most 
effectively and to make the information from it the most useful to 
our public and private sector partners. To accomplish this, we are 
first substantially strengthening our data collection and analysis, 
modelling, evaluation, and performance measurement capabilities. 
Secretary Shalala is committed to expanding and improving the 
planning for and use of these tools. 

For example, at Secretary Shalala 's direction, my principal 
deputy, Judith Feder, is leading an HHS-wide group to identify 
priority health data needs and to refocus resources to better and 
more efficiently meet those needs. This effort starts from the 
premise that we should not reproduce or supplant private data 
gathering efforts; rather, we should work in partnership to better 
gain the information everyone needs to understand the changing 
quality, coverage, and delivery of services. We are also making our 



108 



models better predictors of the effects and costs of alternative 
policies, and we are developing mechanisms to track the impact of 
adopted policies — from the earliest stages of implementation — with 
rapid feedback. 

Second, we will work closely with the Congress and our partners 
in State and local governments and the private sector to design the 
analyses and provide the information needed to improve health care 
and human services. Supporting our partners at the State and local 
level is more critical than ever as they assume greater 
responsibility for administering health and human service progreuns. 
All of the plans I eun about to describe will be developed in 
partnership with them. 

Major Areas of Focus 

Children and Families 

We are, and will continue to be, deeply concerned with the 
welfare of our nation's children. We will continue our efforts to 
provide objective analyses of various welfare reform proposals, and 
— working closely with the States — will assess the impact both of 
welfare reforms enacted by the Congress and reform demonstrations 
implemented by the States. There are potentially dramatic changes 
being considered for the welfare system. Almost everyone believes 
that welfare does not work well; the key questions are how to prevent 
welfare dependency and move people to work so they can take care of 
their families. 

We are examining a variety of issues concerning welfare 
dependency. We will assist States to develop the capacity for data 
matching across tax and transfer systems, and to undertake more in- 
depth analyses of welfare dynamics. We must ensure that lessons 
learned from welfare demonstrations are captured, to determine how 
best to move people into jobs and self-sufficiency and to prevent 
welfare dependency. To do this, we will provide support for the 
evaluation of selected demonstrations, continue to evaluate State 
welfare-to-work programs, and make available for public use data 
tapes from past evaluations. Finally, with guidance provided by a 
national advisory board jointly appointed by the Administration and 
the Congress, we will complete the required report to the Congress on 
how welfare dependency should be measured. 

We will also develop information in partnership with the States 
to help ensure that children receive the child support payments to 
which they are entitled. Currently, only one third of single parents 
receive child support. With the mobility that people have, data on 
child support must be shared across State lines. We are designing 
evaluation strategies to identify the effectiveness of child support 
policies that are enacted by the Congress. We will fund evaluations 
of programs that rec[uire work and training for men who owe child 
support and fail to pay. We will assess other ways to encourage non- 
custodial parents to take more responsibility for their children, 
including parenting and access demonstrations. 

We will continue important research to identify ways to help 
prevent teen pregnancy. In particular, we are assessing the long- 
teirm effectiveness of programs which target education, training, and 
case management services to teens. We will assess the role of 
positive youth development, exploring: the effects of education and 
employment opportunities and relationships with adults; the influence 
of peers and family, including siblings; and the role of self-esteem 
in preventing adolescent pregnancy. And we will examine the 
opportunity-cost hypothesis and other factors related to the decision 
to marry. 



109 



We will also address issues concerning vulnerable children and 
youth. Many children and youth need developmental, protective and 
support services because their families are poor, are headed by a 
single parent, or are at risk for other reasons. He will help 
identify effective ways in which States can improve their child 
welfare systems. We will continue working closely with States on the 
multi-year impact evaluation of family preservation and support 
programs, to identify the effects of various prevention services 
aimed at reducing foster care placement and helping children remain 
with their parents, and of reunification services aimed at gaining 
permanent feunily placements for children already in foster care. 
Jointly with the Administration for Children and Families {ACF) , we 
will design and launch evaluation studies concerning the quality of 
Head Start. 

Health Care 

One of the important lessons we learned from last year's health 
care reform debate was the need for accurate and timely information 
about health insurance, service delivery systems, and access to 
health care. The Congress is considering health insurance reform, 
and a number of States are experimenting with changes in the 
financing of health care, assisted by waivers from HHS. 

Therefore, we plan to focus on two principal areas of change. 
First, we will attempt to further understand the dynamics of health 
insurance — both coverage and the market. There are changing patterns 
of coverage by employers, by some States, and by consumers who 
directly buy health insurance. 

Second, we will track changes in the delivery of health care 
services and share information with our partners. Here, the Congress 
and the Administration are considering a number of program changes. 
The use of managed care is increasing in the public and private 
sector, health insurers are increasingly more cost conscious, and 
States are experimenting with innovative mechanisms to deliver 
services more efficiently. 

We will address the impact of changes on consumers and 
patients, on insurance coverage and access to health care, on the 
doctors and hospitals providing the services, on the general public, 
on employers (especially small businesses) and on costs. The changes 
that will occur will likely not be identical everywhere, further 
complicating and adding to the cost of the effort. But it is vital 
to answer such questions as: who gets more or less coverage and 
services, and at what cost; what is the impact on underserved areas; 
what happens to hospital occupancy rates; etc. 

People with Disabilities 

There are hundreds of thousands of American children, working- 
age adults, and older people with chronic disabilities which 
interfere with their ability to carry out everyday activities without 
the help of others. These people face a number of challenges. A 
high proportion are very poor, get little preventative care, have 
only limited access to providers who are knowledgeable about their 
disability and long term supports, and face ruinous out-of-pocket 
costs in trying to pay for needed care. 

The public costs of providing services to people with chronic 
care needs are high. States are struggling to bring these costs down 
while providing humane and appropriate services. One potential 
solution which States are opting for is managed care; yet there is 
virtually no systematic information to inform their decisions. At 
the same time, there is a growing movement to give the consumers of 
disability-related services more choice about what they need to live 
productively and independently. 



110 



We are addressing these issues. First, we will work with 
selected States to develop information on the impact of managed care 
plans on people with significant disedsilities. We will look at the 
changes in their service use as they move from fee-for-service to 
managed care, their satisfaction with services, and the costs of 
care. We will also analyze plans that work for disabled populations, 
and document and disseminate particularly effective practices. 

Second, we will continue to place a special emphasis on 
disability policy for children. Our research will address how the 
myriad of Federal and State programs (education, health care and cash 
assistance) serving disabled children and their families actually 
works to fill needs in an effective and efficient manner. We will 
examine how these programs are targeted, how they interact with one 
another, where they appear to overlap, and where they leave gaps. In 
doing this, we are using the substantial Supplemental Security Income 
(SSI) and Medicaid data bases that HHS has. 

Third, we will launch a major demonstration with the Health 
Care Financing Administration (HCFA) to evaluate strategies for 
providing people with disabilities with control over their services, 
in return for accepting a capitated budget. We will evaluate the 
impact of a voucher system and direct cash payments to determine if 
they save money over a service benefit approach, achieve reasonable 
accountability, and satisfy consumers. 

Fourth, we will work with the Administration on Aging (AoA) to 
support the development of the infrastructure necessary to operate 
efficient and effective long-term care systems. The growth and 
diversity of the disabled population, constrained resources, and 
massive changes in the health care system itself will place demands 
on States to reform their approach for delivering chronic care 
services. Working in partnership with selected States, we will 
develop and test methods for tracking the performance of 
administering agencies, regulators, and providers in implementing 
long-term care systems reforms, measuring the outcomes of reform, and 
responding to changing needs. 

Poverty Institute 

Last year, this Committee directed that we competitively fund 
one or more poverty research centers. We are proceeding to do that, 
with a major focus on tracking the impact of changes in the delivery 
of services and income assistance on the people living in poverty. 
We plan to have a non-partisan panel of technical experts review the 
proposals resulting from the competition, and advise on the agenda 
for the research. 

Conclusion 

In conclusion, Mr. Chairman, the Policy Research program and 
the analytic work of the ASPE staff are critical both for providing 
information to help guide potential new initiatives and for assessing 
progress as these initiatives are implemented. I am strongly 
committed to providing the most objective, useful, and high-c[uality 
information possible, on a non-partisan basis, for use at the 
national level and by our partners in State and local governments and 
the private sector. I believe that the program and staff will 
continue to contribute significantly to helping improve the lives of 
millions of Americans. 



Ill 



^tuwej. 




DAVID T. ELLWOOD 

AMittint Secretary for Planning and Evaluation 
Department Of Health And Human Services 



David T. Ellwood was sworn in as assistant socretary for planning and evaluation in the Department of 
Health and Human Services May 28, 1993. He was nominated t>y President Clinton Feb. 23, 1993, and 
confirmed t>y the Senate May 28, 1993. 

As assistant secretary for planning and evaluation, Ellwood is the HHS secretary's principal advisor for 
the formulation and analysis of poicy. His responsit)ifties include the developn>ent of legislative proposals, 
oversight of economic and policy analysis, and evaluation of department prograrps. Ellwood is a co-chair 
of President Clinton's Woridng Group on Welfare Reform, Family Support and Independence. 

EHwood came to HHS from the John F. Kennedy School of Government at Harvard University where 
since 1992 he had served as academic dean, co-director of the Malcolm Wiener Center for Social Policy 
and Malcolm Wiener Professor of Pubic Polcy. 

Ellwood was bom Sept. 16, 1953, in Minneapois, Minn. He received his bachelor's degree in economics, 
in 1975, and a doctorate in economics in 1981, both from Harvard University. 

A latwr economist who spedaizes in the problems of the poor and disadvantaged and in poHctes 
designed to help them, Ellwood has written several books and numerous articles on welfare, teen-age 
unemployment and family poverty. His 1988 book, Poor Support: Poverty and the American Family . 
expk>res the causes of poverty and the prospects of designing a support system to replace welfare. It was 
selected by the New York Times Book Review as one of the most notable books of 1988. The Policy 
Studies Organization selected it the outstanding book of 1988. He also coedited the tx>ok. Welfare Policies 
for the 90s and recently published Welfare Realities: From Rhetoric to Reform , coauthored with Mary Jo 
Bane. Ellwood's work has been credited with significantly influencing the Family Support Act of 1988, the 
report of the National Commission on ChiMren and state welfare legislation. 

His many outside activities have included serving on several National Academy of Sciences panels, 
including the Forum on the Future of ChiMren. He previously served as a panel memt>er for the Committee 
on the Status of Black Americans. 



June 1994 



112 



STATEMENT OF DENNIS HAYASHI 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to present the fiscal year (FY) 
1996 budget request for the Office for Civil Rights (OCR) . 

OCR is charged with carrying out the Department's civil rights- 
related responsibilities. To carry out these responsibilities, OCR 
is requesting $21,330,000 for FY 1996, a 3.5 percent reduction from 
FY 1995. The request includes $17,979,000 in appropriated funds and 
$3,351,000 in trust fund transfers. 

Compliance Responsibility 

The mission of OCR is to ensure that no person is discriminated 
against under any program or activity receiving Federal financial 
assistance from the Department of Health and Human Services. In 
carrying out this mission, OCR is responsible for enforcing: 

• laws and regulations that prohibit discrimination on the basis 
of race, color, national origin, disability, age, and sex; 

• the nondiscrimination provisions of the health care and other 
block grant programs; 

• the community service assurance of the Hill-Burton Act, under 
which health care facilities must provide services without 
discrimination to all persons residing or working in the 
service area; and 

• delegated authority under the Americans with Disabilities Act. 

In addition, OCR is responsible for coordinating implementation 
of the Age Discrimination Act government -wide, and for coordinating 
implementation of the Department's Section 504 regulation prohibiting 
discrimination against persons with disabilities in programs and 
activities conducted by the Department. 

Secretary Shalala, the leadership of the Department's Operating 
Divisions, and I are all committed to full and effective enforcement 
of civil rights laws. To assure that when individuals and families 
take responsibility for improving their lives, they each have an 
equal opportunity to succeed, OCR will work both within the 
Department and with service providers, program beneficiaries and 
representative organizations to strengthen civil rights awareness and 
compliance. 

Compliance Activities 

OCR uses a range of techniques to prevent and resolve problems 
of discrimination. Specifically, OCR processes complaints of 
discrimination, conducts reviews, initiates investigations, monitors 
corrective action plans, and carries out voluntary compliance and 
outreach activities. 

The proposed budget would support approximately 276 FTE, a 
reduction of 21 from the authorized level for FY 1995. OCR's policy 
is to allocate sufficient resources to complaint processing to assure 
that discrimination complaints are dealt with in a reasonably timely 
manner. Strecunlining our case handling processes and focusing on key 
issues will enable OCR to achieve more balance among its complaint 
processing, review, and voluntary compliance activities. 



113 



Complaint Proceaaino 

Under the regulationa implementing the civil righta atatutea, 
OCR is required to addreaa all complainta alleging discrimination in 
HHS programa. Based on standard forecaating techniquea, OCR 
anticipatea a a lowing in the rate of increase for new complainta from 
the 7 percent per year average experienced from FY 1990 through 
FY 1994. OCR estimates that approximately 2,312 new discrimination 
complaints will be filed in FY 1996. 

In implementing its atrategic plan during FY 1995, OCR will 
experiment with uaing alternative dispute resolution techniques, 
limiting the scope of inG[uiries in some investigations, and focusing 
on key iaauea. Each action will increaae responsiveness to citizens 
filing complaints. 

OCR plans to allocate 130 FTE to complaint processing in 
FY 1996, a decrease of 13 FTE (or 9 percent) from FY 1995 estimates. 
Through implementation of more efficient case handling processes, OCR 
expects to reduce the ending inventory of open complaints to its 
lowest level in five years. 

Reviews and Investigations 

Changes in OCR's approach to compliance reviews has increased 
flexibility and enabled OCR to reach a substantially higher number of 
program recipients. OCR plans to conduct a total of 350 reviews to 
assess the compliance status of program recipients in FY 1996. This 
represents a more than 60 percent increase from the 213 reviews 
anticipated during FY 1995. 

If a review, complaint case, or other infoirmation indicates 
aerioua problema of poasible discrimination, OCR will initiate an 
investigation. OCR expects to conduct a total of 121 civil rights 
investigations in FY 1996, up from 88 in FY 1995. 

In addition, OCR will continue to conduct pre-grant reviews 
when notified that a health care facility has applied to participate 
in the Medicare program and must receive civil rights clearance. OCR 
anticipates conducting approximately 4,870 pre-grant reviews in 
FY 1996. 

OCR will allocate 78 FTE to conduct reviews and investigations 
in FY 1996. This is the aame level aa estimated for FY 1995. 

Monitoring 

If a review or investigation reveals or substantiatea a 
compliance problem, OCR requirea the program recipient to adopt and 
implement corrective meaaurea. In addition, by meana of written 
agreementa, facilitiea aubject to pre-grant reviewa may be recpaired 
to aubmit compliance information. Corrective action plana and 
agreementa are monitored by OCR to aaaure full compliance. OCR will 
continue monitoring plana aa necessary in FY 1996, and will allocate 
approximately 7 FTE to this activity. 

Voluntary Compliance and Outreach 

The goal of OCR's voluntary compliance activity ia to help 
recipienta comply voluntarily with civil righta lawa and to inform 
minoritiea, peraons with disabilities, senior citizens, and others of 
their rights under the statutes and regulationa that OCR enforces. 
OCR provides technical assistance directly to program recipients and 
to State and local agencies. In FY 1996, OCR will also work jointly 



114 



with the HHS Operating Divisions and in partnership with 
organizations outside the Federal government, including State and 
local governments, to prevent or correct civil rights problems in 
Departmental programs. 

The 19 FTE allocated for this activity in FY 1996 is six more 
than the FY 1995 level. Assigning more staff time to voluntary 
compliance and outreach and partnership activities represents a 
commitment by OCR to work collaboratively with both our internal and 
external partners. Listening to our customers will best focus our 
resources and efforts to address acute and chronic civil rights 
problems. OCR will: 

• work cooperatively with recipient State agencies to plan and 
initiate pilot projects to encourage sub-recipient compliance 
with nondiscrimination standards; 

• work with HHS program staff and their program providers, 
provider groups, advocacy groups. State agencies and other 
experts to develop and monitor remedial plans; and 

• work with partners to prepare and distribute "methods of 
compliance" for recipient State agencies to self-monitor, and 
help State and local partners monitor local efforts to achieve 
and maintain sub-recipient compliance. 

Successful voluntary compliance and outreach initiatives, plus 
the ready availability of OCR compliance standards and policies to 
serve as guides to service providers, will result in a growing number 
of indicators of State, local, and program provider solutions that 
provide quality local-level resolution of civil rights problems. 

Legal Services 

OCR's budget request includes 21 FTE to staff the Civil Rights 
Division of the Department's Office of the General Counsel. OCR 
anticipates that the staff attorneys in the Civil Rights Division 
will be able to provide OCR with all necessary legal assistance and 
guidance, including: (1) reviewing the legal sufficiency of case 
findings and potential enforcement cases; (2) interpreting and 
applying statutes, regulations, and court decisions; and (3) when 
appropriate, conducting enforcement proceedings. 

Program Management 

In FY 1996, OCR will allocate 21 FTE to progreun management, a 
reduction of 4 FTE (or 16 percent) from FY 1994. Management staff 
determine program objectives and priorities, formulate and execute 
the OCR budget, develop compliance plans, monitor and evaluate 
compliance efforts, and make final decisions about OCR's compliance 
standards and procedures. In addition, management is responsible for 
quality assurance and management controls, staff training, and the 
acquisition and application of ADP systems to improve efficiency and 
productivity. Finally, management staff provide administrative 
support in such areas as personnel management, travel, procurement, 
property, and supply systems. 

Conclusion 

In conclusion, Mr. Chairman, OCR's FY 1996 budget request would 
provide $21,330,000 to carry out the Department's civil rights 
program. OCR is determined to carry out its important 
responsibilities by using its resources effectively and efficiently, 
and in a manner consistent with the customer service, streamlining 
and staffing allocation goals recommended in the National Performance 
Review and reflected in the HHS Civil Rights Strategic Plan. Thank 
you. 



115 



DENNIS HAYASHI 

Director 

Office for Civil Rights 

Department of Health and Human Services 



Dennis Hayashi was appointed director of the Office for Civil 
Rights (OCR) by HHS Secretary Donna E. Shalala on June 27, 1993, 
The significance and importance the Clinton administration places 
on this position was underscored by President Clinton's personal 
announcement of Hayashi 's selection on May 5, 1993. 

As director of OCR, Mr. Hayashi is responsible for ensuring 
that prograuns and activities receiving funds from the Department of 
Health and Human Services are in compliance with all civil rights 
laws, including Title VI of the Civil Rights Act of 1964, which 
prohibits discrimination based on race, color, and national origin; 
Section 504 of the Rehabilitation Act of 1973 and the Americans 
with Disabilities Act which forbids discrimination against disabled 
persons; and the Age Discrimination Act of 1975. In addition to 
the headquarters operation, Mr. Hayashi oversees the activities of 
the 10 regional Civil Rights Offices. He is dedicated to law and 
civil rights and determined to revitalize the Office for Civil 
Rights, making it a proactive office accessible to its 
constituency. 

Mr. Hayashi is a distinguished attorney, whose career has been 
devoted to fighting for civil rights and equality. From 1979 to 
1991, Mr. Hayashi was an attorney for the Asian Law Caucus, Inc., 
litigating major impact precedent -setting cases and advocating the 
passage and enforcement of various civil rights laws. He has 
worked against hate crimes and anti-Asian violence, co- founding the 
National Network Against Anti-Asian Violence and personally serving 
as counsel for the faimily of Jim Loo, who was killed in a racially 
motivated attack in 1989. 

As an attorney, Mr. Hayashi has also represented Fred 
Korematsu in his effort to overturn his World War II conviction for 
opposing interment of Japanese Americans; Vietncunese fisherman who 
suffered discrimination by the U.S. Coast Guard; and minority 
firefighters with the San Francisco Fire Department. 

Prior to accepting this position in the current 
administration, Mr. Hayashi was national director of the Japanese 
American Citizens League, the oldest and largest Asian Pacific 
American civil rights organization in the United States. As 
national director, he helped the organization achieve prominence 
throughout the country and oversaw the national headquarters and 
seven regional offices. 



116 



Mr. Hayashl's commitment extends to community activism. 
He has served on the Asian Pacific American Democratic Council, 
as director for the National Asian Pacific American Association; 
the Board of Directors of the San Francisco Coro Foundation, the 
San Francisco Legal Assistance Foundation, Child Care Law Center 
and the Coalition of Asian Pacific Americans. Also, he was a 
member of the California Commission on the Prevention of Hate 
Violence and served on the Clinton/Gore civil rights transition 
cluster. 

Mr. Hayashi has published numerous articles in periodicals and 
journals such as the Los Angeles Times, the Washington Post, San 
Francisco Chronicle, Yale Law School Journal and the Kennedy School 
of Government Asian American Policy Review. He has also been an 
instructor at the New College of California Law School in San 
Francisco. 

Mr. Hayashi attended Occidental College, graduation ciun laude 
in 1974 with a bachelor's degree in philosophy. He then attended 
Hastings College of the Law, earning his J.D. in 1978. Mr. Hayashi 
was law clerk to the honoralsle Robert Takasugi of the U.S. District 
Court in 1977. 

Mr. Hayashi 's grandparents were immigrants and his parents 
were victims of internment during World War II. He was bom in Los 
Angeles on May 31, 1952, and currently resides in the Washington, 
D.C. area. 



117 



MANAGED CARE 



Mr. Porter. Madam Secretary, thank you very much for your ex- 
cellent statement. 

I would like to start by asking — I think you said 63 percent of 
newly eligible Medicare beneficiaries are signing up for managed 
care programs. Can you describe for the subcommittee the dif- 
ference now in incentives for managed care, as opposed to tradi- 
tional care, and why you are getting 63 percent signing up for man- 
aged care? 

Secretary Shalala. There are a couple of things that are going 
on, Mr. Chairman. One of them is that we have greatly expanded 
the number of managed care options available to medicare recipi- 
ents so that fully 75 percent of the people on medicare in the Unit- 
ed States have access to an HMO, a managed care option. 

By expanding the number of options available, obviously people 
have more choice. Those that don't tend to be in places that don't 
have managed care available, rural areas where you would not nec- 
essarily — although in my own State of Wisconsin there is extensive 
managed care in rural areas. 

Second, managed care itself has grown in this country. The pat- 
tern of senior citizens moving into managed care follows the pat- 
tern of the expansion of managed care. In those places in the coun- 
try where there is deep penetration of managed care, the elderly 
are more likely to choose managed care. They are more comfortable 
with it. People in their families have been in it, they might have 
been in it themselves, so they have experience. 

It is not necessarily the incentives being offered. Managed care 
companies are in fact offering incentives — often, a full drug benefit, 
for example; sometimes a sports fitness center that people who 
have signed up for managed care would have available to them; 
and sometimes by eliminating copayments. And so they are trying 
to make packages and they are marketing different kinds of 
packages. 

I would suggest to you, though, that senior citizens have strong 
opinions based on their own experience. If we went to Miami, Flor- 
ida, for example, where managed care is marketed aggressively and 
where total benefits are offered, including full drug benefits, there 
are very few takers. Whereas, if we went to Portland, Oregon, 
where very few additional benefits are offered, people are moving 
into managed care. The difference is that Portland has had experi- 
ence with managed care and more people are involved in managed 
care. 

I believe that we are probably a generation away from full par- 
ticipation in managed care. While I believe that there will be a 
more rapid movement in managed care, it will very much parallel 
the kinds of experience that people have had. 

The point I was making, Mr. Chairman, is we in the Department 
are committed to moving people into managed care, but with Medi- 
care, we are at the same time committed to giving people choice. 

Mr. Porter. Sixty-three percent of newly eligible individuals are 
choosing HMOs or managed care. What is the overall percentage 
of people under Medicare that are in managed care? 



118 

Secretary Shalala. There has been a 16 percent increase from 
1993 to 1994. I think we are at 9 percent of the total Medicare pop- 
ulation. It is now moving so rapidly, that it is well over 1 percent 
a month. So by the end of the year we may be over 10 percent of 
the totla Medicare population. 

Mr. Porter. My mother, who died last year, was in an HMO 
from the very time it became fundable by Medicare, and found it 
very good. However, there has been some anecdotal evidence of 
quality control problems. 

What is the Department doing to oversee that patients in HMOs 
really get quality care? 

Secretary Shalala. That really is the issue, Mr. Chairman. In 
fact HCFA is in the process of transforming itself from simply a re- 
imbursement agency to an agency that must oversee quality, and 
that parallels the movement into managed care. 

There are a number of things that are going on in the Depart- 
ment, including: developing the required expertise at HCFA and 
working closely with industry. We can then develop the manage- 
ment expertise so you can hold us accountable and we can come 
back and describe to you a series of things we are doing to try to 
measure quality. This also includes the movement of industry to- 
ward different kinds of quality measurements; to more information 
about people's experiences; and to our own ability to oversee man- 
aged care. 

In saying that we are developing the capacity, I don't in any way 
want to suggest that there is any doubt in our mind about the 
availability of very good managed care agencies. 

I think my biggest personal concern is, we will be pushed by 
Congress to move people too fast into managed care, and the capac- 
ity of the industry to handle what is, after all, a high-risk popu- 
lation, the elderly £uid the disabled, will exceed our ability to pro- 
vide careful oversight and to help the industry to develop capacity 
to deal with the population. 

Right now we probably are overpaying — and we have admitted 
that a little bit — ^for managed care. We are paying 95 percent of 
whatever the fee-for-service numbers are in a region; we probably 
should be paying a little over 90 percent. But that is because the 
industry itself is probably doing some creaming and taking the 
healthier part of the Medicare population. 

My concern is, if we tighten up too much, too fast, and the indus- 
try doesn't move as capacity develops and gets more and more con- 
fidence and experience in dealing with this population, that we will 
go back to the 1970s, and in some cases the 1980s, where we had 
Medicaid mills and Medicare fraud. So that we have to be very 
careful as we move in. 

Congressman Obey and I come from a State that has had a lot 
of experience with managed care. My own hometown of Madison, 
Wisconsin, is almost 94 percent in managed care, and has a lot of 
quality information available. 

Mr. Porter. Does HCFA or the Department have authority to 
provide outcomes information to prospective consumers? 

Secretary Shalala. We do, and one of the changes that Assistant 
Secretary Lee has made — and I believe that Cliff Gaus is going to 
come and testify — the Agency for Health Care Policy and Reserach 



119 

does outcome research, and they are changing their capacity again, 
working with the industry. 

The industry itself is very interested in research and quality 
measures. We are setting all sorts of standards and conducting out- 
come research in the Department, as well as working with the in- 
dustry in this area. But that is the brave new world of health serv- 
ices research that we need to move very quickly into, and I think 
that when you hear Cliff Gaus testify and Phil Lee testify, you will 
see how the Department is moving into this area. 

IMMUNIZATION 

Mr. Porter. A year or so ago, we had a bit of a go-around on 
the vaccine program and the Federal Government's role in 
warehousing vaccines. Can you tell us how vaccines are being ob- 
tained and delivered, and how that is working? 

Secretary Shalala. I think that we backed off the warehouse 
concept, and States have gone ahead on their own to work out dis- 
tribution systems. Two-thirds of the States now have their own dis- 
tribution system. 

You will remember, Mr. Chairman, the principle here was to in- 
volve private doctors. What our research showed was that we could 
not get every child in this country vaccinated by simply pouring 
money into the public system. We needed to expand the infrastruc- 
ture in the public system. What we wanted to do is enroll private 
doctors. There are thousands of private doctors. 

This country now has the highest immunization rates for pre- 
school kids in its history. I believe in another year or so we will 
reach the level of immunization rates, well over 90 percent, that we 
wanted to reach. But the key to this has been private doctors. 

Mr. Porter. Where are we now? 

Secretary Shalala. We are at about 67 percent now. 

Mr. Porter. And you think, in a year, we can make it to 90? 

Secretary Shalala. In a year or two we can make it to 90. But 
the important thing is to put a tracking system in place. I believe 
having children immunized by their own physician has made a dif- 
ference. My deal with the private doctors in this country is that we 
make it a simple application. 

GAO may come here and say we need to track every little shot. 
I will resist that, because I think that keeping private doctors in- 
volved is absolutely critical to getting this public health issue taken 
care of. 

Mr. Porter. Thank you. Madam Secretary. 

Mr. Obey. 

RESCISSIONS 

Mr. Obey. Thank you, Mr. Chairman. 

Madam Secretary, let me ask about the rescission last week as 
it relates to the cap on foster care administrative costs. My under- 
standing is that the administrative costs under the foster care enti- 
tlement go far beyond the traditional set of activities which we nor- 
mally think of as "administration." 

Will that cut significantly impact services for those kids? 

Secretary SHALALA. It will. In particular. Congressman Obey, it 
will penalize the States who are implementing the statewide auto- 



120 

mated child welfare systems. As you know, the foster care system 
in this country is quite fragile and it needs additional resources. 

Some States have moved quite aggressively to put in place auto- 
mated systems, provide training, trying to upgrade their foster care 
systems. Not only would the rescission limit the Federal payment 
for child placement services, but also limit these administrative 
costs. We are very worried about that impact. 

DRUG ABUSE EDUCATION 

Mr. Obey. One of the largest cuts in the rescission package was 
$482 million to eliminate the Safe and Drug Free Schools program 
at DOE. My understanding is the National Institute of Drug Abuse 
is responsible for tracking drug use in this country, including drug 
use by high school kids. 

Can you tell the committee what data from that survey tells us 
about the direction that drug use has taken? 

Secretary Shalala. It is tragic information, and that is that drug 
use is going up in this country among young people. The young 
people experimenting with drugs are getting younger and younger. 

The tragedy is that everything we know is that we need to start 
community school-based programs earlier and earlier; and this is 
the wrong time, when the increase in drug use by young people is 
so dramatic, for us to be terminating our efforts in schools. 

Mr. Obey. Isn't it true that after a significant number of years 
during which drug usage among high school kids had been 
trending downward, that it has turned around and has been going 
up again in the past few years? 

Secretary Shalala. It has been. One of the reasons it has been 
going up is a startling change in young people's attitudes towards 
drugs and whether they believe that drugs will hurt them. Not only 
is drug use going up, but the number of young people that believe 
they are taking no risk is also going up, and that clearly is an edu- 
cation issue. 

MEDICAID RATES 

Mr. Obey. I would like to talk to you about the biggest welfare 
recipients in this country, States. If you take a look at the Medicaid 
match formula, you see that the rate that States are reimbursed 
at by the Feds varies widely from State to State. 

You have rates going from a minimum of 50 percent up to, as 
I understand it, 79 percent, the high, in Mississippi. Variation of 
those rates means a State like Wisconsin gets $2,800 per recipient 
from the Feds while a State like Louisiana receives $3,800. How 
can we continue justifying such a large differential in those Federal 
matching rates? And why shouldn't people from States like mine 
insist that they be changed? 

Secretary Shalala. Well, I think that a number of States — New 
York, Wisconsin — have reasons to be concerned about the formula. 
The difficulty, of course, is if we change the formula, we will 
change the mix of winners and losers. There have been serious 
questions about this. 

The per capita standard doesn't take into account, for example, 
a State's poverty rate or if there are abnormal income distributions. 



121 

■ Mr. Obey. But my point is there are some Members of this Con- 
gress who are the loudest in insisting that individuals get off the 
dole, who at the same time have their hands out on behalf of their 
States, who are setting an all-time record for being on the dole. 

How much money would we save if those Medicaid rates were 
capped at a level of, say, 65 or 70 percent as an interim step while 
we reviewed the whole issue of matching? 

Secretary Shalala. I would have to provide that for the record. 

Your point is well taken. I recently had a conversation with the 
Governor, who has favored block-granting Medicaid. In his waiver 
request to us, our discussions have been about whether his State 
will be allowed to use a growth rate significantly higher than the 
program that he favors. 

He was very clear about what he was trying to do and that was 
to lock in a higher growth rate for his State before Congress moved 
to lock in a percentage for all the States. There is significant talk- 
ing out of both sides of our mouth. There are, in fact, differences 
in the impact of the matching formula. 

We would be happy to provide you with what the impact of your 
proposal would show. 

[The information follows:] 

Medicaid Rates 

The amount of Medicaid expenditures paid by the Federal government in each 
State — the Federal Medical Assistance Percentage (FMAP) — is statutorily deter- 
mined by a formula which uses the per capita income in the State relative to the 
nation. The match rates have a floor of 50 percent and a ceiling of 83 percent. In 
FY 1995, 14 States have a 50 percent FMAP and Mississippi, as you noted, has the 
highest FMAP at 79 percent. 

As you requested, we determined what the savings would be under your proposal. 
Using the FY 1996 FMAP rates and projected outlays as an example, a 65 percent 
cap would save approximately $1 billion, or one percent of Federal Medicaid outlays 
for that year. A cap of 70 percent would result in less than $400 million in savings, 
or less than one percent of total projected Federal Medicaid outlays. These are one 
year only savings and, of course, the savings would grow as outlays grow in the out- 
years. 

Of course, a proposed that lowers the FMAP ceiling creates savings from States 
with the highest FMAP rates — States that have the lowest per capita incomes rel- 
ative to the rest of the nation, for example Mississippi. Questions about equity in 
the current formula persist for reasons beyond just the ceiling. Therefore, if you are 
considering altering the current matching rates, you may want to begin by taking 
into account the kinds of considerations raised by the General Accounting Office and 
the Urban Institute in their more comprehesnive review of the FMAP. Taking only 
this interim step could exacerbate any inequities in the current formula. 

REFUGEE ASSISTANCE 

Mr. Obey. Since my time is up, I would like to work with your 
agency and several others to try to find an answer to the dilemma 
that States like Wisconsin and Minnesota are increasingly facing 
with the refugee program. We seem to have a mood in the Con- 
gress which indicates that we need to get far tougher with respect 
to the Federal financing of services for immigrants, illegal and 
legal. 

I think there is a different issue facing us on the issue of refu- 
gees. Refugees are allowed into this country for essentially foreign 
policy reasons. They then become very quickly a very heavy burden 
on local governments because of the costs of educating them, the 
cost of supporting them financially, and in many other ways. 



122 

Why shouldn't the Federal Government be fully responsible for 
meeting the education and social costs associated with absorbing 
legal refugees into the society, since the Feds, through the years, 
have been anxious to zdlow refugees in but not so anxious to pay 
for the costs afterwards? 

Secretary Shalala. Well, as you know, it is a policy decision. 
There is a refugee resettlement program which is inadequate, given 
the number of refugees that are admitted to this country. There 
has been a straight policy decision by the Administration and the 
Congress as to how many resources will be provided to a commu- 
nity to help in the resettlement process. 

Under tne new Welfare Reform bills, even refugees are hit in 
terms of the availability of existing social service programs that 
will cause extreme hardship to some communities with large pro- 
portions of refugees. 

Mr. Obey. I guess it would be my position that if the Federal 
Government is not willing to fully support the cost of absorbing 
those refugees into our society for a significant length of time, say 
five years, then the Federal Grovemment shouldn't let them in at 
all, because I think localities should not get stuck with the respon- 
sibility of financing what in essence are the national government's 
foreign policy decisions. 

I would like to work with your people and see if we can't figure 
out some way to try to resolve that issue. 

Secretary Shalala. We will be happy to work with you, 
Congressman. 

Mr. Obey. Thank you, Mr. Chairman. 

Mr. Porter. Thank you Mr. Obey. 

Mr. Bonilla. 

Mr. Bonilla. Thank you, Mr. Chairman. 

Madam Secretary, you state that this budget is a new way of 
honoring our commitment to serve the public good, and it makes 
tough choices. First of all, I welcome the Administration's proposal 
to help us do our job. HHS has made some tough choices and this 
subcommittee will have to make some equally tough choices. We 
may disagree, but I want to point out something to my colleagues 
about Secretary Shalala. 

I applaud her effort not to lower herself to name calling. I wish 
I had a nickel for every time I heard the word "mean-spirited" in 
the last 90 days; we could pay off the projected debt for this year. 
If we don't completely agree on the Department's priorities, but 
agree on the need to work for the public good, does that make us 
mean-spirited simply because we have some disagreements? 

Secretary Shalala. No, it doesn't. 

MEDICAL research 

Mr. Bonilla. It reminds me of the old spousal dispute where one 
says about the other that their definition of a negative person is 
one who disagrees with them. I wish that others were more com- 
passionate to those of us trying to do the right thing for this coun- 
try and be compassionate as well. 

I would like to ask you something about medical research. That 
is one area where we have strong bipartisan support on this com- 
mittee. I happen to be on the National Security Appropriations 



123 

Subcommittee, as well as my colleague, Mr. Young, who chairs 
that. There are programs in the Defense Department's budget for 
osteoporosis research, leukemia, AIDS and breast cancer. 

Do you feel it is appropriate for this area to be absorbed by the 
Defense Department instead of being totally in this committee? 

Secretary Shalala. Well, there is a long history of scientific re- 
search in other parts of the government. For example, the Depart- 
ment of Agriculture has a huge investment in agricultural re- 
search, which has an aspect of it related to the National Institutes 
of Health. We have not totally centralized the scientific research in 
this country. While it is not totally scattered, it is located in three 
or four different departments — in the National Science Foundation, 
in the Department of Agriculture, and in the Defense Department 
as well as the Department of Health and Human Services are the 
departments that come to mind in terms of major commitment. 

The Defense Department has, over the years, built up a capacity 
to do some of this research. They have a captive clientele in terms 
of their ability to do certain kinds of research. But, I don't see any- 
thing that is inappropriate. 

Whether that research should be under the jurisdiction of this 
committee, I am not sure I want to get into — that is for the Appro- 
priations Chair, who has his hands full with jurisdictional issues 
already. 

Where we have a capacity, as we do in the Defense Department, 
to conduct research, we are enthusiastic about the fact that they 
add to the research, and have very close cooperation with the Na- 
tional Institutes of Health and with the Public Health Service. 

HEAD START 

Mr. BONILLA. I ask that because those programs are being re- 
viewed by the other subcommittee closely; we question whether 
they are defense-related functions at the Pentagon. 

I would like to move now to Head Start, if I could. That is an- 
other area where we have had agreement on both sides of the aisle 
about trying to work to improve this program. 

Since 1991, Congress has increased funding for Head Start 46 
percent from $1.9 billion to $3.5 billion. I understand that we are 
expanding the program to serve more children from the ages of 
zero to three, and if the Congress adopts the President's request, 
the increase will be 51 percent since 1991. 

Mr. Hoyer talks about this program a lot, and I am in agreement 
with him, that he is trying to do the right thing to improve the pro- 
gram. What is the Department going to do to weed out the bad 
Head Start programs? Isn't it correct that the Department has 
never kicked any grantee out of Head Start in over 30 years? And 
if so, why have actions not been taken to kick some of the bad pro- 
grams out or whip them into shape? 

Secretary Shalala. Let me say a couple of things about that. 

First of all, I came before this committee two years ago and made 
it very clear that quality improvement was very much a part of our 
expansion in our request to this committee for expanded resources 
for the Head Start program. We appointed a bipartisan commission 
which told us to set our standards higher and to identify the poor 



124 

performers and to work with them if they continue to be poor per- 
formers, we were told to start to terminate some programs. 

We have done that. We currently have 90 percent of our grantees 
over or at our new standards. Of the 125 grantees who were identi- 
fied as poor performers, 68 have improved to a satisfactory level. 
We actually have terminated seven of the programs, and our re- 
gional office staff is continuing to work with 50 grantees. If those 
50 grantees don't meet our performance standards, you can be as- 
sured that we intend to make as hard a decision as we need to 
make in those programs. 

But under this Administration, we have kept our commitment to 
invest in quality and to raise the standards for our Head Start 
centers. 

INVESTMENT IN PEOPLE 

Mr. BONILLA. That is good to hear. I would only encourage that 
continue, because we need that kind of help on this committee to 
be able to justify the actions that we have taken, again, in a very 
strong, bipartisan manner. 

Your fiscal year 1996 budget states that it concentrates resources 
in those areas that have high potential for returns. Could you pro- 
vide an overview as to how the Department determines these po- 
ten^'als, like those diseases at NIH, the programs for the elderly 
and the disabled. Head Start and SSA? 

For the record, I would appreciate it if you would provide the De- 
partment's detailed analytical data for the budget justification for 
each of those programs in the Department, and tell us how the De- 
partment thinks it will yield high potential for all of us. 

So I would appreciate if you would do that. 

[The information follows:] 



125 



Investment in People 

While complete justifications for our major investment 
increases are included in the detailed estimates we sent to the 
Committee with our budget, I wanted to give some sense of the type of 
returns we are looking at in choosing and enhancing our key 
investment areas . 

First, our budget requests an increase of $468 million for the 
National Institutes of Health (NIH), an agency with a proven track 
record of scientific accomplishment and progress against disease. 
For example, a $20 million investment in hemophilus influenza B 
vaccine has resulted in savings of over $400 million each year by 
preventing cases of childhood meningitis and consecjuent mental 
retardation. As a result of NIH-supported clinical trials, the use 
of AZT to prevent maternal-fetal transmission of HIV is expected to 
save over $172 million annually. And, just last month, we announced 
the NIH-funded discovery of the first drug treatment for severe cases 
of sickle cell anemia, a major breakthrough that will give hope to 
more than 70,000 Americans who suffer from this disease. 

In 1996, we also propose to invest $400 million more in Head 
Start to create about 32,000 new opportunities for children and 
families in part-day programs and expand 22,000 current peurt-day 
slots to full-day, full-year services. Studies of Head Start have 
indicated the program's positive effects on cognitive skills, self- 
esteem, achievement, motivation and social behavior. Head Start has 
also been shown to have a positive impact on parent-child 
relationships, child health and community services. Longitudinal 
studies on other quality child development programs, including Head 
Start, show similar short- and long-term benefits (Lazar, et al., 
1978; Schweinhart, Barnes & Heikart, 1993). 

For Immunizations we are proposing $843 million in FY 1996 to 
support the purchases of more vaccine and continued improvements in 
systems to immunize children. The Administration has made 
substantial progress towards the goal of providing the most critical 
immunizations for 90 percent of children up to the age two by 1996. 
Failure to immunize can lead to new outbreaks of disease. In 
1989-91, a measles epidemic resulted in more than 55,000 reported 
cases, 11,000 hospitalizations, and more than 130 deaths. Half of 
the deaths were infants. Moreover, we know that vaccines are 
cost-effective. More than $21 can be saved for every $1 spent on 
measles/mumps/rubella vaccine; more than $30 can be saved for every 
$1 spent on diphtheria/tetanus/pertussis vaccine; and more than 
$6 can be saved for every $1 spent on polio vaccine. 

In SSA, we have included an additional $891 million for 
automation and disability investments. The automation investment 
funding will enable SSA to provide high-quality service for 
disability applicants, reduce claims processing times, and improve 
productivity. Studies have shown a 5 percent increase in 
productivity in SSA pilot sites where intelligent workstations and 
networks have been implemented. For Phase One of SSA's automation 
project, cumulative workyear savings are valued at $1.2 billion. 
With the increase in disability investment funding, processing times 
in for initial claims will be cut by more than a third — from 97 days 
in FY 1994 to 62 days in FY 1996. A portion of our disability 
investment will also be used to make progress on a reengineered 
process — which, when fully implemented, is expected to drop average 
processing times for initial disaUsility claims even further. 

These are just a handful of the examples of hpw HHS investments 
are yielding real returns for the American taxpayer! 



126 

PROGRAM CONSOLIDATION 

Mr. BONILLA. Last year you were responsible for 250 health, wel- 
fare, food, drug safety and income assistance programs. Under the 
President's budget proposal, what would that number of programs 
be reduced to? I see in your testimony a proposal to combine 107 
activities. Would that number actually be 143 under your proposal, 
or would it actually go down? 

Secretary Shalala. Actually, the number of programs will go 
down because we are consolidating 50 programs into nine programs 
under the Health Resources and Services Administration alone. So 
I will have to give you the total numbers we are down to. We are 
in fact taking those programs and reducing them to a handful of 
program grants. So we will have many less programs. 

The other thing, of course, is the Social Security Administration 
becomes an independent agency on April 1, 1995. 

Mr. BONILLA. That would sound like a huge decrease, to go from 
over a hundred to a handful — ^you say a "handful;" that is quite a 
reduction. 

Secretary Shalala. Just to give you a feel for that, in the health 
professions, for example, we will reduce most of the major parts of 
those programs to one application. So an academic institution like 
my own, the University of Wisconsin, would not have to prepare 10 
different proposals for different programs; they may just prepare 
one. 

If you go with me to a community health center in this country, 
we have reduced the applications for the eight major programs 
down to one application. So in some cases, we merge programs, in 
some cases we have consolidated, in other cases we have gotten 
ourselves down to a single application. 

We will do more of this, and in fact, in Reinventing Government 
II, which we will report to this Committee sometime, after the 1st 
of June, or maybe a little before; you will see the second round of 
this kind of movement by the Department. 

Mr. BONILLA. Thank you. Madam Secretary. 

Thank you, Mr. Chairman. 

Mr. Porter. Thank you, Mr. Bonilla. 

Mr. Stokes. 

HEALTHY PEOPLE 2000 

Mr. Stokes. Thank you, Mr. Chairman. 

Madam Secretary, it is nice to have you back before our sub- 
committee again. Let me start with a question about Healthy Peo- 
ple 2000. To what extent are we meeting the objectives of Healthy 
People 2000 with respect to the population in general, and also 
with respect to at-risk populations in particular? And, if you could, 
give us some idea of how you are measuring progress. 

Secretary Shalala. Let me get back to you on that. Let me pro- 
vide the details for the record. 

But we are generally moving towards each of the goals that we 
outlined, and we have different strategies for different goals, par- 
ticularly for, for instance, reducing the number of deaths from 
breast cancer. We showed the first progress this year in the statis- 
tics. They didn't show up as high for minority women, which has 



127 



been retargeted by us as one of our goals that we have to work 
harder on. But for each of the goals that we laid out, there is a spe- 
cific strategy, and we can show progress generally for each of those 
goals. 
[The information follows:] 



128 



PHS - Healthy People 2000 

As Healthy People 2000 approaches the midpoint of the decade, 
progress has been made on nearly half of the objectives, 15 percent 
are moving away from their targets, and 4 percent show no change. 
The remaining objectives need additional data for evaluating 
progress. Additional information follows: 

► Healthy People 2000 is defined by 3 broad goals — 

• To increase the span of healthy life for Americans; 

• To reduce health disparities among Americans; and 

• To achieve access to preventive services for all 
Americans. 

► In 1994, the National Center for Health Statistics (NCHS) began 
an annual publication the Healthy People 2000 Review. This new 
publication will provide a comparison of U.S. health status 
with the goals established for the yeeu: 2000. 

• The first "Review" published in June 1994 provided 1992 
data. 

• The next publication with 1993 data will be published in 
June 199S. 

► To date, the following goals already have been exceeded: 

• increasing physical activity /fitness — low income persons 

• reducing use of cocaine by teens and young adults 

• reducing foodborne illness from salmonila 

• reducing Hepatitis B and C infections 

► The following need additional attention: 

• overweight adults in the U.S. 

• weapon-related deaths 

• occupational injuries for full time workers 

• children under S not receiving annual dental visits 

• adults without access to primary care 

► Healthy People 2000 includes 22 priority areas which each 
include a multiple set of goals for the Year 2000. A table 
follows which portrays our progress in achieving selected goals 
within these priority areas. 



129 



HEALTHY PEOPLE 2000 GOALS AND PROGRESS 



Priority Areas 



1991 

or 

1992*» 



Year 2000 
Taiset 



Difference 



Goal Met/or 
Exceeded 



1 . Phytical Activity/ntoeu 
(Percent Increaie) 

Penoni 18-74 yean 

Low Income 18-74 Yean., 

2. Nutrition 
(Percent Decrease) 
Overweight adulu 



3. Tobacco (per 100,000) 
(Death rate for lung cancer) 
All penoni 



4. Alcohol/Other Dnigi 
(Reduce uie w/in paM month) 
Alcohol 

12-17 yean 

18-20 yean 

Marijuana 

12-17 yean 

18-25 yean 

Cocaine 

12-17 yean 

18-25 yean 



Family Planning 
(Adoleicent abstinence 15-17 
yean) 

Ever Kxually active girl* 

Ever aexually active boys 



6. Mental Health (per 100,000) 
(Suicide Death Rates) 

All persons , 

7. Violent & Abusive Behavior 
(Weapon-related death rates) 
All weapons 



8. Community-Based Programs 
(Yean of healthy life) 
All persons 



9. Unintentional Injuries 
(Rate per 100,000) 

All persons 

10. Occupational Safety/Heahh 
Non-fttal injuries (per 100) 
Full time worken 



12% 

7% 



26% 



38.5 



25.2% 
57.9% 



6.4% 
15.5% 



1.1% 
4.5% 



24% 
33% 



11.7 



64.0 



34.7 



7.7 



14% 
13% 



34% 



39.6 



15.7% 
50.3% 



4.0% 
11.0% 



0.3% 
1.8% 



25% 
36% 



10.9 



29.2 



8.3 



20% 
12% 



20% 



42.0 



40% 
40% 



10.5 



12.6 



75.4 



29.3 



-6% 
+ 1% 



-2.4 



12.6% 


+3.1% 


29.0% 


+21.3% 


3.2% 


+0.8% 


7.8% 


+3.2% 


0.6% 


-0.3% 


2.3% 


-0.5% 



-15% 
-4% 



+0.4 



-11.4 



-0.1 



Progress 

Exceeded 



Lost Ground 



Progress 



Progress 
Progress 

Progress 
Progress 

Exceeded 
Exceeded 



Progress 
Progress 



Progress 



Lost Ground 



Baseline year is 1985 in most yean. 
Latest Dau Available. 



130 



HEALTHY PEOPLE 2000 GOALS AND PROGRESS 



Priority Aicm 


1985* 


1991 

or 

I992»« 


Year 2000 
Taixet 


Difference 


Goal Mel/or 
Exceeded 


1 1 . Eovirofunenlal Health 
(Percent Increaie of People 
living in countries with 
clean air) 
Any PoUutant 


49.7» 


78.4% 


85.0% 


+6.6% 




12. Food and Drug Safety 
(Caaei per 100,000) 


18 
66.0% 


14 
63.0% 


16 
90.0% 


-2 
-27.0 


Exceeded 
Lost Ground 


13. Oral Health (Percent) 
Children under S who viiited 
the dentist w/in past year 


14. Maternal and Infant Health 
(Percent of live biiths w/ 
mothers receiving prenatal 
care in first trimester) 
All races 


76.0« 
30.4% 


76.2% 
26.1% 


90.0% 
20.0% 


-13.8% 
+6.1% 


Progress 
Progress 


15. Heart Disease/Stroke 
(Death rate per 100,000) 
All persons 


16. Cancer 

(Death rate per 100,000) 
Female Breast Cancer 


23.0 


22.7 


20.7 


20.6 


Progress 


17. Diabetes & Chronic 
Conditions 
(Death rates per lOO.OOC)) 


38 
49 


38 
87 


34 
98 


+4 
-11 


No Change 

Incon- 
clusive 


18. HIV Infection 
(Cases in thousands) 


19. Sexually-Transmitted Diseases 
(Cases per 100.000) 
Syphilis/ All persons 


18.1 


13.7 


10.0 


+ 3.7 


Progress 


20. Immunization/Infectious 
Disease (Cases per 100,000) 

Hepatitis B 

Hepatitis A 

Hepatitis C 


63.5 
33.0 
18.3 


37.7 

27.2 

5.6 


40.0 
23.0 
13.7 


-2.3 
+4.2 
-8.1 


Exceeded 
Progress 
Exceeded 


21 . Clinical Preventive Services 
(Percent of Adulu) 


82% 


79% 


95% 


-16% 


Lost Ground 


22. Surveillance & DaU Systems 
(Percent of States) 
Complete Year 2000 plans.... 


77% 


99% 


100% 


-1% 


Progress 



* Baseline year is 1985 in most years. 
** Latest Data Available. 



131 

HEALTH CARE REFORM 

Mr. Stokes. Let me move to another area. 

There appears to be a significant move towards health care re- 
form in some State and local jurisdictions around the country. Just 
recently you have granted a waiver in terms of the utilization of 
Medicaid funds to the State of Ohio, a plan called OhioCare. 

To what degree are we finding now that this type of health care 
reform is taking place at local levels? To what degree are Medicaid 
waivers being granted? 

Secretary Shalala, About a quarter of the States have started 
conversations or concluded conversations with us regarding waiv- 
ers. What most of them are trying to do is either move their Medic- 
aid populations into managed care, or take the resources they are 
currently getting for Medicaid or resources they are using for 
match or additional resources and trying to cover a larger popu- 
lation, particularly the working poor, in a more flexible manner, or 
trying to just cover children of working poor parents. 

In Tennessee, for example, it was the goal of the State to actu- 
ally cover the population that was working that had no health in- 
surance. They moved into the 90 percent, in terms of total coverage 
for people in the State, and they did this by moving people into 
managed care. 

The huge increase in managed care, in the movement of Medic- 
aid recipients into managed care, is in fact as a result of waivers. 
As you know, one of the first waivers we agreed to was in Oregon, 
and the goal there was to enroll more people and to cover more 
people with health insurance using the Federal resources in more 
imaginative ways. 

I think that basically it is fair to say what the governors are try- 
ing to do is a combination of getting more cost containment, but at 
the same time, some of them are actually trying to use their re- 
sources more effectively to cover low-income workers, particularly 
as it fits with their programs for welfare reform. 

Mr. Stokes. Is the Department monitoring these programs very 
closely in order to assure that the population can be served. These 
are the poorest of the poor, are they being adequately served? 

Secretary Shalala. Yes. As part of our arguments or negotia- 
tions with the States, we have insisted on building in very careful 
monitoring and evaluations. These waivers are to demonstrate that 
we can do something better, and to test new ideas; and therefore, 
in each one of these waivers, we have built in evaluations and mon- 
itoring so that we can come back and report to you, for example, 
the impact in Cuyahoga County or the OhioCare approach. 

So that is built in so that we can report back to Congress on the 
effect of the waivers. 

welfare reform 

Mr. Stokes. Let me ask you about welfare reform, if you have 
had a chance to see whatever proposal is being proposed through 
the Contract With America, as opposed to an approach supported 
by the Administration. What should we be concerned about here 
with reference to what you have seen? 



132 

Secretary Shalala. With reference to what I have seen, as you 
know, the Ways and Means Committee has gone through a number 
of drafts, and they have moved from the original Contract proposal. 
From what I have seen, what is being proposed is not welfare re- 
form; it is budget cutting. It is weak on work. 

The President insisted that there be strong work requirements. 
The work requirements in the bill that Ways and Means passed in 
fact allow you to count towards a 17 percent work requirement for 
the States people that have simply been thrown off the system, not 
people that have been helped to get work. 

Second, there are no education and training resources available. 

Third, child care is cut. It is unrealistic to expect young mothers 
to get into the work force unless child care is there in place. 

Finally, the proposals are very tough on children. Large numbers 
of children are excluded from cash assistance in the program. Chil- 
dren born to mothers who are under 18 are excluded until the 
mother reaches 18. Without child care, we are talking about chil- 
dren of people who are expected to go to work being left perhaps 
in unsafe situations. 

So on the President's two major goals — a goal of making sure 
that people actually have an opportunity to move from welfare to 
work, and that there are real work standards and accountability; 
and on how the program affects children — it meets neither of our 
tests. 

Finally, on child support enforcement, to be fair, I think we are 
close to having something with bipartisan support. Although we 
are deeply concerned with one of the major recommendations. We 
strengthen the States' hand by going after deadbeat parents, allow- 
ing them to get rid of drivers' and professional licenses. That piece 
has been left out of the bill. 

You know the cuts in Food Stamps. When you actually look at 
the bill, it is a bill to take $60 billion out of the safety net in this 
country, and by moving to block grants. It is not a bill that anyone 
with any kind of expertise in the field would describe as welfare 
reform. 

There would be no accountability to the Secretary of HHS. If that 
bill passes a taxpayer could not call me up and ask me about what 
is going on in Ohio, because it restricts the Secretary of HHS from 
providing an oversight function. This means my mother, a taxpayer 
in Cleveland, will not be able to ask me how her money is being 
spent in Wisconsin for welfare reform because we won't be respon- 
sible for conducting the kind of oversight that taxpayers would 
expect. 

Mr. Stokes. Thank you. Madam Secretary. 

Thank you, Mr. Chairman. 

Mr, BONILLA [presiding]. Thank you, Mr. Stokes. Mr. Istook. 

hiv/aids cases 

Mr. ISTOOK. Thank you, Mr. Chairman. 

Secretary Shalala, I wanted to ask, in your testimony, you have 
the statement, roughly 40 percent of the more than 440,000 AIDS 
cases reported since 1981 were reported in 1993 and 1994. And cer- 
tainly we all know that AIDS is a serious, debilitating disease, and 
we want to halt the spread of that. 



133 

From your testimony, saying that about 40 percent of the 
440,000 cases, you are saying approximately 176,000 cases of AIDS 
were reported in 1993 and 1994. As you state in your testimony, 
you are trying to stress that AIDS is spreading rapidly. 

However, a publication from your Department, which is from the 
Public Health Service Centers for Disease Control and Prevention, 
part of HHS — and this is the February 3rd, 1995, Morbidity and 
Mortality Weekly Report — indicates that of the increase which you 
speak of, most of those were due to a change in the definition, not 
to a change in the incidence of AIDS. 

I cite from this report, "During 1994, there were reported to CDC 
80,000 cases of acquired immunodeficiency syndrome, AIDS, among 
persons in the United States, which followed the 106,618 cases re- 
ported in 1993. The number of cases reported in each of these years 
was greater than that reported in 1992, which was 47,572, and fol- 
lowed the expansion of the AIDS surveillance case definition." 

Now, Secretary, you are telling this committee that roughly 40 
percent of the AIDS cases were reported in 1993 and 1994, which 
is an increase, according to your testimony, of 176,000 cases, but 
102,000 of those, according to the Centers for Disease Control, were 
reported due to a change in the definition. I am disturbed by the 
use of that change in definition to try to change public perception 
about AIDS as the leading cause of death among this group or that 
group, or the incidence of it. 

I would be interested and would ask to see all the news releases 
that have been put out by your office regarding the incidence of 
AIDS to see if you are correctly reporting in your public statements 
that most of this is due to a change in definition, not to an increase 
in the incidence. In fact, as it states in this report, the incidence 
of reported AIDS cases declined in 1994 by some 20,000, down from 
106,618 to 80,691. 

Can you tell me, Secretary Shalala, why you were not more care- 
ful not to be misleading in your statements regarding the incidence 
of AIDS? 

Secretary Shalala. I think we have, since the redefinition, been 
careful in our statements about AIDS. 

Mr. ISTOOK. You were not in your testimony today. 

Secretary Shalala. I would be happy to provide you with any 
press releases from the CDC, which is where the press releases 
come from on this subject. 

Mr. ISTOOK. I am interested in those from your office, Ms. 
Shalala. I would like to see what you are saying and whether you 
were accurately reporting to the public that this is a change in 
definition. 

Secretary Shalala. I would be happy to provide you with that 
information. 

[The information referred to was supplied and has been retained 
in committee files.] 

Mr. ISTOOK. I would appreciate that. 

But I still don't understand why you were telling this committee 
about an increase in AIDS and trying to dramatize increases when 
actually the reports from CDC show fewer cases and that the in- 
crease you talk about is due to a change in the definition. 



134 

Secretary Shalala. Mr. Istook — I have my chart on the cost of 
AIDS, let me talk about it in a slightly different way. 

Mr. Istook. Could you tell me why your testimony doesn't tell 
us the true facts? 

Secretary Shalala. First of all, I deny that my testimony is inac- 
curate. Second, since I don't have the CDC report 

Mr. Istook. It may be accurate, but it is misleading. 

Secretary Shalala. Let me make sure I see what you are read- 
ing from and that we take a look at it. There is no intent to mis- 
lead you about the importance of our investment in AIDS and what 
is happening in this country in terms of the impact of AIDS on the 
Federal budget, its health costs to this country, or the fact that it 
still is a growing infectious disease. 

Mr. Istook. I presume you want to shift the emphasis to your 
spending rather than addressing my question, which is why you 
present misleading statistics to us. 

Secretary Shalala. Mr. Istook, it is difficult for me to address 
something when you are just presenting me with the statistics. I 
would be happy to provide that after we take a careful look at it 
for the record. 

Mr. Istook. I am reading from a publication issued by your 
Department. 

Secretary Shalala. I understand that. Let me make the point 
that the growth in the discretionary budget of the Department, and 
that is our commitment to AIDS services as well as to AIDS re- 
search, is about $2.9 billion, while the growth in expenditures of 
entitlements related to AIDS continues to grow because of the ill- 
ness and our need to spend money on people who are g-^nuinely 
sick from the illness. The point I think we want to make is that 
we have a significant health risk out there and a significant infec- 
tious disease. We are just beginning to learn about it, and we must 
continue to provide investment both in the research as well as in 
the services. And that was the point we are trying to make as part 
of this testimony. 

But I would be happy to look at the points you have made, and 
to review them, and if I need to make any corrections, I would be 
happy to do that. 

[The following information was provided subsequent to the 
hearing:] 



135 




THE SECRETARY OF HEALTH AND HUMAN SERVICES 

WASHINGTON, DC ?0201 



MAR 2 8 IS95 



The Honorable John E. Porter 

Chairman 

Subcommittee on Labor, Health and Human Services 

and Education 
Committee on Appropriations 
House of Representatives 
Washington, DC 20515 

Dear Mr. Chairman: 



During my appearance before your Subcommittee on March 8, 1 995, I offered to 
provide the Subcommittee with additional information regarding the status of the AIDS 
epidemic. I ask that this response be included in the record of the Subcommittee's 
hearing. 

Since the AIDS epidemic began in 1981, we have seen strong bipartisan support for an 
aggressive national response that includes research,, prevention, and services for people 
living with AIDS. Because of its impact on American society, AIDS remains one of our 
highest public health priorities. 

During my testimony before the Subcommittee, I said that there have been more than 
187,000 cases of AIDS reported in the United States in the last two years, representing 
more than 40 percent of the total cases reported since 1981. Congressman Istook noted 
that the number of cases reported in 1994 was lower than the total reported in 1993 and 
questioned whether the AIDS epidemic is accelerating or receding. Let me explain. 

From 1981 to 1993, the Centers for Disease Control and Prevention (CDC) defined AfDS 
cases by a list of 23 conditions, including the presence of one or more opportunistic 
diseases such as Kaposi's sarcoma or Pneumocystis carinii pneumonia. These illnesses 
are very severe, requiring hospitalization and often resulting in death. 

The problem was that this definition captured only the people who were most severely 
ill. Many people who were not as sick but still in need of care were not being 
identified. These people also need drugs and other forms of treatment to prevent the 
severe illnesses that require hospitalization. In 1992, CDC began consulting with 
epidemiologists and other medical experts, and subsequently changed its definition on 
January 1, 1993 to include two additional infections, one malignancy, and the presence 
of fewer than 200 CD4 cells per cubic milliliter of blood (a measurement indicating a 
highly compromised immune system). 



136 



Page 2 - The Honorable John E. Porter 



The expansion in CDC's case definition caused an expected, one-time surge in the 
number of cases reported in 1993. This occurred when the backlog of people who were 
already infected but had not been previously classified as having AIDS were added to the 
total. More than 106,000 AIDS cases were reported in 1993, and about 81,000 were 
reported in 1994. Both the 1993 and 1994 totals exceeded the approximately 47,000 
cases reported in 1992 (under the pre-1993 definition). 

Because of the change in the case definition, trends in the epidemic cannot be 
determined by comparing numbers of reported cases by year. Rather, AIDS trends are 
best examined by comparing the time when cases are diagnosed. Progression of disease 
from a low CD4+ count {new definition) can occur within a year. Therefore, CDC 
researchers have conducted analyses of new AIDS diagnoses applying a consistent case 
definition over time. Using the consistent case definition, the number of people 
diagnosed with AIDS increased at a rate of about three percent per year from 1992 
through 1994. AIDS is clearly not receding. 

AIDS-related deaths also continue to grow, with an estimated 40,000 Americans 
succumbing in 1994. Recently, the CDC reported that AIDS is now the leading cause of 
death among Americans between the ages of 25 and 44. Many of these young people 
were likely infected in their teens and early 20s, before our research and prevention 
efforts were offering the hope they do now. Our national investment in research, 
prevention, and services has helped to stem the tide of AIDS. 

Prevention efforts - by the government and by community organizations - are working, 
but it is now clear that the United States faces not one, but several AIDS epidemics. 
Today, the epidemic among older homosexual and bisexual men has leveled, reflecting 
in part, the effect of sustained, targeted prevention efforts. But researchers at the 
National Cancer Institute estimate that one-quarter of all new infections occur among 
young people under the age of 22, and fully one-half of new infections occur among 
people under 25. National Cancer Institute researchers also have shown that the time 
from infection to AIDS in these younger persons is longer than in older persons. Thus, 
the size of the "HIV iceberg" is growing and these are AIDS cases that have yet to be 
diagnosed. The proportion of cases among heterosexual men, women, racial and ethnic 
minorities, and children continues to increase. Stemming the epidemic in these groups 
requires continued, intensified and targeted prevention efforts. 

A decade ago, our understanding of HIV and its effect on the human body was relatively 
limited. Today, we not only know a great deal about the AIDS virus, we have 
developed several drugs that treat and prevent AIDS-related conditions. This has helped 
to extend and improve the lives of thousands of Americans living with this disease. In 
the past year alone, researchers have discovered the first evidence that drug therapy can 
actually block HIV transmission. NIH is also at work on a new class of protease 
inhibitor drugs that are more effective at preventing viral replication than are such drugs 
as AZT, DDI, and DDC. 



137 



Page 3 - The Honorable John E. Porter 



A decade ago, AIDS was threatening to overwhelm our public health infrastructure and 
AIDS-related costs averaged $150,000 to $180,000 per patient. Today, thanks to 
advances in management of HIV infection and to the Ryan White CARE Act, we have a 
comprehensive continuum of care that keeps AIDS patients out of hospitals and in better 
health, driving costs down. 

All of this we have achieved together. The President's Fiscal Year 1996 budget proposes 
to sustain this progress by increasing the public health investment in AIDS-related 
programs by seven percent. I look forward to working with members of your 
Subcommittee to secure the necessary funding to continue our fight against this 
epidemic. 



Sincerely, 




'Donna^. Shalala 



138 

Mr. ISTOOK. And again, as I state, the publication from your De- 
partment shows that the reported cases decHned by over 20,000, 
down from 106,000 to 80,000, in 1993 to 1994. 

[The following information was provided subsequent to the 
hearing:] 



139 



Hi^EH 



Surveillance Report 



U.S. HIV and AIDS cases reported through December 1994 



Year-end Edition Vol. 6, No. 2 



AIDS incidence, and estimated AIDS-opportunistic illness incidence, 
adjusted for delays in reporting, by quarter-year of diagnosis, 
January 1986 through June 1994, United States^ 



2^.000- 



20,000- 



2 15,000- 



3 10.000- 



5.000- 



/ 



-M 



AIDS incidence (top curve) Is 
distorted due to the expanded 
AIDS surveillance case definition. 



1993 definition 
Implementation 




Estimated AIDS-opportunistic illness Incidence 
(bottom curve) more accurately depicts trends In 
severe clinical AIDS incidence. 



1986 I 1987 I 1988 ' 1989 ' 1990 ' 1991 ' 1992 ' 1993' ' 1994 

Quarter-year of diagnosis 

'See Technical Notes. 



Acquired Immunodeficiency syndrome (AIDS) Is a specific group of diseases or conditions which are 
indicative of severe Immunosuppression related to infection with the human Immunodeficiency virus (HIV). 




U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Public Health Service 

Centers for Disease Control and Prevention 

Natibnal Center for Prevention Services 

Division of HIV/AIDS Prevention 

Atlanta, Georgia 30333 



CENTERS FOn DISEASE 



140 



Summary of findings 



Trends in AIDS surveillance 

Implementation of the expanded AIDS surveil- 
lance case definition on January 1, 1993, continued 
to influence diagnosis and reporting of AIDS in 1994, 
but to a lesser degree thian in 1993. Thie number of 
AIDS cases reported in 1994 (80,691) declined from 
the number reported in 1993 (106,618), but 
remained substantially higher than the number 
reported in 1992 (47,572; see MMWR 1995;44:64- 
67). The expanded case definition includes condi- 
tions that occur earlier in HIV disease and therefore 
includes severely immunosuppressed persons more 
recently infected with HIV. Persons diagnosed with 
these conditions before January 1 993 were reported 
to CDC during 1 993 and 1 994, and accounted for the 
substantial increase in the numbers of reported 
cases. Because temporal trends in AIDS incidence 
for 1993 and 1994 were distorted by these large 
proportionate increases, methods were needed to 
adjust for the change in the case definition. This 
issue of the HIV/AIDS Surveillance Report presents 
hese adjustments (Tables 18, 19, and 20, and the 
cover graph), as well as data on HIV and AIDS cases 
reported in 1993, 1994, and cumulatively 

In 1994, as in previous years, the AIDS epidemic 
continued to affect primarily men who have sex with 
men. Men represented 82 percent of AIDS cases 
reported among adults/adolescents (13 years old or 
older); men who have sex with men continued to 
account for the largest proportion (44 percent) of all 
cases reported among adults/adolescents. The esti- 
mated incidence of AIDS-opportunistic illnesses 
(AIDS-Ols) increased 13 percent from 1990 to 1993 
among men who have sex with men (Table 20). 

In 1994, young men represented a population at 
high risk for HIV. Among men 20 to 24 years old 
reported with AIDS, 60 percent reported sex with 
men. This percentage is higher than the percentage 
of men who have sex with men among all men 
reported with AIDS (53 percent). Heterosexual 
injecting drug users and injecting drug users who 
have sex with other men accounted for 24 percent 
and 6 percent of cases among men, respectively. 

The proportion of cases among women has 
increased steadily during the past decade (MMWR 
'995;44;81-84 and erratum MMWR 1995;44;135). 
AIDS among women represented 18 percent of 



adults/adolescents with AIDS reported in 1994. 
Among women reported with AIDS in 1994, most 
were infected with HIV through injecting drug use (41 
percent) or heterosexual contact with a man who was 
at risk for or had HIV infection or AIDS (38 percent). 
Nineteen percent of women with AIDS were reported 
without risk for HIV exposure. These cases will be 
investigated by state and local health departments. 
Most women initially reported without a risk are found 
to have become infected through heterosexual con- 
tact (66 percent) or injecting drug use (27 percent; 
see Figure 7). However, some of the cases reported 
without risk of HIV exposure are likely to represent 
unrecognized heterosexual transmission. Among 
women, estimated AIDS-OI incidence is increasing 
most rapidly among those infected heterosexuatly 
(Table 20). 

The epidemic in children (less than 13 years old) 
is closely associated with the epidemic in women. In 
1994, 1,017 pediatric AIDS cases were reported, an 
8 percent increase from the number reported in 
1993. Of these, 92 percent were acquired perina- 
tally; the mothers of these children were exposed to 
HIV through injecting drug use (30 percent) and 
heterosexual contact with an infected man (36 per- 
cent). For 34 percent of mothers, their risk of expo- 
sure was not reported. Future trends in AIDS 
incidence among children will be affected by current 
Public Health Service recommendations for routine 
counseling and voluntary prenatal HIV testing for 
women, and the use of zidovudine to prevent perin- 
atal transmission (MMWR 1 994;43[no. RR-1 1 ]:1 -20). 

Estimated AIDS-OI incidence increased more rap- 
idly during 1990-1993 among blacks and Hispanics 
than among whites (Table 19). Among reported 
cases, 1994 was the first year when blacks and 
Hispanics together accounted for the majority (53 
percent) of all cases reported among men. As in past 
years, most women reported with AIDS were black 
or Hispanic (57 percent and 20 percent, respec- 
tively). Although AIDS surveillance case reports do 
not record measures of socioeconomic status, or 
other social/cultural factors that may predict risk of 
exposure to HIV, the disproportionate impact of the 
epidemic on minority communities is reflected in 
AIDS incidence rates which are 6 times and 3 times 
higher, respectively, among blacks and Hispanics 
than among whites. 



Vol.6, No. 2 



HIV/AIDS Sun/eillance Report 



141 



From 1990 to 1993, the estimated incidence of 
AIDS-Ols increased in tine Northeast and South, 
whereas it leveled in the Midwest and West (Table 
18). The majority of reported cases (58 percent) in 
1994, as in previous years, were residents of five 
states: New York, California, Florida, Texas, and New 
Jersey In both 1993 and 1994, 84 percent of 
reported cases were among residents of large met- 
ropolitan areas (500,000 or more population). 



HIV infection (not AIDS) 

As of December 31, 1994, 25 states required 
confidential reporting by name of all persons with 
confirmed HIV infection, in addition to reporting of 
persons with AIDS. Two states, Connecticut and 
Texas, required reporting by name of children with 
HIV infection. Consistent with the temporal changes 
in the characteristics of persons reported with AIDS, 
persons reported with HIV infection (not AIDS) from 
states that require confidential reporting are dispro- 
portionately racial/ethnic minorities, younger, and 
female. Although HIV reporting does not measure 
HIV incidence or prevalence, these reports represent 
persons who are more recently Infected and more 
likely to be alive than persons reported with AIDS; 
thus HIV reporting may be particularly useful in 
directing and evaluating HIV prevention activities 
within stales and local communities. In these states, 
reports of children perinatally exposed to HIV (with 
subsequent follow-up to determine infection status) 
will be useful in evaluating implementation of guide- 
lines to prevent perinatal transmission. 



This issue of the HIV/AIDS Surveillance Report 
includes a new table (Table 24) that displays pediatric 
HIV infection (not AIDS) cases by exposure category 
and race/ethnicity In addition. Table 27 has been 
revised to tabulate persons living with HIV infection 
(not AIDS) and living with AIDS by adult and pediatric 
age group, as well as by state. 



Summary 

Data presented in this report show that men who 
have sex with men continue to be most severely 
affected by the AIDS epidemic. However, compari- 
sons between AIDS cases reported in 1994 and in 
earlier years, and temporal trends in estimated AIDS- 
Ol incidence, indicate that women, blacks and His- 
panics, and persons with heterosexually acquired 
HIV infections account for dynamic growth in the 
epidemic. Injecting drug use and sex with at-risk 
partners, especially among heterosexuals and 
young homosexual/bisexual men, continue to chal- 
lenge HIV prevention programs. As the epidemic 
evolves, HIV/AIDS surveillance data continue to 
reflect past transniission patterns, and to assist in 
directing HIV prevention efforts. 



HIV/AIDS Surveillance Report 



Vol.6, No. 2 



142 



SSI PAYMENTS 



Mr. ISTOOK. I would like to ask you, certainly you touched upon 
the Social Security and SSI programs. There is a lot of controversy, 
of course, over the SSI program when it comes to school-age chil- 
dren. Many, of course, receive SSI checks for what amounts to be- 
havioral disorders or what is categorized as a disability. 

There has been a lot of publicity of late talking about how some 
people in the public who receive those checks refer to them as 
"crazy checks" that they receive because of the misbehavior of their 
children. I would like to ask your viewpoint regarding whether we 
should discontinue disability checks to adolescents whose reason 
for receiving those SSI checks is a behavioral disorder. 

Secretary Shalala. That is too sweeping of a generalization. 
What we need to do is to review what our definition is of "disabil- 
ity" and who is eligible. What we have done as a result of both in- 
quiries, on our own as well as congressional inquiries, is two 
things: number one, to put the disability programs under an agen- 
cy, an intergovernmental agency review; and two, to appoint a com- 
mission requested by Congress in the Social Security Independence 
Act to take a look at the issue of disability and disability defini- 
tions and the relationship to children. 

I have asked former Congressman Jim Slattery to chair that re- 
view. So rather than answering the question about whether behav- 
ioral disabilities should be eliminated or what should the defini- 
tions be, I would prefer to wait until the Slattery Commission has 
reported. 

Mr. ISTOOK. What is your time frame on that? 

Secretary Shalala. He was going to report by the end of the 
year. We obviously don't have time until the end of the year, and 
Congressman Slattery and his bipartisan commission is doing it as 
quickly as they can. I expect to have an interim recommendation. 
By the way, the recommendation will come directly to Congress, be- 
cause that is the way the legislation was set up. He should have 
some things to say in the next two or three months. 

Mr. ISTOOK. But you are withholding your personal judgment at 
this time? 

Secretary Shalala. I am withholding my position, although we 
have worked with Congress for some limitations in relationship to 
nonadolescents, to drug and substance abuse. We have recognized 
that there is serious concern, and we have some concerns about the 
program. We would like is a careful look. 

HEAD START 

Mr. ISTOOK. Finally, regarding Head Start, I have certainly seen 
reports that tend to indicate that the differentiation between a 
child who has participated in Head Start and one who has not 
tends to fade — I think the ones I have seen seem to indicate that 
that fade, of the difference, may be around the third grade. 

I would be interested in receiving reports, pro and con, because 
I am sure you have them on both sides, as to how long the benefits 
of Head Start may actually endure. I would appreciate receiving 
that; and of course, I would like to hear your comments about the 
reports indicating a fading effect. 



143 

Secretary Shalala. There has been considerable research on this 
issue. There is evidence of a fading effect, but that says more about 
the school system than it does about the Head Start program. The 
research seems to show that after enriching the early childhood 
years of children, particularly of disadvantaged children, if they 
then go into a weak school system, the effects of those early invest- 
ments begin to lose their impact. What it says to all of us is that 
the Head Start program and elementary school programs have to 
be seamless in the sense that they all have to be stronger if we are 
going to continue the positive effects of the Head Start program. 

We would be happy to provide you with the citations and with 
the research on this subject. 

[The information follows:] 



144 



Benefits of Head Start 

Prior to the 1994 reauthorization of Head Start, we formed a 
bipartisan Advisory Committee to provide a comprehensive review of 
the program and make recommendations for improvements and expansion. 
The 47-merober Advisory Committee included a number of research 
experts in the fields of child development, education, and health. 
Their report entitled Creating a 2 let Century Head Start reviews the 
adequacy of the research base on Head Start and summarizes the 
evidence for short- and long-term impacts of Head start and other 
early childhood programs. We are providing the Committee with the 
report which includes an extensive set of research citations. 

The Advisory Committee found that evidence from two somewhat 
different sources has been brought to bear on questions of Head 
start's effectiveness: studies on Head Start and large scale studies 
of experimental early childhood demonstration programs. Both kinds 
of studies help give us an understanding of Head Start's 
effectiveness . 

Head Start has a positive impact on school readiness. Studies 
of Head Start programs indicate positive effects on children's 
cognitive skills, self-esteem, achievement motivation and social 
behavior. Head Start has also been shown to have a positive impact 
on parent-child relationships, child health, and community services. 
Finally, Head Start has had a strong impact on the training and 
employment of parents. More than one-third of Head Start staff are 
current or former Head Start parents. 

Longitudinal studies on children who have participated in 
experimental programs indicate that high quality child development 
programs show less grade retention, less placement in special 
education classes and other long term benefits. Although these 
studies are not necessarily conducted on Head Start programs, they do 
appear to indicate that high quality Head Start programs can have 
similar long term results. 

Effective schools also play a critical role in promoting the 
developmental success of children from all economic backgrounds. 
Children from economically disadvantaged backgrounds are less likely 
to have the opportunity to attend effective schools. There is an 
extensive literature on the effects of economic disadvantage and the 
quality of children's school experiences on students' achievement. 
Key references include: 

• Comer, J.P (1988). Educating Poor Minority Children. 
Scientific American . 259(5), 42-48. 

• Entwisle, D.R. & K.L. Alexander (1993). Entry Into 
Schools: The Beginning School Transition and Educational 
Stratification in the United States. Annu. Rev. Sociol. 
19, 401-423. 

• Slavin, R.E., N.L. Karweit, and B.A. Wasik (1992/1993). 
Preventing Early School Failure: What Works? Educational 
Leadership . 50, 10-18. 

• Weikart, D.P, (1989). Quality Preschool Programs: A Long- 
term Social Investment. New York, New York: Ford 
Foundation. 



145 

Mr. ISTOOK. Thank you, Secretary. 

Thank you, Mr. Chairman. 

Mr. BONILLA. Thank you, Mr. Istook. 

Mr. Hoyer. 

Mr. HOYER. Think how much easier it will be to have a seamless 
system if we were jointly located. 

Secretary Shalala. I was waiting for you to say that. 

Mr. Hoyer. I was going to mention that at the end, but when 
Secretary Riley was here, we talked about the language included 
in the bill last year, before the study of how the three departments 
that are most involved — ^yours, Secretary Riley's, and Secretary 
Reich's — could coordinate services in a family and child center. Can 
you address that, as to how you believe that is proceeding? 

I know that the Department of Education, of course, has taken 
the lead on that, but you are participating along with Secretary 
Reich. Can you comment on that? 

Secretary Shalala. Yes. Last year, in the reauthorization, there 
were significant provisions in linking Head Start and the schools. 
All Head Start programs are required now to help facilitate the 
transition of children from Head Start to elementary school. I think 
Secretary Riley has given you a letter — at least I have seen the 
draft of the letter on behalf of all of us — that shows you all of the 
things that we are doing. 

For example, we have Head Start transition programs in 32 com- 
munities in partnership with Title I now. We are linking those 
early childhood programs, the special ed programs, the bilingual 
education programs. We expect this demonstration to end in 1996, 
and we should have some clear findings for it. We have doubled the 
Head Start transition activities to support our local Head Start of- 
fices' ability to do the transition. 

We are monitoring those programs. We have more cooperative 
agreements. There is a lot of activity going on out there to try to 
make sure that the Head Start agencies, which have been tradi- 
tionally more isolated from the mainstream of the school system. 
We want to make it very clear to them that if we are going to 
eliminate some of that phasing-out of impacts, what we are going 
to have to do is make sure there is a better fit and better coordina- 
tion between the programs. 

There are a lot more Head Start programs locating close to, or 
in, or as part of a school system as a result of this. 

Mr. Hover. Madam Secretary, do you have a point person? I 
know Dr. Payzant indicated they have a point person who, I guess, 
is coordinating it for DOE's purposes. 

Secretary Shalala. I am sure I do. I will be happy to provide you 
with that. 

[The information follows:] 

Integrating Head Start Children 

Helen Taylor, Associate Commissioner of the Head Start Bureau is our point per- 
son for linking Head Start Services with schools and coordinating with Education 
and Labor programs. 

Mr. HOYER. Mr. Bonilla anticipated a question I was going to 
ask. 



146 

How many Head Start grantees do we have now? Do you have 
that figure with you? 

Secretary Shalala. I do. 

Mr. HOYER. It is about 1,100, I guess. One hundred and twenty- 
five is the troubled programs, and that is about 10 percent. 

Secretary Shalala. The number of grantees in 1995 will be over 
1,425. The number of children will be approximately 752,000. 

Mr. HOYER. That is 752,000 out of a projected eligible population 
of 

Secretary Shalala. 1.2 million. 

Mr. HOYER. So about 50 percent at this point in time, a little 
more? 

Secretary Shalala. That is about right. 

Mr. HOYER. You indicated there were 125 troubled programs that 
have been identified; is that correct? 

Secretary Shalala. Yes. 

Mr. HOYER. And of that, you mentioned a figure, 68, but I didn't 
get what the 68 was. Seven grantees canceled; I got that. 

Secretary Shalala. Sixty-eight Head Start programs have im- 
proved to a satisfactory level through our technical assistance; 
seven have been terminated. Our regional office staff is continuing 
to work with 50 programs to help them improve their programs. 

We did a lot of technical assistance to bring up the quality of the 
programs. 

Our view now is that 90 percent of the Head Start grantees are 
at or above the standards that we set. We went after every sub- 
standard grantee. 

Mr. HoYER. The seven are the first grantees that have ever been 
canceled? 

Secretary Shalala. As far as I know. And the word is out there. 
Congressman Hoyer. 

Mr. Hoyer. My objective, of course, is not to cancel grantees. It 
is to get the word out there so that grantees will start performing. 

Let me ask you about the zero-to-three initiative. I want to com- 
mend you for convening the zero-to-three advisory group and devel- 
oping clear performance standards. The reauthorization required 
you to issue an RFP by December 1994, December 30th. I under- 
stand that has not been done. 

Secretary Shalala. Congress required we develop the program 
guidelines by September 30th, and we did develop the guidelines, 
and the program announcement has been completed. We will pub- 
lish in the Federal Register this month, and we will fund the pro- 
grams this summer. 

Mr. Hoyer. Last question 

Secretary Shalala. Let me say that we went a little bit more 
slowly than we would have liked, but we wanted to use the work 
of the advisory committee on infants and toddlers. We have had the 
world's greatest experts working with us. It was not simply a bu- 
reaucratic process, because we wanted to get started right. 

Mr. Hoyer. And a lot of mothers participating, the world's great- 
est experts. 

Secretary Shalala. Yes. 

Ms. Pelosl Yes. 

Secretary Shalala. Daddies, too. 



147 

Mr. HOYER. Only recently are daddies involved. 
Secretary Shalala. We have also built in a research and evalua- 
tion component. 

WASTE, FRAUD AND ABUSE 

Mr. HoYER. Good. Let me go to my last question, Mr. Chairman. 

Last time you were here you mentioned that HHS would be giv- 
ing us a proposal to more adequately fund Medicare and Medicaid 
activities to prevent waste, fraud and abuse. I frankly think waste, 
fraud and abuse is a very important item. My own perspective is, 
not because of the size of the waste, fraud and abuse, which some 
project it as being the nexus around which we would balance the 
budget — I think Mr. Kasich and others will find that is not the 
case; I think that is actually not the case — but because it is such 
a concern, and we need to get rid of waste, fraud and abuse. 

Are you at liberty to discuss at this time the proposal that you 
are making? 

Secretary Shalala. We put in a general description of the pro- 
posal in our budget submission. I am not at liberty to discuss the 
details because that will be announced as part of the Reinventing 
Government IL I am at liberty, though, to report to you that we 
had last year the largest waste, fraud and abuse settlements in our 
history, $8 billion, which is the largest year the Department has 
ever had, including the largest individual settlement of over $300 
million with a health care provider. 

Do we have the chart? 

This gives you a sense of how successful we have been in the De- 
partment. We have an excellent Inspector General, and she has 
really reorganized; and we have tried desperately to protect the re- 
sources for our Inspector General. We would like to do something, 
as I indicated the last time I was here, far more imaginative and 
effective; and that will be part of our proposal. 

This will give you a sense of what we have done already simply 
through efforts in the Department. 

Mr. HOYER. Thank you. 

Thank you, Mr. Chairman. 

Mr. BONILLA. Thank you, Mr. Hoyer. 

Mr. Wicker. 

FOOD STAMP PROGRAM 

Mr. Wicker. Thank you, Mr. Chairman and Madam Secretary, 
thank you for your testimony today. 

You commented earlier in answer to a question about welfare re- 
form, that the Food Stamp program was being cut. Didn't you real- 
ly mean to say that the rate of growth of the Food Stamp program 
was proposed to be cut, rather than that actual funds were being 
cut? 

Secretary Shalala. Let me explain what I meant, and that is 
that food stamps and a variety of other social SEifety net — in this 
case, the hunger safety net programs have always enjoyed entitle- 
ment status. The importance of the entitlement has been for work- 
ing families. 

In fact, the programs have worked in a way so that if there is 
an economic downturn in a State, people who live from paycheck 



148 

to paycheck, who are laid off, will be able to come in and get food 
stamps to feed their families. 

The various drafts that we have been going through are actually 
eliminating the economic stabilizing effect, in the hunger safety 
net, so if there is an economic downturn in the State, working fam- 
ilies would be cut off, 

A percentage of food stamps are now being used for working fam- 
ilies, to subsidize low-income workers. As part of welfare reform, 
that is absolutely critical. It is also critical for the States to protect 
them from economic downturns. And the danger of capping pro- 
grams is that when a State in the middle of a recession may have 
a deeper and broader impact, and the people who use these pro- 
grams as transitional programs, and temporary programs will be 
cut off. 

Mr. Wicker. I understand then that you quarrel with those who 
would remove the entitlement status. 

Secretary Shalala. And, any kind of capping, and slowing down 
the growth from what is projected as a way of restricting working 
families from using the program on a temporary basis. 

Mr. Wicker. But you do concede what we are talking about is 
slowing down the growth of the program; is that correct? 

Secretary Shalala. Slowing down the growth, in fact, that is re- 
ducing the growth from what we projected as the need, will be a 
cut for an individual family that doesn't have an opportunity to get 
food stamps. We can talk about whether it is slowing down the 
growth or flat-lining it to last year's level, but for the individual 
who loses their job and needs the Food Stamp program, they are 
being cut off if the money is not available, 

Mr, Wicker. It just seems to me that only in Washington would 
spending more money next year than this year be called a cut. But 
that is, in fact, what both the Agriculture Committee proposal and 
the Ways and Means proposal suggests, spending more money next 
year on food stamps. 

Secretary Shalala, What they are doing is no longer funding it 
fully for inflation. In fact, in the last draft of the Agriculture Com- 
mittee that we saw, they kept the entitlement status but didn't 
fully adjust it for inflation, and that may well mean less money for 
food as prices go up. So for an individual family, that could well 
be a cut in the food that is available to them. 

So, you know, we can use the words in a variety of ways. The 
question is, what impact does it have on people? Are they going to 
get less food? Is there going to be less availability of food for that 
family? No matter what you call it, when there is less food for that 
family, they will see and the rest of us ought to see, funds are 
being cut, 

Mr, Wicker. I understand that you may think the program is a 
bad idea, I was just trying to clarify the point that no one is sug- 
gesting that less money be spent on the program next year, I think 
we at least agree on that in terms of raw numbers, whether it is 
a good idea or not is something we can debate. 

Now, let me switch to the Medicaid program, because Mr, Obey 
certainly caught my attention. He may have been attempting to 
tweak the nose of the Chairman of the full committee in mention- 
ing Louisiana, 



149 
Mr. Obey. And others. 

MEDICAID 

Mr. Wicker. When I was in the State legislature, I was Chair- 
man of the Public Health and Welfare Committee in the State Sen- 
ate. We do receive a 79 percent Federal match in the Medicaid pro- 
gram. Even so, with our general fund at approximately $2.5 billion 
per year, a very, very small general fund with a very small tax 
base, we had a devil of a time paying our little 21 percent of 
Medicaid. 

So it certainly would be a tremendous disadvantage for people in 
poor States like Mississippi to, as Mr. Obey suggested, have a 70 
percent cap, for example. 

But I think he caught you in mid-sentence during his question, 
and you were about to say that there were other factors which are 
not being taken into consideration. Do you recall what you were 
about to say? 

Secretary Shalala. I don't. As you know, the GAO has laid out 
some options in dealing with the formula. 

The formula does put certain States at a disadvantage who have 
a small number of people at a high income than a large percentage 
of people that have low incomes. The amount of money that you get 
depends on the number of services you decide to cover. 

So Mississippi which may have the basic program, may indeed 
get less money than some other places, but it has a very high per- 
centage of poor people, so it becomes a very significant program, as 
food stamps does. 

In fact, if I were from Mississippi, I wouM be very concerned 
about the discussion from Members of your party about block- 
granting Medicaid, because what that will dr is make it much more 
difficult for places like Mississippi to get their fair share under any 
kind of a formula, because it will slow down significantly the 
growth of the Medicaid program. 

I am actually not prepared today to get into a long discussion of 
how the formula works. A number of States have raised the issue. 
GAO has provided Congress with some options in terms of what to 
do with the formula. We will get into the formula issue again if 
there is more dis^'ussion about the possibility of moving Medicaid 
from an entitlement to a block grant, and then we will have to do 
runs that show what the impact is. 

immunization 

Mr. Wicker. All right. 

Thank you very much. 

Let me ask one more question concerning childhood vaccinations. 
You mentioned this in your testimony. The folks from our health 
department tell me that we had a good system where the 317 pro- 
gram has allowed children to have vaccinations in each county at 
the health office. And the Federal Government has now moved to 
a different program called Vaccines for Children, and the children 
have to go to community health centers instead. There are only 23 
community health centers in the State, as opposed to 82 county 
health offices. I wondered if you could comment on that. 



150 

Secretary Shalala. We actually left in place what we added 
through the Vaccines for Children program, a new program that 
would allow us to enroll private doctors to provide the vaccines for 
children so children didn't have to leave their health home. The 
States can continue to use the resources we give them to expand 
their public health infrastructure. Much of the new money is to 
provide the opportunity to add private doctors and take some of the 
burden from public health clinics that were just overwhelmed. 

I would be happy to look into the Mississippi's concerns. 

Mr. Wicker. I would appreciate that, because the information 
that I have came from the director of our State health department. 

Secretary Shalala. Mississippi has 150 public sites and 140 pri- 
vate sites enrolled. We are going to immunize more children. For 
example, the South depends heavily on public health centers for 
immunizing kids because so many of the kids are poor. We will 
make sure the private doctors are involved, by not telling private 
doctors that they have to refer their kids to public health clinics 
to get their immunizations. We will be letting them provide the im- 
munizations for the low-income kids that they serve by giving them 
the vaccines to give in their own offices. 

I would be happy to take a look at the Mississippi situation and 
get back to you. 

[The information follows:] 

Childhood Immunization 

The Vaccines For Children (VFC) program will reach more children with free vac- 
cines than ever before and allow more parents to obtain free vaccines for their chil- 
dren from their private provider. For example, Mississippi has contracted with a 
commercial distributor to distribute VFC vaccines to about 140 enrolled private pro- 
vider sites (about 300 physicians) in the State. 

VFC eligible children include those who: 

— do not have health insurance; 

— are enrolled in Medicaid; 

— are American Indian or Alaskan Native. 

Also, children who have health insurance that does not include vaccine as a cov- 
ered benefit (underinsured children) may receive free VFC vaccines from a Federally 
Qualified Health Center (FQHC) or Rural Health Clinic (RHC). 

VFC eligible children can also obtain free VFC vaccine at county health depart- 
ments, since all such public clinics in Mississippi are enrolled as VFC providers. 

Furthermore, the historical "317 vaccine program" still provides vaccines to Mis- 
sissippi's State health department so children who may not be eligible for VFC vac- 
cine can continue to obtain free vaccines at county health departments. Thus, 
underinsiired children who do not go to FQHCs/RHCs, and are thus not eligible for 
VFC vaccine, can continue to obtain free "317 vaccine" at county health 
departments. 

VACCINE PURCHASE 

Mr. Wicker. Mr. Chairman, I know I am intruding on the time, 
but I have one other quick question about vaccinations. 

I am also told that States have been allowed in the past to pur- 
chase the vaccines from the Federal Government, and there is a 
rumble about the fact that that program may be eliminated, which 
would be more costly? 

Secretary Shalala. Right. We intend to continue the program. I 
think there may be some drug companies in the United States that 
would like to deal directly with the States at their prices as op- 
posed to allowing the Federal Grovemment to have a discounted 
rate for State public health departments. 



151 

Mr. Wicker. Thank you. 

Thank you, Mr. Chairman. 

Mr. BONILLA. Thank you, Mr. Wicker. 

Ms. Pelosi. 

BLOCK GRANT VS. ENTITLEMENT 

Ms. Pelosi. Thank you very much, Mr. Chairman. 

Mr. Chairman, I think Mr. Wicker's questions pointed out very 
clearly why some of these programs need to be entitlements rather 
than block grants. Because hearing you, Mr. Wicker, ask your 
questions of the Secretary, tells me that we cannot just talk about 
taking an entitlement away from a poor child, and then say, but 
we have to compensate for poor States. If the entitlement goes to 
the individual, then your rights, if you represent a State with a 
large percentage of poor people, are fully protected. 

Madam Secretary, I was so pleased to hear your answer to that 
question that argues against the block grants. You can't say don't 
give it to poor people as an entitlement but make sure the formula 
is right for poor States. Could you elaborate on that? 

Secretary Shalala. We have to make sure that the States are 
protected at the same time that we are protecting individuals. The 
President and I are concerned about moving from entitlements to 
block grants. The entitlements are for two purposes; number one, 
to make sure that everyone who is eligible for the program auto- 
matically can enroll in the program; and number two, to make sure 
we protect the States if there is an economic downturn. 

That economic stabilizing role of the national government has 
been critical in the South where there have been places in the 
South where there have been economic downturns. It allows work- 
ing folks who get laid off to be able to feed their families. It has 
been critical to help States move out of recessions. 

If a State does not have access to some Federal dollars for food 
stamps or for cash assistance for their low-income workers, the re- 
cession goes deeper and broader, and there is no way the busi- 
nesses in that State can be taxed to help bring the State out of the 
recession. 

So the economic stabilizing role of the State has been absolutely 
critical as a national role. 

Finally, my point was that it is working folks that get hurt when 
you go to block grants. They are the ones that use these programs 
as transitional programs, as temporary programs. 

The tragedy of this discussion is everybody has been focusing on 
a stereotype of a welfare recipient, when it is working people for 
whom it is a tragedy if you eliminate the entitlements, because 
they are the folks that come onto these programs for very short pe- 
riods of time to take care of their families while they attempt to 
find another job. 

I think that is an appropriate national role and critical that we 
understand that as we go through this debate about block grants 
versus entitlements. 

Mr. Wicker. Will the gentlelady yield on that? 

Ms. Pelosi. Just for a few seconds, because I don't have much 
time. 

Mr. Bonilla. We have latitude with the time. 



152 

Ms. Pelosi. Thank you, Mr. Chairman. 

Mr. Wicker. Madam Secretary, you brag about the Child Care 
and Development Block Grant. That is not an entitlement. Some- 
where there is a child care entitlement. There is also a child care 
block grant. So they are both in the child care area. And the enti- 
tlement has been critical for very low-income folks. 

There is also an entitlement, frankly, depending on how you 
want to use the language, for middle- and upper-income people 
called a tax credit, in which every middle- and upper-income per- 
son gets access to child care subsidies in this country, which is 
automatic, that they can claim on their income tax. 

I realize that, again, this is how we use language in this town, 
but when it comes to giving money, what we are talking about is 
making sure in child care that we have a seamless program so that 
working folks can get child care support so that they can go out 
and work and not worry about their children. 

I thank the gentielady. 

FOOD STAMP PROGRAM 

Ms. Pelosi. Reclaiming my time. 

Thank you. 

Mr. Wicker, I also wanted to make a point about your comment 
earlier about food stamps. Would you agree it is a cut? It is a cut 
in that many fewer people will have the opportunity to be served, 
and it does represent $16 billion that will not be spent on food 
stamps. So when you talk about number of people served and 
amount of money that can be used for another purpose, then it is 
a cut. Whether it is used for deficit reduction or tax relief for 
wealthy Americans, nonetheless, we may have to define it as a 
"cut." 

In my view, if you are serving fewer people, you are making a 
cut. If you are saving — so-called saving $16 billion moving it from 
an investment, that is — I think represents a cut as well. 

hiv/aids 

Madam Secretary, I want to thank you for your leadership on the 
AIDS issue. I know you were pleased to hear the good news that 
we were able to restore AIDS funding in a bipartisan fashion on 
the full Appropriations Committee. I really want to also commend 
you for the progress that is being made in AIDS research. As you 
know, there were no rescissions for AIDS research. 

But I did want to address some of the concerns that were ex- 
pressed by my colleague in regard to AIDS earlier. In your testi- 
mony, all that you stated was that roughly 40 percent of the more 
than 440,000 AIDS cases reported since 1981 were reported in 
1993 and 1994. You did not make comparisons about what went be- 
fore. 

In voting the other day, I was very proud that Mr. Istook joined 
with us in voting in recognition that we must stop the spread of 
AIDS. Therefore, we seem to agree that HIV prevention money is 
necessary. We have a commitment to those who are people with 
AIDS, and we restored funding for the Ryan White Care program. 

So regardless of whatever the calculations are, the sad news is 
that in 10 short years, AIDS has become the leading cause of death 



153 

in America for persons aged 25 to 44, as you point out in your 
testimony. 

And the fact that there has been a redefinition of AIDS doesn't 
mean that there are more cases now than before, and we are just 
redefining it. It means there were populations which were under- 
served before. 

I have a copy of this chart. It is hard to read from the Xerox, 
but the dark line, my colleagues, is the one that indicates what has 
happened in the last 10 years in terms of AIDS becoming the lead- 
ing cause of death for young adults in this country. 

The changes in case reporting only point to the fact that there 
were many people that we were not identifying as AIDS cases ear- 
lier. It is not a question of sajdng that AIDS is not spreading. But 
I will say that what I think is a major concern to my colleagues 
and why we were successful the other day, is because the spread 
of AIDS now is more into the heterosexual community. Children 
are at risk, and the prevention money that we were talking about 
as well as the Ryan White, Titles II, III, and IV funds, helped to 
finance initiatives from your Department to stop the spread of 
AIDS from mother to child, to block HIV transmission. Our col- 
league supported that, and I thank you for that. 

Madam Secretary, we had the benefit of wonderful testimony, 
thanks to our Chairman, from some Nobel laureates, and among 
them Dr. Phillip Sharp testified very eloquently about how the re- 
search in AIDS was helpful to us in other areas of concern, espe- 
cially relating to diseases affecting the immune system. 

And so I think that our committee is making progress in appre- 
ciating what the AIDS research can do, we recognize that we can- 
not afford the spread of HIV fiscally as well as personally. And we 
agree that we must have a responsibility to care for those with 
HIV, particularly focusing on the new initiatives, like the Women's 
HIV Initiative affecting women and newborn babies; so, I commend 
you for what is being done in AIDS research, prevention and care. 

Thank you for that, and I invite any comments you might have. 

Secretary Shalala. Thank you. 

First, Congresswoman, let me thank you for your leadership on 
this issue. We were very pleased with the restoration of the re- 
sources for AIDS. A year ago when I testified, I tried to be as sober 
as the researchers were on the possibility of having breakthroughs 
in AIDS very quickly. This year, I think there will be at least a 
slight smile on my colleagues. Dr. Paul and Dr. Varmus faces be- 
cause we have had break-throughs this year. 

The one you referred to in pediatric AIDS, and our ability to sig- 
nificantly reduce HFV infection in newborns through AZT treat- 
ments, is a significant break througn. The development of those 
tests are important. 

We are beginning to see some basic research opportunities. A na- 
tional industry has come together with each other as well as with 
government and private scientists to develop strategies. We do not 
have a vaccine yet, but we are beginning to see the results of the 
significant Federal investment in AIDS. 

I also want to add, I think Dr. Paul's leadership has helped sig- 
nificantly, because there is more of a focus to our efforts, and I 
think there is more discipline in the way we are approaching this. 



154 

And we don't see ourselves as isolated from industry or from the 
rest of the research community, or from the activists and the advo- 
cates. There is a remarkable team effort in this country. 

AIDS AND BREAST CANCER RESEARCH 

Ms. Pelosi. I want to thank you also for the breakthrough as far 
as breast cancer research is concerned. It is so important to every- 
one in America, every family in America is affected by breast 
cancer. 

Mr. Chairman, my time has expired. 

I just want to say that the previous chart that the Secretary had 
up here indicated what the costs of AIDS were in terms of entitle- 
ment programs, in addition to discretionary spending. And I think 
it makes the point very eloquently that unless we succeed with our 
research and prevention, the entitlement costs will continue to in- 
crease. So from a fiscal standpoint, the investments made on HIV 
will represent a deficit reduction in the long run, and in the short 
run, for our committee and for our country. 

Once again, I want to commend the Secretary for her leadership 
on all of these issues, AIDS, breast cancer, and taking care of the 
children of our country. 

Thank you, Mr. Chairman. 

Mr. Porter [presiding]. Thank you, Ms. Pelosi. 

Mr. Riggs. 

welfare reform 

Mr. Riggs. Thank you, Mr. Chairman. 

Madam Secretary, I apologize for having to leave and come back. 
I committed to Chairman Myers on Energy and Water that I would 
sit in for him this morning, and return upon the conclusion of that 
hearing. 

My first question goes to the heart of the coming welfare debate, 
and that is the profound philosophical and ideological differences 
between our parties. I have to tell you. Madam Secretary, that I 
can't see based on the hard evidence, how or why a Washington- 
based welfare bureaucracy is essential to the American people. Five 
trillion dollars later, we have 5 million American families, 9 million 
American children on AFDC. 

At any given point of time, over half of those families are on 
AFDC for over 10 years; 66 percent illegitimacy rate within the 
black population; 20 percent illegitimacy rate within the white pop- 
ulation. Are you telling the subcommittee today that, in fact, a 
Washington-based welfare bureaucracy has been a success? 

Secretary Shalala. No, in fact, I am sajdng just the opposite. 
The President ran on this issue and made it very clear. He put a 
proposal before Congress. That proposal was very close to the origi- 
nal Republican proposal that was put before Congress and voted on 
positively and supported by most of the Republican Members of 
Congress last year. 

The President has said very clearly that he wants welfare re- 
form, that he believes in flexibility. Half the States in this country 
now have welfare waivers. 

We have approved more welfare waivers than all of the previous 
administrations combined. We have demonstrated our commitment 



155 

to State flexibility. The President has laid out goals for welfare re- 
form that are not being met by the bill that is being drafted. Those 
goals are very clear — moving people from welfare to work. That is 
real welfare reform that holds the States accountable. 

What the President has said is, we need some national standards 
so that you can go back and tell the taxpayers in your district that 
you know that their dollars aren't being poorly spent. And that is 
the point that the President has been malung all along. 

I have simply made the point that having weak work require- 
ments and very harsh penalties for children, is not welfare reform. 

Mr. RiGGS. Would you classify Governor Weld's work require- 
ment as weak? 

Secretary Shalala. I haven't seen it yet because he hasn't trans- 
mitted his welfare waiver to us yet. What CJovernor Weld, as I un- 
derstand from press reports, intends to do is to move huge numbers 
of people into work in a relatively short period of time, in 60 days. 

Under the President's proposal. Governor Weld would have got- 
ten education and training money and some child care money to 
help — and the flexibility to design his own program. 

Let me also take issue with your description of the large welfare 
bureaucracy in Washington. There are less than 200 people who 
run the AFDC program in my Department. It is, in fact, a small 
bureaucracy. It is a bureaucracy that would be happy to be out of 
the waiver business. 

It would be happy to see a program which has strong work re- 
quirements, protects children, but changes the culture of the State 
bureaucracy so that the State bureaucracy moves people from wel- 
fare to work much more quickly than they have been able to do 
under existing legislation. 

Mr. RiGGS. If we were to turn the responsibility for administer- 
ing welfare largely back to the States, would we be able to dramati- 
cally downsize your Department? 

Secretary Shalala. Well, we have 200 people that are currently 
running the system. It would depend on what kind of evaluation 
and accountability you wanted and what kind of reporting require- 
ments you would put on us. Could we reduce the number of people, 
I would have to see what the proposal is. 

We certainly wouldn't increase the number of people. But the bu- 
reaucracy, the administration of welfare programs in this country, 
is in the hands of the States. What they need is less directive and 
more flexibility to be able to design what are, in fact, employment 
support programs to move people from welfare to work, and high 
standards, high expectations from us about programs that, in fact, 
move people to work and keep them off" the welfare rolls. 

What we are disagreeing about is how we get there. We do not 
believe, for example, that young mothers are going to be able to 
stay in the work force if there is not child care for them, particu- 
larly if we expect them to take very low-paying jobs. We do not be- 
lieve that it is possible for teenagers to move quickly into the work 
force until they finish high school. We believe they ought to stay 
at home, finish high school, get some education and training, and 
get into the work force as quickly as possible. 

I believe that the President's proposal, that he laid out in great 
detail, allows the States the kind of flexibility to design the deliv- 



156 

ery system. What it does not do is hand the States a blank check 
and have no accountability to Federsd taxpayers. What it does do 
is set up national standards, expectations on work, on parental re- 
sponsibility, and allows the States to design the delivery system. 

HIV/AIDS 

Mr. RiGGS. Let me shift the subject before my allotted time is 
gone. 

As we went through the subcommittee and full committee mark- 
up, in going over your Department's budget in detail, particularly 
the whole discussion and debate regarding AIDS funding, I came 
to realize that there are a myriad of Federal programs in the area 
of AIDS education, prevention, treatment and care. 

Do you know how many programs? 

Secretary Shalala. I probably have them listed, because we are 
in fact pulling them together into a consolidated grant program so 
that States have a more streamlined system. Let me get that for 
you. 

[The information follows:] 



157 



AIDS Funding 

I know there are many Federal programs supporting HIV/AIDS 
including programs in other Departments. I can provide information 
on the programs in my Department. The majority of HIV/ AIDS programs 
are funded through the Public Health Service. The programs in the 
Department are listed below: 

PUBLIC HEALTH SERVICE 

Aoencv for Health Care Policy and Research fAHCPR) 

tt Funds 12 research grants for AIDS related topics. 

« Funds 8 additional projects including information dissemination 
grants, and educational projects such as the development and 
dissemination of clinical practice guidelines for the evaluation 
and management of sarly HIV infection and a consumer guide for 
HIV-infected pregnant women. 

Centers for Disease Control and Prevention (CDC) 

o Funds 45 AIDS prevention programs. In 1994 CDC funded 395 
grantees through these programs. 

Food and Drug Administration 

o Funds AIDS Task Forces in ten States to monitor and address 

fraudulent activities which target persons affected by the HIV/ 
AIDS virus. 

« Funds the National Task Force on AIDS Drug Development. 

Health Resources and Services Administration (HRSA) 

HRSA's major funding for HIV/AIDS is through the Ryzui White 
CARE Act. Title I of the CARE Act funds 42 eligible metropolitan 
areas; Title II funds 54 programs; Title I I IB has 134 grtmtees and 
Title IV funds 42 grantees. In addition to the Ryan White CARE Act 
grantees, HRSA funds the following: 

a 17 AIDS Education and Training Centers; 

a Reimburses over 100 Dental Schools for treating patients with 

HIV/AIDS; 
« 56 Special programs of national significance. 

Indian Health Service 

Funds prevention programs for 560 tribes and 32 urban Indian 
programs. This program reaches 1.2 million of the 1.9 Native 
Americans living in the U.S. 

National Institutes of Health 

The NIH funds research and does not fund any programs under the 
categories in the question. 

Substance Abuse and Mental Health Services Administration fSAMHSAt 

SAMHSA has the following HIV/AIDS specific programs in addition 
to a $50.8 million set-aside of substance abuse block grant monies 
for HIV/AIDS: 

« AIDS Outreach Programs; 

« Substance Abuse/Primary Care Linkage Programs; 

» Center for Mental Health Services (CMHS) AIDS Training Programs; 
« CMHS Mental Health Demonstration Programs 

« Center for Substance Abuse Prevention - Supplemental Program for 
High-risk Youth 



158 



ADMINISTRATION FOR CHILDREN AND FAMILIES (ACF) 

There are no progreuns in ACF -whose primary purpose is AIDS 
education, prevention, treatment, or care. However, many, if not all 
ACF programs could serve children and families that include members 
with HIV/AIDS. Programs might include: 

o Foster Care and Adoption Assistance 

o Adoption Opportunities 

<t Temporary child Care for Children with DiseUsilities and Crisis 

Nurseries 
a Abandoned Infants Assistance Progreun 
o Runaway and Homeless Youth Programs 



II 



159 



PROGRAM CONSOLIDATION 



Mr. RiGGS. When could we anticipate that reform? 

Secretary Shalala. That is in this year's budget. What we have 
tried to do in this budget, in the PubUc Health Service, is take 
more than a hundred different programs and consolidate them into 
performance grants and try to reduce the number of individual cat- 
egorical programs, particularly the small ones, so that areas only 
have to make one application. That way they get out of different 
budget cycles for different programs. I think you will be pleased 
with what you see. 

Mr. RiGGS. Will that generate administrative cost savings? 

Secretary Shalala. It will, and I have reported on those cost sav- 
ings at the same time. We are doing a single grant for 20 HIV/ 
AIDS programs and there will be a single formula grant for those 
programs. That involves $500 million worth of grants. It includes 
our prevention, public information, our women and infants prenatal 
AIDS reporting process. We are consolidating those programs, 
doing exactly what you are talking about. 

hiv/aids 

Mr. RiGGS. Two other quick questions in this same area. 

Mr. Istook pointed out to me that on one of the handouts that 
you just distributed, or that Ms. Pelosi just distributed, in the box 
that says the magnitude, second bullet point, in 1992 there were 
47,000 cases reported. Following the case definition expansion, re- 
ported cases jumped to 106,000 in 1993. The next sentence says, 
even if reporting had stabilized, over 80,000 Americans were re- 
ported with AIDS in 1994. 

That sounds like a decrease to me or to those of us on this side 
of the aisle. 

Secretary Shalala. It is a decrease because people have died. 

Mr. HOYER. Will the gentleman yield? 

Mr. RiGGS. I thought I understood someone to say or you to tes- 
tify that there has been a dramatic increase in the number of re- 
ported AIDS cases. 

Mr. HoYER. Will the gentleman yield? 

Mr. RiGGS. Not at the moment. 

Secretary Shalala. I think the point is no matter which defini- 
tion you use, there has been an increase in the number of AIDS 
cases. I will be happy to detail that in my answer to Mr. Istook's 
questions, which I will provide for the record. 

Mr. RiGGS. I yield to Mr. Istook. 

Mr. Istook. Madam Secretary, I cannot believe you just said no 
matter what definition you use, there has been an increase in the 
number of cases, when the Center for Disease Control and the re- 
port I cited to you previously, the Morbidity and Mortality Report 
of February 3rd, showed that the reported cases of AIDS in 1994 
were down to 80,691, where in 1993, it was 106,618. 

A decrease in 26,000 cases is not a stabilization. It is a decrease. 
It is over 20 percent decrease. And it is not because of people 
dying, because this is simply a matter of number of cases reported. 

If that were the case, they would be replaced by other persons 
with it. The Centers for Disease Control specifically reported in 



160 

writing, published and distributed around the country, that the 
number of cases were down by some 26,000, down by over 20 per- 
cent. That is not an increase. 

Mr. HOYER. Will the gentleman from Oklahoma yield? 

Mr. RiGGS. I believe I control the time. 

Mr. ISTOOK. I don't have the time. 

Mr. HoYER. The answer is no, I take it. 

Mr. ISTOOK. I 3deld back the time to Mr. Riggs. 

Mr. HoYER. If the gentleman from California will yield, I have 
a suggestion as to how this occurred. 

Secretary Shalala. I think we are going to have to respond for 
the record on the number of reported cases and the characteristics 
of the people in those cases. I just can't go any further unless I go 
back to the record and take a look at the CDC reports that we are 
referring to and report. 

The point I did make was about AIDS spending for people that 
are sick and the fact that the disease is still spreading. It certainly 
is spreading around the world with increases in cases around the 
world. And I was simply trying to justify the need for our increased 
spending, because we are spending more and more money for treat- 
ment of those who do have AIDS. 

What I need to do is to lay out for you the number of reported 
cases, and I am happy to do that. 

Mr. RiGGS. That brings me to my other point. 

I do w£mt to yield to the gentleman in just a moment. I didn't 
get a chance to do this in the full committee markup. 

Until the 1992 redistricting plan, I represented, outside San 
Francisco City and County, the second largest HIV-infected popu- 
lation in the United States. I have a tremendous concern about the 
problem and compassion for people who are infected with HIV or 
AIDS. 

I strongly disagree, I expressed this to the subcommittee Chair- 
man, with the process that allowed us to go outside the subcommit- 
tee to find an offset. But that is over and done with. 

But I am also very interested and very concerned about bringing 
to light hard data to help direct us in our policy decisions. I would 
like to make sure I express this personally and on the record. This 
is not meant as a criticism of life-style, sexual orientation or sexual 
preference, but my view is that AIDS and HIV is a largely prevent- 
able disease, and I think the appropriate role for the Federal Gov- 
ernment is in attempting to educate and prevent the occurrence of 
that disease. 

I am interested in making sure that we target resources on that 
side of the equation, understanding that because of escalating med- 
ical costs, the costs of treatment and care have increased over time. 

If it is permissible to the subcommittee Chairman, I will yield to 
the gentleman from Maryland. 

Mr. Hover. I thank the gentleman for yielding. 

I don't know if this is correct, but it occurs to me, the reason for 
the redefinition in 1993, as I understand it, the symptoms dis- 
played by women and children are different from the symptoms 
displayed by males, so that prior to 1993, there were some folks 
who were not identified as AIDS patients in the statistics. 



161 

As a result, in 1993 there was a bump in the numbers, because 
you identified people, and therefore you brought people into the 
system in a larger number than you otherwise would have done. 

I don't have the CDC report that the gentleman from Oklahoma 
mentioned, it may be that the real comparison would be, if you 
used — compared apples to apples, that is, the same definition with 

1993, without the children and women having been added, in which 
bumped you up, which may reflect a lower number in 1993 than 

1994, if you are comparing the same people. That was my only 
point. 

There may well have been an increase if you used the same defi- 
nition. But you had a bump in the year where you changed the def- 
inition because you brought people in that may have been added 
in previous years, except for the fact that they weren't defined as 
such and therefore they were all added in one year. 

Secretary Shalala. Mr. Chairman, if I might read just for the 
record, I will provide the entire report, the February 3rd, 1995 re- 
port of the CDC, based on analysis using consistent definitions, the 
rate of AIDS-related illnesses increased 3 percent in 1993 com- 
pared with 1992, a similar increase is expected for 1994 compared 
with 1993. 

Mr. ISTOOK. Did you read, a similar increase is expected, it says. 

Secretary Shalala. It says a similar increase is expected for 
1994 compared with 1993. 

Mr. ISTOOK. Which the report shows does not — 

Mr. Porter. I would ask the gentleman to address his questions 
to the Chair. 

Secretary Shalala. We have got to get it straight. I, obviously, 
don't want to come here and give misinformation to the Committee. 
What I need to do is lay out the data, including the definitions. 

I will provide it for the record and make sure that it comes di- 
rectly from the CDC reports and the CDC baseline. It was not in- 
appropriate for anyone to ask me these questions, and I need to lay 
out the data very carefully, and I appreciate Mr. Istook and Mr. 
Riggs raising the issue with me. 

Mr. Porter. Then will you provide it for the record, Madam 
Secretary? 

Secretary Shalala. I will. 

[The information follows:] 



162 



HIV/AIDS 

Thank you for tha opportunity to clarify for the Coomittee the 
CDC data on the annual totals of reported AIDS cases. As you know, 
in January 1993 a revised definition for AIDS was implemented by the 
CDC. The new definition resulted from an extensive review period 
conducted by the CDC under the Bush Administration, which recommended 
4 additional clinical findings be added as sentinel events triggering 
the AIDS diagnosis. The practical effect of the definition change 
was to diagnose AIDS earlier in the course of the HIV illness for a 
limited range of conditions, and to use a laboratory test as one 
indicator of an AIDS diagnosis. 

The effect of the definition change was a sharp rise in the 
number of AIDS cases reported in 1993, as HIV positive persons with 
any one of the new diagnostic criteria were now classified as an AIDS 
case. The surge of cases to a high of 106,618 in 1993 %rauld be 
expected to reflect this expanded reporting. However, the rise in 
case numbers reflects both new AIDS cases that would have occurred 
under the older, narrower definition, as well as persons living with 
HIV disease who have a medical history of any of the four clinical 
findings previously excluded from an AIDS diagnosis. Total AIDS 
cases reported in 1994, 80,691, includes the continuing increase of 
AIDS cases under both the old and new case definitions. As expected, 
it is a lower number than the 1993 total given the backlog of cases 
newly qualifying in 1993. 

Separately identifying those cases that would occur under the 
old and new case definitions is not a simple process. These cases 
are not mutually exclusive, as some cases would be identified under 
both definitions. First, the number of AIDS cases expected under the 
old definition must be projected, based on studies of disease 
progression including the development of opportunistic infections. 
Second, this number would be subtracted from actual reported AIDS 
cases for a given time period to identify new cases projected to be 
reported solely due to the expanded definition. Using this 
methodology, it is estimated that AIDS cases using the narrower, old 
definition alone increased 3% each year from 1992 - 1994. 

As you have correctly identified, it is important to look at 
the factual underpinnings and clinical factors impacting on the 
reporting of AIDS cases. The fact that roughly 40% of all AIDS cases 
were reported in the last 2 calendar years remains, yet this is best 
understood in the light of the new AIDS case definition. Likewise, 
the relative dip in 1994 does not reflect a true decrease in reported 
AIDS cases as much as completed processing of the backlog of newly 
eligible cases in 1993. I regret if my remarks during the hearing 
appeared to be misleading, and intend this answer to clarify these 
issues. 



163 

Mr. ISTOOK. Mr. Chairman. 

Mr. Porter. Mr. Istook. 

Mr. Istook. I might just read one point from that report to clar- 
ify for the people here. The CDC report to which the Secretary re- 
fers states that in 1992, the number of cases reported, this is before 
the change in definition, in 1992, the number of cases reported was 
47,572. Also, then, in 1994, under the new definition, the total re- 
ported cases were 80,691. 

And it states, in the last sentence that begins on this page, that 
of all the cases reported among adolescents and adults, so it is all 
cases, during 1994, a total of 43,226, 54 percent, was reported 
based on the reporting criteria added to the definition in 1993. 

So of the 1994 cases, 80,691 cases, 43,000 of them were due to 
the expanded definition, which by simple subtraction shows that 
those under the old definition that were reported in 1994 were 
some 37,400 compared to what has been the number in 1992 under 
the old definition of 47,572, which shows a decline of 10,000 re- 
ported cases under the original definition from 1992 to 1994. 

Ms. Pelosi. Will the gentleman yield? 

Secretary Shalala. We are going to just argue about the 
numbers. 

Mr. Porter. Let me yield to Mrs. Lowey because she hasn't had 
a chance to ask questions. If people want to ask her for the time, 
they may do so. 

WELFARE reform 

Mrs. Lowey. Thank you, Mr. Chairman. It is nice to be here. 

Let me welcome you, Madam Secretary. I just want to thank you 
personally on International Women's Day for the leadership you 
have shown in a whole range of issues. Whether it is health care, 
child care, or Head Start, you have been a role model for the 
women of the United States and to the world. We just want to 
thank you. 

I wanted to take this time to thank the Administration for its 
continued focus on reducing the deficit, wisely consolidating pro- 
grams, and continuing to invest in programs for men and women 
that lift people up. We are not interested in handouts. We are in- 
terested in programs that lift people up. 

With regard to that, although this is an Appropriations Commit- 
tee hearing, I think we are all aware that recent actions in the 
Ways and Means Committee and Economic and Educational Oppor- 
tunities Committee may eliminate some of the programs over 
which we have oversight. 

And I am particularly concerned that the Republican welfare re- 
form proposal, by reducing support for child care programs and 
child nutrition programs, will actually make it harder for families 
to move from welfare to work. I know we share the focus on work 
and getting people to work. 

So at this time, I would like you to address what the Republican 
proposals to reduce funding for child care programs will do to a 
woman's ability to move from welfare to work. Could you address 
that for us? 

Secretary Shalala. Thank you, Congresswoman. 



164 

We have sat down and talked to welfare recipients, particularly 
women who have young children, and have reviewed the research 
literature in terms of what progress we have made in our ability 
to move people from welfare to work. It is just common sense; 
mothers are going to need some kind of a child care arrangement. 

One of the problems is we have wanted to focus the child care 
very much on low-income workers, and cutting back on the avail- 
ability of that just makes no sense. 

As we sat down and talked to welfare mothers who had been in 
and out of the work force, there are two things that struck me 
about what they said. The first was that one of the reasons they 
had to get out of the job is they couldn't get their child care 
straight. Groing back on welfare where they could get child care 
that was their only option. Their child care kept falling apart on 
them. Since they had the kind of jobs where they couldn't take off 
to go straighten out their care for their children. 

Second, health care was a problem for many of those young 
mothers, particularly health care for their children. So it is simply 
common sense, as far as I am concerned, that if we are going to 
move large numbers of people immediately into the work force in 
relatively short periods of time, that we are going to have to have 
child care in place. Cutting back on child care makes absolutely no 
sense if we are seriously committed to welfare reform. 

Mrs. LowEY. I am also very concerned about the programs that 
address the nutrition for children in child care. 

Secretary Shalala. Nutrition is a particular problem because the 
National Nutrition Standards, the Food Stamp program, the nutri- 
tion programs, the WIC program, really have had an effect on rais- 
ing the quality of life and saving children's lives and making sure 
they get decent food. In no way do we want to condone waste, fraud 
and abuse in the programs. But having those programs in place 
with national standards, we believe is very important as part of 
this whole strategy. 

BREAST AND CERVICAL CANCER 

Mrs. LowEY. I thank you, I am going to move to another area, 
because my time is limited. But I look forward to the reauthoriza- 
tion of the child care bill. I worked on the first one, and I hope we 
can keep our commitment to child care. It is vital if we are really 
going to make people independent. 

On other areas, you know I have been deeply committed to in- 
vestments in breast cancer research as well as all other kinds of 
cancer research and other health research. In fact, breast cancer is 
a disease that affects too many women and their families in our so- 
ciety. So I am very pleased, and I want to thank you for the Ad- 
ministration's continued focus on investments in breast cancer 
research. 

As we all know, the interaction between the National Institutes 
of Health's research, the Centers for Disease Control's prevention 
efforts and the Office of Women's Health's coordinating activities is 
crucial to the national infrastructure for fighting this disease. 

Could you spend a few minutes discussing the way these three 
programs work together to help the Nation move forward in the 



165 

fight against breast cancer? I think the coordination is so very criti- 
cal to the effort. 

Secretary Shalala. We convened last year a breast cancer group, 
as you know, and put together a National Breast Cancer Action 
Plan. The purpose of the action plan was to bring together re- 
search, treatment, educational outreach prevention information, 
and to do it in a coordinated way. 

In addition to that, the FDA had a role in raising our standards 
and our oversight on mammogram holography in this country. 
They have, in fact, had a major impact on that. The point was to 
make sure that these efforts are synchronized so that we weren't 
shortchanging the prevention activities while we were making in- 
vestments in research. 

We have made investments in research so that findings could be 
translated into treatment as well as prevention activities. The 
President has outlined that he wants to continue to invest in, 
breast cancer research and education, as well as our investments 
in making sure that the mammography machines around the coun- 
try and the reading of those screenings is done accurately and the 
follow-up is done accurately. We have got some evidence of some 
reductions in the number of deaths for white women, although not 
yet for minority women. 

All of these things will have a major impact on the quality of life 
for American women. 

Mrs. LowEY. Following up on that, we all understand that — and 
I know our Chairman believes strongly that continued investments 
in research in the National Institutes of Health are critical — we 
have budgetary constraints. 

I do have a couple of questions concerning the Administration's 
proposal to block grant the breast and cervical cancer screening 
program to the States. How could we block grant a program to the 
States, when all States don't have programs, number one? 

Likewise, there are certain program standards States now have 
to meet in order to receive Federal funding. These standards are 
vital to the quality of the programs. We worked very hard to be 
sure those standards would be put in place last year. 

How do you see the CDC clusters working, particularly the clus- 
ter that includes breast and cervical cancer screening? 

Secretary Shalala. One should not assume that where we are 
combining programs, that they are necessarily programs, all of 
them, that are going directly to States as opposed to nonprofits or 
other kinds of institutions. So what we may be doing is combining 
some programs and simply streamlining the approach. We are not 
lowering our standards, but we are making it easier for an appro- 
priate health center to apply for the resources. 

I can provide you with more detailed information on how specifi- 
cally we are going to handle breast cancer issues. But the attempt 
here is to streamline it for those that apply for the grant programs. 

[The information follows:] 



166 



Breast and Cervical Cancer 

In fiscal year 1995, CDC received $100.0 million In 
appropriations to support the National Breast and Cervical Cancer 
Early Detection Program. Following the direction as authorized In 
P.L. 101-354, these resources are providing support to: 35 States 
(approximately $66 million) for the dellveiry of comprehensive early 
detection programs; and 15 States, 3 territories, and the District of 
Columbia (approximately $23 million) for capacity building programs 
to prepare them for the delivery of comprehensive programs. Other 
Breast and Cervical program activities are funded at approximately 
$11 million. 

The Administration's State partnership grant for fiscal year 
1996 would place the breast and cervical cancer early detection 
program Into the Chronic Disease and DlScUallltles Prevention 
Performance Partnership Grant. The specific formula that would 
determine the distribution of these resources to the 50 States and 
territories Is currently under development; however, the formula will 
attempt to establish a core program In chronic disease and 
disabilities prevention and control In each State and take Into 
account the total population at poverty level to support clinical 
preventive services and to enhance prevention progreuns and services 
provided by local health departments. In order to minimize 
disruption on currently funded programs, we will require a three year 
transition period during which States will be held harmless at their 
current level of support. The ultimate Intent of the proposed 
partnership grant Is to provide States with Increased flexibility 
over how they utilize these resources within the chronic disease and 
dlsoiblllty grant stream. Although there are not specific set asides 
In the Administration's proposal for breast and cervical cancer early 
detection programs, we feel comfortable assuming that States will 
desire to maintain or possibly expand their annual level of support 
for this Important activity because the need Is so great. The 
flexibility provided In the proposals could result In Increased 
funding In the area. 

Through our new partnerships, we are committed to Insure that 
the National Breast and Cervical Cancer Early Detection Program 
provides quality services to those women at greatest risk, 
particularly racial and ethnic minorities, low-Income, and older 
women. As we work with States to set their performance objectives, 
delivery of screening, proper follow-up services and appropriate 
diagnostic and treatment services will remain Important as measures 
of State achievement. 

This will continue to be a matter of great Importance to the 
Administration. As Initial Chair of the National Strategic Plan for 
the Early Detection and Control of Breast and Cervical Cancers, I 
remain committed to working with State and local governments, 
national organizations, the private sector and the general public to 
develop and Implement strategies to address this killer of women. 



167 

MANAGED CARE — GRADUATE MEDICAL EDUCATION 

Mrs. LOWEY. I hope to continue to work with you on this. I ap- 
preciate that. 

Do I have time for a final question? 

Thank you, Mr. Chairman. 

At the beginning of the hearing, we talked about managed care, 
and I certainly have been a proponent of managed care because I 
think it is a very cost-effective way to deliver services. My only con- 
cern is that in the transition to managed care, we are draining our 
resources on support for teaching hospitals. 

This particularly affects the New York region. And if we are not 
careful, I am very concerned that we could dry up support for the 
teaching hospitals, which, as we all know, train the doctors that 
every region relies on. 

I am sure that you have given a great deal of thought to this, 
and perhaps you could address it for us. I know this is an ongoing 
issue that is so serious that we want to work with you on it. If 
there are some responses to that, I would appreciate it. 

Secretary Shalala. We have given some thought to it. As you 
know, the health care industry itself is changing dramatically in a 
way that it is not simply the government portion of this, that are 
affecting the great teaching hospitals in this country, but in fact 
that the health care industry is sorting itself out. 

As business and industry have put pressure on their health care 
providers to slow down their increases, teaching hospitals, in some 
case, have become less competitive for the business, because the at- 
tempt there is to contain cost. 

They have become more dependent on Medicare and the fee-for- 
service Medicare program and the Medicare clients as a result of 
this. There is no question that our investment in teaching hos- 
pitals, some of it through the National Institutes of Health, some 
of it through our reimbursement policies £ind the way in which they 
participate in government programs, as well as the private sector, 
is one of the most important investments. They have no peers any- 
where in the world. 

It does cost more to run a teaching hospital because we are train- 
ing health care providers. It takes more time to do a procedure if 
you have a student standing next to you. Teaching hospitals tend 
to deal with tertiary care, which means it is the most high-risk, 
most expensive kinds of patients. 

They are also on the cutting edge of research, which means they 
are never fully reimbursed for the kinds of patients they are 
treating. 

We must in the process of making changes and keeping the kind 
of cost-containment discipline that we want, expect the teaching 
hospitals to respect the kind of containment efforts we have to 
make, but it will cost more money. 

I know of no solution to keeping our great investment in teaching 
hospitals in this country, except for spending some more on those 
teaching hospitals. But at the same time, we will expect them to 
make some changes. 

Unfortunately, the government is not necessarily driving these 
changes. In some ways, we are tripping along behind the move- 



168 

ment to mginaged care as we expand the number of options, and 
people become more comfortable with managed care. Medicare re- 
cipients will move into managed care because they have done it 
when they were in the work force. 

But government does have a role in this extraordinary research 
and clinical infrastructure that government itself has helped to cre- 
ate. I think that it is going to take this committee in particular, 
Mr. Chairman, and your Members with this Administration, to 
think through how we maintain what is an extraordinary, impor- 
tant enterprise from a health point of view, and and economic point 
of view, in this country, because the great American health centers 
play a very important economic role, both in this country's present 
as well as in its future. 

Mrs. LowEY. Thank you, Madam Secretary. And again, thank 
you for sharing your views with us today. 

Thank you, Mr. Chairman. 

FOLLOWUP HEARING 

Mr. Porter. Thank you, Ms. Pelosi. 

Secretary Shalala, two points I want to make before we conclude 
the hearing. The first is that we have had, because we are on such 
a tight hearing schedule and we were very anxious to complete our 
hearings by April 7th, it may be that after we return in early May, 
we may ask you or others of your staff to come back and share 
more timely thoughts with us at that point in time before we will 
go into the markup. And I hope that that will be possible for you 
and our other Secretaries and their staffs to accommodate us in 
that regard, if it proves necessary to have additional hearings. 

Secretary Shalala. We would be happy to do that, Mr. Chair- 
man. We find these exchanges very useful. 

Mr. Porter. Obviously, we do also. We are ending up with a 
number of questions. I am going to have to ask Members to put 
them in the record at this time. 

One final point is that the staff tells me that we have been hav- 
ing a very unusual degree of difficulty in getting HHS budget docu- 
ments in a timely fashion. Some of the justifications have been 
three to four weeks late, they tell me. One justification is still not 
here. And we did not receive an accurate all-purpose table until the 
day before yesterday. Testimony for today's hearings arrived last 
night, and we still don't have the testimony for tomorrow. So we 
would very much appreciate it if you could look into this and we 
hope that the remainder of the HHS cycle of budget hearings can 
proceed smoothly. 

Secretary Shalala. Thank you, Mr. Chairman. 

There is no excuse for not providing timely information. As you 
know, this is a very changed budget, because we have done some 
things in terms of reorganization. But I offer no excuses and will 
offer no excuses. We will try to do substantially better. 

Mr. Porter. Madam Secretary, thank you very much for coming 
here and testifying today. 

We will adjourn, recess the subcommittee until 2:00 this 
afternoon. 

[The following questions were submitted to be answered for the 
record:] 



169 



Head Start 

Mr. Porter: Madam Secretary, as you know, the Head Start 
program has grown enormously in the past 5 years, from $1.5 billion 
in 1990 to $3.5 billion in 1995. And you're requesting another $400 
million increase for 1996. Can you tell us approximately how many 
kids are being served in the program today versus 5 years ago? 

Secretary Shalala: The Head Start program served 541,000 
children in FY 1990. In 1995, we estimate that we will serve 752,000 
children, and increase of 211,000 children or almost 40%. 

Mr. Porter: Can you also tell us what portion of the $2 
billion increase in that period of time has gone towards increasing 
teacher salaries, as opposed to increasing the number of kids being 
served? 

Secretary Shalala: Since 1989 $626 million has gone toward 
increasing staff salaries through cost of living adjustments and 
targeted quality increases. During the same period, over $1.6 
billion has gone toward increasing the number of children served and 
improving program quality including the hiring of additional staff. 

Mr. Porter: Are you able to tell us by how much the average 
Head Start teacher's salary has increased over the past 5 years? 

Secretary Shalala: The average salary of a Head Start teacher 
today is $16,700 as compared to $13,900 in 1991. This represents an 
increase of approximately 17% over 4 years. During this period, 
local programs have also been able to increase the number of teachers 
and lower their child to teacher ratio. Therefore, comparisons of 
average salary levels understate actual increases received by 
teachers who have been with Head Start for more than 4 years. We 
estimate that teachers who have been with Head Start since 1991 are 
actually earning 30% more today than they were in 1991. These 
increases are critical to attracting and retaining quality staff. 

LI HEAP 

Mr. Porter: Madam Secretary, I have long been a critic of the 
LIHEAP program. It is a program that was created to temporarily 
serve individuals affected by a national emergency. The emergency 
has long since passed, but the program endures at over $1.3 billion 
per year. If there is a continuing need for energy assistance for 
low income individuals, then the program ought to be reauthorized to 
address that need which is very different from the need it was 
written to address. 

Real energy prices are well below what they were in 1980, and 
the price of electricity, according to the Department's own 
information, is less today than it was in 1974. In addition, LIHEAP 
assistance is very poorly targeted. It amounts to an income 
supplement that is distributed on the basis of a formula which does 
not have the predictive capability to target assistance to 
individuals with real energy emergencies. 

As only one excunple, I understand that many individuals in 
public or assisted housing who do no pay energy bills or who pay for 
energy at a fixed rate and therefore don't face increased bills 
during extreme weather receive assistance under LIHEAP. I would like 
to know how many people in these circumstance receive LIHEAP 
assistance and how much they receive. 



170 



Secretary Shalala: The 1994 Current Population Survey 
conducted by the Census Bureau shows that 27 percent of the 
households that received LIHEAP heating assistance, or approximately 
1,647,000 households in 1994, lived in rent subsidized or public 
housing. Some of these households have their heating costs included 
in the rent, while others pay for their utilities out of pocket. 
Many that pay for utilities out of pocket receive some assistance 
from utility allowances paid by the public housing authority. Others 
that have their heating costs included in their rent pay for heat and 
utility costs that exceed a certain amount each month. We do not 
have any data on the number of LIHEAP recipient in each of these 
categories, or how much they receive in LIHEAP assistance. 

Reinventing Government 

Mr. Porter: Dr. Shalala, we understand your Department has 
been very busy the past few weeks developing recommendations for the 
second phase of Vice President Gore's reinventing government 
initiative. While I realize that your recommendations are not yet 
final, could you share some of your thinking with us? Are you 
reevaluating your Department's involvement in some policy areas and 
programs, or are you focusing mostly on downsizing personnel without 
significant changes to the Department's mission? 

Secretary Shalala: HHS's review activity under the second 
phase of reinventing government (REGO II) is not completed, but the 
changes that will occur as a result of REGO II will be significant. 
HHS is considering options which will terminate programs which are no 
longer needed and consolidate others to improve efficiency. Other 
options call for privatizing program functions and activities which 
the private sector can perform better than government. Options seek 
wherever possible to foster partnerships with State governments and 
other Federal agencies to improve customer service to our 
beneficiaries and the public as a whole. Finally, HHS options seek 
to improve program management to achieve maximum efficiency in 
resource utilization and to take our fight against fraud and abuse to 
new levels. 

The options affect and involve all parts of the Department and 
both program and staff functions. Although the fundamental missions 
of the Department as a whole will remain, HHS is likely to propose 
significant changes to the missions of components within the 
Department. With the departure of the Social Security 
Administration, HHS has focused particular attention under REGO II on 
the role and structure of HHS's headquarters operations. Proposals 
in this regard will center on streamlining headquarters activities 
and emphasizing the policy role of the office. The proposals will 
apply to both the Office of the Secretary and the Office of the 
Assistant Secretary for Health. As already reflected in the 
President's Budget, HHS's program consolidation proposals include the 
combining of 107 programs into 6 "performance partnerships" and 10 
consolidated grants. However, other significant consolidations and 
terminations are being considered. Proposals for management 
improvement will focus on achieving greater savings for the Medicare 
program through fundamental changes in operations and improved 
progrcun integrity efforts. 

SSA Independence 

Mr. Porter: With the departure of SSA, can you give us some 
indication of the structural changes we might see in the Office of 
the Secretary? 

Secretary Shalala: HHS has made use of its efforts under the 
Vice President's second phase of reinventing government (REGO II) to 
initiate thinking about the structure of HHS headquarters operations 
after SSA's departure. The proposals for REGO II are not final, but 



171 



HHS has focused its attention on principles which will define the 
directions of the headquarters structure. 

HHS headquarters will be streamlined significantly beyond what 
has already been proposed in the Department's Streamlining Plan and 
the FY 1996 President's Budget. The Department is committed to the 
establishment of a lean operation which focuses on the core functions 
necessary to support the development of HHS policy and the 
coordination of Governmentwide policy in the Department. HHS 
believes that operational functions and those which support program 
operations should be located in operational units in the Department, 
and it will pursue organizational changes consistent with that view 
under REGO I I . 

HHS actions to alter its headquarters structure will be well 
planned and executed in an organized manner. The very smooth and 
successful transition to an independent SSA has taught HHS that there 
is no replacement for early and thoughtful involvement of all 
stakeholders, including employee unions, in developing and planning 
for the implementation of major changes such as will occur after SSA 
departs and the Department's REGO II decisions are made. 

Crime Bill 

Mr. Porter: Your budget proposed $144 million for various 
crime bill programs, a $117 million increase over 1995. Have any of 
these authorizations survived in the new crime bill passed by the 
House? 

Secretary Shalala: The provisions authorized in the section on 
"Violence Against Women" of the Violent Crime Control and Law 
Enforcement Act of 1994 were not deleted in the recent House-passed 
amendments. These provisions include the Domestic Violence Hotline, 
the Domestic Violence Shelter Grants, the Rape Prevention and 
Education program, the Runaway and Homeless Youth Sex abuse 
prevention program, the Community Programs on Domestic Violence, the 
Youth Domestic Violence Education Demonstration grants, and the Study 
on Injuries. 

Consolidation of ACF Programs 

Mr. Porter: As you know, there are a significant number of 
relatively small categorical grant programs in the Administration for 
Children and Families. A number of these appear to serve similar 
populations and have similar purposes. The number of these programs 
has grown significantly over the past 10 years or so. have you given 
any serious consideration to consolidating and/or eliminating many of 
these progreuns? Couldn't many of these be carried out by the States 
under the title XX social service block grant? Couldn't we save 
significant eunounts of administrative funds by consolidating and 
simplifying these programs? Wouldn't it also be easier for people at 
the local level to apply for funds if there weren't so many separate 
categorical progreuns, each having a separate set of regulations and 
grant applications? 

Secretary Shalala: The ACF Budget for FY 1996 incudes a number 
of consolidations and program eliminations that will reduce the 
number of small categorical programs and provide grantees with 
greater flexibility. Although some of the discretionary programs 
administered by ACF could be carried out by States under the Social 
Services Block Grant, it is not clear that such a move would generate 
substantial administrative savings. We continue to endorse, and to 
propose reducing the number of small, categorical grant programs in 
order to promote flexibility and simplify access for potential 
grantees. 



172 



DHHS Employment 

Mr. Porter: Provide the total employment levels for the Office 
of the Secretary for fiscal years 1993-1996, broken down by major 
staff division. Please include the Working Capital Fund in the 
numbers . 

Secretary Shalala: The FY 1993-1996 full-time equivalent (FTE) 
employment levels for the Staff Divisions (STAFFDIVs) within the 
Office of the Secretary (OS) are as follows: 

1993 1994 1995 1996 

Immediate Office of the Secretary . 85 88 91 81 

Public Affairs 38 39 40 35 

Legislation 28 28 29 28 

Planning and Evaluation 97 109 109 108 

Management and Budget 279 267 249 254 

Personnel Administration . . . 191 161 152 159 

Intergovernmental Affairs .... 39 35 36 36 

General Counsel 674 608 580 564 

Subtotal, General Departmental 

Management 1,431 1,335 1,286 1,265 

Working Capital Fund 1.215 1.125 1.025 842 

Subtotal 2,646 2,460 2,311 2,107 

Office of Inspector General . . . 1,321 1,257 1,207 1,260 

Office for Civil Rights 309 284 276 276 

Policy Research 16 25 25 26 

Total, OS 4,292 4,026 3,819 3,669 

NOTES : 

• FY 1993 and FY 1994 FTE are actuals; FY 1995 are projected, as 
of February 1995; FY 1996 are the President's Budget targets. 

• OS total includes all FTE to be transferred to the Social 
Security Administration on April 1, 1995. 

• OS total does not include FTE for the U.S. Office of Consumer 
Affairs, which is funded under the VA, HUD, and Independent 
Agencies appropriation. 

Mr. Porter: What are the employment projections for the OS for 
1997 and beyond? 

Secretary Shalala: The current FY 1997-1999 projected FTE 
targets for the STAFFDIVs within OS are as follows: 



173 



1997 

Immediate Office of the Secretary . 81 

Public Affairs 35 

Legislation 28 

Planning and Evaluation 108 

Management and Budget 254 

Personnel Administration 159 

Intergovernmental Affairs 21 

General Counsel 563 

Subtotal, General Departmental 

Management 1,249 

Working Capital Fund 832 

Subtotal 2,081 

Office of Inspector General .... 1,241 

Office for Civil Rights 272 

Policy Research 26 

Total, OS 3,620 



1998 



1999 



80 


78 


34 


34 


28 


27 


106 


103 


250 


243 


157 


153 


6 


6 


555 


539 



1,216 



820 
2,036 



1,212 
266 

26 

3,539 



1,182 



800 
1,983 



1,179 
258 

25 

3,445 



NOTES : 

• OS total includes all FTE to be transferred to the Social 
Security Administration on April 1, 1995. 

• OS total does not include FTE for the U.S. Office of Consumer 
Affairs, which is funded under the VA, HUD, and Independent 
Agencies appropriation. 

Mr. Porter: Your projected employment level for 1996 is 
decreasing to 2,107 from 2,254 in 1995. Will these personnel be 
transferred elsewhere in the Department, or will they simply not be 
replaced? If there are any transfers of functions, please describe 
them. 

Secretary Shalala: The employment levels you refer to are the 
total FTE for the General Departmental Management appropriation and 
the Working Capital Fund (WCF) . The decrease between FY 1995 and 
FY 1996 reflects both personnel reductions (actual elimination of 
positions) resulting from the Department's streamlining initiatives, 
and functional transfers to the HHS Operating Divisions resulting 
from the delayering and restructuring of the regional administrative 
support functions. In FY 1996, these functional transfers total 
203 FTE, all from the WCF: 139 FTE in Regional Finance and 
Administration and 64 FTE in Payroll and Personnel. These activities 
and their corresponding resources are included in the FY 1996 budget 
requests of the respective Operating Divisions. 



Mr. Porter: What are the employment levels for the Office of 
Budget for fiscal 1993-1996? If you are cutting back here, please 
tell us why and by how much. 



174 



Secretary Shalala: The employment levels for the Office of 
Budget for FY 1993-1996 are as follows: 





1993 
Actual 


1994 
Actual 


1995 
Estimate 


1996 
Target 


FTE U 


63 


62 


48 


52 

1 1 



Staffing reductions in the Office of Budget during this period 
reflect streamlining and restructuring activities associated with the 
National Performance Review (NPR) . The NPR identified "control 
positions" in headquarters components as a principal target for staff 
reductions and workforce restructuring in HHS. The Office of Budget 
is staffed with budget and program analysts who occupy control 
positions as defined by NPR and is being streamlined. Budget Office 
FTE levels also reflect staffing reductions required by the Federal 
Workforce Restructuring Act of 1994. 

1./ Does not include the OS EEO OfBce which administiatively reports to the Deputy Assistant Secretary for Budget. 
FY 1995 and 1996 levels do not include seven FTE transferred to SSA. 

Mr. Porter: Please tell the Committee how many people 
throughout the Department are assigned to Congressional Affairs 
offices of various kinds. Please provide the numbers for fiscal 
years 1993-1996; also provide the amount of money being spent on this 
activity by year. 

Secretary Shalala: At the Department level. Congressional 
Affairs activities are administered by the Office of the Assistant 
Secretary for Legislation. In addition, each major operating 
component has a Legislative/Congressional Liaison function reporting 
to top management. Then number of people assigned to perform 
substantive work of this function throughout the Department, together 
with costs, by year, are shown in the following table: 



Legislation/Congressional Affairs 


Years 


FY 1993 


FY1994 


FY 1995 


FY1996 


FY2000 


Employees 


127 


128 


130 


134 


119 


Average Salary 


$45,991 


$57,104 


$60,932 


$62,394 


N/A 


Total Salary 


$5,830,697 


$7,309,312 


$7,921,160 


$8,360,845 


N/A 

1 1 



Mr. Porter: Also provide a list of all Congressional Affairs 
offices throughout the Department? Have you carefully examined 
congressional affairs as an area where personnel savings could be 
made with respect to reinventing government? 

Secretary Shalala: Congressional Affairs offices currently 
exist within the following organizations: 



Office of the Secretory: 

Health Care Rnancing Administration: 



Deputy Assistant Secretary for Legislation 
(Congressional Liaison) 

Office of Legislative and Intergovernmental 
Affairs 



Administration for Children and Families: 
Public Health Service: 



Division of Policy and Legislation 
Office of Health Legislation 



175 



Mr. Porter: Please provide the Seune information for personnel 
offices, public affairs offices, intergovernmental affairs offices 
and planning and evaluation offices throughout the Department. 

Secretary Shalala: At the Department level, personnel, public 
affairs and planning and evaluation programs are each administered at 
the Assistant Secretary level. The Intergovernmental Affairs 
function reports directly to the Deputy Secretary. In addition, each 
major operating component has these key program activities reporting 
to top management. The number of people assigned to perform 
substantive work of each function throughout the Department, together 
with costs, by year, are shown in the following table: 



Years 


FY 1993 


Pf 1994 


Pf 1995 


FY 1996 


FY 
2000 


Personnel 


Employees 


2,118 


2,064 


2,002 


1,947 


1,505 


Average Salary 


$43,024 


$43,678 


$44,880 


$45,947 


N/A 


Total Salary 


$91,124,832 


$90,151,392 


$89,849,760 


$89,478,513 


N/A 


Public Affairs 


Employees 


222 


216 


211 


203 


179 


Average Salary 


$54,351 


$55,220 


$55,698 


$57,035 


N/A 


Total Salary 


$12,065,992 


$11,927,520 


$22,752,278 


$11,578,055 


N/A 


Planning and Evaluation 


Employees 


495 


490 


485 


483 


400 


Average Salary 


$58,641 


$57,387 


$55,896 


$57,238 


N/A 


Total Salary 


$29,027,295 


$28,119,630 


$27,109,560 


$27,645,714 


N/A 


Intergovernmental Affairs 


Employees 


73 


71 


71 


70 


35 


Average Salary 


$56,373 


$54,624 


$60,945 


$62,408 


N/A 


Total Salary 


$4,115,229 


$3,878,304 


$4,327,095 


$4,368,538 


N/A 



Mr. Porter: Again, are these areas where you have made some 
significant reductions? And if you haven't, could you tell us why 
not? 



Secretary Shalala: These progreun areas have been the targets 
of considerable study and analysis since the start of the current 
administration. In order to fully achieve the streamlining and 
reinvention goals outlined in REGO and soon REGO II, the Department 
has carefully planned for the reduction of employment levels and 
operating costs in these as well as other control and headc[uarters 
functions. Our overall streamlining plans are on a timetable which 
runs through fiscal year 1999. While it may appear that significant 
reductions have not yet occurred, the numbers of employees and 
overall employment costs for these activities will begin fiscal year 
2000 at significantly reduced levels, as reflected in the above 
tables. 



176 



Working Capital Fund 

Mr. Porter: With the eliminating of the Regional accounting 
system and the dissolution of the RASCs many of the current functions 
funded under the HHS Working Capital Fund will, presumably no longer 
be funded by that mechanism, what are your plans for the WCF7 

Secretary Shalala: While the regional-based services of the 
Working Capital Fund (WCF) will no longer be funded through the WCF 
after FY 1995, current plans are for the WCF to remain as a provider 
of headquarters-based administrative services. However, this plan 
for the WCF may be impacted by any Departmental restructuring that 
may result from the departure of the Social Security Administration 
and/or the current REGO II analysis. 

Payment Management System 

Mr. Porter; Madam Secretary, could you or Dr. James explain 
the functioning of the Payment Management System. I understand that 
we no longer send checks to grantees. Rather, they draw down on 
their awards only as they need money, thus reducing the need for the 
Federal Government to borrow money that sits idle in grantee 
accounts. How does this work and what precautions are being taken 
that this electronic system is secure? 

Secretary Shalala: The Payment Management System (PMS) is 
operated by the Division of Payment Management (DPM) . DPM is 
organizationally located within the DHHS Public Health Service, 
Office of the Assistant Secretary for Health, Office of Resource 
Management. It is located in Rockville, Maryland. 

The mission of PMS is as follows: 

• Provide a central point for grants and program payments 
for DHHS. 

• Provide efficient cash management. 

• Provide recipients with a secure, user friendly, on-line 
capability to request funds. 

• Provide Executive Information in an on-line mode to 
customer agencies 

• Obtain operating efficiencies through economies of scale. 

PMS also has two government wide missions. They are as 
follows: 

• Function as the government's central point of collection 
for interest earned on the deposit of Federal funds by 
grant and program recipients. Reference 0MB Circular 
A-110, Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, 
Hospitals, and Other Nonprofit Organizations, 

• Provide cross-servicing capaibility to other government 
agencies. 

PMS is a highly automated system that uses the latest advances 
and approaches in computer and communications technology to support a 
grant payment network of nine (9) Federal agencies and more than 
14,000 nationwide grant recipients. 

Ninety-eight percent (98%) of the grant funds are paid by two 
highly efficient EFT payment systems ~ SMARTLINK II and CASHLINE. 
These two systems use Electronic Funds Transfer (EFT) to deliver 
funds to recipients. The remaining 2% continue to be paid by 
Treasury Check, and for the most part, consist of small recipient 
organizations that do not expect to receive future Federal funding. 
SMARTLINK II is a computer to computer system that allows recipients 



177 



that have a personal computer and modem not only to draw funds 
against their grant but also inquiry" information about their 
account. CASHLINE, on the other hand, only provides the capability 
for recipients to draw funds through the use of a touch-tone phone. 
Both SMARTLINK II and CASHLINE are on-line systems that provide 
recipient organizations with the capcibility to draw grant funds 
concurrently with their actual cash requirements. The funds are then 
direct deposited to their bank account on a next business day basis. 
As a result, recipient organizations using these EFT fund delivery 
systems do not need to request Federal funds in excess of their 
actual cash needs and do not need to maintain any sizable balances of 
Federal funds in their bank accounts at anytime. In turn, this helps 
to minimize the impact of cash withdrawals on the public debt level 
and the related borrowing (financing) costs to the U.S. Treasury. 

In order to understand the impact of security for PMS it is 
imperative to understand that in many respects PMS operates somewhat 
like a bank. The Federal agency issuing a grant sets up an account 
for the recipient in PMS (bank) . However, there are significant 
differences when comparing PMS to a bank. Recipients cannot, under 
any circumstances, draw funds in excess of their grant authority and 
DPM staff exercise their cash management responsibilities by 
monitoring cash draws and cash balances of the recipients. After the 
account is established, the Federal agency, deposits the amount of 
the grant (fund authority) in the recipient's account in PMS. Once 
the funds are deposited (recorded) in the recipient's account, the 
recipient can then request funds through the PMS SMARTLINK or 
CASHLINE payment systems. Approved requests are directly deposited 
to the recipients commercial bank account through the Federal Reserve 
Automated Clearing House (ACH) facilities, the next business day. 

Security of PMS is a top priority and is continuously, reviewed 
internally, as well as, by outside organizations. For example, PMS 
has had a Treasury System Risk Assessment and the security has been 
deemed adequate to protect the government's interest. The assessment 
included security features from the recipient level to the granting 
agency level and also included system and physical security as 
verified by the assessment. The PMS features include system, 
operational, and physical security. The system security includes 
data encryption, passwords, user accounts, user initials, terminal 
security, and user restrictions. All computer programs are secured 
by limiting their access to certain users and protecting them through 
the IBM's "RACE" password process. PMS operational security consists 
of an elaborate scheme of internal control between customer agencies, 
recipients, and internal Division of Payment Management (DPM) 
components. PMS facility's security includes an entry card system, 
security guards, motion detectors, and restricted access to various 
areas. Overall, the organizational and system internal control 
scheme incorporates a security net that requires multiple actions by 
multiple organizations to posture a recipient to request and receive 
Federal funds. NO ONE organization, to include DPM itself, has the 
system access to initiate a payment. 



178 



Alcohol, Drug and Tobacco Abuse 

Mr. Dickey; A recent newspaper article stated that "abuse of 
tobacco, drugs and alcohol will eat up nearly one-fifth of the $430 
billion" allocated to federal health care programs. Is the addiction 
to tobacco, drugs and alcohol considered a priority of the Department 
of Health and Human Services? 

Secretary Shalala: Taking action to address addiction to 
tobacco, drugs and alcohol is considered a top priority of the 
Department of Health and Human Services, as well as the Substance 
Abuse and Mental Health Services Administration (SAMHSA). In 1990, 
the Department issued a report entitled "Healthy People 2000" 
establishing a national strategy and a set of objectives for 
improving the health of the nation in the last decade of this 
century. A total of 19 objectives were established in relation to 
preventing or reducing use of alcohol and drugs, with data sources 
that would monitor the Nation's progress toward fulfilling these 
objectives. Similarly, an additional 16 objectives were established 
in relation to preventing or reducing the use of tobacco. Fulfilling 
these objectives is a major priority for the Department. 

Mr. Dickey: What is your department doing to prevent the abuse 
of tobacco, drugs and alcohol? 

Secretary Shalala: The Center for Substance TUsuse Prevention 
(CASP), within the Public Health Service, leads the Federal 
government's efforts to prevent substance cibuse problems in the 
Nation. CASP supports a comprehensive and multifaceted set of 
prevention strategies through its demonstration grant programs and 
dedication of 20% of the SAMHSA state block grants. These strategies 
range from those that focus on reducing risk and enhancing protective 
factors in individual, families, peer groups and schools to those 
that embrace entire communities which involve multiple service 
systems in the public and private sectors. In total, this is a 
substantial effort which we believe has helped to reduce substance 
abuse throughout the Nation. 

HIV/AIDS 

Mr. Dickey: Although there is not yet a vaccine to prevent HIV 
infection, it seems we have discovered specific behaviors that 
contribute to the spread of HIV, specifically unprotected sexual 
relations and intravenous drug abuse. If a man or woman is 
responsible enough to not become a member of one of these groups, 
what are his or her chances of becoming infected with HIV? What 
percentage of your HIV/AIDS resources are used to promote behaviors 
that seem to virtually eliminate the spread of HIV? 

Secretary Shalala: Several studies have looked at the 
efficiency of sexual transmission of HIV. The probability that any 
single episode of sexual intercourse will result in transmission of 
HIV may be determined by multiple biologic factors of the infectious 
person, the virus itself, and the exposed susceptible person. These 
factors include late or early HIV infection, viral infectiousness, 
and the presence of genital ulcers. All of these factors are known 
or suspected to influence transmission and may explain the observed 
differences in sexual transmission of HIV in different parts of the 
world. Other risk factors in women, including estrogen use and 
menstrual bleeding, have been suggested but not confirmed. Sexually 
active persons should be cautioned that to our knowledge there are no 
nonsusceptible persons. Engaging in certain risk behaviors, 
including unprotected sexual relations or injection drug use, may 
make a person more susceptible. Any single unprotected sexual 
encounter may lead to HIV transmission. 



179 



Virtually all of CDC's prevention programs stress the primary 
prevention message that abstaining from sexual intercourse and drug 
injection are the most effective prevention strategies. However, CDC 
recognizes that not all persons will choose to abstain. Therefore, 
for those who are sexually active, CDC recommends other prevention 
strategies that include engaging in sexual activities that do not 
involve vaginal, anal, or oral intercourse; having intercourse only 
with one uninfected partner; or using latex condoms correctly from 
start to finish with each act of intercourse. For those who cannot 
or will not stop injecting drugs, CDC recommends using a clean, 
never-used needle and syringe each time they inject or disinfecting 
"works" with bleach to help reduce the risk of HIV transmission when 
no other safer options are available. 

Determining Funding Levels 

Mr. Dickey: How does the Department of Health and Human 
Services determine different funding levels for the treatment and 
research of different diseases, including AIDS? In prioritizing 
funds for different diseases, do you weigh more heavily diseases that 
strike indiscriminately, such as arthritis, as opposed to diseases 
that are generally a result of specific human behavior, such as lung 
cancer or AIDS? 

Secretary Shalala: Decisions on what research to fund reflect 
a combination of judgments about scientific opportunity and national 
priorities. On the broadest level, NIH receives direction from 
Congress during the appropriation process and in periodic 
reauthorization legislation. In addition, it obtains guidance from 
various NIH advisory committees that inform the decision making of 
the agency and its constituent Institutes/Centers/Divisions (ICDs) 
throughout the year. Through those channels of advice flow the many 
diverse viewpoints of the American people and of concerned groups 
about what research should receive priority for funding. 

Because of the nature of basic research supported and conducted 
by NIH, tangible results of scientific inquiry cannot always be 
defined or planned in advance. For example, researchers recently 
discovered that the molecular basis of Lou Gehrig's disease (ALS or 
amyotrophic lateral sclerosis) results from a defect in a gene 
involved in destroying oxygen-derived free radicals. This important 
discovery may lead to improved diagnosis, genetic counseling, and 
drug development, as well as possible gene therapy. The discovery 
was predicated on four decades of seemingly unrelated work involving 
research on electron transport, free radicals, the structure and 
function of enzymes that destroy free radicals, Down syndrome, and 
gene mapping. 

Thus, while society may desire that a specific goal, for 
example, "a cure for arthritis" be attained within a certain time 
frame, a lack of knowledge regarding underlying physiological 
processes can inhibit the development and evaluation of diagnostic 
and therapeutic technologies for that condition. Conversely, a 
recent research advance in another area may create unexpected new 
scientific opportunities for R&D in that disease area. To ensure 
that scientists take full advantage of these scientific 
opportunities, NIH supports a substantial number of investigator- 
initiated proposals through grants to the extramural research 
community. 

Finally, as a public health agency, NIH regularly considers the 
critical public health threats, such as AIDS and tuberculosis, in its 
research decisions and mobilizes resources appropriately to address 
these concerns. 



180 



DHHS Budget 

Mr. Dickey: I was interested to see your proposal to increase 
the HHS budget, as a whole, by about $50 billion over FY 1995 funding 
levels. With a looming budget deficit, it seems to me that 
Department Secretaries should be finding ways to decrease, not 
increase, funding. Would you be willing to work with members of this 
subcommittee to find areas in the Department of Health and Human 
Services to reduce overall funding by 7%, instead of increasing 
funding by 7%, as proposed in your FY 1996 budget? 

Secretary Shalala: The 7 percent increase you speak of is 
mostly driven by mandatory programs, which consume 95 percent of our 
budget. While entitlement growth within HHS is substantial, we 
anticipate that, under this Administration, spending for Medicare and 
Medicaid — the primary drivers this growth — will drop $212 billion 
from earlier projections. These enormous savings are due not only to 
the success of the President's economic program but to program 
efficiencies and the elimination of inappropriate financing schemes. 

In the discretionary portion of our budget (the remaining 5 
percent), we held growth for all of HHS to 4 percent for 1996. Our 
budget proposals cut 69 program activities and freeze 57 others. In 
addition, our budget includes proposals to consolidate more than 
100 program a,;tivities in the Public Health Service and the 
Administration on Children and Families, saving $218 million and 
700 FTE over the next five years. 

Still, we appreciate the constraints that this Subcommittee 
will face in limiting spending for 1996. As we have during the past 
two years, we would be happy to work with you in setting additional 
priorities and make further choices in prioritizing our spending for 
the year ahead. 



181 



Healthy People 2000 

Mr. Stokes: With respect to Healthy People 2000 having been 
designed to function as a partnership plan with the States, to what 
extent have the States joined in partnership with the Department? 

PHS - Healthy People 2000 

Secretary Shalala: As Healthy People 2000 approaches the 
midpoint of the decade, progress has been made on nearly half of the 
objectives, 15 percent are moving away from their targets, and 4 
percent show no change. The remaining objectives need additional 
data for evaluating progress. Additional information follows: 

► Healthy People 2000 is defined by 3 broad goals — 

• To increase the span of healthy life for Americans; 

• To reduce health disparities among Americans; and 

• To achieve access to preventive services for all 
Americans. 



In 1994, the National Center for Health Statistics (NCHS) began 
an annual publication the Healthy People 2000 Review. This new 
publication will provide a comparison of U.S. health status 
with the goals established for the year 2000. 



The first 
data. 



"Review" published in June 1994 provided 1992 



The next publication with 1993 data will be published in 
June 1995. 



To date, the following goals already have been exceeded: 

• increasing physical activity/fitness — low income persons 

• reducing use of cocaine by teens and young adults 

• reducing foodborne illness from saliionella 

• reducing Hepatitis B and C infections 

The following need additional attention: 

overweight adults in the U.S. 

weapon-related deaths 

occupational injuries for full time workers 

children under 5 not receiving annual dental visits 

adults without access to primary care 

Healthy People 2000 includes 22 priority areas which each 
include a multiple set of goals for the Year 2000. A table 
follows which portrays our progress in achieving selected goals 
within these priority areas. 



182 



HEALTHY PEOPLE 2000 GOALS AND PROGRESS 



Priority Areas 



1992* 



Year 2000 
Taigel 



DifFereoce 



Goal Met/or 
Exceeded 



1 . Phyiical Activity /Fitoeu 
(Percent Increase) 

Persons 18-74 years 

Low Income 18-74 Years.. 

2. Nutrition 
(Percent Decrease) 
Overweight adults 



3. Tobacco (per 100,000) 
(Death rate for luiig cancer) 
All persons 



4. Alcohol/Other Drugs 

(Reduce use w/in past month) 
Alcohol 

12-17 yearn 

18-20 years 

Marijuana 

12-17 years 

18-25 years 

Cocaine 

12-17year8 

18-25 years 



5. Family Planning 

(Adolescent abstinence 15-17 
years) 

Ever sexually active giris 

Ever sexually active boys 



6. Mental Health (per 100.000) 
(Suicide Death Rates) 

All persons 

7. Violent & Abusive Behavior 
(Weapon-related death rates) 
All weapons 



8. Community-Based Programs 
(Years of healthy life) 
All persons 



9. Unintentional Injuries 
(Rate per 100,000) 

All persons 

10. Occupational Safety/Health 
Non-fatal injuries (per 100) 
Full time workers 



12% 
7% 



26% 



38.5 



25.2% 
57.9% 



6.4% 
15.5% 



1.1% 
4.5% 



24% 
33% 



64.0 



7.7 



14% 
13% 



34% 



15.7% 
50.3% 



4.0% 
U.0% 



0.3% 
1.8% 



25% 
36% 



29.2 



8.3 



20% 
12% 



20% 



40% 

40% 



-6% 

+ 1% 



-14% 



12.6% 


+3.1% 


29.0% 


+ 21.3% 


3.2% 


+0.8% 


7.8% 


+3.2% 


0.6% 


-0.3% 


2.3% 


-0.5% 



-15% 

-4% 



Progress 
Exceeded 



Lost Ground 



Progress 



Progress 
Progress 

Progress 
Progress 

Exceeded 
Exceeded 



Progress 
Progress 



Progress 



Baseline year is 1985 in most years. 
Latest Data Available. 



183 



HEALTHY PEOPLE 2000 GOALS AND PROGRESS 



Priority Areas 



1991 

or 

1992** 



Year 2000 
Taiget 



Goal Met/or 
Exceeded 



1 1 . Environmental Health 
(Percent Increase of People 
living in countries with 
clean air) 
Any Pollutant , 



12. Food and Drag Safety 
(Cases per 100,000) 
Salmonella Infections.... 



13. Oral Health (Pereenl) 
Children under 5 who visited 
the dentist w/in past year 



14. Maternal and Infant Health 
(Percent of live births w/ 
mothers receiving prenatal 
care in first trimester) 
All races 



IS. Heart Disease/Stroke 
(Death rate per 100,000) 
All persons 



16. Cancer 

(Death rate per 100,000) 
Female Breast Cancer 



17. Diabetes & Chronic 
Conditions 

(Death rates per 100,000) 
Diabetes-related 



18. HIVInfecUon 

(Cases in thousands) 
All persons 



19. Sexually-Transmitted Diseases 
(Cases per 100,000) 
Syphilis/ All persons 

20. Immunization/Infectious 
Disease (Cases per 100,000) 

Hepatitis B 

Hepatitis A 

Hepatitis C 



21 . Clinical Preventive Services 
(Percent of Adults) 
Access to primary care 



22. Surveillance & Data Systems 
(Percent of States) 
Complete Year 2000 plans.... 



66.0% 



76.0% 



30.4% 



38 



63.5 
33.0 
18.3 



77% 



63.0% 



76.2% 



38 



37.7 

27.2 

5.6 



99% 



85.0% 



90.0% 



90.0% 



34 



10.0 



40.0 
23.0 
13.7 



95% 



100% 



* Baseline year is 1985 in most yean. 
** Latest DaU Avaikble. 



+6.6% 



-27.0 



20.6 



-2.3 
+4.2 
-8.1 



-1% 



Progress 



Lost Ground 



Progress 



Progress 



Progress 



No Change 



Incon- 
clusive 



Progress 



Exceeded 
Progress 
Exceeded 



Progress 



184 



Medicaid Waiver 

Mr. Stokes: What warning mechanisms and controls are built-in 
the waiver review, evaluation, and monitoring process to preserve and 
to ensure the continued delivery of quality and accessible health 
care services? 

Secretary Shalala: Quality and access are of high priority to 
my Department in our review of States' demonstration applications. 
We concentrate on protecting all enrollees within demonstration 
programs in terms of access to quality health care. We carefully 
evaluate each proposal to determine whether the State has developed a 
performance-based quality improvement program and can guarantee 
access to critical health services. We work particularly closely with 
States to develop agreements on monitoring, quality assurance 
activities, and access standards. 

Mr. Stokes: I would think that direct community participation 
in the implementation and monitoring of these newly created health 
care systems is key to effectiveness and success. To what extent is 
community participation included as a component of the terms and 
conditions of the Medicaid waiver? 

Secretary Shalala: In our review of States' demonstration 
applications, we ensure that States solicit and consider public input 
at the front end — when they are designing their demonstration 
programs. Because we believe that program beneficiaries should play a 
central role in a demonstration program's development and 
implementation, we recently published public notice guidelines in the 
Federal Register. 

We also consider community participation an important and 
valuable contribution to our own monitoring of the implementation of 
State demonstrations. State advocacy groups provide an essential 
perspective to effective and quality implementation. Terms and 
conditions for demonstrations require States to develop a monitoring 
plan within broad Federal guidelines. We encourage States to include 
community participation in implementation and oversight. 

Welfare Reform 

Mr. Stokes: As you are keenly aware, welfare reform is one of 
the primary issue ideas contained in the "Contract with America." 
What basic criteria must any enacted welfare reform measure meet to 
be effective? 

Secretary Shalala: The Administration supports real and 
effective welfare reform. Real welfare reform should: (move people 
from welfare to work; (2) provide adequate education, training and 
child care to enable welfare recipients to become self-supporting; 
(3) encourage parental responsibility; (4) protect the health and 
nutrition of children; and, (5) enhance State flexibility. 

Last year, the President proposed a sweeping welfare reform 
plan to the Congress. Last month, the President issued an executive 
order to crack down on Federal employees and members of the military 
who owe delinquent child support. In the past two years, the 
Administration has granted waivers from Federal welfare rules to 25 
States — giving States the flexibility to try new ideas. In all its 
welfare reform efforts, the Administration has emphasized the basic 
values of work, education, parental responsibility, the protection of 
children, and State flexibility. 



185 



Breast Cancer 

Mr. Stokes: The results of this research is hard evidence that 
more can and needs to be done to address breast cancer in general, 
and in African American and other minority females in particular. 
With this evidence in hand, what is the Department doing to address 
the problem of breast cancer in minority females? 

Secretary Shalala: Mr. Chairman, the Department has mounted a 
multifaceted effort to understand racial differences in breast and 
other cancers, and to help reduce survival discrepancies through 
improved access to early detection for African-Americans and other 
minority populations. The death rate for breast cancer declined 4.7 
percent between 1989 and 1992. This represented a 5.5 percent 
decline in rates for Caucasian women, but a 2.6 percent increase for 
African-American women. In my response, I will review some of the 
activities and programs underway in the agencies of the U.S. Public 
Health Service to address the issue of breast cancer in minority 
females. These activities focus on increasing research on breast 
cancer in minority women, improving access to screening, diagnosis, 
and treatment services, and improving public and health care 
professional education. The PHS Office on Women's Health (OWH) 
coordinates the implementation of the National Action Plan on Breast 
Cancer, a major public/private partnership that should make 
significant progress in eradicating breast cancer as a threat to the 
lives of American women. This Plan addresses issues related to 
research, service delivery, and education with an emphasis on 
minority populations. Additionally, the OWH has joined HCFA and the 
White House in implementing an educational campaign to inform women 
over 65 of all ethnic backgrounds to use the mammography screening 
benefit provided in Medicare, a benefit that can decrease mortality 
rates by 30%. 

The National Cancer Institute Black/White Cancer Survival Study 
is designed to investigate the significance of social, behavioral, 
lifestyle, biological, treatment, and health care factors in the 
observed differences in cancer survival eimong African-Americans and 
white Americans. Data have been collected on more than 3,400 
patients with cancers of the breast, colon, uterus, and bladder. 
This group will be followed until 1996 to characterize survival 
differences. 

There is an NCI-supported study seeking to identify barriers to 
timely follow-up of abnormal mammography results among African- 
American women. The study will examine the role of socioeconomic, 
psychosocial, and health care system factors in the lower rates of 
African-American women's use of appropriate follow-up diagnostic 
services. 

The Project Awareness program launched in 1992 to expand and 
enhance current community-based efforts to increase breast cancer 
screening and follow-up among underserved African-American women has 
been completed in ten cities. 

Additionally, there has been extensive community outreach 
programs within the NCI's Cancer Information Service (CIS) targeted 
to African-Americans and other underserved populations. A priority 
for outreach coordinators in the 19 CIS regional offices is to 
support activities of the National Black Leadership Initiative on 
Cancer. The objectives of the National Black Leadership Initiative 
on Cancer, implemented in 1939 to stimulate the participation of 
African-American Community leaders in cancer prevention and control 
activities, are to reduce cancer incidence and mortality rates, to 
improve cancer survival rates, and to address the barriers that limit 
or prevent African-Americans from gaining access to quality cancer 
control services. Outreach coordinators have also worked with 
national and local affiliates of African-American organizations. 



186 



A media placement activity has been developed and focuses on 
African-American and Hispanic print and broadcast media outlets. The 
initiative should increase the number of women who receive screening 
mammograms as well as the number of physicians who regularly refer 
patients for mammograms. 

The NCI and the District of Columbia Cancer Consortium are 
collaborating together to raise awareness of breast cancer and the 
importance of early detection, and to improve access to breast cancer 
detection and treatment services. Accomplishments to date under this 
collaboration include market research to help identify barriers to 
women's learning about mammography, and technical assistance in the 
development of culturally sensitive cancer control messages. 

Research studies underway are addressing the issue of breast 
cancer in minority women. The Cancer Institute's Dietary 
Modification Feasibility Study in Minority Women, which began 
recruitment in 1992, targets minority and underserved populations in 
addressing the possibility of achieving lasting dietary modification, 
specifically dietary fat restriction, to lower the risk of developing 
breast, colon, and possibly other cancers, as well as cardiovascular 
diseases, in postmenopausal women. Twenty eight percent of the 
participants are African-American women recruited at Emory University 
and the University of Alabama at Birmingham. Elements of the study 
design and the results will contribute to and be coordinated with the 
projected 10-year, trans-NIH, multidisciplinary Women's Health 
Initiative, especially those portions that focus on community-based 
interventions and diet/micronutrient studies. 

Another study is investigating the reasons for the increased 
aggressiveness of breast cancer in African-American women. This 
study aims to evaluate known prognostic markers (including the NM23, 
p53, HER2/neu, and type IV collagenase genes) as possible predictors 
of African-American/white survival differences. A recent report by 
NCI-supported researchers in The Lancet, May 14, 1994, suggests that 
breast tumors from African-American women exhibit a pattern of 
mutations in the p53 tumor suppressor gene significantly different 
from that observed in tumors from white women. While no specific 
explanation for this difference is presently available, the study 
suggests that the biochemical mechanisms of tumor growth may differ 
between the races. Because the p53 gene is believed to control a key 
step in breast carcinogenesis, this difference in mutational patterns 
opens a potentially fruitful avenue for future investigations, one 
which the Department intends to pursue. 

The NCI's Breast Cancer Prevention Trial is underway in the 
Community Clinical Oncology Program clinical trials network. This 
trial is testing the ability of tamoxifen, an anti-estrogen 
medication currently used in post-surgical treatment of early stage 
breast cancer, to prevent the development of breast cancer in women 
at increased risk for developing the disease. African-American women 
will be an important part of this study and efforts will be 
undertaken to increase their participation. 

Implementation of the Mcimmography Quality Standards Act (MQSA) , 
the responsibility for which was delegated to the Food and Drug 
Administration (FDA) in June of 1993, will play a major role in 
assuring the availability of and access to quality mammograms for all 
women. The FDA, in cooperation with AHCPR, published Implementation 
of MQSA; Consumer Brochure on Mammography. Things to Know About 
Quality Mammography , to help women become more educated participants 
in their own breast health management. 

The FDA Qffice of Consumer Affairs (OCA) has engaged in serious 
outreach efforts to a number of minority and other underserved 
communities where the incidence of breast cancer is high and/or there 
may be cultural resistance to certain medical procedures or 



187 



interventions. OCA interacts with a wide variety of women's groups, 
including Women of Color (eg. National Black Women's Health Project). 

The FDA has also supported a project to make information about 
breast cancer related clinical trials available to the public most 
effectively, thereby optimizing access to treatment and prevention of 
breast cancer. 

Innovative policies of the FDA are being designed with an eye 
toward improving the Department's responsiveness to special 
populations, including women of all demographic subgroups with or at 
risk of getting breast cancer. 

There are collaborations between many public and private 
organizations such as the Public Health Service's Office on Women's 
Health, NCI, the Centers for Disease Control and Prevention, the Food 
and Drug Administration, the American Cancer Society, the Association 
of State and Territorial Health Officers, and other organizations to 
develop a national strategic plan for breast and cervical cancer 
screening. Development and implementation of the plan will maximize 
the coordination and impact of public education efforts directed 
toward special populations, including African-American women. 

The Center for Disease Control and Prevention (CDC) National 
Breast and Cervical Cancer Early Detection Program provides a 
foundation for supporting effective screening and early detection of 
breast cancer at the State and community level. Screening data 
submitted by comprehensive state programs through September 1994 
demonstrates significant impact in providing mammography screening 
services to minority women. In fact, over 50% of the women who 
received mammograms through the Early Detection Program were minority 
women. The Program benefits all women but specifically targets those 
most likely to be underserved, including minority women. Through 
this program, grantees develop and implement community-based programs 
tailored to the cultural, educational, and psychosocial 
characteristics of women most likely to be underserved. 

CDC collaborates with the YWCA in implementing the Encore and 
Encore-Plus programs to conduct outreach to educate women about 
breast health and provide support for women, especially African- 
American women, with breast cancer. 

CDC has appointed a coordinator for Indian Health Service (IHS) 
activities to work in collaboration with the IHS Headquarters West 
Cancer Prevention and Control Program. They have helped State health 
departments target and provide early detection and cancer screening 
services to Native American women. In 1993, CDC co-sponsored a 
regional conference in Minnesota, "Challenges in Health Care for 
Underserved Groups: Cancer Screening in American Indian Women." 

The Indian Health Service (IHS) funds mammography for Native 
American women who attend the Women in Wellness conferences and has 
been purchasing mammography equipment in a number of rural sites 
where screening was previously unavailable. IHS is collaborating 
with the Office of Minority Health to develop a clearinghouse for 
health education materials that are specifically aimed at Native 
Americans. This will include breast cancer informational pamphlets, 
posters and videos. IHS is working with the Southwest Oncology Group 
on a mechanism for increasing the participation of Native Americans 
in clinical trials. 

The Office of Minority Health (OMH) will be announcing shortly 
the availability of Fiscal Year 1995 funds to support one competitive 
demonstration cooperative agreement to establish a cancer prevention 
project in Philadelphia, an area cited by Congress to have 
particularly high rates of cancer for its non-White population. 
Among the project objectives are to document cancer rates for various 



188 



tyi>es of cancer, including breast, in the target area, and design and 
implement a model for minorities that is an integrated, culturally 
appropriate community-based cancer outreach program that will also 
provide appropriate screening. 

The Health Resources and Services Administration (HRSA) is the 
lead Agency in a collaborative effort to esteiblish a breast cancer 
outreach and screening demonstration that promotes education and 
prevention by providing screening, early detection, and treatment of 
breast cancer among low-income and disadvantaged women residing in 
public/assisted housing and rural areas. The Bureau of Primary 
Health Care's Community Health Centers provide screening or make 
referrals to appropriate screening sites to reduce the risk of breast 
cancer to under served disadvantaged women. 

The Agency for Health Care Policy and Research (AHCPR) funds 
several grants that target breast cancer in minority women. 
Researchers at the UCSF MEDTEP Center on Minority Populations 
developed a model program that spans across breast cancer screening 
through treatment to better understand the factors which may 
contribute to racial/ethnic differences in breast cancer mortality 
rates. The research team is particularly interested in different 
perspectives related to patient race/ethnicity, specifically whether 
and how cultural differences affect individual attitudes and 
willingness to accept screening, provider communication and the 
health care professional's role in facilitating patient screening, 
and systematic discrimination of certain race/ethnic groups. They 
are also examining how patient preferences for information and for 
participation in decision-making can and should be elicited and 
integrated into the workup of an abnormal mammogram. Other AHCPR 
projects include the UNM MEDTEP Center on Minority Populations, which 
targets Hispanic and Native American women with or at risk for breast 
cancer, a Cancer Screening of Low Income and Minority Women project 
at Baylor College of Medicine, in which the aim is to design more 
effective materials for low income and minority women, and a 
Georgetown University grant on Low Income Minority Women: Barriers 
to Cancer Screening, which examines access barriers to cervical and 
breast cancer screening for low income, uninsured women. 

The Substance Abuse and Mental Health Services Administration 
(SAMHSA) considers emotional support for women with breast cancer and 
other medical conditions to be a critical element in treatment 
outcome. In addition, SAMHSA places an emphasis upon training 
medical providers to become sensitized to the psychological needs 
women may have regarding breast cancer or other life-threatening 
medical conditions. 

The programs described reflect some of the activities underway 
to address the important public problem of breast cancer in minority 
women . 

Mr. Stokes: To what extent does the Department's recently 
released "National Breast Cancer Plan" zero-in on breast cancer in 
African American females? Explain. 

Secretary Shalala: The death rate for breast cancer declined 
4.7 percent between 1989 and 1992. This represented a 5.5 percent 
decline in rates for Caucasian women, but a 2.6 percent increase for 
African-American women. The National Action Plan on Breast Cancer 
(NAPBC) is a public/private partnership involving all agencies of the 
government, consumers, health care professionals, scientists, private 
industry. Congress and the media. The Public Health Service's Office 
on Women's Health coordinates the implementation of the Plan. 



189 



The NAPBC has identified 89 action items aimed at achieving 
three goals of effective health care delivery, dynamic research on 
causes and cures, and progressive policy actions to improve the 
health status of women with regard to breast cancer. Sixteen of the 
action items either directly or indirectly target breast cancer in 
African Americans and other minority females. 

Working Groups have been established to address six high 
priority areas of the NAPBC. Each Working Group includes 
organizations and individuals that have direct access to and a unique 
understanding of underrepresented and high-risk population groups. 
The Working Groups are reviewing previous and ongoing breast cancer 
research projects to identify gaps and make recommendations for NAPBC 
funding. 

The Clinical Trials Working Group will develop recommendations 
on how to make clinical trials more widely available to women with 
breast cancer and women who are at risk for breast cancer, and to 
develop strategies to decrease barriers to participation in research 
studies. The group will address recruitment and retention of 
African-American and other minority participants in breast cancer 
clinical trials, education to foster understanding by African- 
Ttoierican women of the importance of clinical trials, the decision- 
making styles and information needs of minority and underserved 
populations, and the reduction of economic, physician, and access 
barriers that have limited participation of minority women in these 
studies in the past. 

The Etiology Working Group is concerned with expanding the 
scope of research related to the etiology of breast cancer, with 
priorities including the effects of radiation and electromagnetic 
fields, chemicals and hormones, personal risk factors, and viruses. 
The differential effects of specific risk factors for African- 
American women will be examined, including occupational and home 
environmental exposures; consumption and availability of foods 
thought to be protective of breast cancer, such as fruits and 
vegetables, high fiber foods, etc.; and the effects of exercise and 
obesity. Special funding consideration will be given to projects 
that target minority women. 

The Consumer Involvement Working Group is concerned with 
ensuring consumer involvement at all levels in the development of 
public health and service delivery programs, research studies, and 
educational efforts. Hearings are being considered for different 
areas of the country where African-American women's health advocacy 
groups could testify on the needs of their constituencies from the 
NAPBC. African-American and other minority women will also be 
included in the design of videos to teach consumers how to review 
grant applications. The recruitment of African-American women into 
breast cancer studies and the inclusion of these consumers in the 
design of studies is a high priority for this working group. 

The Information Dissemination Working Group will identify 
strategies to disseminate information about breast cancer and breast 
health to consumers, scientists, and practitioners using state-of- 
the-art technologies available on the information superhighway. The 
group will identify approaches needed to assure dissemination to 
underserved populations, shape methods of delivery to meet the needs 
of targeted groups, and increase accessibility of a range of 
technologies to low-literacy populations. 

The National Biological Resources Bank Working Group will 
establish tissue banks to ensure a national resource for breast 
cancer research. One of the most important characteristics of a 
national database is the extent to which it represents the diversity 
of the national patient population. Efforts will be made to ensure 
adequate representation of various ethnic and racial groups. 



190 



The Breast Cancer Susceptibility Gene Working Group is 
developing a comprehensive plan to address the legal and ethical 
issues and the short- and long-term needs of individuals carrying 
breast cancer susceptibility genes, particularly issues related to 
possible discrimination. African-American women in particular have 
concerns eibout discrimination and are therefore more reluctant to be 
involved in genetic research studies. Priority areas of the 
Susceptibility Gene Working Group include the recommendation of 
legislation prohibiting discrimination against women based on genetic 
testing for mutations in breast cancer genes, the development of 
policy recommendations for researchers in order to protect women who 
enter genetic testing clinical trials, and the establishment of 
education programs for African-American women regarding genetic 
research studies and existing policies in this area. 

As other priorities in the Plan are addressed, issues related 
to minority women will be a focus of working group activities. 

Consolidation and Clustering 

Mr. Stokes: As the Department proposes to consolidate and to 
cluster a significant number of its programs, to what extent will 
programs for the disadvantaged maintain a visible presence, or have 
we achieved the level of success that indicates that the visible 
presence of these programs should be abandoned? 

Secretary Shalala: One need only look at the disparity in 
health status indicators in the Healthy People 2000 Report to know 
that we have not achieved a level of success to justify abandonment 
of service programs aimed at the disadvantaged, underserved and 
vulnerable populations in this country. 

Our efforts to consolidate and streamline service programs, 
will create a new relationship with States, to empower them to use 
federal dollars to achieve success in serving their most needy 
populations. We believe through these Performance Partnerships, 
States will have more flexibility to address their critical health 
needs and, in exchange, we would expect improvement in the health 
status of those needy, disadvantaged populations. 

In PHS, we propose to maintain programs aimed at increasing the 
representation of minorities in health professions education and 
training programs. Historically, our minority populations have been 
both economically and educationally disadvantaged when trying to move 
into health profession careers. We believe the continued 
underrepresentation of disadvantaged populations in health 
professions is justification for continuance of these programs on a 
consolidated, streamlined basis. 

Within the new Performance Partnership Grants, we will 
establish performance objectives that measure how well the State is 
doing in serving vulnerable populations. We believe this is the most 
effective means to ensure that the needs of low-income and minority 
communities are addressed. 

Mr. Stokes: In testimony before the subcommittee, the Heritage 
Foundation recommended the elimination of a number of programs and 
offices within your Department. In particular, the Heritage 
Foundation, emphasized the elimination of the Office of Minority 
Health, the Office of Women's Health, and the National Health Service 
Corps. Secretary Shalala, are these offices and their mission no 
longer viable? Explain. 



191 



Secretary Shalala: These offices perform an important role. 
With respect to the role of the Office of Minority Health (OMH), the 
health status of minority populations in the United States continues 
to lag behind the health status of the American population as a 
whole. The overall mission of the OMH is to improve the health 
status and quality of life for racial and ethnic minority populations 
in the U.S. by building local capacity for addressing health and 
human service problems. 

The primary and unique focus of OMH is policy development and 
program coordination across the PHS and the Department. No other 
organization can perform this critical function. OMH is the only 
office with responsibility for identifying the health disparity gaps 
among minority populations and working with the PHS agencies to 
assure a coordinated minority health focus. 

The OMH sets the tone for PHS agencies to follow as they 
implement minority health activities. For example, in FY 1995, OMH is 
developing cooperative agreement mechanisms with seven national 
minority organizations under which activities within PHS can be 
conducted in a coordinated and collaborative fashion. Thus, OMH 
ensures collaboration of effort and reduces duplication across the 
PHS and the Department. 

As we move closer to the 21st century, the vision of the future 
with respect to minority health is that we move closer to our goal of 
improved minority health. Therefore, it is imperative that the 
Office of Minority Health continue its' efforts in reducing health 
disparities in racial and ethnic minority populations to achieve 
better health outcomes. The work of OMH and its mandate will not be 
complete until health disparities no longer exist between minority 
and white populations. 

The PHS Office on Women's Health (OWH) serves a vital national 
leadership role function in redressing the inequities in health 
research, services, education, and policy that have put the health of 
American women at risk. The mission of the OWH— to direct, stimulate, 
coordinate, and advance women' s health research, services, education 
and training across the PHS agencies and offices, and to collaborate 
with public and private sector organizations, foundations, private 
industry, consumer and health care professional groups to improve 
women's health is as critical today as it was when the OWH was 
established in 1991 by the Bush Administration. 

The OWH's function is unmatched and unduplicated elsewhere in 
the Department. It is uniquely able to objectively synthesize the 
state-of-the-art of women's health in its broadest perspectives, 
spanning research, services, education and training, and women's 
health policy. This capacity defines the OWH as the Federal leader 
in and for women's health, a focal point to which the Federal 
agencies, policymakers, health care professionals and the public 
alike at the national, state and local levels turn to be informed. 
By administering crosscutting initiatives across the Public Health 
Service, the OWH, as the focal point for women's health in the 
Federal government, is able to address gaps in knowledge, and to 
initiate and synthesize program activities and develop new 
partnerships to improve women's health in ways that no other single 
PHS agency or office could accomplish alone, given their separate 
circumscribed missions. 

The OWH leverages limited resources to their optimal use in the 
conduct of national and regional activities and initiatives to 
advance women's health nationwide. In just the past year, both 
independently and through the development of exciting public-private 
partnerships, the OWH has initiated a wide array of cost-effective, 
public health-driven activities to improve the health of American 
women, including: (a) the National Action Plan on Breast Cancer, a 



192 



major public-private partnership to eradicate breast cancer as a 
threat from the lives of American women; (b) support of regional 
women's health initiatives and the designation of regional women's 
health coordinators in each PHS region to foster women's health 
activities at the State and local levels; and (c) a partnership with 
DoD, CIA, NASA and private sector industries to explore how imaging 
technologies from defense, space, intelligence, and computer graphics 
might be applied to develop more accurate methods for the early 
detection of breast cancer. The work of the OWH and its mandate will 
not be superfluous or redundant until the day women no longer 
experience worse health and greater disability than do men. 

The National Health Service Corps has and continues to be one 
of the Federal government's true success stories. At the present 
time, because of NHSC clinicians, over 3.8 million people have access 
to primary care that would not otherwise be availeible. Over the 20 
plus years of NHSC placements, 20,000 clinicians have spent part or 
all of their professional careers serving those most in need. 

The nation's experience in the 1980 's disproved the "diffusion 
theory" which assumed that increasing numbers of health professionals 
would result in traditionally underserved areas having care. 
Historically, most health care providers have not located their 
practices in isolated rural areas or urban neighborhoods with 
overwhelming social problems. At the present time, there are over 
2,700 primary care HPSAs across the country which would require over 
12,000 primary care clinicians to achieve a population to clinician 
ratio of 2000; 1. 

The communities served through the NHSC are areas where others 
have chosen not to go and are in rural, frontier, and urban America. 
Primary care clinicians, who are currently in limited supply and 
great demand, have a myriad of opportunities to practice their 
profession. The NHSC is of tremendous assistance in assuring that 
the neediest communities receive their "fair share" of the primary 
care clinician supply. 

The NHSC is often the only source of providers to care for 
people in communities with high rates of infant mortality, poverty, 
substance abuse, and other problems. Over the years, the programs 
served by the NHSC have been successful in improving health status 
and reducing costs for these patients through comprehensive, case- 
managed care. In addition to reduced mortality and morbidity rates, 
the individuals served have lower hospital admission rates, shorter 
lengths of stay, and make less inappropriate use of hospital 
emergency rooms. 

By providing the preventive and primary health care to 
individuals who do not have access to such care is a highly cost 
effective strategy for addressing the health needs of the Nation's 
underserved populations. 

Rescissions 

Mr. Stokes: The recently reported house bill includes 
approximately $1.7 Billion in cuts and program terminations within 
the Department of Health and Human Services. The funding for Healthy 
Start is cut $12.5 Million; funding for Low Income Home Energy 
Assistance is eliminated; funding for crime prevention is eliminated; 
funding for the National Health Service Corps is cut $12.5 Million; 
and funding for infectious disease control and prevention is also 
reduced. 



193 



I think that it is absolutely essential that we realize that in 
the rescission process, we are not just cutting dollars. In fact, in 
many instances, we reducing the quality of life for America's most 
vulnereQ}le citizens: the children, the elderly, and the veterans. 
Would you provide a detailed response for the Committee on the 
"people impact" of the rescission line items that I just outlined? 

Secretary Shalala: I want to emphasize first that this 
Administration remains committed to controlling spending and reducing 
the deficit. The President's Budget proposed a number of rescissions 
for 1995, cutting back on low-priority programs in HHS and elsewhere. 
For HHS, $51 million in cuts were put on the table. We are in 
complete support of the House's move to follow the President's lead 
and adopt these type of sensible proposals. 

However, the House rescission package goes much further — often 
cutting valuable, proven programs that reach some of our most 
vulnerable populations. 

As you mentioned, the proposed rescission would cut 
$12.5 million or 10 percent from the National Health Service Corps — a 
program that has brought more than 20,000 health practitioners to 
areas which otherwise would be without health providers. Today, 
58 percent of the NHSC serve in rural America. The rescission 
translates into 125 fewer service obligation scholarships and loans 
to students in health practitioner training. Ultimately, the 
reduction will result in over 300,000 fewer medically underserved 
citizens receiving adequate health care. 

The House Bill would cut Federal matching funds for State 
Offices of Rural Health, possibly causing 10-15 of these offices to 
close immediately and another 10 to close within two years. 

Another $186 million of the proposed rescission will come from 
progreuns that offer children the chance to grow up healthy and safe, 
progreuns such as Foster Care, Community Schools and Healthy Start. A 
cap on Foster Care Administrative Costs contained in the House Bill 
would actually have the effect of penalizing States that are trying 
to implement automated child welfare systems. 

Mr. Stokes: Are there specific rescissions which really fall 
into the "penny wise a pound foolish" category with respect to the 
health problems that would result in the long-term? 

Secretary Shalala: I think that the cap on Foster Care 
Administrative Costs contained in the House Bill, which would reduce 
enhanced Federal funds for States that are trying to implement 
automated child welfare systems, may be viewed as "penny wise pound 
foolish". In many ways, the cuts to the National Health Service 
Corps could be viewed in this way also. As we sacrifice primary care 
for our underserved population, we risk more advanced and costly 
care. We should not take one step forward on the deficit by taking 
two steps backward on our progress in these other areas. 

Block Grants 

Mr. Stokes: My constituents have raised considerable concerns 
with respect to "block granting." In your professional judgement, are 
there specific concerns that you have with respect to the "block 
grant" approach being used as a primary funding mechanism? 

Secretary Shalala: I agree with current attempts at reducing 
federal bureaucracy and streamlining grant programs to increase state 
76flexibility. However, we must not forget the lessons learned from 
earlier block grants. If the blocks are too big, too diffuse, they 
lack identity and lose support. That is why, in proposing the 



194 



Performance Partnerships in DHHS, we are creating a new relationship 
with States to maximize flexiblity, reduce administrative burdens AND 
preserve sufficient identity for each block to protect against the 
otherwise inevitable erosion of support that undermines "generic" 
block grants. 

I also have concerns that huge block grants unfairly shift 
administrative burdens to States without sufficient transition time. 
Most States do not have the infrastructure to handle the range of 
categorical programs proposed to be blocked to them. States are also 
under political mandates for downsizing, yet they will need time and 
technical assistance to develop management arrangements and staff 
expertise to manage the range of programs proposed for blocks. 

In addition, there are some activities for which States are not 
the appropriate grantee to accomplish the goals of the grant. For 
example, most health professions grants go to colleges and 
universities including many private institutions. A sudden shift in 
grantees could result in serious disruption in services. 

Finally, we must recognize that there are legitimate and 
essential roles for the Federal government that would be lost in huge 
"generic" block grants. Foremost is providing leadership in areas 
such as research, training, technical assistance, collection and 
analysis of data. States cannot replicate these functions. 
Responsibilities which are of national benefit and which exceed the 
expertise and capacity of individual States should be maintained and 
supported at the Federal level where they are most effectively 
accompl ished . 

Health Professions Shortage Areas 

Mr. Stokes: Are we making progress in addressing the health 
care needs of individuals living in health professions shortages 
areas in our inner cities and rural areas? 

Secretary Shalala: Yes. The revitalization of the National 
Health Service Corps (NHSC) beginning in the late 1980s has led to a 
significant increase in NHSC field strength. Increasing numbers of 
individuals in the field strength will result in continued progress 
in addressing the health care needs of individuals living in 
underserved areas. Currently, there are approximately 1,900 obligors 
serving underserved communities. Field strength levels for FY 1995 
and for the FY 1996 President's budget request are expected to 
increase to 1,987 and 2,161, respectively. 

In addition, NHSC recruitment activities are targeted toward 
attracting individuals who are more likely remain in Health 
Professional Shortage Areas (HPSAs) after completing their 
obligation. As a result, the NHSC retention rate for practitioners 
who have stayed beyond their obligation has increased from 39 percent 
in 1991 to 53 percent in 1994. 

Despite this progress, there still remain a significant number 
of rural and urban areas in the United States with limited 
availedsility or accessibility to care. Individuals living in these 
areas are usually economically disadvantaged, minority, and high-risk 
populations with high rates of infant mortality, poverty, substance 
ahuBG, and many other problems. 

Historically, most health care providers have not located in 
these areas. The role of the NHSC is to address this mal- 
distribution through assignment of service obligated health 
professionals to underserved areas. 



195 



The NHSC recruits and places primary health care professional 
recipients of service obligated scholarship and loan repayment awards 
in high priority HPSAs to serve their obligations. These obligors 
are placed in settings such as community and migrant health centers, 
federally qualified health centers, health departments, free-standing 
private practices and other similar systems of care located in HPSAs, 
offering a full range of comprehensive and continuous primary health 
care services. These systems of care are financially viable and are 
tied to a health care system committed to serving the underserved 
residents of HPSAs. The systems are willing to provide primary 
medical treatment for these residents without regard for their 
ability to pay. Health systems located in HPSAs have come to rely 
heavily on the NHSC cadre of culturally competent, community 
responsive, primary care providers. 

In the early 1980 's. Federal scholarship program funding was 
greatly diminished until a low point of $2.2 million was reached in 
FY 1988. Beginning in FY 1988, the Federal Loan Repayment progrcun 
was established. Since then, through the revitalization of the NHSC, 
the Scholarship and Loan Repayment programs have received 
increasingly greater amounts of funding, resulting in significant 
increases in the number of awards. 

The NHSC Field strength is composed of individuals who received 
scholarships and loan repayment awards (in addition to State Loan 
Repayors, Community Based Scholars, and non-obligated Federal 
employees) and are now serving their obligation. Because 
scholarships are awarded during a students' educational years, these 
individuals are not ready for service for as many as seven years 
after the initial award. Therefore, the drop in the number of 
scholars in the field strength, resulting from low funding levels in 
the 1980s, did not occur until FY 1990. The lowest point in the 
field strength was 1,001 in FY 1991. However, Federal Loan Repayors, 
who receive their awards after completion of education and residency 
training, are immediately availetble for service and initially helped 
to keep the field strength from dropping any lower in FY 1991. 
Federal Loan Repayors now compose almost 60 percent of the Federal 
Field Strength. 

The NHSC remains committed to serving the health care needs of 
urban and rural health professional shortage area residents. 

Mr. Stokes: Has the number of health professions shortage area 
designations increased or decreased over the last five to ten years? 

Secretary Shalala: As of December 31, 1994, there were 2,736 
designated primary medical HPSAs, 1,843 rural and 893 urban. On 
December 31, 1984 and 1989, there were 1,876 and 1,935 designated 
HPSAs, respectively. The number of HPSAs is constantly being updated 
for new designations and, on occasion, withdrawal of a designation 
when a review of updated data indicates that an area no longer meets 
the HPSA designation criteria. In 1990, there was a definitional 
change related to HPSAs. As a result, under certain conditions, a 
HPSA can be not just communities, but also facilities operated by a 
city or county and a health facility operated by a tribe or tribal 
organization. Of the 2,736 primary care medical HPSAs, 165 HPSAs are 
hospitals under the revised definition. 

Mr. Stokes: What is the most effective way of addressing the 
shortage? 

Secretary Shalala: The National Health Service Corps (NHSC) 
remains the most proven, effective mechanism to deal with health care 
shortages in Health Professional Shortage Areas (HPSAs). The NHSC 
has made great strides in recruiting individuals to serve in high 
priority HPSAs, who, when their obligations are completed, are more 
likely to stay. 



196 



The question was asked during the 1980s — "If there is a surplus 
of doctors as a whole for the entire United States, why are there 
shortages in rural and urban areas, and, if more doctors continue to 
graduate each year from medical school, why don't they go to work in 
these underserved areas?" In reality, many doctors graduating from 
medical school want to specialize in particular areas of medical 
practice because of personal interests in addition to significantly 
increased earnings realized from the practice of these specialties. 
Primary care doctors, with less earning capacity, have a more 
difficult time repaying their medical school loans. Many doctors 
want to locate their practices in suburban or urban middle and upper 
class areas where there is a much greater possibility of seeing large 
numbers of patients who can pay or are insured, in addition to the 
lifestyle benefits that come with living in a metropolitan area. 

HPSAs are located in remote rural or inner city areas of high 
poverty and minority percentage populations, and are not usually the 
kinds of places where the average practitioner wants to set up 
practice. General or family practitioners, not specialists, are 
needed in HPSAs because they can treat a wide range of medical 
problems. In addition, many older doctors who settled in rural areas 
years ago have retired in recent years and there is no one to replace 
them. 

Among the criteria for a HPSA designation is the population-to- 
practitioner ratio of at least 3,500:1, reducible to 3,000:1 if 
unusually high need is indicated taking into consideration poverty 
level, infant mortality rates and birth rates. The doctors who are 
counted for this ratio are those who have established a permanent 
practice in the area. NHSC doctors who are serving their scholarship 
or loan repayment obligations are not counted. If NHSC doctors 
permanently remain in the area once their obligation is complete, 
then their numbers are counted in a revised ratio. HPSAs are 
routinely reviewed for updated statistics, and, if positive changes 
occur in the numbers of doctors or population demographics, 
designations may be withdrawn. 

For the foreseeable future, there will be a need for NHSC 
primary care practitioners in HPSAs. As of December 31, 1994, there 
were 2,736 designated primary medical HPSAs, 1,843 rural and 893 
urban. Currently, the minimum number of additional primary care 
physicians that would be required to achieve the population-to- 
practitioner ratio of 3,500:1 is 5,341. 

Employment 

Mr. Stokes: With respect to the Department of Health and Human 
Services, specifically, what has been the impact of affirmative 
action on employment opportunities for minorities and women? 

Secretary Shalala: Generally, this Department has been 
successful in attracting Blacks, Asians, Native Americans, and 
non-minority women. We have had limited success in attracting 
minority males and Hispanic women. We have not been successful in 
attracting Hispanics males and persons with dis2d3ilities. 

The Department has also been successful in raising the glass 
ceiling. That is, the representation of minorities and women in the 
higher grade levels has increased. It is closer to their 
representation in the general workforce. For example, the Washington 
Post reported on March 16, 1995 that women represent only 5 percent 
of top management at Fortune 2000 industrial and service firms. In 
HHS, 27 percent of the employees in the Senior Executive Service are 
women . 



197 



Mr. Stokes: Specifically, what has been the impact of 
affirmative action on the preparation of minorities and women for 
career advancement in the Department? 

Secretary Shalala: Developmental programs have been a main 
focus of affirmative employment efforts. For example, we assured 
that women and minorities were well-represented in our most recent 
SES Candidate Development Program. More than half of the candidates 
in the class were women and 29% of the candidates were minorities. 

We have implemented a Women's Management Training Initiative 
aimed at facilitating the upward movement of employees at the GS-9 
through 12 levels. 

The idea was that employees would become more successful at 
competing for promotions to the GS-13 level, which was where the 
glass ceiling started 

To enhance recruitment and promotion of persons with targeted 
disabilities, HHS established an interdisciplinary, interagency team. 
The Disabilities Initiative Team (DInT) developed a recruitment guide 
with materials on all aspects of recruitment from sources of persons 
with targeted disabilities to interviewing techniques. The Secretary 
has a Comnittee on Employees with Disabilities that provides advice 
on issues and concerns regarding the employment of persons with 
disabilities. 

In 1992, at the request of the Department's Committee on 
Employees with Disabilities, a detailed analysis was conducted of 
career mobility and advancement for this population. The analysis 
showed that employees with disabilities while similar to the overall 
HHS workforce in terms of demographics and length of service, were 
disproportionately represented at the lower grades with only 7% of 
severely disabled people holding supervisory jobs compared to 17% of 
the total workforce. The analysis also included a survey of 3,052 
HHS employees both disabled and nondisabled. Respondents were severe 
disabilities were more likely to report their disability had a 
negative effect on their career mobility than those with less severe 
diseUiilities. In addition respondents who reported their needs for 
accommodation had not been met said they had fewer opportunities for 
training, promotions and career-enhancing assignments. Follow-up 
activities have included increased attention to accommodation needs 
particularly related to training and inclusion of employees with 
disabilities in developmental programs. 



198 



Mr. Stolces: Last year, the Office for Civil Rights 
indicated that the number of discrimination complaints had 
leveled off, and that for the last several years the largest 
percentage of complaints involved discrimination on the basis 
of AIDS. Is this still the case, elaborate? 

Secretary Shalala: No. During fiscal year 1994, 
nearly three of four new investigated complaints raised 
issues related to discrimination on the basis of a wide array 
of disabilities. These complaints included cases raising 
AIDS or HIV-related discrimination. However, the proportion 
of all new investigated complaints that raised AIDS or HIV 
issues decreased from 18 percent of all such complaints 
received between fiscal years 1987 and 1992 to eight percent 
of such complaints received in fiscal years 1993 and 1994. 

With respect to the overall number of discrimination 
complaints, in fiscal year 1994, the number of new complaints 
increased to 2,222. This was an increase of 128 complaints 
from the 2,094 complaints received during fiscal year 1993. 
The Office for Civil Rights is currently projecting increases 
of approximately two percent per year in complaint receipts 
for fiscal years 1995 and 1996. 

Mr. Stokes: To what extent is there a case backlog in 
the Office for Civil Rights? 

Secretary Shalala: At the end of fiscal year 1994, the 
Office for Civil Rights had 1,103 complaints in its 
inventory. A backlog is frequently defined as those cases 
that an agency has not had a chance to begin to process. 
Given this definition, the Office for Civil Rights did not 
have an unattended backlog since the year-end inventory of 
open complaints was made up of cases in process, including 
cases received during the last few months of the year. 

Mr. Stokes: According to the Congressional 
justification, civil rights protection must be an integral 
part of the deliberations on issues as disparate as long-term 
care, preventive health initiatives, and the location and 
integration of services. To what extent, has the Agency made 
these provisions an integral part of its operations including 
progreum planning, reviews, evaluations, and audits? 

Secretary Shalala: In 1993, I charged each of the 
Department's Operating and Staff Division heads to work with 
OCR to create a more effective civil rights compliance 
program. Each member of my management teeun and I are 
committed to ensuring that Department funds are disbursed and 
programs are operated without discrimination based on race, 
national origin, disaibility, sex, or age. 

In partnership with the Operating and Staff Divisions, 
the Office for Civil Rights developed and is implementing an 
HHS Civil Rights Strategic Plan. This plan includes 
objectives for training, program planning, pilot survey and 
audit standards development, and monitoring activities 
through which program decision-making and implementation will 
incorporate consideration of civil rights issues. 

During the past two years, civil rights concerns have 
been part of the process as we have handled issues as diverse 
as the review of AFDC and Medicaid waiver proposals, 
relocation of hospital services, provision of renal dialysis 
services to persons who are HIV positive, patient dumping, 
transracial adoption policies, and distinct part 
certifications and financial screening as related to nursing 
home admissions. 



199 



AIDS Demographics 

Mr. Hoyer: My colleague from Oklahoma has indicated that the 
number of new cases of AIDS declined in 1994. I think that we are 
all pleased that our efforts to prevent the spread of this disease 
may have been somewhat successful. However, I understand that 
behavioral scientists who are following this disease have noticed a 
recent upswing in risky behaviors. Have AIDS cases in 1994 fallen? 

Secretary Shalala: During 1994, CDC received reports of 80,691 
AIDS case among US adults, adolescents, and children, representing 
approximately one-fifth of the 441,528 cumulative reported AIDS 
cases. While the number of cases reported in 1994 is less than the 
106,618 cased reported in 1993, this decline was expected because of 
the substantial increase in the number of reported cases in 1993 
following the expansion of the AIDS surveillance case definition. The 
expansion of the AIDS surveillance case definition allowed persons to 
be reported as having AIDS that were not previously eligible. 
However, both 1993 and 1994 totals exceed the 47, 472 cases reported 
in 1992. 

Because of the change in the case definition, comparison of 
annual reported cases cannot be used to describe trends in the 
epidemic. CDC has conducted analyses to estimate the number of AIDS 
cases that would have occurred if the case definition had not been 
changed. Based on analyses using consistent definition, the rate of 
AIDS-related illnesses increased 3% in 1993 compared with 1992; a 
similar increase is expected for 1994 compared with 1993. 

Mr. Hoyer: Does the number of new cases in 1994 justify 
reduced vigilance on the part of scientists, researchers and 
appropriators? 

Secretary Shalala: Absolutely not. With the continued 
increase in the rate of AIDS-related illnesses, the changing 
demographics of the epidemic, and new population groups beginning to 
show the effects of HIV infections acquired years ago, this is no 
time to let our epidemiologic guard down. As a Nation, we should 
continue to use the best surveillance methods to track the epidemic, 
prevent new infections in person who are at risk, and do what is 
necessary to extend the productivity and quality of life for those 
who are already infected. 

Mr. Hoyer: What projections are researchers making for the 
demographics of this disease in the future? 

Secretary Shalala: Women, blacks and Hispanics, and persons in 
the South and Northeast accounted for higher percentages of reported 
cases during 1994 than during 1993. Among cases in 1994 for which 
risks were reported, the largest proportions were in homosexual and 
bisexual men, heterosexual male injection drug users, and women. 
However, the proportion of AIDS cases reported among homosexual and 
bisexual men has been declining slightly in recent years. These 
findings indicated a continuation of trends for certain population 
groups, including an increase in the proportion of cases accounted 
for by women, racial and ethnic minorities, persons infected by 
heterosexual contact, a decrease in the proportion accounted for by 
homosexual and bisexual men, and an increase in the number of cases 
in children. These patterns reflect the evolution of the HIV 
epidemic. 



200 



JUSTIFICATION OF THE BUDGET ESTIMATES 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 

DEPARTMENTAL MANAGEMENT 
OFFICE FOR CIVIL RIGHTS 



1996 Estimate 



Departmental Management : 

General Departmental Management . . 

Working Capital Fund 

Policy Research 

Office for Civil Rights 

Office of Inspector General 

General Provisions 

TOTAL 



1,265 

842 

26 

276 

1,260 

3,669 



$119,704,000 

12,400,000 

21,330,000 

101,726,000 

$255,160,000 



5 
52 
61 
77 
97 
125 



201 



OVERVIEW 



FY 1996 PRESIDENT'S BUDGET REQUEST 

DM/OCR/OIG 
Dollars in Millions 




The FY 1996 budget request for Departmental Management (DM)', the Office for 
Civil Rights (OCR) , and the Office of Inspector General (OIG) includes $255 
million in appropriated funds (see Figure 1) . This request will support 3,669 
full-time equivalent positions (FTE)--a reduction of 365 FTE (9.0 percent) 
from the FY 1995 target and 623 FTE (14.5 percent) below the FY 1993 baseline. 
This request also includes activities 
and resources which will be 
apportioned to the Social Security- 
Administration (SSA) , as required by 
the Social Security Independence and 
Program Improvements Act of 1994, 
which establishes SSA as an 
independent agency effective ^ril 1, 
1995. 

The eight Staff Divisions (STAFFDIVs) 

included under DM^ provide assistauice 

to the Secretary in administering and 

overseeing the organization, 

programs, and activities of the 

Department . These STAFFDIVs are 

responsible for Department -wide 

policy and standards, program 

integration aind coordination, 

administrative support, 

organizational maintenance (such as 

legal services) , and external 

representation and intergovernmental 

affairs. In addition, OIG and OCR 

perform important programmatic functions; for example, OIG is responsible for 

safeguarding and protecting the integrity of HHS programs through a 

comprehensive program of audits, investigations, and progreun inspections and 

evaluations. In FY 1994, over $8 billion in savings, settlements, fines, 

restitutions, and receivables resulted from OIG activities cuid the 

implementation of OIG recommendations. Return on investment has also 

increased from $160,000 per OIG FTE in FY 1981 to $6.4 million in FY 1994. 

The HHS Worlcing Capital Fund (WCF) is a revolving fund authorized under 42 
U.S.C. and chartered in FY 1987. This legislation permitted the Department to 
establish a fund without fiscal year limitation for the expenses necessary to 
maintain and operate centralized administrative, fiscal and personnel support 
services on behalf of Departmental agencies. The WCF is directed by a Board 
of Governors comprised of representatives from each Operating Division 
(OPDIV) , OIG, and those STAFFDIVs which provide services under the Fund. The 
WCF does not have its own appropriation, but is funded through payments by the 
OPDIVs and STAFFDIVs based on fee-for-service billing procedures. The Fund 
has its financial statements audited cinnually. 



$266.1 Million 



Figure 1 



' "Departmental Management" is a new title referring to all budget 
accounts in the Office of the Secretary except the Office for Civil Rights and 
the Office of Inspector General. This terminology is consistent with other 
agencies included under the Departments of Labor, Health and Human Services, 
amd Education, euid Related Agencies Appropriations bill. 



' Including the Immediate Office of the Secretary, Public Affairs, 
Legislation, Planning and Evaluation, Management and Budget, Personnel 
Administration, Intergovernmental Affairs, and General Counsel. 



202 



In FY 1995, organizational changes within the framework of the Department's 
Continuing Improvement Process have had an importemt in^jact on this DM/OCR/OIG 
budget request : 



DM/OCR/OIG* 

FY 1993-1996 FTE REDUCTIONS 




n»i 1996 

Fiscal Year 



Figure 2 



Continued Personnel 
Streamlining As shown in 
Figure 2, reinvention efforts, 
streamlining reductions, cuid 
functional transfers will 
result in staffing levels for 
the DM/OCR/OIG accounts being 
decreased from 4,292 FTE in 
FY 1993 to 3,G69 FTE in 
FY 1996. This reduction of 623 
FTE (14.5 percent) exceeds the 
FY 1993-1999 reductions 
mandated by Executive Order 
12839. 

Regional Office Restructuring 
and Transfer of Functions The 
National Performance Review 
recommended that HHS conduct a 
comprehensive review of its 
organizational structure auid 
management systems, to 

determine the appropriate balcince between centralized emd decentralized 
functions. In an initial effort, the Department proposes to divest 
regional administrative support emd overhead functions to the OPDIVs and 
STAFFDIVs. The purpose of this change is to reduce duplication, align 
support functions more closely with customer agencies, amd increase the 
use of cross -servicing arrangements instead of maintaining large 
administrative support structures in OS. These changes will result in 
the transfer of 203 FTE to the OPDIVs and STAFFDIVs, with resulting 
savings of 54 FTE auid $24 million over the next five years. 

Process Improvement All STAFFDIVs have been forced to examine their 
work processes to increase efficiency without sacrificing quality. For 
excunple, in implementing its strategic plan, OCR is concentrating on 
ensuring quicker responses to its customers. OCR will experiment with 
using alternative dispute resolution techniques, limiting the scope of 
inquiries in some investigations, and focusing on keeping current with 
complaints filed by the public. During FY 1995, pilot projects will 
result in a 7.5 percent reduction in time spent per case- -and that rate 
is expected to accelerate to 16 percent in FY 1996. Cumulatively, OCR 
estimates that in FY 1996 its investigators will be able to handle 
complaints while using 25 percent fewer hours them in FY 1994. 

Next Steps The second phase of HHS reinvention- -to be completed by 
March 31, 1995- -will focus on the appropriate field euid headquarters 
structure for the STAFFDIVs and OPDIVs following SSA independence. 



203 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Departmental Management 

GENERAL DEPARTMENTAL MANAGEMENT 

FY 1996 Budget Page 

Organization Chart 6 

^propriation Lemguage 7 

Amounts Availctble for Obligation 8 

Summary of Chauiges 9 

Obligational Authority by Activity 11 

Obligational Authority by Object 12 

Administrative Costs 13 

Significant Items in House, Senate euid Conference 

T^propriations Committee Reports 14 

Authorizing Legislation 15 

impropriations History Taible IG 

Justification : 

General Statement 17 

Immediate Office of the Secretary 19 

Assistant Secretary for Public Affairs 21 

Assistant Secretary for Legislation 23 

Assistcmt Secretary for Planning and Evaluation 24 

Assistant Secretary for Mcmagement and Budget 26 

Assistant Secretary for Personnel Administration 36 

Office of Intergovernmental Affairs 43 

Office of the General Counsel 44 

RENT and Common Expenses 50 

Working Capital Fund 52 

Detail of Full -Time Equivalent (FTE) Employment 57 

Detail of Positions 58 

Centrally-Managed Projects 59 



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205 



DEPARTMENT OF HEALTH AND HOHAH SERVICES 
Departmental Management 

GENERAL DEPARTMENTAL MANAGEMENT 

For necessary expenses, not otherwise provided, for general departmental 
management, including hire of six medium sedfms, [$91,247,000] $89,779 ,000 
together with [$31,008,000] $30,925,000, to be trcinsf erred and e3q)ended as 
authorized by section 201(g) (1) of the Social Security Act frcxn any one or all 
of the trust funds referred to therein. (Department of Health and Human 
Services impropriations Act, 1995.) 



206 



GENERAL DEPARTMENTAL MANAGEMENT 
AMOUNTS AVAILABLE FOR OBLIGATION' 

FY 1994 FY 1995 FY 1996 
Actual^ Estimate Estimate 

General funds : 

Annual appropriation $94,431,000 $91,247,000 $88,779,000 

Rescission pursuant to P.L. 103-211 -656,000 

Reductions pursucint to P.L. 103-333 -998. 000 

Subtotal, adjusted appropriation . 93,775,000 90,249,000 88,779,000 

Comparable transfers to: 
OIG from lOS for security 

protection function -324,000 -420,000 

AoA from ASMS for White House 

Conference on Aging -500,000 

PHS from ASMB for NCS/NSEP 

telecommunications function . . . -99,000 -103,000 

FDA from OGC for legal functions . -2.460. 000 



Subtotal 90,392,000 89,726,000 88,779,000 

Real transfers to: 

National Commission to Prevent 

Infant Mortality -249.000 



Subtotal, adjusted general funds . 90,143,000 89,726,000 88,779,000 

Trust funds : 

Annual appropriation 31,261,000 31,008,000 30,925,000 

Reductions pursuant to P.L. 103-333 -332.000 

Subtotal, adjusted trust funds . . 31,261,000 30,676,000 30,925,000 

Unobligated balance lapsing -37. 000 



Total obligations $121,367,000 $120,402,000 $119,704,000 



General funds 90,106,000 89,726,000 88,779,000 

HI/SMI trust funds 8.002.000 7.279.000 7.220.000 

Subtotal, budget authority .... 98,108,000 97,005,000 95,999,000 

OASDI trust funds 23.259.000 23.397.000 23.705.000 

Total obligations $121,367,000 $120,402,000 $119,704,000 



' Excludes the following cunounts for reimbursements: FY 1994- - 
$24,077,000; FY 1995 - -$23 , 662, 000 ; FY 1996- -$23 , 662 , 000 . 

^ Excludes supplemental appropriation of $75,000,000 for the Public 
Health and Social Services Emergency Fund to respond to flooding along the 
Mississippi River eind its tributaries. 

8 



207 



GENERAL DEPARTMENTAL MANAGEMENT 
SUMMARY OF CHANGES 



1995 General fxinds adjusted appropriation $90,249,000 

HI/SMI trust funds transfers 7,279,000 

Comparative and real transfers -523 , 000 

Total estimated budget authority $97,005,000 

(Obligations) ($120,402,000) 

1996 Request- -General funds $88,779,000 

Request- -HI/SMI trust funds transfers 7. 220, 000 

Total estimated budget authority $95,999,000 

(Obligations) ($119,704,000) 

Net change -$1,006,000 

(Obligations) (-$698,000) 



1995 Base 

Obligational 
(FTE) Authority 
Increases : 

A. Built-in: 

1. Armualization of January 1995 

pay raise (1,343) $88,446,000 

2. Effect of January 1996 pay 

raise (1,343) 88,446,000 

3 . Career ladder promotions and 

within-grade increases . . . (1,343) 88,446,000 

4 . Increase from one additional 

day of pay (1,343) 88,446,000 

5 . Increase in Rental Payments 

to GSA/Delegated Authority . 13,659,000 

Subtotal 

Total increases 

Decreases : 
A. Built-in: 

1. Decrease in RENT Related 

Services $2,155,000 

2 . Decrease in share of Working 

Capital F\and costs 4,284,000 

Subtotal 

9 



Change from Base 

Obligational 
(FTE) Authority 



+$563,000 

+1,558,000 

+887, 000 

+340, 000 

+619.000 
+3,967,000 
+3, 967, 000 



-207,000 



-55.000 
-$262, 000 



208 



GENERAL DEPARTMENTAL MANAGEMENT 

SDMKARY OF CHANOBS 
(Cont.) 

1995 Base 

Pos. Obligational 
(FTE) Authority 
B. Program: 

1. FTE reduction (1,343) $80,446,000 

2 . Net reductions in other non- 
salary administrative costs . 21,318,000 

3. Reduction in Equipment . . . 1,318,000 

Subtotal 

Total decreases 

Net change 



Change from Base 
Pos. Obligational 
(FTE) Authority 



(-78) -$3,749,000 

-579,000 

-75.000 

(-78) -4,403,000 

(-78) -4,665,000 



(-78) 



-$698,000 



209 



GENERAL DEPARTMENTAL MANAGEMENT 

OBLIGATIONAL AUTHORITY BY ACTIVITY' 
(Dollars in thousands) 

1994 1995 1996 

Actual Appropriation Estimate 

FTE Amount FTE Amount FTE Amount 

Immediate Office of the 

Secretary 88 $5,841 88 $5,677 81 $5,643 

Public Affairs 39 2,842 38 2,834 35 2,816 

Legislation 28 2,213 30 2,453 28 2,438 

Plcinning and Evaluation .... 109 6,414 112 6,700 108 6,660 

Management and Budget 267 22,658 274 22,584 254 22,438 

Personnel Administration . . . 161 12,166 173 12,132 159 12,056 

Intergovernmental Affairs ... 35 3,143 39 3,323 36 3,302 

General Counsel 608 50,287 589 49,528 564 49,192 

RENT and Common Expenses 

(non-OGC) -- 13,357 -- 12,282 -- 12,265 

Payment for Working Capital 

Fund services (non-CX3C) . . . -- 2.446 ^^_^^ 2. 889 ^^_:^ 2. 894 

Total obligations 1,335 $121,367 1,343 $120,402 1,265 $119,704 

General funds $80,106 $89,726 $88,779 

HI/SMI trust fund transfers . . 8. 002 7. 279 1 . 220 

Subtotal, budget authority . 98,108 97,005 95,999 

OASDI trust fund transfers . . 23.259 23.397 23.705 

Total obligations 1,335 $121,367 1,343 $120,402 1,265 $119,704 

' Reflects the following comparable adjustments (see page 8, Amounts 
Available for Obligation, for further explanation) : 

1994 1995 1996 

Non- Comparable Total 1,377 $124,999 1,348 $120,925 1,265 $119,704 

Immediate Office -4 -324 -4 -420 

Management euid Budget -6 -599 -1 -103 

General Counsel -32 -2,460 

Common Expenses -249 

Comparable Total 1,335 $121,367 1,343 $120,402 1,265 $119,704 



210 



GENERAL DEPARTMENTAL MANAGEMENT 
OBLIGATZONAL AUTHORITY BY OBJECT 

1995 1996 Increase or 

Appropriation Estimate Decrease 

Full-time equivalent en^loyment . . . 1,343 1,265 -78 

Full-time equivalent of overtime cund 

holiday hours 4 6 +2 

Average SES salary $108,374 $110,653 +$2,279 

Average GS grade 11. li.O — 

Average GS salary $44,270 $45,332 +$1,062 



Personnel compensation: 

Full-time permanent $70,730,000 $70,413,000 -$317,000 

Other than full-time permeinent . . 2,086,000 2,116,000 +30,000 

Other personnel compensation . . . 1.269. 000 1.234 .000 -35. OOP 

Total personnel compensation . . 74,085,000 73,763,000 -322,000 

Civilian personnel benefits 14,167,000 14,093,000 -74,000 

Benefits to former personnel .... 194. 000 189. 000 -5.000 

Total compensation and benefits . . 88,446,000 88,045,000 -401,000 

Travel 800,000 796,000 -4,000 

Transportation of things 107,000 111,000 +4,000 

Rental payments to GSA 9,320,000 9,851,000 +531,000 

Rental payments to others 98,000 98,000 

Communications, utilities, and 

miscellaneous charges 3,188,000 3,127,000 -61,000 

Printing and reproduction 1,223,000 1,187,000 -36,000 

Advisory and assistemce services . . 483,000 429,000 -54,000 

Other services 7,762,000 7,710,000 -52,000 

Purchases of goods and services from 

other government accounts 6,735,000 6,178,000 -557,000 

(Working Capital Fund payment) . . (4,284,000) (4,229,000) (-55,000) 

Operation of GOCOs 

Research emd Development contracts . 

Supplies and materials 922,000 929,000 +7,000 

Equipment 1.318.000 1.243.000 -75.000 

Total obligations by object . . $120,402,000 $119,704,000 -$698,000 

12 



2ir 



GENERAL DEPARTMENTAL MANAGEMENT 

ADMINISTRATIVE COSTS' 
(Obligational Authority) 

1995 1996 

Estimate Estimate Change 

Personnel Compensation: 

Full-Time Permanent (11.1) $70,730,000 $70,413,000 -$317,000 

Other than Full-Time Permanent (11.3) 2,086,000 2,116,000 +30,000 

Other Personnel Compensation (11.9) . . 1.269.000 1. 234. 000 -35. 000 

Total Personnel Compensation (11.9) . 74,085,000 73,763,000 -322,000 

Civilian Personnel Benefits (12.1) . . . 14,167,000 14,093,000 -74,000 

Benefits to Former Personnel (13.0) . . . 194,000 189,000 -5,000 

Travel (21.0) 800,000 796,000 -4,000 

Transportation of Things (22.0) 107,000 111,000 +4,000 

Rental Payments to Others (23.2) .... 98,000 98,000 

Communications, Utilities, and 

Miscellaneous Charges (23.3) 3,188,000 3,127,000 -61,000 

Printing and Reproduction (24.0) .... 1,223,000 1,187,000 -36,000 

Advisory and Assistance Services (25.1) . 483,000 429,000 -54,000 

Other Services (25.2) 7,762,000 7,710,000 -52,000 

Purchases of Goods emd Services from 

Other Government Accounts (25.3) . . . 6,735,000 6,178,000 -557,000 

Operation of GOCOs (25.4) 

Research eind Development Contracts (25.5) 

Supplies and Materials (26.0) 922.000 929.000 +7.000 

TOTAL $109,764,000 $108,610,000 -$1,154,000 



' Excludes the following cunounts for Delegated Buildings Authority: 
FY 1995--$4,339,000; FY 1996- -$4 , 427 , 000 . 



212 



GENERAL DEPARTMENTAL MANAGEMENT 



SIGNIFICANT ITEMS IN HOUSE, SENATE AND CONFERENCE 
APPROPRIATIONS COMMITTEE REPORTS 



Item 



Action Taken or to be Taken 



1995 House Report 103-553 

Hispeuiic Representation 

1 . The Committee urges the 

Secretary to continue working 
to improve the representation 
of HispanicB in the 
Department ' s workforce , 
particularly at policy-making 
levels. (p. 108) 



Secretary Shalala has 
authorized the creation of a 
temporary Departmental working 
group charged with addressing 
salient Hispanic issues 
affecting HHS . This working 
group will seirve as a filter 
to sort and contextualize the 
recommendations of the 
Department to better serve and 
represent the Hispeinic 
community. The administration 
of this working group- - 
including staff support, 
follow-up and organization of 
policy development- -will be 
coordinated by the Immediate 
Office of the Secretary (lOS) . 



1995 Conference Report 103-733 

Notification of Office 
Closings 

1 . The conferees direct the 
Department to notify the 
Committees on impropriations 
at least fifteen days in 
advance of any office closings 
or relocations within the 
Department. (p. 27) 



The Department will notify the 
Committees on impropriations 
at least 15 days in advsuice of 
einy office closings or 
relocations. 



213 



GENERAL DEPARTMENTAL MANAGEMENT 

AUTHORIZING LEGISLATION 
(Non-ComparsOjle) 

1995 1995 1996 1996 
Amount Appro- Amount Budget 
Authorized priation Authorized Recmest 

General Departmental 

Management Indefinite $91,247,000 Indefinite $88,779,000 



214 



GENERAL DEPARTMENTAL MANAGEMENT 



APPROPRIATIONS HISTORY TABLE 
(Non- Comparcible) 



FY 1987 

Appropriation 

Supplemental 
Trust Funds 



Budget 

Estimate 

to Congress 



$108,319,000 

2,200,000 

27,500,000 



House 
Allowcmce 



$108,319,000 

2,200,000 

27,500,000 



Senate 
Allowance 



Net Enacted 
Appropriation 



$122,819,000 $121,819,000 

2,200,000 2,200,000 

27,500,000 27,500,000 



FY 1988 

Appropriation 
Trust Funds 



67,135,000 
7,000,000 



66,359,000 
7,000,000 



70,859,000 
7,000,000 



67,840,000 
7,000,000 



FY 1989 

impropriation 
Trust Funds 



68,160,000 
7,000,000 



68,160,000 
7,000,000 



68,160,000 
7,000,000 



67,342,000 
6,916,000 



FY 1990 

Appropriation 

Sequester 
Trust Funds 

Sequester 



71,046,000 
5,085,000 



80,327,000 
31,201,000 



80,577,000 
31,201,000 



80,399,000 
-983,000 

31,201,000 
-101,000 



FY 1991 

^propriation 

Sequester 
Trust Funds 



81,350,000 
31,100,000 



82,250,000 
31,950,000 



75,500,000 
28,950,000 



78,944,000 

-1,026 

30,350,000 



FY 1992 

impropriation 
Trust Funds 



91,673,000 
31,001,000 



86,673,000 
26,001,000 



79,444,000 
30,350,000 



90,572,000 
30,694,000 



FY 1993 

i^PJ^opj^iation 
Trust Funds 



93,359,000 
30,861,000 



91,159,000 
30,252,000 



92,093,000 
30,305,000 



90,384,000 
29,985,000 



FY 1994 

impi'opi' i 'It i on 

Rescission 
Trust Funds 



94,149,000 
31,261,000 



94,149,000 
31,261,000 



92,793,000 
31,261,000 



94,431,000 

-656,000 

31,261,000 



FY 1995 

Appropriation 
Trust Funds 

FY 1996 

i^Pi^opi^iation 
Trust Funds 



93,351,000 
32,161,000 



88,779,000 
30,925,000 



89,500,000 
31,008,000 



88,774,000 
31,008,000 



90,249,000 
30,676,000 



215 



GENERAL DEPARTMENTAL MANAGEMENT 

FY 1994 FY 1995 FY 1996 Increase or 

Actual Appropriation Estimate Decrease 

FTE Amount FTE Amount FTE Amount FTE Amount 

1,335 $121,367,000 1,343 $120,402,000 1,265 $119,704,000 -78 -$698,000 

General Statement 

The General Departmental Management (GDM) appropriation supports those 
activities associated with the Secretary's roles as chief policy officer auid 
general manager of the Department. The GDM appropriation supports the policy 
and administrative management functions performed by eight of the ten OS Staff 
Divisions, including personnel management, administrative and management 
services, information resources management, intergovernmental relations, legal 
advice and representation, planning and evaluation, finance and accounting and 
external affairs. 

The FY 1996 budget request for GDM proposes total funding of $119,704,000 and 
1,265 full-time equivalent (FTE) positions- -decreases of $698,000 (0.6 
percent) and 78 FTE (5.8 percent) below comparable FY 1995 levels. This 
request reflects the full impact of the FTE reductions mandated by Executive 
Order 12839, plus further personnel reductions required by funding 
limitations- -GDM staffing levels decrease by a total of 167 FTE (11.7 percent) 
between FY 1993 and FY 1996. In FY 1995, FTE usage in GDM is currently 
estimated at 1,325 FTE, or 18 under the FY 1995 target. This budget request 
also includes resources which are to be trainsferred to the Social Security 
Administration (SSA) on T^ril 1, 1995, as required by P.L. 103-296, the Social 
Security Independence and Program Improvement Act of 1994. These resources 
are primarily FTE and Old-Age, Survivors and Disability Insurance (OASDI) 
trust funds. 

The GDM section of this justification includes narrative chapters describing 
the activities of each STAFFDIV, plus two major GDM-related costs: RENT/ 
Common Expenses and the Working Capital Fund. Resource tables include only 
funding provided from the GDM appropriation, except for the special charts in 
the Worlcing Capital Fund section. FTE figures include full-time, part-time, 
temporary, and ceiling -exempt employees. 

GDM also carries out centrally-managed projects which benefit the Department's 
OPDIVs and STAFFDIVs, under the authority of the Economy Act (31 U.S.C. 1535) 
or other specific statutes. Costs for these activities are distributed among 
the OPDIVs and STAFFDIVs on a proportional basis, vising am estciblished cost 
distribution formula. Proposed FY 1996 projects are shown on pages 59 and 60 
of this document. 

Non- comparable appropriated funding for GDM during the last five years, 
including amounts availalDle for obligation from both general funds and trust 
fund transfers, has been as follows: 

Fiscal Year Funds FTE 



1991 


$109,293,000 


1,469 


1992 


$121,266,000 


1,502 


1993 


$120,369,000 


1,477 


1994 


$125,036,000 


1,377 


1995 


$120,925,000 


1,325 



216 



The HHS Working Capital Fund (WCF) is a revolving fund authorized under 42 
D.S.C. and chartered in FY 1987. This legislation permitted the Department to 
esteiblish a fund without fiscal limitation for the ejqpenses necessary to 
maintain and operate centrally administrative, fiscal and personnel support on 
behalf of Departmental programs and bureaus. The Fund is directed by a Board 
of Governors consisting of representatives frooi each OPDIV, OIG, and those 
STAFFDIVs which provide services under the Fund. The Fund does not have its 
own appropriation, but is instead funded through payments made to it by the 
OPDIVs 2uid STAFFDIVs based on fee -for -service billing procedures. Additional 
information related to WCF operations is included in the section beginning on 
page 52 . 

The President's appropriation request for this account represents current law 
requirements. No proposed law amounts are included. 



217 



IMMEDIATE OFFICE OP THE SECRETARY 



FY 1994 
Actual 


FY 1995 
ADoroDriation 
FTE Amount 
88 $5,677,000 


FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
88 $5,841,000 


FTE Amount 
81 $5,643,000 


FTE Amount 
-7 -$34,000 


PuiTDOse and Method 


of Ooerations 







The Immediate Office of the Secretary (IDS) provides policy and management 
guidcuice to the Department, and support for the Secretary cind Deputy Secretary 
in their roles as representatives of both the Administration cuid HHS. The 
major objectives of lOS are: to direct the programs and activities of HHS; to 
implement Executive and Congressional directives; and to provide assistance, 
direction suid coordination to the various organizations within the Department. 

lOS serves as the nucleus for HHS activities, providing the oversight 
essential for the management of the Department. Responsibilities associated 
with policies and issues that the Secretary amd HHS must confront daily 
nclude : 

Reforming the nation's welfare system to empower recipients of Aid to 
Families with Dependent Children (AFDC) to escape the cycle of 
dependence and move toward self-sufficiency. 

Improving infant mortality through the elimination of barriers to 
prenatal euid perinatal care for pregnamt women emd young children. 

Improving the lives of children and youth by ensuring access to 
immunization, developmental programs such as Head Start, auid quality 
physical cmd mental health care. 

Implementing efforts to prevent child abuse and neglect, auid encouraging 
personal responsibility to combat violence, HIV/AIDS and teen pregnancy. 

Strengthening biomedical auid behavioral research efforts to better 
understand and treat disease eind disability, thus helping to prevent or 
treat the onset of cancer, HIV/AIDS, heart disease, stroke, hypertension 
cmd mciny other diseases. 

Increasing the efficiency and cost -effectiveness of HHS through improved 
management of resources and restructured operations. 

Coordinating all Departmental actions and regulations requiring 
Secretarial action; mediating the resolution of differences between 
Departmental components; communicating Secretarial decisions; and 
ensuring the implementation of those decisions. 

Reviewing all new regulations cind regulatory changes; performing ein on- 
going review of regulations which have already been published, with a 
particular emphasis on reducing the regulatory burden. 

Maintaining the HHS information and document control system that tracks 
over 200,000 documents, including Secretarial correspondence, reports to 
Congress, regulations briefings, memos and external/internal mail. 



218 



Rationale for the Budget Request 

The FY 1996 request for lOS is a decrease of $34,000 and 7 FTE from FY 1995 
levels. The dollars saved as a result of the PTE reduction will help to 
defray the costs of the annualization of the JeUiuary 1995 pay raise, the 
anticipated January 1996 pay raise of 2.4 percent, and mandatory personnel 
costs such as within-grade increases and career-ladder promotions. 



219 



ASSISTANT SECRETARY FOR PUBLIC AFFAIRS 



FY 1994 
Actual 


FY 1995 
ADDroDriation 
FTE Amount 
38 $2,834,000 


FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
39 $2,842,000 


FTE Amount 
35 $2,816,000 


FTE Amount 
-3 -$18,000 


Puroose and Method 


of Operations 







The Office of the Assistant Secretary for Public Affairs (ASPA) serves as the 
principal public affairs office in all aspects of Departmental policy and 
activities; oversees the planning, mcuiagement and execution of communication 
activities in HHS; conducts HHS-wide public affairs programs; provides public 
information and support on legislative initiatives which cut across the 
Department's program cind OPDIV lines; administers the Freedom of Information 
Act (FOIA) and Privacy Act Department -wide; and provides information on 
Departmental activities to the public in general. 

ASPA is also responsible for: 

• Providing information, advice and counsel to the Secretary and other 
senior Department officials to assure that public affairs aspects are 
considered in the establishment of Department activities. 

• Conducting an active progrcun of communication with the public on behalf 
of the Department through the media and other avenues, to further public 
understanding of Departmental prograuns and issues. 

• Providing fvinctional msinagement of public affairs activities throughout 
HHS, to assure that Departmental priorities are followed cind that public 
affairs and public education activities are cost-effective and not 
duplicative. Such functional management includes the review cind 
evaluation of OPDIV public affairs activities, thereby ensuring that 
informative materials are delivered to the public in the most cost- 
effective manner possible. 

• Setting policies and procedures within the Department for administering 
FOIA, the Privacy Act, and other information-access statutes that assure 
the public's right to know and protect cin individual's right to privacy. 

• Communicating the effectiveness of HHS radio to local radio stations to 
provide up-to-the minute audio news and information on health eind social 
issues . 

• Initiating outreach to the Hispanic media and community by providing 
importamt health messages through such materials as Speinish- language 
audio news releases aund news mattes, and Spanish- lain guage stories on HHS 
radio. 

• Reviewing Departmental requests for clearance of publications and audio- 
visual materials, with the goal of eliminating wasteful spending, 
improving communications to the public, and finding more strategic amd 
cost-effective meains of providing information. 

• Providing OpEd and other materials on a regular basis to national, 
regional and minority media, with a special emphasis on personal 
responsibility auid the importance of the family. 

• Producing speeches, statements, articles, editorials, video scripts amd 
other written materials for Department officials. 



220 



Rationale for the Budget Request 

The FY 1996 request for ASPA is a decrease of $18,000 and 3 FTE from FY 199S 
levels. The dollars saved as a result of the FTE reduction will help to 
defray the costs of the annualization of the January 1995 pay raise, the 
anticipated January 1996 pay raise of 2.4 percent, and mandatory personnel 
costs such as within-grade increases and career-ladder promotions. 



22 



221 



ASSISTAHT SECRETARY FOR LEGISLATION 



FY 1994 
Actual 


FY 1995 
AocroDriation 
FTE Amount 
30 $2,453,000 


FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
28 $2,213,000 


FTE Amount 
28 $2,438,000 


FTE Amount 
-2 -$15,000 


Purtjose and Method 


of Oraerations 







The Office of the Assistant Secretary for Legislation (ASL) serves as the 
principal information resource and liaison with the Congress for health and 
human service issues; serves as HHS chief legislative liaison to executive 
officials of the White House, 0MB, and other Executive Branch departments; and 
serves as the principal advisor to the Secretary and the Department on 
congressional activities. 

ASL is also responsible for: 

• Providing information, data, euid materials concerning issues cind 
programs within the jurisdiction of the Department to Members of 
Congress and their staffs. 

• Advocating the Administration's health and human services legislative 
agenda with members of Congress cind congressional staff. 

• Managing the Department's legislative agenda, including the introduction 
cUid consideration by Congress of the President's and Welfare Reform and 
health care proposals as well as the Secretary's legislative 
initiatives . 

• Directing and coordinating legislative initiatives to ensure consistent 
euid strong advocacy before the Congress. 

• Providing guidance on the development and analysis of Departmental 
legislation and policy, including formulation of the budget. 

• Preparing, clearing and editing testimony and bill reports on pending 
legislation. 

Rationale for the Budget Request 

The FY 1996 request for ASL is a decrease of $15,000 and 2 FTE from FY 1995 
levels. Dollar savings from this FTE reduction will help to defray the costs 
of the einnualization of the January 1995 pay raise, the anticipated January 
1996 pay raise of 2.4 percent, and mandatory personnel costs such as wi thin- 
grade increases emd career-ladder promotions. 



23 



222 



ASSISTANT SECRETARY FOR PLANNING AND EVALUATION 



FY 1994 FY 1995 FY 1996 Increase or 

Actual Appropriation Estimate Decrease 

FTE Amount FTE Amount FTE Amount FTE Amount 

109 $6,414,000 112 $6,700,000 108 $6,660,000 -4 -$40,000 

Purpose and Method of Operations 

The Office of the Assistant Secretary for Planning eind Evaluation (ASPE) 
provides policy analysis amd advice; guides the formulation of legislation; 
coordinates strategic and implementation planning; conducts regulatory 
analysis eind reviews regulations; oversees the plcinning of evaluation, non- 
biomedical research, and major statistical activities; conducts and 
administers evaluation, data collection, and research projects that provide 
information needed for policy development; eind provides other technical 
support services, including simulation modelling, progrcuraning, and technical 
assistcince. 

The major accomplishments plcumed for ASPE in FY 1996 are as follows: 

Provide planning, analytic support, and evaluation of activities 
implemented in support of the President's HHS-related goals and 
objectives. 

Conduct planning and policy analysis for major policy issues --in 
particular, health care reform, welfare reform, disability, long-term 
care, and progrcuns for children, youth and the elderly. 

Conduct short-term analyses of issues and options for the Secretary and 
the White House. 

Conduct evaluation and policy research studies to provide information on 
importcuit policy issues, and coordinate the Department -wide planning of 
such studies . 

Provide policy- relevcint information on national trends which are 
relevcint to health and human services issues. 

Manage the development of the Department's legislative program. 

Coordinate the Department's planning of high priority regulations, and 
review regulations for policy, economic, and family impact. 

Guide Department -wide plcuming for the implementation of new public laws 
affecting HHS . 

Coordinate the development cind implementation of policies to integrate 
the Policy Support Services function. 

Maintain and further develop microsimulation models to support the 
Administration's initiatives on health care reform, welfare reform, and 
other issues. 



223 



Rationale for the Budget Request 

The FY 1996 request for ASPB is a decrease of $40,000 and 4 FTB from FY 1995 
levels. Dollar savings from this FTE reduction will help to defray the costs 
of the annualization of the January 1995 pay raise, the anticipated January 
1996 pay raise of 2.4 percent, and mandatory personnel costs such as within- 
grade increases and career- ladder promotions. 



25 



224 



ASSISTANT SECRETARY FOR MAMAGEMBMT AHD BUDGET 



FY 1994 
Actual 


FY 1995 
Appropriatipn , 
FTE Amount 
274 $22,584,000 


FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
267 $22,658,000 


FTE Amount 
254 $22,438,000 


FTE Amount 
-20 -$146,000 


Purpose and Method 


of Ooerations 







The Office of the Assisteuit Secretary for Management and Budget (ASMB) advises 
the Secretary on all aspects of administration and financial management, smd 
provides general oversight and direction of the administrative euid financial 
organizations and activities of the Department. Major areas of ASMB 
responsibility in the areas of financial services, information resources 
management services, budget services, grants, acquisition and logistics 
services, and administrative services include the following: 

• Fincuicial Services Advises the Secretary on all aspects of financial 
management, auid directs, coordinates and provides support for all 
financial management activities across the Department. Provides 
leadership to OPDIV senior finemcial mamagers, including the OPDIV Chief 
Fineuicial Officers (CFO) , through the CFO Council. Manages and directs 
implementation of the requirements of the CFO Act and the government 
Meuiagement Reform Act (GMRA) . Provides support to program and f ineuicial 
meuiagers for implementation of the government Performance and Results 
Act (GPRA) . Develops department -wide financial management policies and 
stemdards . Serves as departmental liaison with central agencies on 
fincUicial matters. Manages the day-to-day finance and accounting 
activities for OS, ACF and AoA, and departmental systems for all HHS 
OPDIVs . Directs regional reviews cuid negotiations of cost allocation 
plans and indirect cost rates. Conducts cost determination reviews of 
ADP facilities operated by State and local governments. 

• Information Resources Management (IRM) Services Advises the Secretary 
and the ASMB on issues cind policies pertaining to the utilization of 
information resources. Coordinates the Department's annual IRM 
strategic planning and budgeting process. Develops policies, conducts 
IRM and major information system reviews, amd oversees the Department's 
IRM acquisition management activities. Monitors the Department's 
complieuice with the Paperwork Reduction Reauthorization Act of 1986 auid 
the Computer Security Act of 1987. Develops infrastructure and 
information system standards to enhauice the Secretary's mcuiagement of 
the Department . Kanagea the OS Central Network euid ADP support 
contracts. Develops IRM plems cuid coordinates the IRM activities of OS, 
including the provision of telecommunications and reprographics 
services. 

• Budget Services Advises the Secretary on Departmental budget and 
mcuiagement policy issues. Manages the preparation of the Department's 
annual budget, and prepares the Secretary to present and defend the 
aumual budget before Congressional committees and the public. Matnages 
the production of work products prepared specifically for 0MB and/or 
Congress, such as justifications of estimates, hearings transcripts and 
related materials, and effect statements. Furnishes analyses, options, 
and recommendations on all budget and management issues. Establishes 
and maintains equal employment opportunity (EEO) prograuns for OS. 
Estedslishes amd manages audit follow-up policy for the Department, and 
prepares the Secretary's semi-cumual report for Congress on audit 
management. Manages the Federal Managers Financial Integrity Act 

(FMFIA) process for the Department amd prepares the Secretary' s amnual 

26 



225 



FMFIA report to the President and Congress. Administers the 
Department's systems for delegations of authority and reorgsuiization. 

• Grants. Acquisition and Logistic Services Advises the Secretary and the 
ASHB in the areas of grants management, acquisition, and logistics. 
Develops Department -wide grants, acquisition, and logistics policies and 
training, and works with 0MB and other Federal agencies in formulating 
government -wide policies. Condu<^ts projects to pursue innovation and 
improvement in the management of the Departments ' s procurement, grants, 
and logistics operations. Formulates cost principles and related 
policies for determining and reimbursing grant and contract costs. 
Develops and manages training and certification programs for HHS grants 
and acquisition staff. Resolves cross -cutting audit findings on 
grsmtees auid contractors. Msmages the Department's Small smd 
Disadvantaged Business Utilization Program. Awards euid administers 
contracts in support of the program needs of OS . 

• Administrative Services Provides a variety of administrative and 
management services that benefit the OPDIVs, STAFFDIVs, and regions. 
Develops, interprets, coordinates and enforces administrative services 
policies throughout HHS, including those governing real property 
meuiagement, occupational safety £uid health, environmental management, 
energy meuiagement, physical security, postal management cuid historical 
preservation. Provides direct operational services to HHS agencies and 
offices in the Southwest Washington, D.C. complex, including ID badging, 
records mamagement, mail delivery, occupational safety suid health, 
trcmsportation, shipping and warehousing, parking, and facilities cuid 
management services for HHS assigned space. 

The FY 1996 budget request will allow ASMB to carry out the following major 
goals auid objectives: 

Finemcial Services 

• As required by the CFO Act of 1990, issue the Department's Annual CFO 
Report and the Financial Management Status Report and Five -Year Plan amd 
provide support to government -wide CFO initiatives. In addition, as 
required by the GMRA of 1994, oversee the preparation of OPDIV/Agency 
audited and unaudited financial statements. Develop eind issue the 
Departmental consolidated finamcial statements to include the 
development and publication of performance measures in conjunction with 
the HHS plan. 

• Provide support to the government -wide initiatives of the National 
Performance Review (NPR) , including Electronic Benefit Transfer (EBT) 
cmd Electronic Commerce. 

• Provide general guidance and direct assistance to OPDIVs, programs and 
activities which are implementing the requirements of the government 
Performance and Results Act (GPRA) . 

• Provide effective direction and oversight of HHS regional Divisions of 
Cost Allocation in conducting annual reviews and negotiations of cost 
allocation pleuis and indirect cost rates with State and local 
governments, universities, and other organizations. 

• Develop electronic commerce alternatives for the processing of financial 
information in acquisitions using a government bank card and expctnd the 
Electronic Data Interchange (EDI) capability with vendors for financial 
information in accordeuice with the government -wide initiatives on 
streamlining procurement activities. 



226 



Maintain the Financial Information Reporting System (FIRS) which 
provides summary financial information in a central database that can be 
readily accessed by managers at all levels of the Department. 



IRM Services 



Issue cpjidance for the implementation of stcuidards to marshal movement 
away from costly proprietary-based systems to open systems solutions, 
using domestic cuid international standards where appropriate. 
Coordinate the development of OPDIV plans in this direction. 

Provide technical oversight of OS LAN systems and expeuid the network's 
capcibilities to include the sharing of OS datcdsases, the creation and 
support of an OS Dataserver, the addition of new services such as 
Departmental World-Wide Web (WWW) and Gopher servers, and the support of 
network-based applications in personnel cmd financial management. 

Consolidate IRM policies in key functional areas. Periodically conduct 
performance based, outcome -oriented reviews of the OPDIVs to assess 
mission results achieved through the use of information technology; the 
management of IRM programs; the management of information systems 
investments; and Major Information Systems (MIS) . 

Review significant OPDIV procurement requests for Federal Information 
Processing resources, requests for information collections, and Computer 
Matching Agreements to ensure effectiveness and con^liance with Federal 
regulations . 

Pursue the integration of OS telecommunications cuid printing operations 
with other information resources memagement activities. 

Issue guidcince eind provide oversight to the OPDIVS and STAFFDIVs so that 
they meet the administration's goals as they relate to technology as 
delineated in the National Performemce Review and the National 
Information Infrastructure Agenda for Action. 



Budget Services 



Plan all HHS events for the FY 1997 Departmental budget, including 
reviewing OPDIV requests, developing alternative recommendations, and 
ensuring timely submissions to 0MB and the Congress. 

Provide the Secretary with all budget -related materials and information 
necessary for presentation to amy audience . This involves ensuring that 
the Secretary is successful in budget presentations in support of the 
programs of the President. 

Respond to 0MB in successfully addressing the major workloads in^osed by 
0MB in support of the amnual budget submission etnd in other prograun 
budget analyses and estimates which occur throughout the year. 

Develop amd make modifications to all Departmental budget preparation 
processes, presentations, amd submissions to reflect chamges due to 
functional restructuring and the reshaping of major on-going 
discretionary programs. 

Coordinate the divestiture of regional administrative support functions 
and associated staff to the regional Operating and Staff Divisions. 

Develop and conduct practical dispute resolution training, tailored to 
the most frequent issues generating EEO conplaints in each organization. 



227 



• Evaluate procedures for providing reasonable accommodations for 
employees with disabilities, ensuring that funds are included in budgets 
and that all employees understand how to request accommodations. 

• Manage the FMFIA euid audit follow up programs for the Department, 
streamlining program processes and strengthening corrective actions. 

• Direct the operations of the Working Capital Fund and manage the 
policies set by the Board of Governors. 

Grants. Acquisition, and Logistic Services 

• Manage all Departmental Small Business Acquisition and Grant programs. 

• Initiate full development and testing of a new Department -wide grants 
information system. 

• Conduct an outcome measurement of HHS Procurement Operations . 

• Introduce and manage a new performance measurement system to replace 
operational reviews of HHS procurement offices. 

• Work with OMB to revise and strengthen government-wide cost principles 
and grant administration policies for universities. State and local 
governments, and other non-profit organizations. 

• Develop and implement innovative grant, acquisition, and logistics 
solutions to National Performance Review and OFPP Pledge Initiatives. 

• Effectively and efficiently resolve audit report recommendations within 
the mandated time frame. 

• Initiate testing and full development of an electronic information 
system technology on the Departmental WWW server, to find and exchange 
acquisition and logistics information about and for the Department. 

• Work with Department's Electronic Commerce Architecture Team (ECAT) to 
implement the government -wide program for conducting Federal procurement 
through electronic commerce. 

Administrative Services 

• Ensure a safe and healthful work environment for HHS employees, as well 
as HHS complieuice with occupational safety/health suid environmental 
protection laws, regulations and procedures. 

• Issue and implement policy and procedures to ensure effective and 
efficient mainagement of the Department's real property assets. 

• Continue a comprehensive analysis of HHS compliance with the National 
Energy Conservation Policy Act, Executive Order 12759, Federal Energy 
Management, and the Energy Policy Act of 1992. 

Monitor and implement Building Improvement Projects designed to improve 
working conditions for HHS employees located in the Hubert H. Humphrey 



building 

Rationale for the Budget Request 

The FY 1996 request for ASMB is a decrease of $146,000 and 20 FTE from FY 1995 
levels. The dollars saved as a result of the FTE reduction will help to 
defray the costs of the annualization of the January 1995 pay raise, the 

29 



228 



cuiticipated January 1996 pay raise of 2.4 percent, ouid mandatory personnel 
costs such as within-grade increases and career-ladder promotions. 



ASSISTANT SBCRBTARY FOR HAMAOBMEMT AMD BDDOBT 

Program Impact Data 



FY 1994 
Workcounts 



FY 1995 
Workcounts 



FY 1996 
Workcounts 



Finamcial Services 

Key Departmental cind OS systems 
operated, maintained cuid enhcuiced 

Audit reports related to indirect 
cost rates and cost allocation plans 
resolved 

Cost negotiation agreements 
completed 

Policy direction, technical 
assistance, training, and other 
functional management activities 
related to negotiations of indirect 
cost rates «md cost allocation plams 

Cost avoideuice/savings resulting 
from regional reviews smd 
negotiations of indirect cost rates 
amd cost allocation plams (millions) 

Apportionments/reapportionments 
processed 

Financial reports issued* 

Grants transactions* 

Grants closed* 

Commercial treUisactions* 

Travel transactions* 

Prompt payment invoices* 

Prompt payment penalties: 

- Number of penalties assessed* 

- Dollar value* 

* Headquarters accounting 
operations only. 



2,000 



1,200 



$650 



2,000 



1,200 



$650 



2,000 



1,200 



$650 





276 




275 


275 


56, 


500 


60, 


,000 


50,000 


105, 


,000 


120, 


,000 


120,000 


5, 


,000 


8, 


,000 


8,000 


335, 


,000 


350, 


,000 


350,000 


30, 


,000 


35, 


,000 


35,000 


13, 


,000 


15, 


,000 


15,000 




200 




150 


150 


$2, 


,600 


$1, 


,200 


$1,200 



229 



IRM Services 

OPDIV long-range IRM pleuis reviewed 

STAFFDIV long-range IRM plans reviewed 

STAFFDIV IRM budgets reviewed 

Bene£it-cost euialyses for major 
Information Technology Systems (ITS) 
initiatives reviewed cuid submitted to 0MB 

OPDIV ITS budget submissions reviewed 

Information collection requests 
reviewed and submitted to OMB 

FOIA requests handled 

On-site IRM reviews of OPDIVs 

HHS IRM Advisory Co'jncil meetings 
conducted/supported 

OS IRM Advisoiry Council meetings 
conducted 

Computer matching agreements approved 
by Data Integrity Board 

Computer security plans reviewed 

Disposition authorities, exceptions, 
and other actions relating to records, 
forms and reports management 

Major information systems reviews 

Printing requests emd waivers 

Policy direction, technical assistcuice, 
training, and other functional 
management activities relating to 
information management 

Federal Information Processing (FIP) 
procurement requests : 

- Number of requests processed 

- Dollar value (millions) 

Major excess ADP equipment 
reassignments : 

- Number of reassignments 

- Current market value (millions) 

New microcomputers installed in OS 

Office networks designed and 
installed in OS (cumulative) 



FY 1994 
Workcounts 


FY 1995 
Workcounts 


FY 1996 

Workcounts 


6 




6 




8 


1 10 




10 




10 


11 




11 




11 


OMB 3 




3 




2 


6 




6 




e 


40 




40 




40 


10 




15 




15 


3 




2 




2 



20 
15 

65 

2 
10 



80 
$600 



3 

$6 



20 


20 


15 


15 


60 


60 


2 


2 


10 


10 



40 
$1,200 



3 
$4 



40 
$1,200 



3 
$4 



230 



IRM procurements processed in OS 

Telephone bills processed 

Telecommunication service orders 
handled 

Printing jobs contracted out 

Reprographic jobs done in-house 



FY 1994 
Workcounts 


FY 1995 
Workcounts 


FY 1996 
Workcounts 


250 


200 


- 200 


2,250 


2,400 


2,400 


1,500 


1,500 


1,500 


1,425 


1,500 


1,500 


1,700 


1,650 


1,650 



Budget Services 

Briefing materials for Secretary' s 
Budget Council decisions: 

- Briefing books prepared 

- Total number of pages 

charts 
APTs 

Briefing materials and opening 
statements for appropriations 
hearings : 

- Briefing books prepared 

- Total number of pages 

statements 
APTs 

Hearings transcripts of testimony by 
HHS witnesses 

Reports provided to the Appropriations 
Committees 

Formal/informal EEO cases processed 

EEO counselors trained/appointed 

Meetings with complainants and managers 
re : EEO complaints 

Affirmative employment plans developed, 
monitored and evaluated 

Training workshops for managers on 
EEO initiatives 

Reorganization proposals reviewed 

Delegations of authority approved 

Interagency agreements reviewed 

OS public use reports approved 

Administrative code revisions reviewed 



60 


60 


70 


4,350 


5,200 


5,000 


90 


90 


95 


10 


10 


15 



167 


217 


150 


53,965 


74,171 


65,500 


140 


140 


140 


10 


10 


15 



140 

60 
160 

10 

400 



60 


60 


180 


140 


10 


10 



40 


40 


50 


40 


40 


20 


30 


34 


30 


10 


10 


10 


15 


15 


15 


2,000 


1,500 


1,500 



231 



FY 1994 
Workcoupts 



FY 1995 FY 1996 
Workcounts Workcounts 



Grants. Acouisition. and Logistic Services 

Contracts, delivery orders, and 
modifications awarded 

Cost analyses conpleted 

Close-out modifications handled 

FOIA requests handled 

Purchase orders and addenda awarded 5, 

Oral purchase requests awarded 

Blanket purchase agreements awarded 

In-house and outreach covtnseling, 
assistance, euid advisory services for 
small and minority businesses 1, 

Analyses conducted and policy 
developed on issues such as 
accountability, con^etition. Federal 
Acquisition Regulation implementation, 
preference contracting, IRM 
procurement integrity, debarment, etc. 

Technical assistance given to OPDIVs, 
OMB, GSA cuid contractor comnnanity on 
award and administration of contracts 

Special studies on procurement 
activities, as mandated by HHS, OMB 
and Congress 

Review, revision and development of 
logistics policy and procedural guides 

Technical assistance given to OPDIVs, 
GSA and OMB on logistics 

Performance measurement of OPDIV 
procurement emd logistics activities 

Operational reviews of OPDIV grants 
activities 

Reports analysis and follow-up to 
ensure implementation of recommendations 
from reports issued by HHS, OMB, GAO 
and OIG; analysis of periodic reporting 
by OPDIVs (including audit reports) 

Development of HHS positions on 
contract protests and bid mistakes 

Quick assessment reviews (unscheduled) 
in procurement practices and logistics 



400 


450 


400 


125 


125 


100 


100 


100 


100 


120 


124 


125 


000 


4,500 


3,800 


400 


450 


400 


50 


50 


50 



2,500 



3,000 



232 



FY 1994 FY 1995 FY 1996 
Workcounts Workcounts Workcounts 

Procurement training courses developed 

and presented to HHS personnel 220 230 250 

Training workshops conducted on 

contracts, grants and logistics 7 10 H 

Grants mcuiagement training courses 

provided for HHS personnel 50 50 50 

Technical assisteince given to OPDIVs, 
STAFFDIVs, 0MB, and grantees on award 
and management of grants 1,000 1,000 1,000 

Identification and development of 

logistics training courses for HHS 

personnel 4 4 4 

Regulations, program announcements, 

and other Federal Register documents 

reviewed 50 50 12O 

OPDIV Program Announcement Plans 

reviewed 13 

Audit reports resolved 750 

Logistics approvals/certifications 30 

Logistics reports prepared 13 

Logistics motor vehicle misuse/underuse 
investigations 12 

* To be taken over by OPDIVS in 1996 

Administrative Services 

Technical assistetnce given to OPDIVs, 
0MB, other agencies, and/or contractors 
re: 

- real property issues 

- occupational safety and health issues 

- environmental management issues 

- energy conservation issues 

- historic preservation issues 

- physical security issues 

- postal management issues 

- Fitness Center policy 

Building passes issued 

Parking permit applications reviewed 

Visitor permits issued 

Repair and alteration orders processed 



13 


13 


800 


850 


11 


10 


13 


14 



220 




230 




230 


200 




210 




220 


150 




180 




200 


200 




210 




220 


50 




60 




60 


25 




30 




30 


10 




10 




10 


40 




40 




40 


5,000 


5 


000 


5 


000 


1,600 


1 


600 


1 


600 


6,000 


6 


000 


6 


000 


350 




400 




450 



233 



Facility cuid maintenemce problems 
solved 

Preventative maintenance inspections 
(hours) 

Custodial maintenance inspections 
(hours) 

Elevator maintenance inspections 
(hours) 

Pieces of incoming/outgoing mail 
processed 

HHS locator calls handled 

Property disposed of as surplus to 
GSA 

Property rehabilitated 

Legislative materials distributed 

Staff car/truck assignments 

Shuttle dispatches 

Cholesterol screenings (Health and 
Wellness Center) 



Py 1994 




FY 1995 




FY 1996 


Workcounts 


Workcounts 


Workcounts 


5,000 




5,500 




5,500 


4,160 




4,160 




4,160 


2,800 




2,800 




2,800 


300 




300 




300 


2,310,000 


2 


,287,000 


2 


,265,000 


143,000 




145,000 




147,000 


4,500 




4,500 




4,500 


250 




350 




350 


315,000 




315,000 




315,000 


6,500 




6,500 




6,500 


12,700 




12,700 




12,700 



234 



ASSISTANT SECRETARY FOR PERSONNEL ADMINISTRATION 



FY 1994 
Actual 


FY 1995 

Appropriation 

FTE Amoiant 

173 $12,132,000 


FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
161 $12,166,000 


FTE Amount 
159 $12,056,000 


FTE Amount 
-14 -$76,000 


Puroose and Method 


of Operations 







The Office of the Assistant Secretary for Personnel Administration (ASPER) 
provides leadership in personnel administration in HHS, as well as directly 
providing personnel and payroll services to the Department. Through its 
servicing personnel offices in Washington D.C. and ten regional offices, ASPER 
provides personnel services to over 65,000 Department employees; in addition, 
ASPER manages the Department's payroll operations, providing pay services to 
all HHS employees (more thaui 125,000) every pay period. 

ASPER' s headquarters staff provides policy development, oversight and 
technical assistance to the Department's OPDIVs in the areas of alternative 
dispute resolution, equal employment opportunity (EEO) , recruitment, employee 
relations, labor -management relations, employee development, employee 
assistcince progrcuns, classification, and compensation. In addition, ASPER 
serves as the administrator of the Departmental Drug Testing Program. 

ASPER also provides administrative services and resources for the Departmental 
Appeals Board (DAB) , which decides post-award grant disputes and civil 
assessment, penalty, euid other remedy cases prosecuted by the Department. 
Since FY 1992, DAB has been involved in implementing the Administrative 
Dispute Resolution (ADR) Act, which requires HHS to provide skills training 
for mediators. In recent years, DAB has also been given responsibility for 
reviewing Civil Rights Reviewing Authority cases, scientific misconduct cases, 
Clinical Laboratory Improvement Amendment (CLIA) cases, amd HCFA adversarial 
appeals cases. 

Based on strategic planning, the following programmatic goals eUid major 
operational efforts are planned for FY 1996 to achieve ASPER' s mission: 

Personnel and Payroll Systems 

• Complete HHS implementation of the automated Time and Attendance 
Information Management System (TAIMS) . Continue enhancements to the 
system as mandated by 0PM and support the needs of the users . 

• Continue the Payroll Re-engineering Project (PREP) implementing business 
processes which will use increased automation to diminish many labor- 
intensive activities. 

• Provide application/transition support for the conversion of the WANG VS 
system to an "open architecture" environment. 

• Continue to implement the Top Level Design (TLD) which will position HHS 
for appropriate additional automation efforts into the 21st century. 

• Implement a Data Dictionary which identifies all of the personnel suid 
payroll data elements, and complete a relational data base design. 

• Identify software tools which provide the capaUaility to re-engineer 
legacy applications, auid will result in several legacy applications 
being re-engineered using the selected tool. 



235 



Fully implement the Fee -for- Service System after nonning a parallel 
system during FY 1995, 

Enhemce the network server to include additional capabilities for data 
and datcUsases. This will reduce the amount of data and databases stored 
on mainframe at DCRT cmd reduce the associated costs . 

Personnel Services 



Coordinate with 0PM the on-line scheduling and receipt of personnel 
security investigations, to further reduce processing time. 

Conduct on-site security assistance smd evaluation visits at specific 
OPDIVs and STAFFDIVs. 

Develop em assistcuice program to aid drug progreun coordinators to carry 
out guidance of the HHS Drug -Free Workplace Program. Conduct management 
control review of drug-testing operations. 

Conduct on-site evaluations of executive personnel activities within 
HHS. Continue to streamline internal procedures for executive personnel 
activities . 

Continue support of the HHS automated training system. 

Implement the restructuring of the administration of the Employee 
Assistance Prograun. 

Provide on-going support for Total Quality Management (TQM) 
implementation throughout HHS. Continue a variety of TQM enhancements 
across the Department, eind work with customers in their TQM programs. 

Support teeun leadership approach to supervisory and management 
development through the dissemination of external developmental programs 
and assignments. 

Conduct aui end- of -year conference and graduation for Class IV of the 
Women's Management Training Initiative. 

Develop cuid implement new staffing and classification programs resulting 
from new legislation. 

Continue to develop and strecunline personnel policies. 

Expand partnership efforts in the decision-making process on issues 
affecting the conditions of the employment of bargaining unit employees. 

Hvmtan Resources Planning and Policy 



Coordinate humeui resource strategic planning efforts with work force 
analysis and affirmative employment initiatives, to assist OPDIVs and 
STAFFDIVs in meeting long-term programmatic, employment atnd management 
needs . 

Continue to provide technical assistauice to OPDIVs and STAFFDIVs on 
overall policy management. 

Continue to develop Departmental policy to implement changes resulting 
from the National Performance Review euid work force streamlining 
initiatives. Monitor work force reporting policies amd assist OPDIVs in 
tracking progress and analyzing results. 



37 



236 



• Continue to develop Departmental policy for implementing new Federal Pay 
Reform provisions concerning Performiuice Management and Health Care 
Occupational Pay. Continue to provide technical assistance to OPDIVs 
and Regions on overall pay reform in^lementation . 

Humctn Relations 

• Continue expeuision of the Labor -Management and Enployee Relations 
Electronic Information Systems, which provide electronic (rather thzui 
paper) access to current information in the Labor Relations area. 

• Continue administration of the Consolidated Regional Labor -Management 
Agreement . 

• Continue to modernize the union dues collection system and bargaining 
unit statistical bases. 

• Continue to expeuid development and implementation of Alternative Dispute 
Resolution (ADR) programs in the following areas: 

lAbor relations: involve more HHS organizations and more unions; 
utilize interest -based negotiations to develop cooperative leUjor- 
meuiagement partnerships. 

anplpyee relations: continue facilitation of ADR in the agency 
grievance procedure euid alternative discipline progreuns. 

Piscri nil nation complaints; maximize opportunities to resolve conplaints 
(juickly and in a less adversarial m2uuier. 

HHS progzanmatic areas: provide primary support to HHS ADR Specialists 
in their vork. with OPDIVs. 

• Continue to utilize TQM principles into the management of complaints 
processing. 

• Ensure operating procedures are adapted to comply with, euid entploy 
flexibility under, current EEOC regulations. 

• Continue merit systems investigations as referred by the OIG hotline to 
identify sources of fraud, waste, eUsuse, mis -management and other merit 
systems violations. 

Departmental Appeals Board 

• Complete work on grant award docket cases representing $1.4 billion in 
disputed funds. 

• Con^lete work on civil sanction cases representing approximately $2 
million in proposed penalties and 600 years of exclusions for providers 
who submit false claims. 

• Receive 53 cases under miscellaneous new authorities and conplete work 
on 68. 

• Receive 60 recjuests for mediation services in cases of alleged 
discrimination filed under the Department's EEO process. 

• Complete work on 26 Indiaui Health Service cases arising under the 
LaBaron agreement. 



38 



237 



• Conqplete work as the third party review authority in approximately 30 
SSA disability cases arising from Small v. Shalala. 

• Encounter work on 24 appeals of Administrative Law Judge decisions in 
penalty and exclusion cases and cooiplete work on 24 . 

• Continue to lead Departmental efforts in Alternative Dispute Resolution 
and Negotiated Rulemaking (Reg-Neg) , providing both training and 
services. 

Rationale for the Budget Request 

The FY 1996 request for ASPER is a decrease of $76,000 and 14 FTE from FY 1995 
levels, generated by program reengineering and streamlining efforts begun in 
FY 1994. These efforts will continue in FY 1996, in accordance with ASPER' s 
Strategic Plan and Continuous Inprovement Program initiatives. Emphasis will 
be on incorporating autca\ated processes to replace manual ones and delegating 
authorities to the greatest extent possible under current law. 

In addition, dollars saved as a result of the reduction of 14 FTE will help to 
defray the costs of the annualization of the January 1995 pay raise, the 
anticipated January 1996 pay raise of 2.4 percent, and mandatory personnel 
costs such as within-grade increases au:id career-ladder promotions. 



39 



238 



ASSISTANT SECRETARY FOR PERSONNEL ADMINISTRATION 
Program Impact Data 



Personnel and Payroll Systems 

Paychecks issued biweekly to 
civilian enployees 

Paychecks issued monthly to active 
and retired PHS Commissioned 
Officers and medical students 

Debt collection actions processed 
biweekly 

Pay and leave records updated 
annually (e.g., amended time cards, 
late personnel actions, pay 
correction cards, lump sum leave 
payments) 

Retirement actions processed 
cmnually 

Dnemployment compensation actions 
taken annually 

Requirements analyses to modify the 
Personnel cind Payroll Systems amd/or 
to alter support services as a 
result of systems changes recpiested 
by personnel offices 



FY 1994 
WorkcountB 



FY 1995 
WorkcountB 



FY 1996 
WorkcountB 



.27,705 


127,155 


125,855 


11,500 


11,500 


15,500 


8,810 


9,500 


10,000 



50,000 


52,000 


50,000 


25,000 


25,000 


20,000 


5,000 


3,500 


2,000 



365 



325 



325 



Personnel Services 

Services to employees located in 
Southwest Washington D.C. euid to 
certain regional employees: 

- Personnel cind pay actions processed 

- Job Information Service 

- Enployee career counseling 

- Employee substcuice aJsuse and 
other coianseling 

- Benefit counseling 

- Performance management 
counseling 

- Training counseling 

- Organizational development 
training 



28,000 


28 


,000 


30 


,000 


2.500 


2 


,500 


3 


,200 


220 




320 




500 


240 




240 




260 


300 




300 




300 


50 




100 




200 


50 




100 




200 



50 



200 



300 



FY 1994 


FY 1995 


FY 1996 


Wprkpounts 


Worltcovint? 


Workcovint^s 


2,470 


3,705 


4,075 


160 


175 


200 



5,200 


5,000 


5,000 


4,000 


4,000 


4,000 


200 


1,540 


1,500 



239 



- Enployees trained at Mary Switzer 
Training Center (MSTC) 

- Courses held at Switzer 

- Total training courses authorized 

(including MSTC) 5,360 5,360 5,360 

Actions in support of Advisory 
Conmittee management activity (e.g., 
charters, nominations, availability 
cards, invitations) 

Security investigations processed 

Drug tests administered 

HHS-wide humem resource development 
activities: 

- Employee Assistance Program, new 

cases 4,800 4,800 4,800 

- Employees trained in AIDS 

Awareness 5,000 75,000 45,000 

- TQM/tecun training sessions 10 20 20 

- Facilitators trained to deliver 

other TQM training 35 60 100 

- Participants in HHS developmental 

assignments 60 50 50 

- Participants in external developmental 

programs (eg. FEI, LEGIS Fellows) 55 60 60 

Executive and Employee Development 
Program activities: 

- Participants in Secretary's 

Executive Leadership Forum 80 160 120 

- Participants in "Supervisor in 

Context" training 240 260 260 

- Participants in Women' s Management 

Training Initiative 100 100 100 

- Participants in SES Candidate 

Development program 85 85 50 

Executive Personnel activities 365 365 340 



240 



FY 1994 
WorkcountB 



Human Resources Planning and Poliev 

Technical assistance on policies and 
programs (e.g., pay, benefits, 
performance management, affirmative 
action, enployment, disciplinary 
actions, grievances, evaluations, 
awards and financial disclosure) 
and on guides and models developed to 
assist in policy interpretation 

Policy issuances, legislative 
proposals, regulations, and standards 
reviewed or issued 

Personnel program assessments and 
special studies supported, conducted 
or reviewed 

Affirmative action plans cuid 
activities 



Human Relations 

Oversight of EEO counseling 

Fact finding and dispute resolution 

Participants trained in ADR concepts 
and skills 

Hearings, decisions, and appeals 
Program monitoring 

Departm ental Anoeala Boari j 

Appellate Cases 

- Received 

- Decisions issued 

- Closed 

Remedies Cases 

- Received 

- Decisions 

- Closed 

Total Cases 

- Received 

- Decisions 

- Closed 



FY 1995 
Workcounts 



FY 1996 
Workcounts 



3,100 



30 



230 

65 

210 



200 

50 

155 



430 
135 
360 



3,100 



120 



270 
100 
235 



210 

60 

170 



480 
160 
405 



2,700 



25 
25 



1,850 


2,370 


3,080 


1,320 


1,585 


1,820 


2,000 


2,000 


2,500 


600 


790 


1,065 


3,995 


5,150 


6,530 



270 
100 
235 



210 

60 

170 



480 
160 
405 



241 



OFFICB OF ZNTBROOVBRHMENTAL AFFAIRS 



FY 1993 
Actual 


FY 1994 
ADDrooriation 
FTE Amount 
39 $3,323,000 


FY 1995 
Estimate 


Increase or 
Decrease 


FTE Amount 
35 $3,143,000 


FTE Amount 
36 $3,302,000 


FTE Amount 
-3 -$21,000 


Puroose and Method 


of Operations 







The Office of Intergovernmental Affairs (IGA) is composed of a headquarters 
office and the ten offices of the Regional Directors. IGA undertakes a 
variety of assignments for the White House, the Secretary, and the Deputy 
Secretary in the areas of administration, management, and intergovernmental 
affairs. IGA also works closely with national intergovernmental interest 
groups and with individual State and local officials in ensuring that 
important lines of communication are maintained among all levels of 
government . The Regional Directors coordinate a range of outreach activities 
and facilitate cross-cutting initiatives in the field. 

IGA is also responsible for: 

• Providing advice to State and local entities about the potential impact 
of proposed Departmental legislative, regulatory, and administrative 
decisions. This includes working with both the HHS OPDIVs and State and 
local officials throughout the review process on comprehensive health 
and welfare reform demonstration waivers. 

• Providing Departmental leadership in several areas, including many 
reflected on the Secretary's agenda (e.g., health care reform, welfare 
reform, immunization, initiatives for children and families. Empowerment 
Zones, and AIDS policy) . 

• Representing the Secretary auid the Deputy Secretary in contacts with 
officials from other Federal agencies, Congressional committees, members 
of Congress, the White House, officials of State and local governments, 
their representative organizations, non-governmental organizations and 
other outside parties. 

• Promoting general public understanding of programs, policies, auid 
objectives of the Department. 

The Regional Directors are the Secretary's chief representatives in working 
with the 104 urbein cind rural communities which have been designated by HUD and 
USDA as Empowerment Zones or Enterprise Communities. As part of the 
streamlining eind restructuring of the Department's field operations during 
FY 1995, the Regional Directors will be receiving new job titles which reflect 
their enhanced euid refocused roles as liaisons to State and local officials, 
constituency groups, private business, smd advocates. 

Rationale for the Budcret Request 

The FY 1996 request for IGA is a decrease of $21,000 and 3 FTE from FY 1995 
levels. Dollar savings from this FTE reduction will help to defray the costs 
of the annualization of the January 1995 pay raise, the anticipated Jcinuary 
1996 pay raise of 2.4 percent, and mandatory personnel costs such as within- 
grade increases and career-ladder promotions. 



242 



OFFICB OF THB GENERAL CODNSBL 



FY 1994 
Actual 


FY 1995 

ADcrocriation 

FTE Amount 

589 $49,528,000 




FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
608 $50,287,000 


FTE 
564 


Amount 
$49,192,000 


FTE Amount 
-25 -$336,000 


Purpose and Method 


of Ocerations 









The Office of the General Counsel (OGC) directs or oversees the provision of 
legal advice and representation to all components of the Department on all 
aspects of agency operation. The General Counsel directs the operation of 
specialized headquarters divisions, which are structured to have principal 
responsibility for providing advice to the Department's major programs, and 
the operation of Regional Chief Counsel's offices, which are responsible for 
providing the full range of legal services to the Department's regional 
operations . 

Functional legal services provided by OGC to the Department include: 
representation in both administrative and judicial litigation; preparation of 
legal opinions; legal review of legislation, regulations, contracts and other 
documents; eind provision of informal legal counsel. 

Following are OGC's planned accomplishments, listed by major activity. 

Business and Administrative Law (BAL) 

• Represent the various HHS contracting activities in protests before the 
General Services Administration Board of Contract Appeals involving 
automated data processing equipment, as well as represent HHS in major 
protests before the General Accounting Office. 

• Attempt to recover pension funds that the Inspector General's Office of 
Audit has determined Medicare contractors have overcharged the Medicare 
program. 

• Assist the Department's leasing officers in negotiations regarding the 
large number of leases directly negotiated and executed by HHS 
components . 

• Represent HHS before the Armed Services Board of Contract Appeals in 
appeals filed under the Contract Disputes Act of 1978 by HHS 
contractors . 

• Assist Department officials in planning for and implementing the SSA 
independent agency legislation. 

Office of Inspector General (OIG) 

• Provide review, assistance (and representation as necessary) in OIG 
program exclusion cases, including a pilot program being developed with 
selected Medicare carriers . 

• Provide legal assistance and representation with respect to: civil 
settlements resolving allegations of health care fraud aind abuse; cases 
referred to OIG for sanctions under the Patient Anti-Dumping Statute; 
euid cases involving the imposition of administrative sanctions under the 
Civil Monetary Penalties Law. 



243 



Provide legal assistEince on various regulations being developed by OIG, 
including new "safe harbors," eind PRO sanction procedures. 

Provide assistance to the OIG Office of Audit Services in reviewing 
audit reports cind recommendations of program disallowances euid 
recoupment of funds . 



• Complete drafting of agency-specific supplemental regulations to augment 
the Office of Government Ethics Stamdards of Ethical Conduct, and revise 
residual HHS Standards to state only those provisions not superseded by 
the government -wide standards. 

• Provide legal advice, guidance, and assistance with respect to ethics, 
criminal conflict of interest statutes, political activity restrictions, 
anti-lobbying provisions, travel reimbursement guidelines, procurement 
integrity rules, and standards of conduct matters to Department 
officials, agency personnel, advisory committees and others. 

• Perform reviews and certifications of Executive Branch Personnel 
Financial Disclosure Reports (the SF 278) submitted by high level 
officials and all political appointees, as required by the Ethics in 
Government Act . 

• Manage and oversee the distribution and review of the Confidential 
Financial Disclosure Statements (the SF 450) to mid-level government 
officials within the Department who exercise discretion in certain 
sensitive areas. 

• Complete co-sponsorship guidelines and implement through the 
Department's ethics program. 

Legislative Activities 

• Draft bills necessary to carry out the Department's legislative program. 
Through subsequent legal advice and technical assistance, aid in the 
movement of these legislative proposals through the clearance process 
within the Department, and at 0MB, and then through various stages of 
Congressional consideration. 

• Provide draft appropriations act language for inclusion in the 
President's proposed FY 1996 and 1997 budgets. 

• Provide technical assistance, at the request of appropriate Department 
officials, to both the House and Senate Appropriations Subcommittee 
staffs in connection with the FY 1996 and 1997 Labor, HHS, Education and 
Related Agencies Appropriations Acts, and to other House and Senate 
Committee staffs. 

• Review and refer requests for the Secretary' s views on proposed or 
pending legislation, and ensure the accuracy and responsiveness of 
replies from the Secretary. Also, prepare replies to requests from 0MB 
for the Secretary's views on enrolled bills. 

• Draft bills necessary to carry out the Department's legislative program. 
Through subsequent legal advice and technical assistance, aid in the 
movement of these legislative proposals through the various stages of 
Congressional consideration. 



244 



Pviblic Health Service (PHS) 

• Assist PHS in collecting monies from NHSC scholarship recipients who 
default on service obligations and from student locin recipients who 
default on repayment. Also assist PHS in making recoveries from 
grantees under the Hill -Burton and Community Mental Health Centers 
programs . 

• Represent the Department in the 3,000 pre-enactment and the several 
hundred post -enactment cases under the Vaccine Injury Compensation 
Program . 

• Defend against lawsuits involving eUiimal rights, environmental cmd other 
controversial issues which could limit the ability of PHS to conduct and 
support biomedical and behavioral research. 

• Assist CDC and PHS on AIDS-related legal issues, including the In re: 
Factor VJJX Blood Products Litigation involving HIV-infected 
hemophiliacs, the lOM study of HIV transmission to hemophiliacs, 
reviewing proposed or updated guidelines for preventing HIV 
transmission, eind any investigations of unexplained HIV tramsmissions. 

• Assist NIH and DoJ in recovering misexpenditures of funds aind other 
damages resulting from misconduct in science and other fraudulent 
activities by recipients of funds. 

Health Care Financing Administration (HCFA) 

• Pursue negotiations with suid litigation against the insurance industry 
to recover millions of dollars in mistaken Medicare payments for 
beneficiaries covered by employer group health plans. 

• Pursue civil money penalty actions against physicians who charge 
Medicare beneficiaries amounts in excess of statutory limitations. 

• Defend the Department against challenges to its final nursing home 
reform enforcement regulation. 

• Assist HCFA in revising national drug rebate agreement and issuing final 
drug rebate regulations, cutid assist HCFA euid Department of Justice in 
defending these regulations . 

• Defend cinticipated challenges to the regulations implementing the 
Medicare Ambulatory Surgical Center benefit involving the payment 
amounts for intraocular lenses and for extracorporeal Shockwave 
lithotripsy. 

Social Security Administration (SSA) 

• Work closely with SSA and the Department to ensure SSA' s smooth 
treuisition to independent agency status. 

• Assist SSA in implementing the requirements of the Social Security 
Independence and Program Improvements Act of 1994, including the 
issuance of regulations and the provision of legal advice concerning the 
provisions of that Act. 

• Defend SSA's final adjudicatory decisions by handling an estimated 
11,500 projected new court cases euid the many thouseuids of pending cases 
that accompany this workload. 



245 



• Defend court challenges to SSA's procedures and practices in 
administering the OASDI and SSI programs. 

• Defend SSA's implementation of the Social Security Independence and 
Program Improvements Act of 1994 in court actions challenging SSA's 
actions under the statute . 

• Defend additional court challenges to the validity of the Coal Industry 
Retiree Health Benefit Act of 1992 and the coal miner beneficiary 
assignments to coal mine operators made thereunder, and continue to 
assist SSA in responding to the appeals of assignments filed by coal 
mine operators under this law. 

• Assist SSA' s implementation of a process to reengineer the disability 
program . 

Administration for Children and Families (ACF) 

• Assist the Administration on Developmental Disabilities in implementing 
amendments to the Developmental Disabilities Assistance and Bill of 
Rights Act, including development of any regulations necessary for that 
purpose . 

• Provide assistance to the Office of Community Services in implementing 
recent changes to the CSBG Act . 

• Assist the Office of Refugee Resettlement in responding to comments aind 
issuing a final rule comprehensively revising its regulations, and in 
revising the formula used to make the targeted assistance formula 
grants . 

• Assist the Administration for Native Americans in developing final 
regulations to provide for appeal to the Secretary of decisions to 
reject applications for funding either because the organization or the 
activity proposed is ineligible. 

• Assist with development of final regulations for the four ACF child care 
programs (AFDC child care, transitional child care, at-risk child care 
and child care and development block grant) to make the requirements 
more consistent. 

• Continue to defend challenges in several States ibout the automobile 
equity limit regulation in the AFDC program, as well as represent the 
Department in a number of cases on appeal following district court 
decisions. 

• Assist ACF regarding anticipated additional proposals for demonstration 
projects, particularly in connection with the AFDC program. 

• Defend legal challenges to welfare reform demonstration projects 
approved by the Department . 

• Advise ACF regarding recent amendments to the Head Start Act and assist 
in developing regulations to implement those amendments, including 
developing regulations to implement new provisions of the Head Start Act 
concerning children up to three years old. 

• Assist in developing final Head Start regulations concerning the 
purchase of facilities, emd defend the Head Start program in appeals of 
anticipated grant terminations . 



246 



Administration on Aging (AoA) 

• Provide assistance to AoA in developing final regulations concerning the 
Ijong-Term Care Ombudsman program. 

• Assist AoA in developing interstate funding formula guidelines under 
Title III of the Older Americeuis Act. Assist AoA in promulgating 
additional regulations dealing with the Title III, other them the 
intrastate fiinding formula guidelines. 

Rationale for the Budget Request 

The FY 1996 request for OGC of $49,192,000 and 564 PTE reflects a decrease of 
$336,000 ctnd 25 FTE from comparable FY 1995 funding levels. The dollar 
decrease results primarily from the reduction in FTE, offset somewhat by the 
increases necessary for the annualized cost of the Jeuiuary 1995 pay raise, the 
etnticipated January 1996 pay raise, cUid other memdatory personnel costs. 

This request reflects a compareOsle transfer of OGC's Food and Drug Division-- 
consisting of 32 FTE euid associated personnel /overhead costs of $2,460,000-- 
to the Food euid Drug Administration, beginning in FY 1995. 



247 



OFFICE OF TBB GSHERAL COUNSEL 
Program Intact Data 



Business cuid Administrative Law 

Inspector General 

Ethics 

Legislation 

Administration £or Children aind 
Families/Administration on Aging 

Health Care Finauicing Administration 

Public Health Service 

Social Security Administration 

TOTAL 



The numbers cibove include cases and items. A case is one which has actually 
been filed, or which HHS or the Department of Justice is preparing to file. 
An item is each discrete request for legal services, ranging from formal legal 
opinions to internally generated items of work, conferences, meetings, and 
informal advice . 



FY 1994 


FY 1995 


FY 1996 


10,512 


11,560 


12,163 


4,332 


4,861 


5,483 


5,960 


6,088 


6,208 


856 


951 


856 


3,690 


3,934 


3,944 


16,131 


18,048 


18,745 


41,654 


41,484 


41,927 


19.037 


20.208 


21,390 


102,172 


107,134 


110,716 



49 



248 



SKNT AMD COMMON SXPKHSSS' 



FY 1994 
Actual 
GDM (excluding OGC) : 

RENT $4,228,000 

Delegated Authority .... 4.251. 000 
Subtotal 8,479,000 

Related Services 2,191,000 

Common Expenses 2.687. OOP 

Total 13,357,000 



RENT 6,397,000 

Related Services 420,000 

Common E^qpenses 762. OOP 

Total 7,579,PPP 

TOTAL : 

RENT 10,625,000 

Delegated Authority .... 4.251.000 

Subtotal 14, 876, OOP 

Related Services 3,111,000 

Common Expenses 2.949. OPP 

Total $20,936,000 



FY 1995 
ADDrOD. 


FY 1996 
Estimate 


Increase/ 
Decrease 


$3, 203, OPP 
4.3??.QP0 
7,542,000 


$3,779,000 
4, 427, poo 
8,206,000 


+$576,000 

+98.000 

+664,000 


1,745,000 

2.995.000 

12,282,000 


1,563,000 

2.496.000 

12,265,000 


-182,000 

-499. PPP 

-17, PPO 


6,117,000 
410,000 
739.000 


6, 072, POP 
385, PPO 
739.000 

7, 196, OPP 


-45, OPP 
-25,000 


7,266,000 


-70,000 


9,320,000 

4.339.000 

13,659,000 


9,851,PPP 

4.427. QpQ 

14,278,PPP 


+531,000 

+99.PQO 

+619,000 


2,655,000 

3.2?4,000 

$19,548,000 


1,948,PPP 

3.235, OQP 

$19,461, POO 


-207,000 
-439.00Q 
-$87,000 



Purpose and Method of Operations 

Rental payments to GSA (RENT) includes funds to cover the rental of office 
space, non-office space, and parking facilities in GSA- control led facilities. 
Before FY 1995, the annual RENT payment covered both buildings which GSA 
managed and buildings for which management authority had been delegated by GSA 
to HHS. Funds to cover the operation, maintenance cuid repair of such 
"delegated buildings" were transferred by GSA into its Federal Buildings Fund 
and are referred to as Delegated Authority funds. 

The FY 1995 Treasury and Postal Operations Appropriations Act included a 
government -wide general provision directing GSA and OMB to include Delegated 
Authority funds in individual agency budgets; it also provided agencies with 
the necessary authority to directly spend the portion of RENT that they had 
been submitting to GSA for delegated building operating expenses. Therefore, 
the RENT/Delegated Authority amounts shown above reflect this split. (NOTE: 
Delegated Authority amounts are spread across object classes other tham 23.1, 
Rental Payments to GSA, where the RENT amount is shown.) 

Related Services includes funds for the procurement of facility- related items 
such as housekeeping, security, building maintenance, and renovations. 

Coosnon Expenses includes funds to cover administrative items and activities 
which cut across and impact all STAFFDIVs under the GDM appropriation. The 



' Excludes the following RENT amounts for the Working Capital Fund: 
FY 1994--$9,723,PPP; FY 1995- -$9 , 985, 000 ; FY 1996- -$9, 318, 000 . 



249 



major costs in this area include telecommunications (e.g., FTS emd commercial 
telephone expenses), postage, printing. Worker's Compensation, Unemployment 
Insuramce, and health units. 

Payments to cover all of the above items are made from centrally-managed 
accounts on behalf of all GDM STAFFDIVs except the Office of the General 
Counsel (OGC) , whose share is included in the OGC section of the budget 
request . 

Rationale for the Budget Request 

The increase of $619,000 in RENT/Delegated Authority in FY 1996 reflects a 4.5 
percent rate increase, consistent with the latest estimates provided by GSA. 
The decrease of $499,000 in Common Expenses reflects the fact that funding for 
the Human Services Transportation Technical Assistance Grant has not been 
included in the FY 1996 budget request. 



250 



WORXIKO CAPITAL FUND 



FY 1994 
Actual 


FY 1995 
Estimate 




FY 1996 
Estimate 


Increase or 
Decrease 


FTE Amount 
933 $93,298,000 


FTE Amount 
911 $94,825,000 


FTE 
842 


Amount 
$93,370,000 


FTE Amount 
-69 -$1,455,000 


Purcose and Method 


of Ooerations 









The OS Working Capital Fund (WCF) was authorized under 42 D.S.C. 3513, 3513(a) 
and 3513 (b) . This legislation permitted the Department to establish a fund 
without fiscal year limitation for the expenses necessary to maintain and 
operate central and common administrative, fiscal and personnel support 
services on behalf of Departmental programs eind bureaus. The Fund was 
chartered in FY 1987 and is directed by a Board of Governors consisting of 
representatives from each of the Department's OPDIVs, the Office of Inspector 
General, euid those OS STAFFDIVs which provide services under the Fxind. 

The WCF operates on a fully-funded, business-like basis by including the cost 
of property depreciation, accrued cinnual leave, auid other Fund overhead costs 
in the OPDIV billings, so as to recover the full cost of Fund services. Each 
activity financed through the WCF is separately billed to the Department's 
OPDIVs, based upon fee -for -service billing rates. 

Rationale for the Budget Request 

The FY 1996 request for WCF is a decrease of $1,455,000 and 69 FTE from 
FY 1995 levels. The request is comprised of the following: 

• Personnel Compensation Funds are included for mandatory pay and 
benefits costs for WCF employees, including the emnualization of the 
January 1995 pay raise, the euiticipated January 1996 pay raise, within- 
grade increases and career- ladder promotions. 

• Personnel and Payroll Systems Automation Initiatives Funds are included 
to continue improvements to the personnel and payroll systems. These 
improvements are designed to increase operating efficiency and respond 
to new fvinctional requirements, including those still generated by the 
Federal Employees Pay Comparability Act of 1990. 

• Personal Computer (PC) Maintenance eind Local Area Network (LAN) Support 
Funds are included to cover cost increases for PC mainteneuice contracts 
and contract support of the LANs used to link the PCs together. 

• Regional Operations Funds have been adjusted to reflect the elimination 
of the Department's ten Regional Administrative Support Centers (RASCs) . 
Functions currently performed by the RASCs have been trauisferred to the 
OPDIVs and STAFFDIVs. 

• GSA Rent and Related Services A decrease in sc[uare footage related to 
the elimination of the RASCs is projected for FY 1996. Funds have been 
adjusted to reflect this decrease in space smd in rent-related services. 

• Payment Metnagement System (PMS) Fvinds are no longer included for PMS, 
as this function has been transferred to the PHS Service and Supply 
Fund, effective October 1, 1994. 

The following tables display conparable funding levels by both activity and 
OPDIV for FYs 1994, 1995, and 1996. 



251 



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255 



GENERAL DEPARTMENTAL MANAGEMENT 
DETAIL OF FDLL-TIME EQUIVALENT (FTE) EMPLOYMENT 

1994 1995 1996 

Actual Estimate Estimate 

Immediate Office of the Secretary 88 88 81 

Public Affairs 39 38 35 

Legislation 28 30 28 

Planning aind Evaluation 109 112 108 

Management and Budget 267 274 254 

Personnel Administration 161 173 159 

Intergovernmental Affairs 35 39 36 

General Counsel • 608 589 564 

Total, GDM 1,335 1,343 1,265 



Average GS Grade 

1991 10.0 

1992 10.2 

1993 10.5 

1994 11.0 

1995 11.2 

1996 11.2 



256 



GENERAL DEPARTMENTAL MANAGEMENT 

DETAIL OP POSITIONS 

1994 1995 1996 

Actual Estimate Request 

Executive Level I 1 i i 

Executive Level II 1 i i 

Executive Level III 

Executive Level IV 4 4 4 

Executive Level V 

Subtotal 6 6 6 

Total - Executive Level Salaries .... $744,000 $744,000 $744,000 

ES-6 2 3 3 

ES-5 4 4 4 

ES-4 26 24 24 

ES-3 16 17 17 

ES-2 9 10 10 

ES-1 15 11 7 

Subtotal 72 69 65 

Total - ES Salaries $7,601,000 $7,072,000 $7,221,000 

GS-15 185 159 150 

GS-14 311 310 264 

GS-13 150 176 140 

GS-12 131 138 138 

GS-11 101 148 148 

GS-10 9 12 13 

GS-9 86 69 71 

GS-8 53 46 47 

GS-7 91 132 119 

GS-6 49 50 60 

GS-S 85 50 57 

GS-4 62 38 43 

GS-3 28 7 11 

GS-2 2 3 3 

GS-1 2 7 7 

Subtotal 1,345 1,345 1,271 

Commissioned Corps 11 11 11 

Ungraded 32 33 33 

Total positions 1,467 1,464 1,386 

Total FTE usage, end of year 1,335 1,343 1,265 



Average ES level 3 

Average ES salary $105,570 

Average GS grade 11.0 

Average GS salary $42,889 

Average Special Pay (Commissioned Corps) . . . $47,700 

Average Ungraded $16,087 



$108,374 

11.2 

$44,270 

$50,004 

$16,409 



$110,653 

11.2 

$45,332 

$51,204 

$16,967 



257 



GENERAL DEPARTMENTAL MANAGEMENT 



CENTRALLY -MANAGED PROJECTS 



The Staff Divisions funded under GDM are responsible for administering 
centrally-managed projects on behalf of the Department. Authority for 
carrying out these efforts may be authorized by specific statute (such as 
authority for the Secretary to carry out prograun evaluations under the Public 
Health Service Act) or by general transfer authority (such as 31 U.S.C. 1535, 
the Economy Act) . Project funding is obtained through reimbursctble billings 
from the OPDIVs and STAFFDiVs in proportion to the estimated benefit to be 
derived. In FY 199G, the Department is proposing to administer the following 
TAP projects, at a total cost of $18,168,254. 



PROJECT 


DESCRIPTION 


PONDING 


SOUTHWEST 

TRAINING 

CENTER 


The Southwest Training Center provides 
personal computer training and employee 
development services for all OPDIVs and 
STAFFDiVs located in the Southwest Complex. 


$220,900 


EXECUTIVE AND 
MANAGEMENT 
DEVELOPMENT 
PROGRAM 


The Executive and Meinagement Development 
Progrcun consolidates all Department -wide 
programs for the development of executives, 
managers, and supervisors. The project 
includes funds for the costs of the 
Department's SES Candidate Development 
Program, the Women's Management Development 
Initiative, the Supervisor in Context training 
course, as well as programs for the 
development of incumbent executives, such as 
the Secretary's Executive Leadership Forum. 


$554,400 


SECRETARY'S 
QUALITY OF 
WORKLIFE 
INITIATIVE 


The Quality of Worklife Initiative includes: 
(1) administration of the Human Resource 
Management Index (HMRI) , a tool used to 
measure mcuiagement effectiveness amd employee 
morale; (2) development of training materials 
and other tools to support the continuation of 
Total Quality Meinagement in the OPDIVs amd the 
regions; (3) training of employees to serve as 
facilitators for Quality Improvement Teauns; 
euid (4) activities in support of the 
President's workforce literacy effort. 


$160,000 


SAFETY 
MANAGEMENT 
INFORMATION 
SYSTEM 


The Safety Management Information System is a 
Department -wide computerized accident and 
injury reporting analysis system which 
verifies the accuracy of Worker's Compensation 
claims charged to the Department, identifies 
accident prevention prograun deficiencies, amd 
assists in accident prevention efforts in 
compliance with Department of Labor 
regulations amd Executive Order 12196. 


$18,000 


SAFETY, 
HEALTH, AND 
ENVIRONMENTAL 
PROGRAMS 


The Safety, Health, and Environmental Program 
enables the Department to continue conducting 
safety amd occupational health program 
evaluations and environmental compliance 
assessments necessary to ensure that HHS 
employees have a safe amd healthful working 
environment as required by statute. 


$75,000 



258 



PROCOREMENT 
ASSISTANCE 
AND LOGISTICS 
REVIEWS 


This activity implements ASMB's oversight 
mission in assuring Department -wide compliance 
with Federal and HHS assistance (grants and 
cooperative agreements) , procurement, and 
logistics policies, and complements Federal 
Managers' Financial Integrity Act (FMFIA) 
requirements . 


$26,700 


SINGLE AUDIT 
CLEARINGHOUSE 


The Single Audit Clearinghouse, administered 
by the Department of Commerce, is responsible 
for receiving, reviewing, tracking, and 
keeping records on audits of State and local 
governments under the Single Audit Act and OMB 
Circular A- 128. 


$125,000 


DEPARTMENTAL 
CONNECTIVITY 


Departmental Connectivity funds will be used 
to develop eui umbrella network to improve 
computer connectivity within the Department as 
well as linkage to other government agencies. 


$160,000 


HHS HEALTH 
AND WELLNESS 
CENTER 


The HHS Health and Wellness Center funds are 
used to provide a portion of the ongoing 
operating costs of a health facility which 
promotes physical fitness for all HHS 
employees located in the Southwest Complex. 


$281,000 


ENERGY 

PROGRAM 

REVIEW 


The Energy Progreun Review will fund a private 
contractor to evaluate the status of HHS/OPDIV 
energy conservation programs and to update 
existing policies to ensure Departmental 
complicuice with existing regulations. 


$50,000 


MEDIA 
OUTREACH 


Media Outreach project initiatives include 
expanded production cuid distribution of public 
service announcements (PSAs) and video news 
reports for air time on TV and radio; 
production and distribution of PSAs in 
Spanish; and production and distribution of 
media fact books and health care kits directed 
to the disadvantaged amd minority audiences. 


$75,000 


ONE PERCENT 
EVALUATION 


The Assistant Secretary for Planning and 
Evaluation is engaged in initiating the design 
work on multi-year evaluations of HHS 
programs. Authority to allocate funds to 
Departmental Meuiagement to conduct progreun 
evaluation is authorized by the Public Health 
Service Act (Section 2313) , the Older 
Americcins Act, and the Head Start Act. 


$16,000,000 


PRESIDENT'S 
RURAL 

DEVELOPMENT 
INITIATIVE 


The President's Rural Development Initiative 
is managed by the Rural Development 
Administration, USDA, cuid involves all Ceibinet 
Departments except State and Justice. Under 
the initiative over 40 States have developed 
State Rural Development Councils (SRDCs) 
designed to support rural development based on 
the principles of cooperation between Federal, 
State, and local governments. 


$422,254 



259 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Departmental Management 

POLICY RESEARCH 

FY 1996 Budget p^^^ 

Organization Chart g2 

Appropriation Language g3 

Amounts Available for Obligation 54 

Summary of Chemges gg 

Budget Authority by Activity gg 

Budget Authority by Object g7 

Administrative Costs gg 

Authorizing Legislation gg 

impropriations History TcU>le 70 

Justification : 

General Statement 71 

Health Policy ............ 71 

Hximan Services Policy 72 

Disability, Aging and Long-Term Care Policy . . . 73 

Policy Support Services '.'.'.'.'. 74 

Rationale for the Budget Request ......... 74 

Detail of Full -Time Equivalent (FTE) Entployment 75 

Detail of Positions 7g 



260 



ASSISTANT SECRETARY FOR PLANNING AND EVALUATION 

David T. Ellwood 
Principal Deputy for Pianning and Evaluation 
Judith Feder 



OFFICE OF 
PROGRAM 
SYSTEMS 



Gerald Brinen 



DIVISION OF 

POUCY4 

REGULATORY 

ANALYSIS 



Walton Francis 



Vacant 



DIVISION OF 
TECHNICAL 

AND 
COMPUTER 
SUPPORT 



DIVISION OF 

PLANNING & 

POUCY 

COORDINATION 



Joan Turek-Brezina 



OFFICE OF 
HEALTH 
POLICY 



Kenneth Thorpe 



DIVISION OF 
HEALTH 

RNANCING 
POUCY 



George Greent>erg 



DIVISION OF 

PUBLIC HEALTH 

POUCY 



Cheryl Austein 



OFFICE OF 
DISABILITY, 

AGING, 
AND LONG- 
TERM CARE 

POLICY 



Robyn Stone 



DIVISION OF 

DISABILITY 

AND AGING 

POUCY 



Vacant 



DIVISION OF 

LONG-TERM CARE 

POUCY 



Mary Harahan 



OFFICE OF 
HUMAN 

SERVICES 
POLICY 



Wendell Primus 



DIVISION OF 

ECONOMIC SUPPORT 

FOR 

FAMIUES 



Canta Pian 



DIVISION OF 

CHILDREN & 

YOUTH 

POUCY 



Bart>ara Broman 



DIVISION OF 

DATA 

AND 

TECHNICAL 

ANALYSIS 



Don Oelierich 



DIVISION OF 

ECONOMIC SECURITY 

FOR THE ELDERLY & 

PERSONS WITH 

DISABILITIES 

Steve Sandell 



62 



261 

DEPARTMENT OF HEALTH AND HOMAN SERVICES 
Departmental Management 

POLICY RESEARCH 

For carrying out, to the extent not otherwise provided, research studies 
under Section 1110 of the Social Security Act, [$13,659,000] $12,400,000. 
(Department of Health and Human Services ;^propriations Act, 1995.) 



262 



POLICY RESEARCH 
AHOUNTS AVAILABLE FOR OBLIOATIOK' 

FY 1994 FY 1995 FY 1996 
Actual Estimate Estimate 

General funds : 

Annual appropriation $12,000,000 $13,659,000 $12,400,000 

Rescission pursuant to P.L. 103-211 -259,000 

Reductions pursuant to P.L. 103-333 :.^_l -102.000 



Subtotal, adjusted appropriation . 11,741,000 13,557,000 12,400,000 

Unobligated balance lapsing Z-is. 

Total obligations $11,741,000 $13,557,000 $12,400,000 



' Excludes the following aunounts for reimbursements: 
$4,343,000; FY 1995- -$5, 000, 000; FY 1996--$5, 000, 000 . 



263 



POLICY RESEARCH 
SDMMARY OF CHANGES 

1995 Adjusted appropriation $13,557,000 

Total estimated budget authority $13,557,000 

1996 Request $12,400,000 

Net change -$1,157,000 



1995 Base 
Obligational 
(FTE) Authority 
Decreases : 

A. Built-in: 

1. Rental payments to GSA ... $300,000 

Subtotal 

B. Program: 

1. Research contracts 4,592,000 

2. Research grants 3,000,000 

Subtotal 

Total decreases 

Net change 



Change from Base 

Obligational 
(FTE) Authority 



-$41.000 
-41,000 

-616,000 

-500.000 

-1,116,000 

-$1,157,000 
-$1,157,000 



264 



POLICY RESEARCH 



BUDGET AUTHORITY BY ACTIVITY 
(Dollars In thouscinds) 



1994 1995 1996 

Actual Appropriation Estimate 

FTE Amoiint FTE Amount FTE Amount 

Total obligations 26 $11,741 26 $13,557 26 $12,400 



66 



265 



POLICY RESEARCH 

BUDGET AUTHORITY BY OBJECT 

1995 1996 Increase or 

Appropriation Estimate Decrease 

Full-time equivalent employment ... 26 26 

Full-time equivalent of overtime and 

holiday hours 

Average SES salary 

Average GS grade 13.0 13.0 

Average GS salary $51,557 $52,640 +$1,083 

Personnel compensation: 

Full-time permanent $880,000 $880,000 

Other than full-time permcment . . 490,000 490,000 

Other personnel compensation . . . 27. 000 27. 000 



Total personnel compensation . . 1,397,000 1,397,000 

Civilian personnel benefits 335,000 335,000 

Benefits to former personnel .... 

Total compensation and benefits . . 1,732,000 1,732,000 

Travel 115,000 115,000 

Tramsportation of things 3,000 3,000 

Rental payments to GSA 300,000 259,000 -41,000 

Rental payments to others 

Communications, utilities, auid 

miscellaneous charges 30,000 30,000 

Printing eind reproduction 110,000 110,000 

Advisory euid assistance services .. 

Other services 2,398,000 2,398,000 

Purchases of goods and services from 

other government accounts 877,000 877,000 

(Working Capital Fund payment) . . (75,000) (75,000) ( ) 

Operation of GOCOs 

Research and Development contracts 4,592,000 3,976,000 -616,000 

Supplies eUid materials 50,000 50,000 

Equipment 350,000 350,000 

Grants, subsidies and contributions . 3. 000. 000 2.500. 000 -500.000 

Total obligations by object . . . $13,557,000 $12,400,000 -$1,157,000 

67 



266 



POLICY RESEARCH 

ADMINISTRATIVE COSTS 
(Budget Authority) 

1995 1996 

Estimate Estimate Change 

Personnel Compensation: 

Full-Time Permauient (11.1) $880,000 $880,000 

Other than Full-Time Permanent (11.3) 490,000 490,000 

Other Personnel Compensation (11.5) . . 27.000 27.000 

Total Personnel Compensation (11.9) . 1,397,000 1,397,000 

Civilian Personnel Benefits (12.1) . . . 335,000 335,000 

Benefits to Former Personnel (13.0)... 

Travel (21.0) 115,000 115,000 

Transportation of Things (22.0) 3,000 3,000 

Rental Payments to Others (23.2).... — 

Communications, Utilities, and 

Miscellaneous Charges (23.3) 30,000 30,000 

Printing and Reproduction (24.0) .... 110,000 110,000 

Advisory eind Assistcuice Services (25.1) 

Other Services (25.2) 2,398,000 2,398,000 

Purchases of Goods cind Services from 

Other Government Accounts (25.3) . . . 877,000 877,000 

Operation of GOCOs (25.4) 

Research and Development Contracts (25.5) 4,592,000 3,976,000 -616,000 

Supplies cind Materials (26.0) 50.000 50.000 — 

TOTAL $9,907,000 $9,291,000 -$616,000 



68 



267 



POLICY RESEARCH 
AUTHORIZING LEGISLATION 

1996 1996 

Amount Budget 

Authorized Request 

Policy Research Indefinite $13,659,000 Indefinite $12,400,000 



1995 


1995 


Amount 


Appro - 


Authorized 


priat;ion 



69 



268 



POLICY RESEARCH 
APPROPRIATIONS HISTORY TABLE 



FY 1987 

Appropriation 
Rescission 

FY 1988 

impropriation 

FY 1989 

Appropriation 

FY 1990 

impropriation 

FY 1991 

Appropriation 
Sequester 

FY 1992 

Appropriation 

FY 1993 

Appropriation 

FY 1994 

Rescission 

FY 1995 

;mpj^opi^i=ition 

FY 1996 

impi^op>^i^t:ion 



Budget 

Estimate 

to Congress 



5,000,000 
-2,200,000 



5,090,000 
5,019,000 
5,012,000 
5,017,000 

5,037,000 

5,224,000 

15,868,000 

13,000,000 
12,400,000 



House 
Allowance 



8,200,000 

4,873,000 
8,000,000 
5,012,000 
9,167,000 

5,037,000 

8,415,000 

12,000,000 

14,632,000 



Senate Net Enacted 
Allowance Appropriation 



7,200,000 

4,873,000 
7,851,000 
5,012,000 
8,167,000 

5,037,000 

8,263,000 

12,000,000 

10,741,000 



8,200,000 

4,873,000 
7,851,000 
5,001,000 



8,928,000 
-116 



5,012,000 
8,047,000 



12,000,000 
-259,000 



13,557,000 



269 



POLICY RESEARCH 



FY 1994 FY 1995 FY 1996 Increase or 

Actual Appropriation Estimate Decrease 

FTE Amount FTE Amount FTE Amount FTE Amount 

26 $11,741,000 26 $13,557,000 26 $12,400,000 --- -$1,157,000 

General Statement 

Purpose and Method of Operations 

The Policy Research program examines broad issues that cut across agency and 
subject lines, as well as new policy approaches developed outside the context 
of existing programs. Its broad goals are to: (1) provide policy-relevant 
information on national trends concerning public and private health and humein 
services activities in order to identify emerging policy problems euid 
potential solutions, and (2) provide specific information to develop and 
assess the impact of new potential public and private sector policy proposals, 
in particular their costs and benefits. 

The FY 1996 level of $12,400,000 will provide for research focused in 
particular on health care reform, welfare reform, poverty, family support and 
preservation, and issues concerning disability and long-term care. This 
research can be categorized into three major areas: health policy, humeui 
services policy, and disability/aging/long- term care policy. In addition, 
policy support will provide services for carrying out policy research in these 
three areas. 

Appropriated funding for Policy Research during the last five years has been 
as follows: 



9 

9 

16 

25 

26 

Health Policy 

Health Policy research includes both health care financing aund public health 
issues. Analysis of incentives for cost-effective changes in health care 
finamcing and service delivery, and measures to control growth in health care 
costs will be major foci. An additional focus will be enhancing the quality 
of health care for major population groups emd improving access for special 
populations such as disadvantaged infamts, children, and minorities, with 
special emphasis on managed care. 

In FY 1996, planned major accomplishments for Health Policy are: 

• Continue evaluative, oversight and redesign activities for periodically 
collected national cuid State -level data on the health care system. 
Particular focus is placed on efforts to maiximize the opportunity for 
effective integration of health care cost, (juality and utilization data 
collected by various State, national and private entities. 

• Continue development and improvement of microsimulation models of the 
health care system to better understand effects of major system changes. 



Fiscal Year 


Funds 


1991 


$8,928,000 


1992 


$5,012,000 


1993 


$8,047,000 


1994 


$11,741,000 


1995 


$13,557,000 



270 



• Continue efforts to understand and evaluate changes in the health 
insurance market place, with special emphasis on how they effect access 
cuid affordability. 

• Oversee, help sponsor, participate in, and provide technical assistance 
to States cuid other entities undertaking health care reform efforts. 

• Support, participate in and oversee the plauining zmd development of 
steps necessary to evaluate State and private sector mauiaged care 
initiatives on health services for disabled populations, including the 
mentally ill. This includes working with States and private employers 
to develop necessary data and to design emd carry out evaluative 
analyses . 

• Undertake research on access to health care, including the factors 
limiting access for uninsured persons; the role of health risk adjusters 
in ensuring appropriate competition eunong health plans; the role of 
employers in the health care system; issues specifically related to 
changing the primary care/specialist mix in medical education; and ways 
to assure necessary access in underserved areas with special emphasis on 
the availability of primary care providers. 

• Assess costs of care, including the role of managed care, reduction of 
administrative costs, the Medicare physician fee schedule, the Uniform 
Clinical Data Set (UCDS) , proposed reforms of the malpractice licOaility 
system, and changes in the reimbursement for post-acute care. 

• Develop cind improve methodologies with which to undertake risk and cost- 
ef fectiveness emalyses of current and proposed preventive health and 
health care regulations . 

• Examine the integration of health services with other social services at 
the State amd local levels and improved delivery of health services to 
special populations such as the developmentally disabled, substcuice 
abusers, and the mentally ill. 

Human Services Policy 

Humain Services Policy research will support the analysis of Federal and State 
welfare reforms. This will include studies of program caseloads, demographic 
and labor force characteristics, and State welfare airid child support systems, 
to ensure the implementation of appropriate income security policies for poor 
populations, persons with disabilities eind the elderly. In addition. Human 
Services Policy will explore a number of issues and programs affecting 
children, youth, and their families, particularly those of family support and 
feunily preservation, as well as child care. Head Start, child abuse and 
neglect, child welfare, foster care, exposure to drugs and alcohol, pediatric 
AIDS, homelessness, and mental health. Finally, along with SSA, Human 
Services Policy will explore the reasons for prograim growth in the SSI and 
SSDI programs . 

In FY 1996, plainned major accomplishments for Human Services Policy are: 

• Analysis of major welfare reform proposals. 

• Continue studying early State welfare reform demonstration results auid 
managing the multi-year contract to evaluate the Family Support Act's 
JOBS program. 

• For FY 1995, the Administration plans to continue its current activities 
related to poverty research. In FY 1996, the Administration plans to 



271 



award competitively a multi-year grant to build upon existing knowledge 
relating to poverty. 

• Continue studies designed to increase understanding of child support cuid 
methods of ensuring its payment. 

• Begin the evaluations of family support amd family presei-vation as 
required by legislation. 

• Provide information on the organization, financing, and delivery of 
services to disadvcuitaged children, youth, and their families. 

Diseibilitv. Aging and Long-Term Care Policy 

Policy research priorities for Diseibility, Aging emd Long-Term Care Policy 
include issues affecting children, working age adults euid older people with 
disabilities. Research is focused on improving and reforming Federal long- 
term care cuid disaJsility policies including Medicare and Medicaid to insure 
that they promote independence, economic self-sufficiency, health and well- 
being of people with chronic illness and impairment in a manner that is 
efficient amd cost effective. 

In FY 199G, plcuuied major acconplishments are: 

• Continue to lead the Department in completing policy development, 
legislation, and structural reform cuialyses to support the 
administrations policy objectives around disability and long term care. 
Policy Research will address how HHS progrcuns fit with other Federal and 
State programs to assure that children, working age adults and the 
elderly with discibilities receive needed supports in ways that are 
caring, just and fiscally prudent. 

• Continue to support the cost estimating requirements for developing long 
term care policy options using the Long-Term Care Financing Model. 

• Continue a major demonstration/evaluation to inform the policy debate 
around the costs cUid efficacy of cash, voucher and service benefit 
options for financing personal assistance and long term care services 
for the elderly euid younger disabled populations. 

• Implement evaluation of the impact of managed care arrangements on high 
risk populations and develop/analyze options for improving the 
appropriateness of managed care arrangements for persons with special 
needs . 

• Continue to support the National Disability Survey, the only source of 
comprehensive information on the numbers, characteristics, progreun 
participation, and service use of children and working age adults with 
significant disabilities. 

• Complete the national study of assisted living facilities to understand 
the role that assisted living plays in the long term care system, 
including the extent to which and for whom it substitutes for nursing 
home care . 

• Complete the study of Medicare Home Health to examine how coverage 
decisions are made, the factors which determine who gets covered and for 
how long auid to make recommendations regarding the need for more uniform 
coverage guidelines. 



272 



• Continue the development and field testing with selected States of 
indicators of effective orgaunization and oicuiagement approaches for 
implementing emd operating home and community -based service. The final 
product of this study will be a self assessment system. A system that 
States Ceui use to evaluate their progress in inplementing new long term 
care systems . 

Policy Support Sexrvices 

Policy Support Services will provide simulation modelling, statistical 
analysis, and other technical and amalytic services needed in order to carry 
out policy research. The goal is to ensure efficient, reliable, and timely 
cuialytical support while offsetting increases in costs through the 
introduction of cost-saving technologies. Major emphasis will be on support 
for Administration initiatives on health care and welfare reform, auid on 
disability, children, long-term care, youth euid the elderly. 

In FY 1996, planned major accomplishments for Policy Support Services are: 

• Provide a full rauige of computer and statistical support, including 
ongoing major HHS micro- simulation models used in policy euialysis. 

• Prepare special tabulations of persons in poverty and other groups of 
special interest such as the uninsured, in support of the 
Administration' s initiatives on health care and welfare reform and 
children, youth, euid feunilies, elderly, and people with discQsilities . 

• Simulate the costs and distribution impacts of alternative options for 
implementing the Administration's initiatives on health care and welfare 
reform and on children and youth utilizing microsimulation models. 
Continue enhancement of these models to expand their aUjility to simulate 
policy changes. 

Rationale for the Budget Request 

The FY 1996 request for Policy Research is a decrease of $1,157,000 from the 
FY 1995 level. To accommodate this reduction. Policy Research will decrease 
the eunount of funding awarded for greuits and for research emd development 
contracts, while still focusing on priority research. 



273 

POLICY RESEARCH 
DETAIL OP FULL -TIKE EQOIVALENT (FTE) EMPLOYMENT 

1994 X995 199e 
Actual Betimate Estimate 

Policy Research 25 26 26 



Average GS Grade 

1991 13.0 

1992 12.0 

1993 11.5 

1994 12.4 

1995 13.0 

1996 13.0 



274 



POLICY RESEARCH 



DETAIL OF POSITIONS 



1994 
Actual 



1995 
Estimate 



1996 
Request 



Executive Level I 

Executive Level II 

Executive Level III 

Executive Level IV 

Executive Level V 

Subtotal 

Total - Executive Level Salaries 

ES-6 

ES-5 

ES-4 

ES-3 

ES-2 

ES-1 

Subtotal 

Total - ES Salaries 

GS-15 

GS-14 

GS-13 

GS-12 

GS-11 

GS-10 

GS-9 

GS-8 

GS-7 

GS-6 . . 

GS-5 

GS-4 

GS-3 

GS-2 

GS-1 

Subtotal 

Experts 

Total positions 

Total FTE usage, end of year 

Average ES level 

Average ES salary 

Average GS grade 

Average GS salary 

Average Special Pay (Experts) 



$ -- 



23 

_2 



25 

1 



$--- 



$--■ 



25 

1 



12.4 


13.0 


13.0 


$46,202 


$51,557 


$52,640 


$75,000 


$75,000 


$75,000 



76 



275 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 
OFFICE FOR CIVIL RIGHTS 

FY 1996 Budget Page 

Organization Chart 78 

Appropriation Lcuiguage 79 

Amounts Available for Obligation 80 

Summary of Chcinges 81 

Obligational Authority by Activity 83 

Obligational Authority by Object 84 

Administrative Costs 85 

Authorizing Legislation 86 

Appropriations History TaOale 87 

Justification: 

General Statement 88 

Complicince Activities 90 

Office of the General Counsel (Civil Rights) 93 

Program Management 94 

Rationale for the Budget Request 94 

Detail of Pull -Time Ecpiivalent (FTE) Employment 95 

Detail of Positions 96 



276 



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Hi 

o 

> 

Hi 
CO 

z 
< 

D 

I 
o 

z 
< 
I 

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liJ 

I- 
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Q. 
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78 



277 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 
OFFICE FOR CIVIL RIGHTS 

For expenses necessary for the Office for Civil Rights [$18,409,000] 
$17,979,000, together with not to exceed [$3,874,000] $3,351,000, to be 
transferred and expended as authorized by Section 201(g) (1) of the Social 
Security Act from any one or all of the trust funds referred to therein. 
(Department of Health and Humein Services Appropriations Act, 1995.) 



79 



278 



OFFICE FOR CIVIL RIGHTS 
AMOUNTS AVAILABLE FOR OBLIGATION' 

FY 1994 FY 1995 FY 199G 

Actual Estimate Estimate 

General funds : 

Annual appropriation $18,308,000 $18,409,000 $17,979,000 

Rescission pursuant to P.L. 103-211 -1,000 

Reductions pursuant to P.L. 103-333 -142. 000 

Subtotal, adjusted appropriation 18,307,000 18,267,000 17,979,000 

Trust funds : 

Annual appropriation 3,874,000 3,874,000 3,351,000 

Reductions pursuant to P.L. 103-333 -45. 000 

Subtotal, adjusted trust funds . . 3,874,000 3,829,000 3,351,000 

Unobligated balance lapsing -148 . 000 

Total obligations $22,033,000 $22,096,000 $21,330,000 



General funds 18,159,000 18,267,000 17,979,000 

HI/SMI trust funds 3.776.000 3.732.000 3.251.000 

Subtotal, budget authority .... 21,935,000 21,999,000 21,230,000 

OASDI trust funds 98.000 97.000 100.000 

Total obligations $22,033,000 $22,096,000 $21,330,000 



' Excludes the following amounts for reimbursements: FY 1994- -$50, 000; 
FY 1995--$50,000; FY 1996- -$50, 000 . 



279 



OFFICE FOR CIVIL RIGHTS 
SOMHARY OF CHANGES 



1995 General funds adjusted appropriation 
HI/SMI trust funds transfers .... 



$18,267,000 

3.732.000 

Total estimated budget authority $21,999,000 

(Obligations) ($22,096,000) 



1996 Request- -General funds 

Request- -HI/SMI trust funds transfers 



$17,979,000 
3.251.000 



Total estimated budget authority $21,230,000 

(Obligations) ($21,330,000) 



Net change . 
(Obligations) 



-$769,000 
(-$766,000) 



Increases : 

A. Built-in: 

1. Annualization of Jemuary 1995 
pay raise 



2. Effect of January 1996 pay 
raise 



3 . Career ladder promotions auid 
within-grade increases . . . 

4 . Increase from one additional 
day of pay 



1995 Base Change from Base 

Obligational Obligational 
(FTE) Authority (FTE) Authority 



(297) $17,827,000 

(297) 17,827,000 

(297) 17,827,000 

(297) 17,827,000 



Total increases 



+$146,000 

+296,000 

+81,000 

+66.000 
+589,000 



Decreases : 
A. Built-in: 



1. Decrease in Worker's 
Compensation costs 



2 . Decrease in Rental Payments 
to GSA 



3 . Decrease in share of Working 
Capital Fund costs 



317,000 

2,007,000 

714,000 



Subtotal 



-15,000 

-11,000 

- 32.000 
-$58,000 



81 



280 



OFFICE FOR CIVIL RIGHTS 



SimHARY OF CHANGES 
(Cont . ) 



1995 Base 

Obligational 
(FTE) Authority 
Decreases: 

B. Program: 

1 . Decrease resulting from 
attrition cind lower-grade 

hiring (297) 17,827,000 

2. Reduction in Other Personnel 

Compensation (297) 17,827,000 

3 . Decrease in Benefits to Former 

Personnel 84,000 

4. Decrease in program travel . . 265,000 

5. Decreases in Communications, 
Utilities, and Miscellaneous 

Charges 260,000 

6. Decrease in Printing cuid 

Reproduction 82,000 

7. Decreases in Other Services 

(Information Resources 
Management, data center costs, 
interagency agreements) .... 663,000 

8. Decrease in Equipment --- 136,000 

Subtotal 

Total decreases 

Net chzuige 



Change from Base 

Obligational 
(FTE) Authority 



(-21) 



(-21) 



-$674,000 

-5,000 

-49,000 
-65,000 

-10,000 
-17,000 

-351.000 
-126.000 

-1,297,000 

-1,355,000 
-$766,000 



281 



OFFICE FOR CIVIL RIGHTS 



OBLIGATIOMAL AUTHORITY BY ACTIVITY 
(Dollars in thousands) 



1994 
Actual 



FTE 
Compliance Activities .... 236 

Legal Services 23 

Program Management 25 

Total obligations 284 

General funds 

HI /SMI trust funds 

Subtotal , budget authority 

OASDI trust funds 

Total obligations 284 



21,935 

98 

$22,033 



1995 
Aopropriation 



21,999 
97 



1996 
Estimate 



Amount 


FTE 


Amount 


FTE 


Amount 


$18,309 


252 


$18,754 


234 


$18,084 


1,785 


23 


1,705 


21 


1,623 


1.939 


^2 


1,637 


21 


1,623 


$22,033 


297 


$22,096 


276 


$21,330 


$18,159 




$18,267 




$17,979 


3,776 




3,732 




3,251 



21,230 
Iflfl 



297 $22,096 



276 $21,330 



83 



282 



OFFICE FOR CIVIL RIGHTS 
OBLIGATIONAL AUTHORITY BY OBJECT 



1995 
Appropriation 



Full-time equivalent employment . . . 297 

Full-time equivalent of overtime eind 

holiday hours 

Average SES salary $106,995 

Average GS grade 11.48 

Average GS salary $52,966 

Personnel compensation: 

Full-time permanent $14,843,000 

Other than full-time permcuient . . 100,000 

Other personnel compensation . . . 110. 000 

Total personnel compensation . . 15,053,000 

Civilian personnel benefits 2,690,000 

Benefits to former personnel .... 84 . 000 

Total compensation auid benefits . . 17,827,000 

Travel 265,000 

Trouisportation of things 15,000 

Rental payments to GSA 2,007,000 

Rental payments to others 50,000 

Communications, utilities, and 

miscellcuieous charges 270,000 

Printing and reproduction 82,000 

Advisory and assistance services . . 165,000 

Other services 225,000 

Purchases of goods and services from 

other government accounts 987,000 

(Working Capital Fxind payment) . . (714,000) 

Operation of GOCOs 

Research cind Development contracts 

Supplies and materials 67,000 

Equipment 136.000 

Total obligations by object . . . $22,096,000 

84 



1996 
Estimate 



Increase or 
Decrease 



$109,505 


+$2,510 


11.37 


-0.11 


$52,781 


-$185 



$14 


,793, 


,000 


-$50, 


,000 




100, 


,000 










105, 


,000 


-5, 


,000 


14 


,998, 


,000 


-55, 


,000 


2 


,640, 


,000 


-50, 


,000 





35, 


,000 


-49, 


,000 


17 


,673, 


,000 


-154, 


,000 




200, 


,000 


-65, 


,000 




15, 


,000 




... 


1 


,996, 


,000 


-11, 


,000 




50, 


,000 




--- 




260, 


,000 


-10, 


,000 




65, 


,000 


-17, 


,000 






... 


-165, 


,000 




227, 


,000 


+2, 


,000 




767, 


,000 


-220, 


,000 




(682, 


,000) 


(-32, 


,000) 



67,000 
10.000 



$21,330,000 



-126.000 
-$766,000 



283 



OFFICE FOR CIVIL RIGHTS 

ADMINISTRATIVE COSTS 
(Obligational Authority) 

1995 1996 

Estimate Estimate Change 

Personnel Compensation: 

Full-Time Permcinent (11.1) $14,843,000 $14,793,000 -$50,000 

Other thcin Full-Time Permanent (11.3) 100,000 100,000 

Other Personnel Condensation (11.5) . . 110.000 105.000 -s.qqq 

Total Personnel Compensation (11.9) 15,053,000 14,998,000 -55,000 

Civilian Personnel Benefits (12.1) . . . 2,690,000 2,640,000 -50,000 

Benefits to Former Personnel (13.0) . . . 84,000 35,000 -49,000 

Travel (21.0) 265,000 200,000 -65,000 

Transportation of Things (22.0) 15,000 15,000 

Rental Payments to Others (23.2) .... 50,000 50,000 

Communications, Utilities, and 

Miscellaneous Charges (23.3) 270,000 260,000 -10,000 

Printing and Reproduction (24.0) .... 82,000 65,000 -17,000 

Advisory and Assistance Services (25.1) . 165,000 -165,000 

Other Services (25.2) 225,000 227,000 +2,000 

Purchases of Goods and Services from 

Other Government Accounts (25.3) . . . 987,000 767,000 -220,000 

Operation of GOCOs (25.4) 

Research and Development Contracts (25.5) 

Supplies and Materials (26.0) 67.000 67.000 

TOTAL $19,953,000 $19,324,000 -$629,000 



85 



284 



OFFICE FOR CIVIL RIGHTS 
AUTHORIZING LEGISLATION 



1995 


1995 


1996 


199G 


Amount 


Appro- 


Amount 


Budget 


Authorized 


priation 


Authorized 


Reauest 



Office for Civil Rights: 



P.L. 


88-352; 


42 U 


.S.C. 300s 


P.L. 


91-616; 


P.L. 


92-157; 


P.L. 


92-158; 


P.L. 


92-255; 


P.L. 


93-282; 


P.L. 


93-348; 


P.L. 


94-484; 


P.L. 


95-567; 


P.L. 


97-35 . 


P.L. 


92-318; 


P.L. 


93-112; 


P.L. 


94-135; 


P.L. 


101-336 



Indefinite $9,134,000 Indefinite $8,990,000 

Indefinite 9.133.000 Indefinite 8.989.000 
$18,267,000 $17,979,000 



86 



285 



OFFICE FOR CIVIL RIGHTS 
APPROFRIATIOHS HISTORY TABLE 



FY 1987 

impropriation 
Trust Funds 

FY 1988 

/^propriation 
Trust Funds 

FY 1989 

impropriation 
Trust Funds 

FY 1990 

i^P'^opi'i^tion 

Sequester 
Trust Funds 

FY 1991 

Sequester 
Trust Funds 

FY 1992 

Appropriation 
Trust Funds 

FY 1993 

Appropriation 
Trust Funds 

FY 1994 

Appropriation 

Rescission 
Trust Funds 

FY 1995 

i^PJ^opriation 
Trust Funds 

FY 1996 

Appropriation 
Trust Funds 



Budget 

Estimate 

to Congress 



15,285,000 
4,000,000 



17,395,000 
4,000,000 



16,173,000 
4,000,000 



17,567,000 
4,000,000 

17,585,000 
4,000,000 



18,524,000 
4,000,000 



19,389,000 
3,969,000 



18,308,000 
3,874,000 



18,516,000 
3,874,000 



17,979,000 
3,351,000 



House 
Allowance 



15,285,000 
4,000,000 



17,070,000 
4,000,000 



16,173,000 
4,000,000 



17,567,000 
4,000,000 

17,585,000 
4,000,000 



18,524,000 
4,000,000 



18,635,000 
3,917,000 



18,308,000 
3,874,000 



18,516,000 
3,874,000 



Senate 
Allowance 



15,285,000 
4,000,000 



17,070,000 
4,000,000 



16,173,000 
4,000,000 



17,567,000 
4,000,000 

17,585,000 
4,000,000 



18,524,000 
4,000,000 



18,635,000 
3,917,000 



18,308,000 
3,874,000 



18,516,000 
3,874,000 



Net Enacted 
Appropriation 



15,285,000 
4,000,000 



16,343,000 
3,830,000 



15,979,000 
3,952,000 



17,528,000 

-234,000 

4,000,000 



17,066,000 

-222 

3,904,000 



18,323,000 
3,957,000 



18,635,000 
3,917,000 



18,308,000 

-1,000 

3,874,000 



18,267,000 
3,829,000 



286 



OFFICE FOR CIVIL RIGHTS 



FY 1994 FY 1995 FY 1996 Increase or 

Actual Appropriation Estimate Decrease 

FTE Amount FTE Amount FTE j^ount FTE Amount 

284 $22,033,000 297 $22,096,000 276 $21,330,000 -21 -$766,000 

General Statement 

The Office for Civil Rights (OCR) is responsible for enforcing nine major 
civil rights statutes that prohibit discrimination in Federally-assisted 
health and human services programs. These statutes include Title VI of the 
Civil Rights Act of 1964, Section 504 of the Rehabilitation Act, the Hill- 
Burton community service assurance, the Age Discrimination Act, authority 
delegated under the Americans with Disabilities Act, aund provisions of the 
Omnibus Budget Reconciliation Act of 1981 requiring non-discrimination in 
block grant prograuns administered by HHS . In addition, OCR is responsible for 
coordinating implementation of the Section 504 regulation which prohibits 
discrimination against persons with disabilities in programs and activities 
conducted by the Department . 

Under the civil rights laws enforced by the Department, providers of health 
care and social services are prohibited from discriminating on the basis of 
race, color, national origin, disability, or age. Recipients of Department 
funds include hospitals, extended care facilities, children and family 
programs (including Head Start) , mental health centers, alcohol and drug 
treatment programs, State and local public assistance agencies, adoption and 
foster care programs, and senior citizens programs. 

Appropriated funding for OCR during the last five years (including amounts 
available for obligation from both general funds and trust fund treuisfers) has 
been as follows: 

Fiscal Year Funds FTE 



1991 


$20,970,000 


336 


1992 


$22,280,000 


326 


1993 


$22,182,000 


309 


1994 


$22,181,000 


284 


1995 


$22,096,000 


276 



The President's appropriation request for this account represents current law 
requirements. No proposed law amounts are included. 

Purpose cund Method of Operations 

OCR enforces non-discrimination requirements by processing and resolving 
discrimination complaints, conducting reviews and investigations, monitoring 
corrective action plans, emd carrying out voluntary compliaince, outreach euid 
technical assistance activities. OCR's FTE allocation for its three staff 
components is as follows: 

FY 1994 FY 1995 FY 1996 
FTE FTE FTE 

Compliance Activities . . 236 252 234 

Legal Services 23 23 21 

Program Management . . . 25 22 21 

TOTAL 284 297 276 



287 



The FY 1996 budget request supports 276 FTE on an euinualized basis. This 
represents a constant level from FY 1995, when OCR expects to operate at a 
level of 276 FTE, or 7.6 percent below than the appropriation authorization of 
297 FTE. This reduction from the authorized level represents OCR's 
accelerated achievement of multi-year streamlining goals. 

In FY 1994, with 8.4 percent less staff them the prior year, OCR completed 
2,231 discrimination complaint cases, a decrease of only eight case closures 
from the 2,239 cases closed in FY 1993. OCR also conducted a total of 255 
post-grcuit reviews cind investigations of compliance in FY 1994, completing 204 
of these actions. This represented a two-thirds increase above the 153 such 
reviews smd investigations conducted in FY 1993, emd a more than doubling of 
the 99 such reviews suid investigations completed in FY 1993. OCR also 
completed 3,532 pre-grant reviews eind 865 monitoring actions, an increase of 
14.1 percent and 31.3 percent, respectively, over the number of such actions 
completed in FY 1S93. While FTE usage dropped from 309 in FY 1993 to 284 in 
FY 1994, productivity in closing reviews and complaint investigations rose for 
the third consecutive year. During the past three years, investigative 
productivity has increased by nearly one -third. 

OCR has made significant progress in addressing issues related to Title VI 
access to health care and non-discrimination on the basis of disability. In 
FY 1994, OCR closed 39 complaints, reviews cind investigations in which formal 
letters of findings had been issued citing violations of the civil rights laws 
cuid regulations. Also completed were a total of 2,013 complaint cases cind 
reviews in which prograun recipients agreed to implement policies or procedures 
to prevent or remedy compliance problems. 

During FY 1995, OCR is implementing a strategic plan focused on issues 
identified through a broadly consultative plemning process that included 
clients euid providers of HHS services and partners within the Department suid 
at the State and local levels. From hospitals and nursing homes to Head Start 
centers and senior centers, the public expects to receive high quality 
services without regard to race, color, national origin, disability, age, sex 
or religion. As the primary defender of the public's right to non- 
discriminatory access to and receipt of services, OCR will be working to 
provide the highest quality service at the lowest possible cost. This will be 
accomplished through partnerships with other components of the Department cind 
with State and local governments in areas such as pre-gramt reviews, outreach 
and technical assistance, data collection and analysis, and investigations. 

Civil rights protection must be an integral part of the deliberations on 
issues as disparate as long-term care, preventive health initiatives, and the 
location and integration of services. OCR's strategic plam emticipates 
challenges resulting from the accelerating chemges in our society. It also 
addresses the government -wide imperative for change reflected in the 
recommendations of the National Performcince Review, and in the Secretary's 
Continuous Improvement Program and the HHS strategic plan. 

In implementing its strategic plan, OCR is concentrating on ensuring quicker 
responses to its customers. Through pilot projects, OCR will experiment with 
using alternative dispute resolution techniques, limiting the scope of 
inquiries in some investigations, and focusing on keeping current with 
complaints filed by the public. During FY 1995, as OCR implements its 
strategic pleui, pilot projects should result in a 7.5 percent reduction in the 
amount of time spent per case. OCR expects that, through continuous 
improvement efforts, this rate of reduction will accelerate to 16 percent in 
FY 1996. Cumulatively, OCR estimates that in FY 1996 investigators will be 
able to hcindle complaints using 25 percent fewer hours than in FY 1994, 
thereby increasing responsiveness to citizens filing con^laints. 



89 



FY 1994 


FY 1995 


FY 1996 


FTE 


FTE 


FTE 


141 


143 


130 


74 


78 


78 


8 


8 


7 


13 


13 


19 



288 



COMPLIANCE ACTIVITIES 
OCR's compliance activities are as follows: 

• Complaint Processing 

• Reviews and Investigations 

• Monitoring 

• Voluntary compliance and outreach activities 

Of the 276 FTE in the OCR request, 234 FTE are to be allocated to compliance 
activities. The following table compares the actual distribution of FTE among 
the compliance activities in FY 1994 to the FY 1995 and FY 1996 projections: 



Complaint Processing 

Reviews and Investigations .... 

Monitoring 

Voluntary Compliance and Outreach . 

TOTAL 236 252 234 

Complaint Processing 

OCR's policy is to resolve all complaints of discrimination that are filed and 
to conduct an investigation when necessary. This policy is based on the 
Department's regulations implementing the various non-discrimination statutes 
and the Department of Justice coordinating regulations requiring compliance 
agencies such as OCR "to establish procedures for the prompt processing and 
disposition of complaints" alleging discrimination (28 CFR Section 42.408(a)). 

During the five-year period from FY 1990 to FY 1994, the number of 
c!iscrimination complaints filed with OCR increased by an average of almost 7 
percent per year, with increases experienced in every year except FY 1993. 
However, based on standard forecasting techniques, this budget request assumes 
that the annual rate of increase will be slowed to approximately 2 percent per 
year in both FY 1995 and FY 1996. OCR expects to receive approximately 2,312 
new complaints in FY 1996. 

As a result of ongoing efforts to streamline complaint handling through 
changes in investigative processes and the use of negotiated resolution and 
alternative dispute resolution, OCR expects continuing productivity increases 
and faster responses to complainants during both FY 1995 and FY 1996. The 
relatively small increases in complaint receipts, coupled with increases in 
productivity, will enable OCR to reduce the number of FTE allocated to 
complaint handling by 7 percent from FY 1994 to FY 1996. Concurrently, due to 
substantive changes in complaint processing identified through pilot projects 
during FY 1995, the inventory of open complaints should decrease by nearly 2 3 
percent from the beginning of FY 1995 to the end of FY 1996. 

The following table summarizes the FY 1994 complaint workload and projects 
FY 1995 and FY 1996 activity: 

Complaint Workload 

FY 1994 FY 1995 FY 1996 

Beginning Inventory 1,112 

Complaints Received 2,222 

Complaints Closed 2,231 

Ending Inventory 1,103 



1,103 


1,100 


2,266 


2,312 


2,269 


2,562 


1,100 


850 



289 



Reviews and Investigations 

During the past two years, OCR has altered its complieuace review approach to 
provide greater flexibility, to expand coverage, and to make it more 
consistent with regulatory provisions. Under the regulations implementing the 
non-discrimination laws, OCR must periodically review the policies and 
practices of program recipients to assess compliance. In addition, the 
regulations require an investigation whenever a review, report, complaint, or 
other information indicates a possible failure to comply with non- 
discrimination standards. A proactive review and investigation program 
enables OCR to target its compliance resources to address priority civil 
rights issues. This enables more effective prevention efforts than can be 
accomplished through handling of issues raised by complainants alone. 

Accordingly, OCR conducts reviews and investigations as follows: 

• Reviews of Compliance A review examines the compliance status of a 
program recipient. Reviews may be comprehensive or of limited scope 
with respect to the compliance issues involved and the statutory 
authorities applied. 

• Investigations When a review, complaint case, or other information 
indicates serious problems of possible discrimination, OCR conducts an 
investigation . 

• Pre-grant reviews A pre-grant review is conducted when health care 
facilities seek approval from the Department's Health Care Financing 
Administration to participate in the Medicare program. 

OCR estimates that a total of 3 50 limited scope compliance reviews will be 
conducted in FY 1996, including carry- in cases and new starts. In addition, 
OCR expects to conduct a total of 121 investigations, closing 86 
investigations by the end of the fiscal year. The total workload for such 
reviews and investigations will increase by 85 percent between FY 1994 and 
FY 1996, and the number of closures will increase by slightly more than 90 
percent. An estimated 37 FTE will be utilized for reviews of compliance and 
investigations in FY 1996, compared with 29 in FY 1994. 

The following table summarizes the FY 1994 compliance review workload and 
projects FY 1995 and FY 1996 activity: 

Reviews of Compliance and Investigations 

FY 1994 FY 1995 FY 1996 

Beginning Inventory 54 51 49 

New Reviews/Investigations . . 201 246 423 

Actions Completed 204 248 388 

Ending Inventory 51 49 84 

Pre-grant reviews are mandated when health care providers such as nursing 
homes and home health agencies apply to participate in the Medicare program. 
When providers seek Medicare certification, OCR conducts a pre-grant review to 
determine whether they will be able to comply with Title VI, Section 504, and 
the Age Discrimination Act. OCR will be working with the Department's OPDIVs 
and with State agency partners to determine whether and how to expand the pre- 
grant process beyond Medicare certification. These efforts will focus on ways 
in which the OPDIVs and/or State agencies can aid in pre-grant reviews. An 
estimated 41 FTE will be used for pre-grant reviews, a decrease of five FTE 
from FY 1995. The reduction results from ongoing efforts to reduce case 
processing time and efforts to involve partners in the process. 



290 



The following table summarizes the pre-greuit review workload in FY 1994 and 
provides projections for FY 1995 and FY 1996: 

Pre-Grcint Reviews 



FY 1994 

940 
3,658 


FY 1995 

1,066 
3,749 
3,788 
1,027 


FY 1996 

1,027 
3,843 


3,532 
1,066 


4,037 
833 



Beginning Inventory . . . 

New Reviews 

Reviews Completed .... 
Ending Inventory .... 

Monitoring 

The purpose of monitoring is to ensure that progrsun recipients carry out the 
measures set forth in corrective action plans negotiated by OCR. Corrective 
action plans are negotiated to resolve compliance problems that are uncovered 
or verified during a review or a complaint or post -grant investigation. 
Monitoring involves reviewing reports or information submitted by program 
recipients. In some instances on-site visits may be necessary to assess a 
recipient's progress in implementing corrective measures. 

OCR anticipates that monitoring actions will be necessary in 1,505 cases and 
1,650 cases in FY 1995 cind FY 1996 respectively. To support this activity OCR 
plans to allocate seven FTE in FY 1996. 

Voluntary Complieince and Outreach 

Through voluntary compliauice activities, OCR provides compliance information 
to beneficiaries and technical assistemce to recipients of HHS funds to 
encourage voluntary compliance with the non-discrimination laws and 
regulations. Technical assistance is made available through training, by 
developing cind disseminating compliance information, cuid by providing 
recipients, recipient groups, amd State and local officials with guideuice on 
how to voluntarily comply with applicable civil rights laws. Initiatives 
undertaken with State cind local governments, provider and beneficiary 
organizations auid with advocacy groups are intended to prevent future problems 
through early identification of problems cuid interventions to avoid or correct 
them. 

OCR will allocate 19 FTE to voluntary compliance and outreach in FY 1996, cin 
increase of six FTE from FY 1995. The assignment of more staff time to 
voluntary compliance euid outreach and partnership activities represents a 
commitment by OCR to listen to its customers and work collaJDoratively with its 
internal cuid external partners, to best focus OCR resources and efforts to 
address acute auid chronic civil rights problems. 

With this allocation OCR will: 

• Work cooperatively with recipient State agencies to plan eind initiate 
pilot projects to encourage sub-recipient compliance with non- 
discrimination standards. 

• Work with HHS program staff and their program providers, provider 
groups, advocacy groups, State agencies and other experts to develop and 
monitor remedial plans. 

• Work with partners to prepare and distribute "methods of compliauice" for 
recipient State agencies to self -monitor and to help State and local 
partners to monitor local efforts to achieve euid maintain complieince at 
the sub- recipient levels. 



291 



• Sponsor and participate in training sessions cuid other progrsuns designed 
to ensure access to health care euid social services for minorities, 
limited English speaking persons, persons with disabilities, and senior 
citizens. 

• Strengthen relationships with major constituency groups through co- 
sponsorship of meetings to bring together advocacy groups, providers. 
States and community leaders to address specific issues. 

• Prepare periodic reports regarding civil rights trends and activities 
HHS-wide. 

• Work jointly with the HHS OPDIVs, advocacy groups, provider 
orgcmizations and others to produce program or industry- specif ic 
materials for use by grantees euid their employees to help them to avoid 
civil rights problems. 

• Provide technical assistcuice to program recipients to help them comply 
with non-discrimination rules and procedures, develop and implement 
corrective action plans, and con^ly with the Hill -Burton community 
service requirements . 

Successful voluntary compliance and outreach initiatives euid the ready 
availcibility of OCR compliance standards and policies to serve as guides to 
service providers will result in a growing number of indicators of State, 
local, and program provider solutions that provide quality local level 
resolution of civil rights problems. 

LEGAL SERVICES 

OCR' s budget request includes funds to support the Civil Rights Division of 
the Department's Office of the General Counsel. Division attorneys in 
headquarters and the regional offices provide OCR staff with legal advice and 
assistance in interpreting cuid applying the non-discrimination laws and 
regulations. 

Specifically, the Civil Rights Division: 

• Prepares cases for administrative enforcement proceedings emd refers 
cases to the Department of Justice for enforcement. 

• Assists the Department of Justice in litigating court cases involving 
civil rights issues and health euid humsm services progreuns. 

• Reviews or assists in developing civil rights regulations, policy 
interpretations, and cfuidelines. 

• Issues legal opinions at OCR's request. 

• Provides legal guidcuice in applying the Privacy Act, the Freedom of 
Information Act, and other statutes and regulations with which OCR must 
comply. 

OCR will allocate 21 FTE to legal services in FY 1996. OCR anticipates that 
at the plcuined FTE level the Civil Rights Division will be able to provide 
necessary legal assistcuice in connection with letters of findings, corrective 
action plcuis, regulations, legal interpretations, guidelines, and technical 
assistance materials. Specifically, in FY 1996 the attorney staff is expected 
to provide legal advice in connection with an estimated 380 investigated 
complaints, reviews, cind corrective action plsms, eUid 70 litigation matters. 
In addition, the attorney staff will review potential enforcement actions. 



292 



represent OCR at administrative hearings auid appeals, and provide general 
legal guidance regarding court decisions and the scope and applicability of 
statutory and regulatory requirements. 

PROGRAM MANAGEMENT 

This component provides OCR with overall policy direction and mcinagement 
services needed to plan and accomplish program objectives. Mauiagement 
determines compliance and enforcement priorities, including program and 
strategic planning; provides policy direction; allocates staff to priority 
objectives; monitors smd evaluates progress; makes final decisions on OCR's 
complieuice steuidards, procedures, proposed regulations and policy 
determinations; formulates amd executes the budget; provides a full range of 
administrative services in areas such as Information Resources Mcinagement, 
procurement, property management, supplies, and personnel; and ensures 
coordination with departmental officials and with other executive breinch 
departments and agencies . 

OCR will assign 21 FTE to management functions in FY 1996. This staff will 
continue to provide OCR with the full reinge of administrative services and 
with overall policy direction and progrsim coordination; they will also 
implement and monitor OCR's operating plans. These 21 FTE are a reduction of 
16 percent from the FY 1994 level. This is consistent with the streamlining 
goals of the National Performance Review to reduce administrative controls and 
to lower the ratio of supervisors to staff. 

Rationale for the Budget Request 

The FY 1996 request for OCR is a decrease of $766,000 and 21 FTE from FY 1995 
levels. Dollar savings from this FTE reduction will help to defray the costs 
of the annualization of the January 1995 pay raise, the anticipated January 
1996 pay raise of 2.4 percent, and mandatory personnel costs such as within- 
grade increases and career-ladder promotions. 



293 

OFFICE FOR CIVIL RIGHTS 
DETAIL OF PtJLL-TIME EQUIVALENT (PTE) EMPLOYMENT 



Office of the Director, including 

Policy and Special Projects Staff 

Office of the General Counsel (Civil Rights) . . 

Office of Management Planning and Evaluation . . 

Office of Program Operations 

Regional Offices 

Total, OCR 

Average GS Grade 

1991 11-5 

1992 11-5 

1993 11-6 

1994 11-7 

1995 11-5 

1996 11-4 



1994 


1995 


1996 


Actual 


Estimate 


Estimate 


16 


16 


15 


12 


12 


11 


27 


27 


20 


33 


33 


25 


196 


209 


205 


284 


297 


276 



294 



OFFICE FOR CIVIL RIGHTS 
DETAIL OF POSITIONS 



1994 
Actual 



Executive Level I 

Executive Level II 

Executive Level III 

Executive Level IV 

Executive Level V 

Subtotal 

Total - Executive Level Salaries 

ES-6 

ES-5 

ES-4 

ES-3 

ES-2 

ES-1 

Subtotal 

Total - ES Salaries 

GS-15 

GS-I4 

GS-13 

GS-12 

GS-11 

GS-10 

GS-9 

GS-8 

GS-7 

GS-6 

GS-5 

GS-4 

GS-3 

GS-2 

GS-1 

Subtotal 

Total positions 

Total FTE usage , end of year 

Average ES level 

Average ES salary 

Average GS grade 

Average GS salary 

Average Special Pay 



1995 
Estimate 



S--- 



1996 
Request 



$--- 



1 


1 


1 


1 


1 


1 


2 


2 


2 


2 


2 


2 


6 


6 


6 


$634,000 


$642,000 


$657,000 


19 


19 


17 


37 


37 


35 


36 


36 


29 


112 


112 


111 


26 


27 


27 


2 


3 


3 


13 


14 


14 


3 


5 


5 


13 


13 


12 


6 


6 


5 


9 


9 


9 


3 


3 


3 


4 


4 


4 











283 


288 


274 


289 


294 


280 



$105,707 

11.7 

$51,235 



$106,996 

11.5 

$52,001 



$109,505 

11.4 

$53,249 



Friday, March 24, 1995. 
HEALTH CARE FINANCING ADMINISTRATION 

WITNESSES 

BRUCE C. VLADECK, ADMINISTRATOR, HEALTH CARE FINANCING 

ADMINISTRATION 
LEE MOSEDALE, DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, 

HEALTH CARE FINANCING ADMINISTRATION 
WILLIAM R. BELDON, DIRECTOR, DIVISION OF PUBLIC HEALTH AND 

SOCIAL SERVICES BUDGET ANALYSIS, DEPARTMENT OF HEALTH 

AND HUMAN SERVICES 

Mr. Porter. The subcommittee will come to order. 

We continue our hearings on the fiscal year 1996 appropriations 
for the Department of Health and Human Services. We are pleased 
to welcome this morning the Health Care Financing Administra- 
tion, Dr. Bruce Vladeck, the Administrator. 

Dr. Vladeck, why don't you introduce those gentlemen who are 
with you, and then we can proceed? 

INTRODUCTION OF WITNESSES 

Mr. Vladeck. Okay. I believe Mr. Mosedale needs no introduc- 
tion to members of this subcommittee. He is Director of the Office 
of Financial Management at the Health Care Financing Adminis- 
tration. You know Mr. Beldon, from the Office of the Assistant Sec- 
retary for Management and Budget at the Department. 

Opening Statement 

I am very pleased to be here today to present our fiscal year 
1996 budget request. 

Nothing is clearer than the need for change in health care in 
America and the ability of organizations, such as ours, to adapt 
quickly to a changing environment. We are dedicated to serving our 
beneficiaries better by working in collaboration with providers of 
health care services, States that administer the Medicaid program, 
and much of our quality program and other partners. 

The President's budget is good news for beneficiaries. It protects 
both access to and quality of care, and that's our bottom line, en- 
suring that the 70 million Americans for whom we provide health 
insurance have access to the best possible care when they need it. 

Our budget focuses on improving customer service, strengthening 
program administration, increasing operational efficiency and pro- 
ductivity, and continuing to implement continuous quality 
improvement. 

Mr. Chairman, the President, Secretary Shalala, and I are com- 
mitted to improving efficiency in our administration of Medicare 
and Medicaid so that we maximize the effectiveness of the tax dol- 

(295) 



296 

lars used to serve our beneficiaries. In response to the demands of 
American citizens that we do more with less, we continue to con- 
centrate on a smaller and more efficient Government. 

Three principles govern both the formulation and the execution 
of our budget: effective management of Medicare and Medicaid; 
customer service for our beneficiaries; and flexibility for our part- 
ners. If you will put that last chart back up for one second, let me 
just point out that in terms of efficiency, one of the things that is 
often less well-recognized about our programs is the extent to 
which we are serving significantly more people each year. Just 
since 1989, to use this chart, the number of Medicare and Medicaid 
beneficiaries combined has grown by something like 10 million per- 
sons. We are serving approximately 2 million more beneficiaries be- 
tween Medicare and Medicaid each year in those programs. 

EFFECTIVE MANAGEMENT 

But at the same time, under President Clinton's leadership, 
growth in projected spending for both Medicare and Medicaid has 
been reestimated downwards considerably. We have reduced ex- 
penditure projections by a total of almost $80 billion for Medicare 
and $133 billion for Medicaid over the five-year period 1993 
through 1998. These changes have made a significant contribution 
to lowering the deficit. They are due in large part to the results of 
the President's historic deficit reduction measures enacted in 1993 
for a strong economy with low inflation, as well as to the bipartisan 
legislation enacted in 1991 which limited the use of taxes and do- 
nations to finance the Medicaid program. 

We have also taken steps to significantly improve program man- 
agement and to reduce fraud and abuse. We are developing data 
systems to enable us to quickly detect patterns of inappropriate 
services which are not only costly, but may put the beneficiaries at 
risk. The best example of that is the Medicare Transaction System, 
which we will begin phasing in during fiscal year 1997. 

As you know, program management accounts for less than 1 per- 
cent of HCFA's total expenditures. We are presenting to you today 
a budget for program management that requests 2.1 percent more 
than the 1995 appropriation. We are doing this while the overall 
budget of the agency calls for Medicaid obligations in 1996 to in- 
crease by $7.5 billion, and Medicare by $20 billion. 

On the program management budget, the salaries and expenses 
portion of administrative costs has increased by 3.3 percent over 
the current estimate for this year. We have reduced our employ- 
ment ceiling from almost 4,300 FTEs in 1993 to just over 4,100 in 
1996. It would have been greater but, as you know, the Depart- 
ment is eliminating the Regional Service Centers which provided 
various administrative services to our 10 regional offices, and as a 
result we are having to absorb 43 FTEs next year to do budget, fa- 
cilities, labor relations, and equal opportunity functiong at our re- 
gional offices. 

We believe we have been able to continue to manage the program 
effectively in light of reduced employment through significant 
streamlining, through devolution of responsibilities to employees, 
and particularly a heavier reliance on our regional offices, while 
still maintaining a very high quality in our programs. 



297 

Our budget for Medicare contractors — which is the single largest 

{>art of our program management request — has increased $16 mil- 
ion, or less than 1 percent over the 1994 appropriation. Even 
though our contractors will process approximately 5 percent more 
claims, more than 822 million, we are able to hold down costs by 
continued productivity investments. In addition, we continue to ex- 
perience rates of return well in excess of 10 to 1 on our expendi- 
tures on program safeguards. 

We have requested an 11 percent increase, a total of $16 million 
in the Medicare State certification activities, largely to respond to 
the increasing workload and continuing statutory mandates that 
we annually inspect almost 14,000 nursing homes and more than 
8,300 home health agencies. We are trying to maintain an ade- 
quate level of coverage for all the other facilities, which has not 
been possible under current budgets, and we are also seeking to in- 
vest some dollars in a significant reengineering of the entire survey 
and certification process in the direction of greater emphasis on 
outcomes measures, and less on traditional "cops and robbers" 
kinds of surveys. 

The Clinical Laboratory Improvement Amendments, or CLIA 
program, is funded entirely through user fees which are credited to 
the program management account, and therefore requires no ap- 
propriation. In fiscal year 1996, we will inspect over 20,000 labora- 
tories. 

Our research, demonstration, and evaluation request has been 
reduced by $24.5 million, or 27.5 percent below the 1995 appropria- 
tion. We estimate spending of $48 million for research and develop- 
ment activities, many of which provide information to the Con- 
gress, to the rest of the Executive Branch, to health care providers, 
and to other interested parties. About $13.2 million in the fiscal 
year 1996 request is for Congressionally-mandated studies. 

CUSTOMER SERVICE 

There are two items that I want to call to your attention, particu- 
larly because they are new and represent, frankly, the major new 
items in this request over previous years. 

The first is a request for distribution in fiscal year 1996 of the 
Medicare Handbook, the basic guide to the Medicare program, to 
every beneficiary. I personally find it rather dismaying that this 
very elementary level of service, which is expected by enrollees in 
every health insurance plan in the United States, is not something 
that we regularly provide to Medicare beneficiaries. We have not 
sent out the handbook to all our beneficiaries in eight years, since 
the repeal of the catastrophic legislation. I would argue very 
strongly that this ought to be an annual expectation, particularly 
as we increasingly emphasize managed care and other choices that 
beneficiaries have in the Medicare program. They need up-to-date 
information about their benefits and how to get customer service. 

In addition, there is a very modest sum of money for the start 
of what we call "HCFA On-Line," a new communications strategy 
designed to help us meet the information needs of our 70 million 
beneficiaries, and the providers, and other governmental agencies 
with whom we work. To the extent that we communicate at all 
with those folks, it's in a very paper-intensive, very slow and awk- 



298 

ward process. "HCFA On-Line" represents an effort to convert our 
very significant data resources in the direction of customer serv- 
ice — being able to answer people's questions, being able to respond 
to them. In addition, we seek to experiment with some of the new 
communications media, including not only computer on-line, but 
the distribution of videotapes, working through public libraries, 
through a variety of volunteer agencies, and so forth to emphasize 
preventive services for Medicare beneficiaries, to emphasize choices 
in managed care, and perhaps most importantly, to give them a 
place they can turn to when they have questions and need answers. 

I might add in this regard that the fact that the Social Security 
Administration becomes an independent agency next week leaves a 
complication in the principal source of information to which bene- 
ficiaries have customarily turned about Medicare issues. While we 
will continue to work closely with SSA and they will continue to 
operate our enrollment processes, the need for customer service in 
other mechanisms increases as a result. 

Let me just say a few words about flexibility by way of 
conclusion. 

FLEXIBILITY 

The Health Care Financing Administration operates, by design 
and necessity, through a series of partnerships. We have enhanced 
those partnerships in the Medicaid programs to assist States in im- 
plementing waiver programs and to encourage innovation. We have 
worked closely with the National Governors Association and the 
State Medicaid Directors Association to streamline our processes 
for waiver approval and to work together to implement the 1991 
Provider Tax and Donation laws. We are experimenting with our 
partners in State Survey and Certification agencies with a variety 
of ways to make the survey process more efficient and less costly 
to both of us. In addition, we are proposing legislation as part of 
the budget proposal to give the States greater flexibility in 
targeting home health agencies most prone to deficiencies for sur- 
veys, and to no longer require annual inspections of home health 
agencies with good track records in terms of quality of 
performance. 

We are also working very extensively with the managed care in- 
dustry, with large private sector buyers, with the States, with the 
academic community, and with private foundations on new tools for 
measuring the quality of managed care and for developing new 
ways of paying for managed care services. 

We will be proposing legislation that is not quite ready yet that 
will provide us with greater flexibility in Medicare contracting. 
This will allow us both to save money and to identify new partners 
who can help us process Medicare claims and perform other admin- 
istrative functions more efficiently and effectively. 

In summary, this budget provides for effective management, cus- 
tomer service, and flexibility: by protecting Medicare and Medicaid 
for future generations, by keeping our focus on our purpose of serv- 
ing the 70 million beneficiaries of these programs, and by working 
in collaboration and increasing flexibility with all our partners in 
the administration of these programs, of those fiscal intermediaries 
and carriers, and in many important ways, of the almost 1 million 



299 

providers, without whose services our beneficiaries wouldn't be get- 
ting the health care they need. 

I thank you very much for the opportunity to present our budget. 
We look forward to working with the committee and, of course, I 
am happy to respond to any questions or suggestions you might 
have. 

[The prepared statement and biography of Bruce Vladeck follow:] 



300 



Mr. Chairman and Members of the Subcommittee: 

I am honored to be here today to pres^it the fiscal year (FY) 1996 budget 
request of the Health Care Financing Administration (HCFA). 

As we look to the future of American health care, nothing is clearer than the 
need for change, and the ability to adapt quickly to a new environment. We are 
dedicated to serving beneficiaries better by working with providers of health care 
services, States that administer the Medicaid program, and other partners. This 
budget is good news for beneficiaries. It protects both access and quality of care for 
beneficiaries. That's our bottom line: ensuring that the 70 million Americans for 
whom we provide health insurance have 
access to the best possible care when 
they need it. 

The budget focuses on 
improving customer service, 
strengthening program administration, 
increasing operational efficiency and 
productivity, and implementing 
continuous quality improvement. 

Nfr. Chairman, the President, 
Secretary Shalala and I are committed 
to improving efficiency in our 

administration of Medicare and Medicaid so that we maximize the effectiveness of 
the tax dollars used to serve our beneficiaries. In response to the demands of 
American citizens that we do more with less, we continue to concentrate on a 
smaller and more efficient government. 

Three principles govern both the formulation and execution of HCFA's 
budget: effective management of Medicare and Medicaid funding; customer 
service for our beneficiaries; and, flexibility for our partners. 

EFFECTIVE MANAGEMENT 



80 
60 
'40 
20 


HCFA SERVES 
70 MILLION BENEFICIARIES 




1968 1975 1982 1989 1996 



Under President Clinton's 
leadership, growth in projected benefit 
spending has been reestimated 
downward for both Medicare and 
Medicaid. We have reduced 
expenditure projections by a total of 
$79 billion for Medicare and 
$133 billion for Medicaid over a five- 
year period. This change marks a 
significant contribution to lowering the 
deficit. 




301 



This extraordinary drop is due in large part to the President's historic deficit 
reduction measures, a strong economy with low inflation, and the 1991 bipartisan 
l^slation limiting the use of Medicaid taxes and donations. 

Additionally, we have taken stq>s to improve significantly program 
management and reduce fraud and waste, notably in durable medical equipment. 
Also, we are developing data systems to enable us to quickly detect patterns of 
imq^ropriate use of services which are not only costly, but may cause needless pain 
and su^ering. The current Common Working File and the new Medicare 
Transaction System, which will be phased in b^inning in the Fall of 1997, are 
examples of such data systems. 

Program management accounts for less than 1 percoit of total agency 
expenditures. We are presenting to you today a budget for program management 
that requests 2. 1 percent more than the 1995 appropriation. We are doing this while 
Medicaid obligations for 1996 are expected to increase by $7.5 billion over 1995 and 
Medicare by $20 billion. 

Through the use of an effective management team, we are able to minimize 
cost increases of the Program Management account as follows: 



FY 1996 PROGRAM MANAGBiENT, 
1« OF HCFA OUTLAYS 



The salaries and expenses 
portion of the Administrative Costs 
request has increased by $12 million or 
3.3 percent over the 1995 current 
estimate. We have reduced our 
employment ceiling from 4,272 Full- 
Time Equivalent (FTE) employees in 
1993 to 4,147 in 1996. This reduction 
would have been greater; however, due 
to the Office of the Secretary's regional 
restructuring, 43 FTEs, and their 
functions, will be transferred to HCFA 
in FY 1996. An emphasis on a total 
quality environment and its primary 

tenets of employee inclusion and empowerment has greatly helped us meet the 
challenge of such reductions and still maintain a high quality, customer-focused 
team. 




The Medicare Contractors request has increased $16 million, less than 
1 percent over the 1994 appropriation. Even though our contractors will process an 
estimated 822 million claims, a 4.7 percent increase over 1995, we will be able to 
hold down total costs. The level of return on Payment Safeguards increases to 16: 1 
even though the budget has remained the same for 1996. 

The Medicare State Certiflcation request has increased by 
$16 million or 11 percent over the 1995 appropriation. This program ensures that 
institutions and agencies providing health care services to Medicare and Medicaid 



302 



beneficiaries meet Federal health, safety, and program standards. We will inspect 
over 13,700 nursing homes and more than 8,300 home health agencies annually as 
mandated in statute, as well as at least 20 percent of other facilities such as those 
offering hospice care and kidney dialysis. We consider $16 million a wise 
investment because a portion of this increase will be used for the total redesign of 
the survey process with an eye toward making the survey process much more 
efficient. 

The Clinical Laboratory Improvement Amendments or CLIA program is 
funded entirely through user fees credited to the program management account and 
therefore requires no appropriation. It is responsible for ensuring— through 
inspection and proficiency testing— the quality of laboratory testing for all Americans, 
not just Medicaid and Medicare beneficiaries. In 1996, we will inspect over 20,000 
laboratories. 

The Research, Demonstrations and Evaluation request has been reduced by 
$24.5 million, or 27.5 percent below the 1995 appropriation. HCFA estimates 
spending $48 million for research activities that provide information to the Congress, 
the Secretary, the Office of Management and Budget, and other interested parties to 
enable them to make informed and rational decisions regarding HCFA program, 
policy, and budget matters affecting the Medicare and Medicaid programs. We 
estimate that we will spend $13.2 million for Congressionally-mandated projects in 
FY 1996. 

CUSTOMER SERVICE 

This budget is governed by a strong commitment to customer service. At 
HCFA, customer service is not just a slogan. It is a pervasive attitude backed up by 
real commitments in this budget. For example, this budget will support sending a 
new handbook to every Medicare beneficiary, something HCFA has not done for 8 
years. I find it dismaying that Medicare in the past 

has not provided basic information on an aimual basis to all beneficiaries, as does 
every other health insurance company in this country. 

Additionally, this budget includes a new communications strategy for HCFA, 
called HCFA On-Line. HCFA On-Line is designed to help the agency meet the 
information needs of our 70 million beneficiary customers. The principles that will 
guide all our efforts in this area are the essence of customer service in government: 
diversity, flexibility, clarity, and timeliness. 

HCFA On-Line would heavily emphasize listening to customer needs as a 
first step. We expect this to help us build information systems that are better 
targeted. We want to take a hard look at harnessing emerging technologies to serve 
beneficiary information needs more effectively than in the current paper-intensive 
environment. Use of media such as CD-ROM, interactive video, and on-line 
information services can speed the flow of information, simplify access, and further 
reduce costs. 



303 



With the ftinds we have requested for FY 1996, HCFA will start to identify 
needs, build systems, and better coordinate existing communication efforts. 
Thoroughly informed beneficiaries and business partners will make better treatment 
choices and will be able to let us know how to better serve them. 

In addition, the funding increase in the Survey and Certification program will 
provide better customer service and will allow more systematic surveying of dialysis 
facilities, ambulatory surgical centers, psychiatric hospitals, and other facilities to 
better ensure that we identify any quality problems. Also, we will develop, test, and 
implement performance indicators and quality standards for nursing homes, home 
health agencies, and other types of providers. These changes protect Medicare 
beneficiaries by further ensuring the delivery of high-quality care. 

Furthermore, people need choices. The availability of managed care provides 
our beneficiaries with many of the same kinds of choices available to other 
Americans. Under a managed care plan. Medicare enrollees frequently receive 
preventive services that Medicare does not normally cover and enrollees typically 
incur lower out-of-pocket costs than their counterparts in fee-for-service Medicare. 
Under Medicaid, enrollees also receive enhanced primary care access. Nearly 
8 million Medicaid beneficiaries are enrolled in managed care plans in 
44 States and the District of Columbia, representing a nearly 63 percent increase in 
enrollees from 1993 to 1994. More than 3 million Medicare beneficiaries are 
currently enrolled in managed care plans, representing a 16 percent increase since 
last year. 

FLEXIBILITY 

HCFA operates, by design and necessity, through a series of partnerships, 
and partnerships cannot be successful without flexibility. 

We have enhanced Federal/State partnerships in the Medicaid program to 
assist States in implementing their State program waivers and to encourage 
innovation. We worked closely with the National Governors' Association and the 
State Medicaid Directors' Association to streamline our processes for waiver 
approval and to facilitate a workable and understandable provider tax and donation 
policy. 

In the State-administered survey and certification program, which I mentioned 
before, we are proposing legislation to give the States the flexibility to target those 
home health agencies most prone to deficiencies. Thus, working through our 
partners in the States, we can ensure quality care and. enhance our quality oversight 
activities in other types of facilities without further increasing the survey budget. 

We are working in partnership with private foundations, the managed care 
industry, states, and others to develop new tools for measuring managed care plan 
performance and quality. 

We will be proposing legislation that will provide flexibility in Medicare 
contracting. This will allow new partners to join us in our continuing efforts to 



304 



more efficiently process 
Medicare claims and other 
administrative functions, such 
as payment safeguards and 
services to Medicare 
beneficiaries and providers. 

SUMMARY 

In sumnuuy, this 
budget provides for effective 
management, customer 
service, and flexibility by: 



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o protecting Medicare and Medicaid for future generations; 

o never losing sight of the purpose of our agency-serving our 70 million 

beneficiaries; and, 
o providing flexibility to the States, our over 70,000 agents, and, most 

importantly, our almost 800,000 providers. 

Thank you very much for the opportunity to present HCFA's budget. I look 
forward to working with the Committee and I would be happy to respond to any 
questions or suggestions that you may have. 



305 



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309 



BRUCE C. VLADECK 

Administrator 

Health Care Financing Administration 

Department of Health and Human Services 



Bruce C. Vladeck was swom-in as Administrator of the Health Care Financing 
Administration on May 25, 1993, having been nominated by President Clinton on 
March 5, 1993 and confirmed by the Senate on May 24, isi93. 

As HCFA Administrator, Vladeck directs the Medicare and Medicaid progrzmis, 
which help pay the medical bills of 70 million Americans at a projected cost of almost 
$250 billion '" fiscal year 1994. Vladeck also serves as a key health policy advisor to the 
HHS Secretary emd other top administration ofGcials. 

Vladeck came to HCFA fi-om New York City where he had been President of the 
United Hospital Fund of New York since 1983. Vladeck also was a member of the 
Prospective Payment Assessment Commission, the New York State Council on Health 
Care Financing, and the New York State AIDS Advisory Council. 

Prior to joining the United Hospital Fund, Vladeck was Assistant Vice President 
of the Robert Wood Johnson Foundation in Princeton, New Jersey, during 1982-1983. 
He served as New Jersey's Assistant Commissioner for Health Planning and Resources 
Development from 1979-1982. From 1974-1979, Vladeck taught public health and 
political science at Columbia University. 

Vladeck was a member of the board of directors of the New York Qty Health 
and Hospitals Corporation and a trustee of the Henry J. Kaiser Family Foundation. . He 
also served as a member of the Institute of Medicine, Nationel Academy of Sciences, 
where he chaired the Committee on Health Care for Homehss People. 

Vladeck received a bachelor's degree from Harvard University in 1970. He 
received a master's degree in 1972 and a Ph.D. in political science in 1973, both from the 
University of Michigan. 

He is the author of "Unloving Care: The Nursing Home Tragedy" and of many 
articles and book chapters on various subjects. 

Vladeck was bom in New York City on September 13, 1949. He is married to the 
former Fredda Wellin of Detroit, Michigan, and they have three children. 



May 1994 



310 



LEE MOSEDALE 



Director 

Office of Financial Management 

Health Care Financing Administration 

Department of Health and Human Services 



1969 - 1971 Naval Flight Officer, USNR 

1971 - 1S)74 Financial Management Specialist, National Institutes of Health 

1974 - 1981 Budget Examiner, Office of Management and Budget 

1981 - 1986 Associate Executive Secretary, Department of Health and 

Human Services 

1986 • Present Director, Office of Financial Management, Health Care 

Financing Administration 



311 

GROWTH IN BENEFICIARIES AND EXPENDITURES 

Mr. Porter. Dr. Vladeck, can you go back to charts 1 and 2? Let 
me ask kind of a basic question. 

The number of beneficiaries being served has obviously gone up 
greatly. How much of that is due to more people being eligible, in 
other words, people living longer, as opposed to expanding 
programs? 

Mr. Vladeck. On the Medicare side, there are about 1 percent 
more people per year, about 350,000 people per year more who turn 
65 than people over age 65 who die. So that's simple demographics. 

The faster part of the growth in Medicare eligibility is among the 
disabled. As you know, in recent years there has been a very rapid 
increase in the number of disabled persons, as defined under the 
Social Security Act. 

On the Medicaid side, obviously, most of the growth is associated 
with newly-eligible people, partially as a result of statutory 
changes in the late 1980s and early 1990s. 

Mr. Porter. Okay. Can we go to chart 2 for a second? 

You have a greatly expanded population, and then there is high- 
er spending, obviously. There is not less spending, there is more 
spending. But the question is, is the rate of growth in spending 
slowing? The rate of growth in spending is slowing, according to 
the chart. How much of that is coming through greater productivity 
and changes in delivery, and how much is coming through shifting 
costs away from the Government, to private paying? 

Mr. Vladeck. Again, the circumstances need to be discussed 
slightly separately in Medicare and Medicaid. On the Medicaid 
side, in fact, during this period, in most categories of provider reim- 
bursement, since the late 1980s there has been some catch-up of 
the Medicaid program relative to private payers rather than an in- 
crease, in the traditional definition. There is an enormous growth 
in managed care in the Medicaid program to which some of these 
savings can be attributed. However, I think that both the tax and 
donation issue and the general deflation or reduction in the rate of 
increase in health care costs has much more to do with it than 
managed care savings so far. We expect to see more in the future. 

On the Medicare side, the principal cause of the decreased rate 
of growth has been the overall reduction of inflation in the econ- 
omy, particularly in the health care sector of the economy. In fact, 
for the first time in more than a decade, between 1993 and 1995, 
our payment rates — our prices — went up more quickly than private 
sector prices, because we are not gaining as quickly from this slow 
down in inflation as the private sector has over that period. 

So if anything, in the terms you used of cost-shifting, that has 
been reduced in this period of time. We are paying a somewhat big- 
ger share for the services that we're paying for, and the private 
sector, a somewhat smaller share. 

PAYMENT SAFEGUARDS 

Mr. Porter. Okay. 

As you know, I've been concerned about resources allocated to 
payment safeguard activities within the Medicare contractors ac- 
count. Health care experts have estimated that as much as 10 per- 



312 

cent of national health spending is lost to waste, fraud and abuse. 
Yet, GAO states that Medicare is paying more claims with less 
scrutiny than at any time in the last five years. I was especially 
concerned to see that your 1996 budget request proposes a decrease 
in funding for pajonent safeguard activities. 

With a projected return on investment of $16 for every $1 in- 
vested, isn't a budget cut in this area terribly shortsighted? 

Mr. Vladeck. If I may I'll answer that question in two stages. 
First, our request for fiscal year 1996 is identical to our request 
and initial appropriation for fiscal year 1995. What we were able 
to do in the current fiscal year is identify some savings elsewhere 
in the contractor budget which we reallocated to pajrment safe- 
guards because of the importance that we attach to them. 

Nonetheless, we have felt for quite some time — and I know many 
members of both parties have — that the budget enforcement rules 
about the distinction between discretionary and entitlement sav- 
ings created an anomaly in the area of payment safeguards, where 
for every $1 we spend we save the trust fund $6 or $8 or $10. How- 
ever, the way in which we have customarily accounted for those 
has limited our ability to increase payment safeguard spending. 
And within a very short period of time the Administration will be 
making a proposal to address that and to provide for substantially 
increased investments in program integrity. That will be part of 
the second stage of the Reinventing Government initiative, and I 
hope in the very next few weeks it will be publicly announced. 

Mr. Porter. Why don't we do this here, in your budget? 

Mr. Vladeck. As I am sure you understand, Mr. Chairman, 
within the context in which I work, there are other folks in the Ad- 
ministration who are very much involved and want to be part of 
this process. 

Mr. Porter. Well, in particular, why do you target your reduc- 
tion to Medicare secondary payer activities, which have the highest 
return of all, $35 for every $1 invested? 

Mr. Vladeck. In part because we are seeking to put every mar- 
ginal dollar of investment into those program integrity activities 
targeted particularly on fraud and abuse, and in part we are hope- 
ful of coming to settlement in some of the litigation in which we've 
been engaged which would permit us to install new systems to 
identify private payers with primary responsibility for Medicare 
cases before we pay bills, rather than continuing to pursue the so- 
called "pay and chase" method, which is both very expensive and 
very inefficient. But however, we think we can get more "bang for 
the buck" out of Medicare secondary payer activities. Nonetheless, 
again, we are going to be coming to the Congress very shortly with 
proposals to increase our investment in all these activities. 

Mr. Porter. You don't disagree with the characterization of 
GAO, that you're paying more claims with less scrutiny than at 
any time in the last five years, however? 

Mr. Vladeck. I would not disagree with that. However, I would 
say that we have increasingly targeted our review of claims and 
used some very sophisticated sampling and focusing methodologies 
that we've borrowed from some private sector organizations, such 
as credit card companies. So I think, while we are reviewing a 
smaller proportion of claims as the number of claims grows each 



313 

year and the budget doesn't, we have some methodologies that we 
think are more sensitive to identifying potentially suspect or inap- 
propriate claims. 

MEDICARE PAYMENT CODES 

Mr. Porter. Some feel that current procedural terminology codes 
that are used in claims payment are imprecise, unmanageable, and 
permit gaming of the reimbursement system at the cost of billions 
of dollars in the Medicare program. They believe that detailed 
modification of the current codes at the provider level, done with 
an understanding of up-to-date clinical protocols and technologies, 
could resolve the problem, resulting in considerable savings. 

I understand that at one point you expressed interest in pursu- 
ing such an approach, but that no action has been taken. Can you 
give us your reaction to this proposal and indicate what plans you 
may have to follow up on it? 

Mr. Vladeck. I am afraid, Mr. Chairman, that I would respect- 
fully have to disagree with the notion that we've taken no action. 
In fact, last year we held a very extensively-advertised open com- 
petition for a contractor to study this issue and make recommenda- 
tions to us. We awarded the contract last year to AdminiStar Fed- 
eral, which is one of the most sophisticated private payers around, 
to look at precisely these issues for us. We expect a report this 
summer about the results of that study. It may well be that we 
need to invest more work on these issues. In fact, we are very 
much concerned about it. Again, we did undertake a competitive 
procurement for assistance in looking at it. We have a high degree 
of confidence that we will learn a lot from the current contract. 

Mr. Porter. You agree that there's a lot of potential for savings 
involved in this? 

Mr. Vladeck. I am a little bit skeptical about the extent of the 
savings, because some of the proposals that I've seen suggest an 
administrative and bureaucratic apparatus that is necessarily very 
complex to achieve those called-for savings. But frankly, we're of an 
open mind about that until we get our contractors to take a sys- 
tematic look at the issue. 

Mr. Porter. Thank you. 

Mr. Obey. 

MEDICAID MATCHING RATES 

Mr. Obey. Thank you, Mr. Chairman. 

Let me talk to you for a few moments about Medicaid. Would you 
describe for the record how the Federal matching rates under Med- 
icaid are established, what the factors are that go into that? 

Mr. Vladeck. I will try, sir. There is a formula specified in the 
statute from the initial days of Medicaid for which the major num- 
ber in the equation is per capita income in the States, squared, to 
skew matching rates in favor of lower income States. 

Mr. Obey. And it's the squaring to which I would like to address 
my comments, because I frankly think that that produces some 
very warped results. 

I don't know if you've noticed it, but I've noticed that the posture 
of most governors when they come to town these days is this: hand 
over their hearts, pledging fealty forevermore to balanced budgets 



314 

and fiscal responsibility, and at the same time the other hand is 
out to Uncle Sam saying, "Gimme, gimme, gimme, gimme, gimme." 
And nowhere is that more apparent than in the Medicaid area. 

Matching rates vary from a minimum of 50 percent, as I under- 
stand it up to a high of 79 percent in a State like Mississippi. 
There are a dozen States with rates above 70 percent. The vari- 
ation in those rates means that, for instance, a State like mine gets 
$2,800 per recipient while a state like Louisiana gets $3,800. 

Why on earth should we continue to provide such a high rate of 
reimbursement to States above the national average, given the fact 
that those States have balanced budgets and we have a huge defi- 
cit? I was on the Wisconsin commission that created the first Med- 
icaid program in Wisconsin. I remember all of the gaming that peo- 
ple discussed then. Isn't it time to reduce the leakage out of the 
Federal Treasury to these States, whose only posture is to have 
their hands out all the time? 

Mr. Vladeck. Mr. Obey, I'm from New York, so I S3rmpathize 
very much with the arguments of the 50 percent States relative to 
the formula. On the other hand, I think it is fair to say that from 
the Administration's perspective, the major concern we have is pre- 
serving the fundamental structure of the Medicaid program. If we 
can do that and address some of the concerns that people have 
about the way the formula works, we would be happy to do it. 

Mr. Obey. Well, my concern is this. Some of the Members of Con- 
gress who have posed for the biggest holy pictures on balanced 
budgets are from the States who have their hands out the furthest 
for the mostest. It seems to me that that's a quaint inconsistency, 
to be kind about it. 

Do you have any estimates of how much money would be saved 
if those rates were capped at a level of, say, 65 percent, as an in- 
terim step while we had a full review of the Federal matching 
issue? 

Mr, Vladeck. I believe that a 65 percent cap would save, in fis- 
cal year 1996, about $1.3 billion. 

Mr. Obey. That's almost as much as we took away from low-in- 
come people in the recent rescission bill to help pay their heating 
bills. 

Mr. Vladeck. That's right, sir. 

Mr. Obey. For the record, would you please include at this point 
a copy of the table which I asked the Secretary to prepare, showing 
the estimated savings from a cap in 1 percent increments? 

Mr. Vladeck. Yes, we will. 

Mr. Obey. Thank you very much. 

[The information follows:! 



315 



The following table displays the estimated benefit payment 
savings from a cap of the Medicaid Federal medical assistance 
percentage (FMAP) fi-om 65 percent through 78 percent: 




$1,331 



$1,105 



$902 
$718 
$536 
$364 
$242 
$146 
$90 
$62 
$47 
$32 
$17 
$2 



316 

DISPROPORTIONATE SHARE HOSPITAL PAYMENTS 

Mr. Obey, A number of States dramatically increased Federal 
matching rates in the early 1990s by using reimbursement strate- 
gies that were at best highly questionable, if not fraudulent. Those 
schemes involved overuse of the disproportionate share hospital 
payment mechanism, and complex reimbursable taxes on providers. 
Those schemes were supposedly ended by the 1993 amendments. 

Has the Department fully implemented the change in the law en- 
acted in 1993 to block those abuses? 

Mr. Vladeck. We are in the midst of a process of enforcing those 
requirements, back to the adoption of the final regulations in the 
summer of 1993. I believe there are 23 States where we are cur- 
rently involved in discussions, both to clarify whether or not the 
taxes are indeed impermissible, and if so, to identify exactly how 
many dollars are involved. 

I would expect that before this calendar year is out — although I 
can't be certain it will be done in this fiscal year — we will begin re- 
couping some of those excess taxes. 

Mr. Obey. I would like you to expand further on that for the 
record so that we have a good idea of how much can be saved with 
aggressive pursuit of that. 

[The information follows:] 

Nine States have taxes that are considered to be impermissible under section 
1903(w) of the Social Security Act. These taxes are estimated to represent about 
$480 million. Because these are only estimates, we will be scheduling audits in the 
near future to determine the exact amount of the impermissible tax. 

Sixteen States, some which also had impermissible taxes, may submit a request 
for the approval of a waiver of the broad-based and/or uniformity requirements in 
order for the tax to be permissible under the law. We are working with these States 
in either developing or reviewing their waiver requests. 

FEDERAL MATCHING RATE UNDER WAIVERS 

Mr. Obey. Several States involved in the disproportionate share 
scheme have requested Medicaid waivers, I understand, which 
would have the effect of maintaining Medicaid payments at the 
1994 level. As an example, I am told that the first year of one of 
those waiver requests for one State would provide a 90 percent 
Federal match. 

What is the status of those waiver requests? 

Mr. Vladeck. We have told the particular State to which you 
just referred that we would not accept that proposal in that form. 

Mr. Obey. Good. 

Mr. Vladeck. We met again with them earlier this week, and 
they have significantly modified the financing of their proposal. 

Our general policy is that we will not approve a Medicaid waiver 
if it is not budget-neutral, that is, if it would cost more than cur- 
rent law allows, and that current law includes not only the 1991 
taxes and donations law, but also the OBRA 1993 provisions rel- 
ative to disproportionate share payments, so that even if they may 
have been in excess of those — there's an effective date of the last 
part of the OBRA 1993 requirements of July 1st of this year. Even 
if they are over it now, we won't count it in the baseline; we will 
only count where they would have been once the OBRA 1993 provi- 
sions are fully implemented. 



317 

Mr. Obey. Well, I would very strongly urge the Administration 
to consider supporting a proposition which would put a very strin- 
gent cap on the Federal matching requirement in Medicaid until 
such time as we achieve a balanced budget, so that we can have 
some of the folks around here put their votes where their mouths 
are on the subject of saving Federal dollars. 

Mr. Vladeck. We'll take a very hard look at that, sir, and talk 
to you further. 

Mr. Obey. Thank you. 

Mr. Porter. Thank you, Mr. Obey. 

Mr. Istook. 

OKLAHOMA'S SECTION 1115 WAIVER 

Mr. ISTOOK. Thank you, Mr. Chairman. 

I wanted to ask you — Mr. Obey, of course, was mentioning dif- 
ferent waivers that States seek, and sometimes they seek waivers 
that cost money and sometimes they seek waivers that save money. 
I believe that this week some people at HCFA have been meeting 
with personnel from Oklahoma's Health Care Authority regarding 
a section 1115 waiver that is being sought, so that a Statewide en- 
actment of HMOs for Medicaid would be enabled, rather than just 
in the urban areas. The projections that I've received show that 
there would be a $90 million savings over five years, substantially 
being Federal savings, but about $24 million of it being State sav- 
ings. 

I realize that in your testimony you emphasize the need to have 
flexibility with the States, to have waivers, trying to move to man- 
aged care, and that's what this is about, to enable HMOs under 
legislation that passed the State Legislature in 1993. But I am told 
there may be some difficulty as to whether that waiver is per- 
mitted, if it has to be considered a demonstration project or other- 
wise. I am very interested in helping them to expedite obtaining 
such a waiver, which I think is good for the Federal Government, 
good for the State, good for the people that are being treated on 
that. 

But can you tell me your understanding of a waiver on this, if 
it is not permitted by <rrent law, in your view? I would like to 
know what would have to be changed, either in substantive law or 
through something that might be on an appropriations bill, to 
make that possible. 

Mr. Vladeck. Well, sir, you probably have more up-to-date infor- 
mation on the conversations that the State has had with my staff 
last week than I do, but my understanding is that the particular 
issue to which you're referring, if it hasn't been resolved, it is about 
to be. 

The question is — without getting into all the minutiae — whether 
States may, under section 1915 of the Medicaid statute, enroll folks 
in managed care plans through a waiver process that is much sim- 
pler than the Statewide demonstration projects, but it also has 
somewhat more elaborate and detailed programmatic require- 
ments, particularly concerning consumer protection. 

Many parts of the Oklahoma proposal would also qualify under 
that waiver, although some of the particularly innovative parts of 



318 

the Oklahoma proposal, as they refer to managed care in rural 
areas, clearly are a demonstration of something new. 

We suggested to the State that two different waivers were being 
proposed within the waiver, but the State feels strongly that it's all 
one proposal. I think we're going to find a way to do that, and I 
think that should happen very quickly. 

Mr. ISTOOK. I appreciate that and I hope so, because especially — 
frankly, it becomes a question of availability, to have it a Statewide 
plan rather than just an urban one, which I think is what section 
1915 essentially requires, because there is a lot of migration of peo- 
ple from rural areas to urban areas to get their health care that 
a managed care plan would enable them to still receive in that set- 
ting. I don't need to tell you about the difficulties that many rural 
areas have in attracting and maintaining health care professionals, 
which is something that, in addition to the savings, would be ad- 
dressed under the Statewide plan, but not addressable under sec- 
tion 1915. 

Mr. Vladeck. My understanding is that that's one of the things 
that our staff learned last week. As I say, I think that's the basis 
for moving on this very quickly. 

Mr. ISTOOK. We'll certainly stay in touch with your office, and I 
appreciate the words of encouragement and hope that we can find 
a way to do what will be necessary. I think it is good for all 
concerned. 

EFFECT OF MORE DISABLED BENEFICIARIES ON MEDICARE 

Let me go back to some of the answers you mentioned in re- 
sponse to Chairman Porter's questions. 

You mentioned, of course, regarding Medicare, I believe you said 
there is annually about a 1 percent Medicare population increase, 
but then most of the other Medicare increase has been driven by 
a rise in the number of disabled persons. Can you elaborate more 
on what it is, within the context of disability? Is it some things in- 
volving backlogs of certifications? Is it changes in the law, either 
by Congress or by court rulings, or in the program itself? Because 
I have a concern, and many people do, that what we have done by 
taking disability and msiking the definition so broad and so expan- 
sive, is put people in that maybe you and I would not personally 
consider it a disability, or maybe would consider to have a slight 
disability, but by putting them in the program we have stolen ben- 
efits that need to go to a person who is indisputably disabled and 
who is severely disabled, and that the broadened definition hurts 
those who most need the assistance. 

If you would elaborate, please, on this expansion within the dis- 
ability portion of Medicare. 

Mr. Vladeck. I'll be brief because very honestly I don't know 
that much about it, sir. I do know that our experience has been, 
over the life of the Medicare program or since 1972, when we began 
covering the disabled under Medicare, that when unemployinent is 
relatively high, the number of people who are certified for disability 
increases. 

Mr. ISTOOK. Is that because there's a connection between some- 
body actually becoming disabled just because they're unemployed — 
or what's the relationship there? 



319 

Mr. Vladeck. My understanding, not as an expert, is that the 
test of disability has to do with the ability to effectively participate 
in the workforce, and that threshold may get a little higher when 
there are more people looking for jobs. But, frankly, you've really 
just about exhausted my knowledge of this subject. We take our ac- 
tuarial estimates from those of the Social Security actuaries. 

Mr. ISTOOK. Sure. That may be information that you can provide 
for the record. 

Mr. Vladeck. We would be happy to ask them if we can have 
information that we could forward to you on that, sir. 

Mr. ISTOOK. Certainly. 

[The information follows:] 

Disabled persons are eligible for Medicare benefits after they have been entitled 
to Social Security disability benefits for 24 months. During the period 1990 through 
1993, the number of people applying for Social Security disability benefits increased 
rapidly, and a substantial portion of these applicants were found to qualify for bene- 
fits. As a result of this increase, the number of disabled persons entitled to Medicare 
benefits increased fi:x)m 3.6 million in 1992 to 4.5 million currently. 

The reasons for the rapid increase in disability applications are not fiilly under- 
stood. A 1992 report to the Congress by the Department of Health and Hvunan Serv- 
ices listed economic conditions, changes in legislation and regulations, certain court 
decisions, and outreach efforts as probable contributing factors. The Social Security 
Administration is preparing a report to the Congress about the growth in the dis- 
ability rolls. The report, mandated by the Social Security Independence and Pro- 
gram Improvements Act of 1994, is due on October 1, 1995. Many individuals man- 
age to work despite having severe impairments. During economic recessions, some 
such individuals may lose their jobs and turn to income security programs, such as 
Social Security and unemployment insurance, if they are unable to find other em- 
ployment. 

Although the number of applicants for disability benefits leveled off in 1994, it 
is impossible to draw a conclusion for the long term based on this limited experi- 
ence. However, at present the number of persons awarded disability benefits each 
year is substantially greater than the number of persons whose disability benefits 
terminate due to recovery, death, or attainment of retirement age. Consequently, 
the total number of disabled individuals eligible for Medicaire benefits is expected 
to continue increasing for the foreseeable future, although at a somewhat slower 
rate than in recent years. 

TRUST FUND SOLVENCY 

Mr. ISTOOK. That's really important to know, because obviously, 
you cannot influence the number of people that become of age to 
qualify for Medicare or the number of people who are deceased, but 
certainly, what's driving it within disability is something that we 
need to address. 

There has also been a lot of discussion, of course, regarding the 
Medicare funds. Sometimes you get into semantics with the trust 
funds and things being financed from current expenditures, but the 
bottom line is that there's a lot of discussion about Medicare's fund- 
ing going bankrupt before the turn of the century. 

Can you fill us in on what you perceive to be the status if the 
current funding mechanisms and the program requirements are 
not changed? 

Mr. Vladeck. Yes, sir. The report of the Trustees of the Hospital 
Insurance Trust Fund last April predicted, under intermediate case 
assumptions — ^they do a best case, a worst case, and then a consen- 
sus case — that the trust fund would be exhausted in the year 2001. 

The Trustees meet again the week after next, I believe. I don't 
want to totally scoop their report, but I think the situation has im- 



320 

proved somewhat in the intervening years since their last report, 
but not very dramatically. I think in the last year we probably 
gained about a year, so essentially the trust fund has held its own. 

Obviously, the long-term prospects of the fund are that the cur- 
rent Hospital Insurance Trust Fund share of FICA tax revenues is 
not enough to sustain the program, given expectations about the 
rate of growth in health expenditures and the growing size of the 
population that would be covered under HI. 

I think, frankly, that we have two problems here. We have a 
long-term problem that all of our retirement-related programs 
have, which is that when our contemporaries start to become eligi- 
ble, with the enormous demographic shift represented by the baby 
boomers, sometime after the year 2010 we will have major social 
implications. Then we will have a series of short-term issues in get- 
ting there in terms of the Hospital Insurance Trust Fund which I 
think are much less difficult. Again, we will be running all that out 
in much more detail when the Trustees meet on the 3rd of April. 
I think it would be more appropriate for a detailed discussion 
thereafter. If you would like to have it, I would be happy. 

REFORM PROPOSALS 

Mr. ISTOOK. If I might ask just one final question on that, Mr. 
Chairman. 

Realizing, of course, whether it's 2001 or, as some estimates say, 
1998, we're close to it. Is there any recommendation from HCFA 
or the Clinton Administration on what to do? 

Mr. Vladeck. Yes. We believe the President has written to the 
Congressional leadership that we should begin talking about what 
we're going to do this year about health care reform. Looking at 
some of these issues on the future of Medicare ought to be part of 
those discussions. 

Mr. ISTOOK. Thank you, Mr. Chairman. 

Mr. Porter. Thank you, Mr. Istook. 

Mrs. Lowey. 

Mrs. Lowey. Thank you, Mr. Chairman. 

I just would like to associate myself, Mr. Vladeck, with the com- 
ments of my colleague, Mr. Obey, regarding, the matching rate 
under Medicaid. We've been very concerned about that. In the 
course of health care reform there was a standing commitment 
from the President to address that issue of reimbursement. 

I assume that you don't have any additional information to pro- 
vide me, other than that whic- transpired during the discussion 
with Mr. Obey, but it has a tremendous impact on New York 2ind 
we're very concerned. 

Mr. Vladeck. This is almost more a personal view than a formal 
Administration position, but to amplify just a bit on what I said to 
Mr. Obey, I think I personally would feel enormously relieved and 
reassured if we could focus debate this year relative to the future 
of the Medicaid program around changes in the formula within the 
existing program. 

Conversely, I think if we can keep the existing basic structure of 
the program intact, we will have the opportunity to make improve- 
ments in aspects of it, such as reimbursement. 



321 

NEW YORK'S SECTION 1115 WAIVER 

Mrs. LowEY. Thank you. And with regard to changes, New York 
recently submitted a concept paper to discuss a waiver to put the 
State's Medicaid population into managed care, and there have 
been concerns expressed. Can you discuss the process through 
which HCFA and HHS will evaluate this proposal? I've heard con- 
cerns from a number of groups that the State did not consult ade- 
quately on a local level, and I'm concerned that adequate consider- 
ation be given to local concerns. 

Could you comment on that? 

Mr. Vladeck. If I may, let me begin by saying that I don't con- 
sider myself an unusually cowardly person, but I have recused my- 
self from action on this particular proposal, in large part because 
almost everyone I know is involved on one side of it or another, so 
I can't say very much about any of the details. 

However, I can assure you that the Secretary, the folks in HCFA 
who will be working on this, and other people in the Administra- 
tion have already heard extensively from a variety of folks and or- 
ganizations in New York State who are concerned about this pro- 
posal, as well as from the Governor and the other people in the 
State administration who have submitted this proposal. There will 
be very extensive discussions before any decision is reached. 

Mrs. LowEY. Thank you. 

Frankly, I personally think it's an opportunity to improve serv- 
ices to underserved populations if it is handled adequately, with 
appropriate outreach and enough input. I'm not convinced that the 
underserved populations are getting such great medical care in 
many situations now in parts of our city, but I do believe that it 
has to be approached carefully and with adequate consultation. So 
I thank you for that. 

And although you are recusing yourself, I am sure there are 
other people in the Department who are not, and if they can keep 
us up to date on it 

Mr. Vladeck. I will see to it that they do. 

MEDICARE HANDBOOK 

Mrs. LowEY. I understand, and I think it's a great improvement, 
that you are currently mailing a booklet on Medicare to the popu- 
lation. I have heard from many of my constituents throughout the 
years that they just don't understand what's covered, what's not 
covered, that it's very hard to communicate. As I look at the book- 
lets I'm not sure that I understand them completely. 

What kind of outreach do you have in place to make sure that 
people really do understand what their coverage consists of? 

Mr. Vladeck. We actually have a multi-pronged strategy in that 
regard. We are in the process of completely reviewing and revising 
all the material we send out or otherwise make available to bene- 
ficiaries and others. There are several parts to that. 

First, the Inspector General annually interviews a sample of 
Medicare beneficiaries about the material they receive from us, the 
extent to which they understand it, and asks them questions about 
particular items to see whether, in fact, they have understood well 
the information and material, and so forth. The most recent report. 



322 

which was based on interviews conducted in 1994, will be released 
very soon. We have been working with them on that. 

Second, we are reaching out to a number of different organiza- 
tions — and frankly, contracting out much more of the process of the 
initial design and production of much of our informational mate- 
rial — to work with professionals in communications rather than 
with professional bureaucrats — on trying to find better ways to con- 
vey information. And we are pilot- testing all our new publications 
with focus groups of beneficiaries, beneficiary caretakers and bene- 
ficiary advocates, and we're learning an awful lot in the process 
and obviously feeding back what we've learned in the course of 
those discussions into the design and editing of the publication. 

If I may, I just want to correct one part of your question. We 
have not mailed an updated version of the Handbook to all bene- 
ficiaries since 1988. We are proposing that in the 1996 budget. At 
the moment we mail a copy to each new enrollee, and we distribute 
a relatively limited number of copies through the Social Security 
district offices and through area Administrations on Aging and so 
forth. However, the last general distribution to beneficiaries was in 
1988. 

"800" NUMBER SERVICE 

Mrs. LowEY. Do you still have "800" numbers in place? 

Mr. Vladeck. We do, although we are also in the process of look- 
ing at their operation. One of the things, frankly — at the risk of im- 
plying criticism of my very capable colleagues on the HCFA staff — 
is that there was an enormous investment in the late 1980s in a 
desire to improve customer service with "800" numbers operated by 
carriers using so-called "automated response units." If you have a 
question about your claim, press 1; if you have a question about 
coverage, press 2, that kind of thing. Almost one-third of Medicare 
beneficiaries still have rotary telephones, and a very high propor- 
tion of those with touch-tone phones are very unhappy about deal- 
ing with computers in that regard. So we are going to pilot-test, 
sometime in the next fiscal year, a national "800" number which 
would be answered by a human being. We have a plan over the 
next several years, as we modernize our data systems so that we 
can do real customer service, to move in that direction. Given the 
experience of Social Security when they went to a national "800" 
number, we are proceeding relatively cautiously and we're going to 
test it every step of the way so that, when we do go national, peo- 
ple can get through. We're working on it. 

REGISTRY FOR NURSE AIDES 

Mrs. LowEY. Thank you. 

Last year you discussed my concern about abuse and neglect in 
the Nation's nursing homes, and though the changes made by 
OBRA-87 to oversight of nursing home aides have made improve- 
ments, there have been too many reports of nurse aides with 
records of crime and patient abuse who just move from State to 
State in order to keep working in the nursing homes. 

As you know, the Committee report requested HCFA to look into 
the options for improving interstate sharing of information about 
abusers, including the possibility of establishing a national clear- 



323 

inghouse for abuse information to facilitate proper background 
checks. The Committee did request HCFA to prepare a report on 
this issue prior to hearings on the 1996 appropriations request. 
Here today, so far as I know, you have not produced a report. This 
is very important to me. I am concerned that no such report has 
been produced by HCFA 

Mr. Vladeck. Mrs. Lowey, I am embarrassed to agree with you. 
The fact that the issue turned out to be somewhat more com- 
pHcated than we expected is really not an excuse. I will promise 
you that you will have the report within the next 60 days, and I 
apologize that you don't have it by now. 

Mrs. Lowey. Thank you. 

In the budget justification you say that HCFA is considering two 
options: continuing the State-based nurse aide registry, and num- 
ber two, creating a "contiguous States registry." The first option 
would clearly represent no change to the current system; clearly, 
that's unacceptable. And the second option, as you yourself ac- 
knowledged, would not resolve the problem of people who move be- 
yond States that share contiguous borders. 

My question is, why isn't there a third option? And why aren't 
we establishing a national registry? That seems to make the most 
sense to me. It's my understanding that this is one area where the 
advocates and the industry agree. The American Health Care Asso- 
ciation has stated its support to this approach, and likewise, the 
States would be willing to share their information, if they had ac- 
cess to a national registry. So why hasn't there been progress in 
this area? And why isn't the third option being considered seri- 
ously? 

Mr. Vladeck. I believe the concern with the third option has to 
do with the expense. But if I may, I will modify my previous an- 
swer. You will have the report within 90 days, and it will consider 
three options. 

Mr. Porter. Thank you, Mrs. Lowey. 

Mr. Miller. 

STATUS OF THE TRUST FUNDS 

Mr. Miller. Thank you, Mr. Chairman. 

Thank you for coming. I'm sorry I missed the earlier meetings 
this week; we've been in budget meetings talking specifically about 
Medicare and the treatment of Medicare in the budget. There has 
been great disappointment by Members on both sides of the aisle 
over the fact that the Administration "took a walk" on the Medi- 
care issue. They just threw their hands up and said, "You didn't 
play our game last year on doing the entire comprehensive health 
care reform, so we're not going to touch Medicare. The Medicare 
trust fund goes bankrupt, as you know, in 2001, maybe 2002, so 
let's talk." That's not really a solution to the problem. We need co- 
operation. As I said, there was great disappointment. 

You said that the report of the Trustees is going to be April 3rd? 

Mr. Vladeck. Yes, sir. 

Mr. Miller. You're not a Trustee, are you? 

Mr. Vladeck. I am the Secretary of the Board of Trustees. 

Mr. Miller. Okay. 



324 

So what will we be expecting on April 3rd? Will there be much 
out of that report other than just a little update of numbers? 

Mr. Vladeck. No, I think we will not have a very detailed or ex- 
tensive set of proposals, but I think the analysis in the report will 
give a much more focused identification of where some of the 
sources of the problems are, relative to the long-term status of the 
fund. And it will suggest a number of mechanisms in broad terms 
for addressing the problems and call for some specific steps, but I 
am not at liberty to share the details in advance. 

MEDICARE EXPENDITURES PER CAPITA 

Mr. Miller. Let me ask you a couple of specific questions first, 
and then I will turn to more general questions. 

Can you put up that one graph that shows the growth of Medi- 
care and Medicaid? 

Before I get to that graph, what is the cost of Medicare per per- 
son? 

Mr. Vladeck. In the current fiscal year, I think it's about $4,500 
per beneficiary. 

Mr. Miller. Is that for Parts A and B? 

Mr. Vladeck. That's for the benefits we pay in total. Part A and 
Part B, per year. 

Mr. Miller. It costs the Federal Government $4,500 per year for 
the total A/B package? 

Mr. Vladeck. That's correct. 

Mr. Miller. Okay. Do you know what the retirees would be pay- 
ing for private insurance, what their cost would be? Do you have 
an estimate of that number? 

Mr. Vladeck. No, I don't. I do know that the average per capita 
private health insurance expenditures run between $3,000 and 
$3,500, but that's a real "apples and oranges" issue because it's dif- 
ferent folks and different coverages. So I don't know what a good 
comparative benchmark is. Marilyn Moon at the Urban Institute is 
trying to develop that information. 

Mr. Miller. Do you have an estimate, if someone retired today, 
what their benefits from Medicare would be in their lifetime? 

Mr. Vladeck. We can get those for you from our actuaries. 

Mr. Miller. We heard numbers this week of, around $250,000 
per person if you retired today. Therefore if husband and wife both 
retired at age 65, they would receive about $500,000. 

Mr. Vladeck. I would have to supply that, sir. 

[The information follows:] 

The proportion of Mediceire costs paid by individual program participants varies 
substantially, depending on their lifetime earnings level and other factors. For the 
Hospital Insurance (HI) Trust Fund program, we prepare estimates annually, com- 
paring the accumulated value of a worker's HI payroll taxes with the actuarial 
present value of his or her future benefits. For workers with average earnings over 
their working careers, at age 65 today, past employee and employer payroll taxes, 
together with interest, represent about 40 percent of the value of future benefits. 

A corresponding analysis of Supplementary Medical Insurance (SMI) Trust Fund 
benefits, premiums, and Federal income tax pa5Tnents is significantly more com- 
plicated, and we have generally not performed such calculations. A very rough anal- 
ysis, however, shows that for HI and SMI combined, an average worker's HI pajToll 
taxes (including employer share), pro-rated Federal income taxes, and SMI pre- 
miums collectively represent roughly 40 percent of the value of his or her combined 
HI and SMI benefits. 



325 

Significantly higher or lower figures than those above are possible depending on 
the individual's income level. The combined rough analysis above has only been 
done for individuals, not married couples. 

Mr. Miller. I know when you go that many years into the fu- 
ture, it's obviously very tentative, your projections. 
Mr. Vladeck. I just can't do it in my head. 

GROWTH OF THE DISABLED BENEFICL^RY POPULATION 

Mr. Miller. I think the Urban Institute was talking about that. 

Mr. Istook brought up the issue that Medicare is increasing 
about 1 percent per year as far as the number of people cov- 
ered 

Mr. Vladeck. No, the elderly are increasing by 1 percent per 
year. The disabled are increasing about 3 percent a year. That's 
about 1.5 percent per year in terms of enrollees, because they are 
a smaller share of the base. 

Mr. Miller. Okay. It's 1 percent for elderly, and it's 3 percent 
for disabled? 

Mr. Vladeck. Right. In total, it's about 1.5 percent. 

Mr. Miller. Okay. Why is there such high growth in the dis- 
abled? It was interesting to me, the observation that the disabled 
have a relationship to or correlation with the economy. 

Mr. Vladeck. Again, this is an amateur's view, sir, but my un- 
derstanding is that when employers are finding employees scarce, 
they will make more accommodations and deal with limitations of 
one sort or another. Disabled persons can compete more effectively 
for jobs in a tight labor market than in a surplus labor market. But 
it would be more useful if I could provide you with some of the in- 
formation from the experts on this. 

Mr. Miller. Is there any abuse in this area? I know that one 
issue that springs up in the welfare bill that we'll be voting on 
today is the change in SSI. I know one of Mr. Dickey's pet peeves 
is about the "crazy kids that take advantage of SSI," and I think 
60 Minutes did a special about that. I'm not asking you about SSI, 
but the illustration, if you are taken advantage of. Is there abuse 
in the disabled? 

Mr. Vladeck. I'm sure there is. 

Mr. Miller. Is there a study on that? 

Mr. Vladeck. My understanding is that at the same time, for a 
variety of reasons, there has been a considerable backlog which the 
Social Security Administration is now addressing, both in review of 
new claims for disability under Social Security disability, and in 
the periodic review of existing claimants. And what that balance is 
between people who are inappropriately getting the benefit and 
people who might be getting the benefit but haven't been processed 
yet is, I don't know. 

Mr. Miller. Well, I understand there is a big backlog, but 
there's no study to see whether there is abuse? Because it is grow- 
ing at a very fast rate. 

Mr. Vladeck. Again, I will just have to try to supply you with 
information from people more familiar with Social Security's dis- 
ability issues. 

[The information follows:] 



326 

The Social Security Administration (SSA) maintains a Quality Assurance Sample 
to check whether the State disability determination service agencies are adjudicat- 
ing disability claims accurately. The sample results have consistently shown a high 
degree of accuracy for many years. SSA also reviews about half of all initigd disabil- 
ity allowance decisions before they are implemented, and returns cases determined 
to have been inappropriately allowed for further development by the State agencies. 

The law requires SSA to review the continuing eligibility of most disabled bene- 
ficiaries every three years. Due to resource limitations and the workload caused by 
the large increase in disability applications, SSA has been unable to perform the 
mandated number of reviews. SSA decided to use its resources to process initial dis- 
ability claims, because disability applicants often have no means of support other 
than Social Security when they become disabled. 

SSA has taken steps to make the review process more efficient and to increase 
the number of reviews performed. In FY 1996, SSA plans to conduct 431,000 con- 
tinuing disability reviews, a significant increase over previous years. 

MEDICARE AND MEDICAID GROWTH RATES 

Mr. Miller. One thing I need to know on this graph. What is 
the growth rate of Medicare on this graph, and what is the growth 
rate of Medicaid on that graph? Do you know the percentage fig- 
ures? 

Mr. Vladeck. Yes. The projected growth rate in Medicare, I can 
talk about more prospectively than retrospectively. I believe it is 
about 9.5 percent per year over the 1995 through 1998 period. 

Mr. Miller. And Medicaid? 

Mr. Vladeck. Medicaid is just under 9 percent per year. 

Mr. Miller. It looks like, as the graph shows, that Medicaid is 
growing at a slower rate. 

Mr. Vladeck. That's correct. It is also decelerating faster. Medic- 
aid grew very quickly in the late 1980s and early 1990s because 
of some of the factors that Mr. Obey mentioned. 

Mr. Miller. So you say that the percentage growth on that 
graph, one 9 percent and one is 9.5 percent? One looks like more 
of an upswing. 

Mr. Vladeck. That's a very good point, sir. Let me see what the 
actual numbers are and try to figure out why the curves look so 
different. 

Mr. Miller. One of the things we were talking about on the wel- 
fare issue today and other programs is the idea to block grant pro- 
grams to the States. I know the Medicaid situation, for example, 
is still being discussed for the block granting concept. Just looking 
at that graph alone, it shows that States are doing a better job 
than the Federal Government in managing health care. And I have 
to commend the Clinton Administration; it has done a very fine job 
in granting these waivers, as Oklahoma is going through right 
now, because the States — as we found also in welfare — have really 
been the leaders in coming up with the idea to bring spending 
under control; the Federal Government is just not as good at fiscal 
restraint. That shows me that the States are doing a better job of 
bringing it under control than the Federal Government. 

Mr. Vladeck. I think that in recent years they are. Although a 
few years earlier Medicaid was growing in the 25 percent range an- 
nually. If you look over a long period of time, however, it is true 
that Medicaid has grown more slowly than Medicare, certainly on 
a per capita basis, which I think is probably the best measure. But 
it does say something about the way in which the States have al 
ways managed the Medicaid program. 



327 

Mr. Miller. So the States are really doing a little better job 
right now, and partly because of the waivers that you're willing to 
grant, and the innovations, whether it's Oregon, Oklahoma, New 
York or Florida who want to try. 

Mr. Vladeck. I also think part of it is that, frankly, as a society 
we are more willing to take chances with programmatic changes for 
Medicaid beneficiaries than we have been for Medicare 
beneficiaries. 

SAVINGS FROM MANAGED CARE 

Mr. Miller. Another question is the issue of managed care. The 
Mathematica study raises doubts of whether we're going to save 
money through managed care, and there's still a lot of questions. 

Are you familiar with the competitive bid demonstration project 
that you all might be starting? 

Mr. Vladeck. Yes, sir, I believe it's our personal baby. 

Mr. Miller. Okay. Would you describe that a little bit more? Ms. 
Shalala mentioned it but she didn't say much more about it than 
that you're looking at it. 

Mr. Vladeck. That's only fair, since it's something that we've 
been working on. 

I'll tell you, it's complicated and it's hard, consulting with a lot 
of people. The basic idea, of course, is to have a number of HMOs, 
and ideally a number of Medigap plans as well in the fee-for-serv- 
ice sector, seeking to enroll Medicare beneficiaries in a particular 
market. Then you want to set the price for the HMOs and presum- 
ably tie in the price for Medigap coverage, as well. If you could gen- 
erate a real competitive market in terms of pricing, presumably 
that would be the best way to get at a price and you might save 
a fair amount of money. 

Part of the problem in figuring out how to do that, or following 
the lead of some of the private corporations or organizations like 
CalPers that have had some success with these approaches, is that 
we are so big. It's very hard for a system in any community to go 
through very rapid moves of a large share of the Medicare popu- 
lation. For example, let's say you have five HMOs, and you said 
they are all to bid for the business, and they have a bid that has 
a price and a capacity attached to it, because there are real econo- 
mies of scale in HMOs, and we're going to set our price at the low- 
est bid. Let's say the lowest-priced HMO comes in with a good bid 
and increases by 50 percent the number of folks that it gets en- 
rolled. If the high-priced guy goes out of business, you're left with 
a lot of folks who aren't in any plan at all because potentially, de- 
pending on what the other plans are able to absorb you end up 
with a lot of people in the high-priced plans just because you need 
the capacity. 

One of the major reasons why we are not saving money in the 
Medicare HMO program at the moment is because of this issue of 
different risk among different beneficiaries in risk selection. That 
becomes, I think, even more important to compensate for in a bid- 
ding kind of choice process. 

So maybe instead of setting the price at the lowest, you set the 
price at the average bid. What do you do in the next year? Do you 
rebid it? Do you give everybody just an inflation increase? Do you 



328 

sign multi-year contracts? Does that affect the kind of bids? This 
is all new to us. There are a lot of design issues. 

MANAGED CARE PRICING DEMONSTRATION 

We are having a meeting next week with a bunch of folks just 
to seek their advice on this. We had hoped to be able to start test- 
ing this in a couple of markets sometime next year. This is an idea 
that everybody thinks is right in theory, but it can be kind of com- 
plicated. So we want to find several markets so that we can test 
different varieties of this. 

If I may, with the risk of going on too long, let me give you one 
other consideration in terms of how to design this. 

Medicare HMO penetration varies very much from one market to 
the next, one metropolitan area to the next, largely in conjunction 
with variation in private sector HMO penetration, but not entirely. 
You start experimenting in an area with high HMO penetration 
and moderate costs, which might mean — depending on how the ex- 
periment played out — ^that a lot of folks would end up switching 
plans, with the disruption in relationships with providers, relation- 
ships with physicians, and so forth, that would result. Or would 
you try it in the low-penetration area where, in a sense, nobody has 
an3rthing to lose from reallocation of service patterns under bids? 
On the other hand, the populations a whole may be less eager to 
enroll in HMOs and may throw you off in terms of the way it 
works. They may have less experience with plans. 

We are committed to the idea in principle. The more we look into 
it, the more complicated it gets, and we're trying to put together 
a program to think it through very systematically and in collabora- 
tion with the industry and others so that we don't launch an exper- 
iment to which nobody comes. We will begin finding ways to test 
it in the very near future. 

Mr. Miller. One quick follow-up on that. Do you have the legis- 
lative ability to make the adjustments to try this, such as the 50 
percent rule and the reenrollment at any time, or do you have to 
get special legislation? 

Mr. Vladeck. We probably need special legislative authority for 
the following reason, and we will be seeking it later this year as 
the process goes on. The reason is, we can't require plans to partici- 
pate in a demonstration at the moment. We can get them to par- 
ticipate if they volunteer. What that means is that in any pricing 
demonstration, only those who think they would benefit will par- 
ticipate. Therefore, it is very hard for us to run a fair demonstra- 
tion. So we will need to talk with you, as we will, later in the year 
about a relatively narrow piece of legislation for expansion of our 
demonstration authority. 

Mr. Miller. Thank you, Mr. Chairman. 

Mr. Porter. Thank you, Mr. Miller. 

I have to say that Dr. Vladeck used up all of your time for this 
round and the next round as well. [Laughter.] 

Mr. Porter. In calling on Ms. Pelosi, I want to note that Sunday 
is her birthday, and we congratulate you and wish you a very 
happy birthday. 



329 

EXPENDITURES PER CAPITA 

Ms. Pelosi. Thank you. Thank you, Mr. Chairman. How sweet. 
Thank you. 

Welcome, Dr. Vladeck. Thank you for your testimony, which I 
think is very impressive. I have a few specific questions and a few 
budget questions, one of which sprang from what you said in an- 
swer to a colleague's question about average cost for a retiree, 
$4,500, and then you mentioned $3,000 to $3,500 as an average for 
younger people — of course, they're younger and healthier, and are 
expected to cost less. 

In that $4,500 figure, does that include the "high cost of dying?" 

Mr. Vladeck. Yes. 

Ms. Pelosi. So that for some people, $4,500 seems like a lot of 
money if you're just taking some pills because you're older, but 

Mr. Vladeck. Like all health insurers, we spend a very large 
proportion of all our expenditures on a relatively small fraction of 
all the people we cover. One of the problems with getting at some 
of these competitive pricing model projects risk selection. 

Ms. Pelosi. It reminds me of Secretary Reich when he was talk- 
ing to us under different circumstances. He said, "On average, 
Shaquille O'Neal and I are 6'1", but the details are more interest- 
ing." [Laughter.] 

Ms. Pelosi. So there's a high end for a few people, and some peo- 
ple don't cost quite that much. 

Mr. Vladeck. That's absolutely correct. 

beneficiary estimates 

Ms. Pelosi. Well, that's an interesting figure because in fact, in 
light of all of that, it isn't as different from the younger, healthier 
population as one might have suspected. 

I want to relate to one of your charts, as well. First of all, I want 
to commend you for the 1 percent program management. That's im- 
pressive. I wish more people could make that claim and live up to 
it. 

On your "HCFA Serves 70 Million Beneficiaries" chart, it seems 
Uke a big jump from 1989 to 1996. And I wonder about two things. 
Was that mostly on the Medicare or the Medicaid side? 

Mr. Vladeck. That's mostly on the Medicaid side. The growth in 
Medicare has been very steady, about 1.5 percent a year, for a long 
time. Beginning in the late 1980s, there was a very big jump in 
Medi-caid enrollment. Between 1988 and 1993 we added 5 million 
Medi-caid recipients, which was an average increase of almost 8 
percent a year, and we're still growing between 4 and 5 percent a 
year in the number of Medicaid recipients. 

[Clerk's note. — Subsequent to the hearing, HCFA corrected the 
increase in Medicaid recipients between 1988 and 1993 to 10 mil- 
lion.] 

proposed health care spending cuts 

Ms. Pelosi. Interesting. That leads me to my next question, 
which is about the budget and deficit reduction. Of course, as we've 
heard over and over and as you know better than any of us, one 
of the leading causes of the increase in the deficit is the increased 



330 

cost of the health care funded by the Federal Grovemment. The 
Contract proposes to balance the budget within seven years and cut 
taxes at the same time. Chairman Kasich is discussing what mag- 
nitude of cuts would be necessary in Medicare and Medicaid in 
order to meet the Republican budget goals; most Medicare bene- 
ficiaries don't fully understand what this might mean to them. 

Could you tell us what large-scale cuts to Medicare and Medicaid 
in the budget agreements would mean for the 70 million 
beneficiaries? 

Mr. Vladeck. Well, obviously, it depends to some extent on what 
form the cuts would take. On the Medicare side, I believe the kind 
of numbers that have been talked about in some of the scenarios 
for a year 2002 balanced budget would mean that in the year 2002, 
we would be spending about 30 percent less on Medicare in that 
year than we would under current law. 

The average Medicare beneficiary now spends 12 percent of his 
or her out-of-pocket income on health care. That's three times as 
much as the average person under 65. You have a lot of Medicare 
beneficiaries going without rent money or food money to pay those 
increased costs, because most of our beneficiaries live in households 
below $25,000 a year in income. So, if you increase their out-of- 
pocket expenditures by that extent, it has a major, major effect on 
their disposable income. 

If you try to save that much money by reduction in payments to 
providers, you would have a different set of problems, to a large ex- 
tent because a number of providers are especially dependent on the 
Medicare program, particularly rural hospitals and inner city hos- 
pitals, in which Medicare and Medicaid account for more than half 
of all their revenue. If you took 30 percent of that out of those in- 
stitutions, which aren't swimming in money at the moment, I think 
you would have very severe access problems to health care at all 
in many rural communities and in many inner-city communities, as 
well. 

On Medicaid, you can't get from here to there in terms of the 
numbers being talked about in some of these preliminary budget 
documents without substantially reducing the number of people 
you are covering. 

Ms. Pelosi. That's interesting. I understand the President's posi- 
tion, that any reductions in health-related entitlement programs 
would be used to fix what I consider to be our badly broken health 
care system. And I think our budget concerns about reducing the 
deficit would be well-served if we find savings in Medicare and 
Medicaid, and I certainly don't mean by putting more pressure on 
seniors that live in households with under $25,000 a year, to in- 
crease their contribution. But if there were savings that could be 
obtained in Medicare and Medicaid that would help us in all that 
we're trying to do here — if we could help to subsidize insurance 
premiums for working poor people in America who are not on Med- 
icaid, thereby maybe moving some people off of welfare because 
they're not tied there by their need for health care benefits and 
Medicaid, this would end the shifting in cost because more people 
in the working poor sector would be covered. 

Could you comment on that? 



331 

Mr. Vladeck. Well, that is in fact what we have been able to ac- 
complish with some of the Statewide waivers in Medicaid that 
we've had some earlier discussion of this morning. Oregon is the 
example that is probably closest to your home, where I believe 
more than 100,000 previously uninsured people are currently cov- 
ered under their Medicaid program than were at the start of 1993. 

To the extent that we can leverage efficiencies or savings in Med- 
icaid into coverage, as is being done in Oregon and a number of 
other States at the moment, that seems to me to be the best oppor- 
tunity we have to expand coverage to low-income working people. 

Ms. Pelosi. And that, indeed, would help us with what we all 
want to do here, which is to reduce the deficit. 

Since it's my birthday, may I ask a California question, Mr. 
Chairman? [Laughter.! I will be brief. 

MEDICAID DISALLOWANCES 

Ms. Pelosi. Dr. Vladeck, recently HCFA issued a denial of $315 
million in claims from California for MediCal administrative costs. 
As I understand the issue, the rate of reimbursement for outpatient 
care is the central problem. 

What is the current status of your discussions? 

Mr. Vladeck. Well, as you may know, we've had a team out in 
California, a team from Baltimore and Washington periodically this 
month as well as a team full-time on the ground based in San 
Francisco. They have been working very extensively through three 
separate committees with a group of county representatives and a 
group of State representatives and our representatives to work 
through these issues. 

As you know, in the California structure the issue is complicated 
by the fact that these involve county activities, with the State in 
effect as an intermediary between the counties and us in the ad- 
ministration of the Medicaid program. But we have a number of 
people working full-time to resolve these claims and resolve these 
issues. 

We are hopeful that we can begin to release some dollars to at 
least some of the counties next month, and that the bulk of the is- 
sues will be resolved before the end of this State fiscal year. I must 
emphasize though that this will not be 100 percent of the dollars 
on the claim that the State originally submitted. 

Ms. Pelosi. I appreciate that. Well, we have $33 million in un- 
paid claims in San Francisco alone which have not been reviewed, 
so we are most eager for your process to proceed. 

Mr. Vladeck. The other thing we're doing is getting an accept- 
able, mutually agreed-upon system in place prospectively, so as of 
July 1 of this year the counties will have considerably more pre- 
dictability in what they'll be able to claim as Medicaid costs. 

Ms. Pelosi. As you know, the Governor has ratcheted down what 
the State is willing to pay for outpatient care, with the other de- 
mands in the California budget like building prisons and the rest, 
so I think that's caused part of this problem. 

But I appreciate what you're doing, and thank you very much. 

Thank you, Mr. Chairman. 

Mr. Vladeck. And happy birthday. 

Ms. Pelosi. Thank you. 



332 

Mr. Porter. Thank you, Ms. Pelosi. 
Mr. Wicker. 

LIMITING PROGRAM GROWTH RATES 

Mr. Wicker. Thank you, Mr. Chairman. 

Dr. Vladeck, it is a pleasure to be here with you today. I have 
appreciated your testimony. Let me just ask a quick question to fol- 
low up on Mr. Obey's question about the Medicaid match. 

Do I understand that the Administration does not have a pro- 
posal to change that Medicaid match? 

Mr. Vladeck. You are absolutely correct. 

Mr. Wicker. It would be the Administration's position to keep 
that as it is? 

Mr. Vladeck. Yes, sir. 

Mr. Wicker. Okay. I am certainly interested in those statistics 
and the chart that you may prepare for Mr. Obey. 

Let me ask you, then, about the graph that is before it. Cer- 
tainly, this is a difficult issue, as Ms. Pelosi mentioned, because it 
involves health care for a lot of people that need it, but at the same 
time I think we all acknowledge that this is where a large portion 
of the money is, and if we're going to be serious about deficit reduc- 
tion, we have to look at this side of the equation. 

Let me refer to the dotted line on Medicare, which is no longer 
applicable, but what was the rate of growth projected between 1995 
and 1998? 

Mr. Vladeck. I believe it was somewhere in the 12 percent 
range. From the 1993 projections it has come down, as I said, to 
just under 10 percent. 

Mr. Wicker. Under 10 percent. There was even a higher rate of 
growth projected for Medicaid according to your chart. Do you have 
a figure on that? 

Mr. Vladeck. I think at the time, in 1993, we were projecting 
an increase of almost 14 percent a year on the Medicaid side. 

Mr. Wicker. Okay. 

Mr. Vladeck. Again, coming off that very rapid growth of the 
late 1980s and early 1990s. 

Mr. Wicker. Right. 

Now, in your testimony you talk about President Clinton's lead- 
ership in reducing this rate of growth, and you mention deficit re- 
duction measures, lower inflation, and the 1991 bipartisan 
legislation. 

What factor would you credit as the most significant? 

Mr. Vladeck. I think the explanations are somewhat different on 
Medicare and Medicaid. On Medicare, it's clearly the general reduc- 
tion in inflation in the economy, and the reduction in particular in 
the rate of increase in medical care pricing. 

Mr. Wicker. On Medicare? 

Mr. Vladeck. On Medicare. On Medicaid, that's also an impor- 
tant factor. But again, I think implementation of the limits enacted 
both in 1991 and 1993 on State use of taxes and donations mecha- 
nisms, and on disproportionate share payments, accounts for at 
least as large a contribution to the reduction of the growth rate as 
the change in inflation rate. 



333 

PAYMENTS FOR DISPROPORTIONATE SHARE HOSPITALS 

Mr. Wicker. Well, you should be able to give me a dollar figure 
on the impact of the disproportionate share changes. Are you able 
to do that at this time? 

Mr. Vladeck. Well, we can give you an estimate. 

It's a little hard because we're talking about behaviors here, so 
we can say how many dollars we actually disallow, but how many 
State legislatures altered or changed provider taxes or took another 
mechanism to deal with disproportionate share programs after the 
law was passed or after our regulations were issued, as opposed to 
before, were a little bit more than the estimation. But again, I 
think our estimate is that about 1 percent off that growth rate — 
well, we do have a dollar estimate, and that is that the 1991 and 
1993 limitations on State use of taxes and donations mechanisms 
and on disproportionate share payments are expected to save 
over — it's not exactly for the same years — save somewhere on the 
order of $5 billion or $6 billion a year in the period of time covered 
in these graphs. 

Mr. Wicker. That's $5 billion or $6 billion per year? 

Mr. Vladeck. Per year. 

PROPOSALS TO control PROGRAM SPENDING 

Mr. Wicker. Okay. 

In looking at the solid line, the 9.5 percent on Medicare and 9 
percent on Medicaid, do you agree with me that that is a com- 
pletely unacceptable rate of growth? 

Mr. Vladeck. Yes. I think we've been very explicit about that. 

Mr. Wicker. So the question comes back to Mr. Miller's earlier 
statement. Has the Administration punted on this issue? What is 
their proposal to lower these growth rates to the rate of growth of 
the economy? And specifically, what does the President suggest? 

Mr. Vladeck. Well, let me just say two things in response to 
that. 

First, I don't think we'll ever get it to the rate of growth of the 
economy — maybe on a per capita basis we can, but again, we're 
covering more people all the time. 

But the second thing I would say is, to be as direct as I can about 
it, we had quite a set of proposals as part of a comprehensive effort 
to address the problems of the health care system last year, which 
the Congress rejected. We continue to believe that there is very sig- 
nificant risk in addressing the rate of growth of Medicare and Med- 
icaid outlays in isolation from the rest of the health care system 
for at least two reasons. One is that in fact Medicaid is the safety 
net which has been available, particularly over the last decade, as 
the number of people covered by private insurance has fallen very 
dramatically, to see to it that the number of uninsured in the soci- 
ety as a whole has not gone through the roof And if you try to save 
money in the Medicaid program alone, what that does to the pat- 
terns of who has insurance of any kind in this society and who 
doesn't can become very important. 

Second, as I suggested earlier, Medicare is such a big part of the 
health care system as a whole, particularly as a source of revenue 
for hospitals, for home care agencies, for laboratories, for many 



334 

physicians, that if you do something to Medicare without being con- 
cerned about or addressing the rest of the health care system, you 
can do great things for your budget numbers and at the same time 
have very adverse effects on the health care system in communities 
throughout the country. 

So that's why I think this Administration, since the day it came 
to office, has been very consistent in its position that these issues 
must be addressed, and they must be addressed in terms of the 
health care system as a whole. 

Mr. Wicker. Is it your testimony that because the Clinton com- 
prehensive health care package was not enacted in the previous 
Congress, that the Clinton Administration is going to leave it up 
to the Congress to come forward with suggestions in the absence 
of that Clinton comprehensive health care plan? Is that what you're 
saying? 

Mr. Vladeck. No, sir. I think, again, that we've been reasonably 
clear and reasonably explicit that our experience with a summary 
comprehensive proposal, and then trying to get the Congress to 
enact it, wasn't too successful. Now the President is seeking to try 
a different approach, and he has asked the Congressional leader- 
ship to sit down in a two-party — it would be three-party, if you 
count the leadership of both parties in the Congress, as well as the 
Executive Branch — process to discuss how we ought to move for- 
ward before anyone from any direction submits any legislation. 

As I say, that is the general process that the Administration has 
proposed and one that I believe we very much would hope could go 
forward in the very near future. 

RESOURCES FOR HEALTH CARE REFORM 

Mr. Wicker. Okay. Well, let me just ask one final line of ques- 
tioning. 

Were any of your HCFA actuaries used by Mrs. Clinton's Health 
Care Task Force? 

Mr. Vladeck. I'm not sure, with all respect, sir, that I would use 
exactly that formulation, but our actuaries did an awful lot of work 
to advise the Task Force. And they were called on for very exten- 
sive analysis. 

Mr. Wicker. All right. Do you have any idea how many FTEs 
were used for assistance to Mrs. Clinton's Task Force? 

Mr. Vladeck. Yes. We have estimated that over the period of the 
work on the President's proposal, approximately 41 full-time 
equivalents within HCFA worked on the health reform proposal 
during fiscal year 1994. 

Mr. Wicker. Did you have any question as to the authorization 
to utilize these FTEs for that purpose? 

Mr. Vladeck. No, sir. We have at least that many FTEs at all 
times working on the analysis of legislative or other policy propos- 
als, both Executive Branch-initiated proposals and those that come 
from the Congress. So the particular subject matter on which those 
folks were working was determined by the Administration's initia- 
tive on health reform, but the fact that they were spending most 
of their time estimating the costs of various potential legislative 
proposals is par for the course for those people. 

Mr. Wicker. Thank you very much. I appreciate the time. 



335 

Mr. Porter. Thank you, Mr. Wicker. 

Mr. Bonilla? 

Mr. Bonilla. Thank you, Mr. Chairman. 

Good morning, Mr. Vladeck. 

Mr. Vladeck. Good morning. 

SURVEY AND CERTIFICATION 

Mr. Bonilla. I would like to spend my time this morning talking 
about surveys and certification. My district in Texas is gigantic; it's 
58,000 square miles, and larger than any State east of the Mis- 
sissippi. During the 1980s, more hospitals closed in Texas than in 
any other State. 

So I was greatly concerned when I learned that administrators 
from all over my district contacted me about the February morato- 
rium on surveys and certification activities. The moratorium affects 
39 providers in Texas with surveys in progress, and many more 
that have made a financial commitment. 

My first question is, did HCFA request a supplemental appro- 
priation to help conduct the increase in surveys? 

Mr. Vladeck. No, sir. 

Mr. Bonilla. Why not? 

Mr. Vladeck. Well, to be honest with you, at a time when this 
subcommittee was acting on a series of rescissions, at a time when 
we had become quite accustomed to stringency in the survey and 
certification budget, it didn't seem to us to be a particularly prom- 
ising approach to deal with this short-term problem. 

Mr. Bonilla. Even though there is a determination by this Con- 
gress to cut costs, there is also a determination to assist Federal 
programs that are necessary, so I'm a little bit puzzled as to why 
that was not sensed by you when this crisis was first hitting. Agri- 
culture, for example, had no qualms about asking for more money 
for food and safety inspection, so isn't providing health care to 
these areas that already suffer from a lack of health care and have 
been hit hard — don't you see that as a threat to the public interest? 

Mr. Vladeck. Well, we did. And frankly, sir, I believe that the 
actions by the Texas agency were something of an overreaction to 
the instructions that we issued in February. In fact, we have sur- 
veyed all of the States in the last couple of weeks, and the response 
of the Texas agency was considerably more dramatic and more lim- 
iting than that of any other State. 

At the same time, there is a more significant problem in Texas 
than in any other State because of the very, very rapid growth in 
the number of new providers. And to that extent, while we don't 
believe that the State agency should have suspended any surveys 
or should have rescheduled any surveys already scheduled, we 
have gone through the process that we usually go through at this 
point in the fiscal year of going back to all the States, looking at 
their outlays at this point this year relative to budgets, trying to 
find States that might have some extra money available and doing 
some reallocation. And within the existing appropriation, we hope 
within the next fev/ weeks to be able to reallocate some monej^to 
address the particular problems of Texas. 



336 

CONSTITUENTS AWAITING INITIAL SURVEYS 

Mr. BONILLA. Well, I have some letters here — and this is not a 
result of collusion or any kind of conspiracy — these letters I'm 
going to read span different parts of the State. I'm not going to 
read the whole letter in each case, but just to highlight. 

The first one is from David Vaughn, who is Vice President of 
Home Health Services in Odessa, Texas: "There is a limited 
amount of time we can wait before we will be forced to close our 
operation and lay off our employees. We have three employees and 
over $40,000 invested in the start-up of our operation. It is a large 
investment that we've put in place here, to put in jeopardy, an in- 
vestment that we would never have made had we been notified at 
the time of application that this reprioritization could be a possibil- 
ity. We respectfully request HCFA to restart certification surveys 
on those entities that have already completed their licensing and 
certification application process and invested large amounts of cap- 
ital in their operations." 

I have a letter here from Del Rio, Texas, which is a long way 
from Odessa, from Mr. Mike Deaton, the Administrator of Haci- 
enda Health Services: "Our temporary license is ready to be issued 
in Austin. For us to receive a license, and eventually a provider 
number and eventual reimbursement, we are still looking at three 
to four months. This current freeze can be financially back-break- 
ing for us. We had to sign a lease, pay for installation of phones, 
sign up an administrative staff. As we got closer to the time, we 
knew that a temporary license would be issued. We leased comput- 
ers and computer software necessary to establish care plans that 
were required for this survey. As of today we have a monthly obli- 
gation in excess of $2,000. This does not include salaries. We knew 
we would have to have close to $100,000 to start an agency and 
saved for three years to be able to open this business. Every week 
the current freeze is on, it will cost us an additional $6,000. We're 
trying to open an agency in an underserved area. Our patient load 
will be predominantly Hispanic. We are trying to provide services 
to a population that needs the services the most. This freeze may 
very well prevent us from providing services at all." 

From the Uvalde Memorial Hospital, from the Administrator, 
Mr. Ben Durr: "HCFA's halt on Medicare certification for hospital- 
based home care and health care in rural clinics has caught Uvalde 
Memorial Hospital in the middle of opening both services. The hos- 
pital has spent in excess of $264,000" — that's a lot of money in 
Uvalde, Texas — "in developing a more economic method of caring 
for Medicare, Medicaid, and indigent patients not presently in the 
area of health care delivery systems. The State Licensing Division 
has been apprised of this plan from the beginning, for over two 
years, and has approved the progress. Additional funds have been 
spent for clinic furnishings, equipment, and recruitment of physi- 
cians and physician extenders. We have so much riding on this 
project, including, but not limited to, a loan from the First State 
Bank of Uvalde to finance this expansion. It is one thing to give 
notice that no more applications will be taken, but to totally freeze 
certifications after application and temporary licensing have been 



337 

issued and we are ready to open — this is unnecessarily 
destructive." 

These letters come, again, from areas that span a large portion 
of the State. There was no kind of plan among them to coordinate 
this effort. All of these providers have made the commitment to 
seek certification in good faith based on the rules that were in ex- 
istence at the time. Now they find out that they have been 
blindsided by this abrupt change in the rules through no fault of 
theirs, other than trusting in those rules as they saw them at the 
time that they made their decision, and this is not fair. 

ASSUMPTIONS ABOUT HCFA'S ACTION 

I also find it interesting that Region 6 in Dallas is the region tak- 
ing the lead on this issue. I don't know if it is a coincidence or not, 
but that region also contains Texas, Louisiana, Oklahoma, and Ar- 
kansas, all having Members on this subcommittee. 

Where I come from we have a word for that, it's called a shake- 
down. The rules change. HCFA claims it is out of money because 
Congress has frozen their account. HCFA gets our constituents all 
worked up, scaring them into thinking they're going to lose thou- 
sands of dollars that they have invested; they contact their Con- 
gressmen and Congress women, and we give HCFA more money. I 
think this is wrong. If this was needed, we should have put it in 
the supplemental, if it's important and it's an emergency and nec- 
essary. If we didn't, it was our mistake. If HCFA didn't make us 
aware of the problem, then shame on HCFA. 

Six months are left in this fiscal year and I hope, Mr. Vladeck, 
that you find a way to continue all surveys and certifications this 
year. These are real people out there that are being hurt by this. 
I would be happy to hear how you are going to lift the moratorium 
for the remainder of the fiscal year. 

CLARIFICATION OF SURVEY DIRECTIVE 

Mr. Vladeck. Well, let me begin, sir, that we never imposed a 
moratorium. We asked all the State agencies to identify priorities 
in survey allocation, emphasizing the statutorily-obligated annual 
resurveys of nursing homes and home care agencies, and the statu- 
torily-obligated surveys for complaint follow-ups and anti-dumping 
complaints, which have been a particularly large volume of surveys 
in our Dallas region. And then, among the discretionary surveys, 
to focus on the kinds of facilities where we have been having sig- 
nificant quality problems and not doing an adequate monitoring 
job. 

Nonetheless, our initial instructions also made it clear that in de- 
ciding how to allocate their budgets. State agencies were expected 
both to give special consideration to certification of new providers 
in underserved areas, and also to recognize that for some, but not 
all classes of Medicare providers there is a State licensure and cer- 
tification process which we follow up on, and that they should con- 
tinue to do so. 

Now, I can't tell you exactly why the agency in Texas responded 
the way it did. They were certainly not instructed to suspend sur- 
veys that were in process, to cancel any scheduled surveys. They 
do have a terrible workload problem in Texas. But I must tell you 



338 

that this was the only State agency that responded nearly as dra- 
matically to those February instructions. 

Nonetheless, in response to the particular problems that are oc- 
curring in Texas, as I say, we have gone back and reallocated some 
of the money across the States in this fiscal year to provide an ad- 
ditional $300,000 to the Texas survey agency for the balance of the 
current fiscal year in order to be able to meet some of the demands 
of the workload. 

Let me finally say, however, as a last point, in terms of respon- 
sibilities in balancing the issues, that we have to make it very clear 
that there is no entitlement on the part of any particular entity or 
enterprise to enter as a provider in the Medicare program. In the 
last five years we have had a 40-percent increase in the number 
of Medicare-certified home health agencies. The home health bene- 
fit is the most rapidly growing part of the program. It is unclear 
to me, except in underserved areas, why we should give priority to 
continuing to permit new entrants into a market where we are con- 
cerned about having an oversupply already, and have stretched our 
resources very thin in terms of ensuring quality among the existing 
providers. 

So clearly our instructions are that in underserved areas, new 
providers ought to get priority. In areas that aren't underserved, 
our first obligation is to ensure the quality of services among peo- 
ple who are now currently providing services. That's what the in- 
struction was meant to convey. 

Mr. BONILLA. Mr. Chairman, my time is up, is it not? May I 
make one closing comment? 

These areas are underserved, and I have here a letter of March 
8th from the HCFA Regional Office in Dallas that says, "HCFA di- 
rected States to immediately delay initial certifications of new pro- 
viders and suppliers who are subject to survey and certification re- 
quirements." I don't know how to look at that, aside from that 
being a moratorium. 

Mr. Vladeck. Well, we had a little miscommunication within our 
organization. I'll admit to that, and I think it's been straightened 
out now. 

Mr. BONILLA. Thank you for working with us on this, Mr. 
Vladeck. 

Mr. Vladeck. Surely. 

LYMPHEDEMA PUMPS 

Mr. Porter. Thank you, Mr. Bonilla. 

Mr. Vladeck, I have two staffers in my district office at home, 
both of whom are dependent on lymphedema pumps. It is my un- 
derstanding that last year HCFA, and in particular some of the re- 
gional carriers, have taken fairly severe action to limit the avail- 
ability of these pumps. While I know there have been significant 
abuses in this area, I am concerned that in eliminating these 
abuses, HCFA may have gone too far and erected insurmountable 
barriers to legitimate prescriptions for these pumps. 

What are you doing to make sure that patients who need these 
devices can get them in a timely way? 

Mr. Vladeck. Thank you, Mr. Chairman. We have — I say "we" 
in the collective sense, because the science and medicine here is 



339 

way over my head — but our staff has spent an enormous amount 
of time on this issue over the last year. 

The basic issue is that there are essentially two broad categories 
of lymphedema pumps. All the medical advice that we get suggests 
that a quarter or fewer of folks who require lymphedema pumps 
should be using the substantially more expensive device. Prior to 
the change in policy in 1994, three-quarters of the prescriptions 
were being written for the more expensive pumps. 

We have been working very extensively with the medical direc- 
tors of our durable medical equipment carriers, with the industry, 
with our other physician advisors, including those in the Public 
Health Service, with one goal in mind, to try to get some medical 
consensus — and some clear medical consensus — on the appropriate 
indications and uses of the more expensive pump so that we can 
say that in cases of patients with those conditions, clearly they 
ought to getting the more expensive pump; and in cases that don't 
have those conditions, that those aren't necessary. And frankly, we 
have yet to be able to get consensus among our medical advisors 
on that. We are working on it intensively, and I hope to be able 
within the next couple of months to promulgate a clarification of 
that policy. 

ILLINOIS' SECTION 1115 WAIVER 

Mr. Porter. Thank you. 

I know you're prepared for the next question. Can you tell me 
where you stand on the Illinois Medicaid waiver request? 

Mr. Vladeck. I hope we're very close to conclusion of discussions. 
We have some continuing concerns about the way in which the pro- 
gram meets the budget neutrality requirements that we have for 
all the section 1115 waivers, and we have a particular concern that 
arises from the following. 

The State of Illinois has a particularly unfortunate record in 
terms of living up to its obligations under the Medicaid program to 
make timely payments to providers. We had understood that as 
part of the changes in the Medicaid program, that included the 
waiver, there would be a considerable catch-up in that backlog of 
payments, and that was a very positive feature of the proposals the 
State was making. 

But we understand — frankly, mostly second-hand — ^from our 
reading of the Illinois press and from what we've heard from other 
folks in Illinois, that the budget the Governor introduced a couple 
of weeks ago, while continuing with the waiver, backs off on the 
catch-up on those back payments to providers. This has raised 
some questions on our part about the overall financial integrity of 
the Medicaid program and its relationship to the waiver. 

That's a question. It's not a derailment, it's not an ending of the 
discussion. We've been sa3dng for some time that we hope to con- 
clude these discussions in April, and we are still on track for April. 
There are still some issues, mostly around financing, to be worked 
out. 

Mr. Porter. "Concluding the discussions" means coming to some 
decision? 

Mr. Vladeck. Yes, sir. And I would suspect, if I may say so, that 
our experience with section 1115 waivers, at least in this Adminis- 



340 

tration, is that there are two outcomes of the process. One is ap- 
proval; the second is continued discussion. We have yet to dis- 
approve a State's proposal of this scope, although many of them 
have been significantly modified in the course of discussion. We're 
still on that track with Illinois. 

Mr. Porter. I realize the need to safeguard the program, and I'm 
not disputing that at all. You also realized the need for Illinois to 
move to a more efficient system that will provide better quality and 
get them caught up, so there's a balance there somewhere. 

Mr. Vladeck. I hope next month we can conclude that. 

FEDERAL UPPER LIMITS ON DRUG PURCHASES 

Mr. Porter. Now, I'd like to follow up on a letter I wrote to you 
last month concerning the way HCFA sets the Federal upper limit 
on Medicaid purchases of drugs for which there are generic and 
branded alternatives. 

As I understand it, for some frequently-prescribed products, the 
brand name drug may actually be less expensive than the generic 
because of negotiated State rebates, yet current HCFA policy pre- 
vents States from purchasing the brand name drugs, even if their 
net price is cheaper than the generics. I am told that California, 
for example, spends $5 million more a year on one drug alone be- 
cause it must purchase the generic version. 

Have you reviewed this policy? Wouldn't it make sense to let the 
States save their and our money by buying drugs as inexpensively 
as they can? 

Mr. Vladeck. Yes, sir. I don't know if it was as a result of your 
letter or if we were in the process of figuring this out anyway. I'm 
happy to attribute it entirely to your letter 

Mr. Porter. Fine. I'm happy to take credit, even if you figured 
it out. [Laughter.] 

Mr. Vladeck [continuing]. But we have clarified this policy. As 
I understand it, what we now say as we now interpret the law, the 
upper limits apply to the entire set of drugs, all 700 or more dif- 
ferent kinds of drugs that the State purchases under its Medicaid 
program and under its rebate program. So as long as, in the aggre- 
gate, across the entire Statewide Medicaid program, their expendi- 
tures for drugs don't exceed the upper limits, then in the kind of 
instance you describe, the State is perfectly free to pay for the 
brand name drug. I am advised that Ohio is already doing that. 

Mr, Porter. When did this reinterpretation occur? 

Mr. Vladeck. Well, as I say, I presume it was immediately after 
receipt of your letter, but I am advised that we had already worked 
that out with Ohio. So given the rate at which we have moved 
within the last couple of months, I suspect we've also had discus- 
sions with California and will with any other State that wants that 
kind of clarification. 

Mr. Porter. Thank you. 

Mr. Miller. 

OUTLAYS PER CAPITA 

Mr. Miller, I want to follow up on a couple of things for clari- 
fication. 



341 

When you are talking about the competitive bid idea, one of the 
questions is that different States have different cost directories. I 
know we were talking about this the other day in the Budget Com- 
mittee. Minnesota — is that a relatively low-cost State? 

Mr. Vladeck. Yes, sir. 

Mr. Miller. And New York is a relatively high-cost State? 

Mr. Vladeck. Relatively. It's not among the highest. 

Mr. Miller. That's your State, right? 

Mr. Vladeck. Yes, that's right. About as high as California. 

Mr. Miller. California, okay. 

Do you know how the cost would vary for Medicare? If it's $4,500 
nationally, how low does it go? What is the range? 

Mr. Vladeck. On the Part A side, the hospital side, it ranges na- 
tionally by a rate of about 1.5 to 1; that is to say, the most expen- 
sive communities are about 50 percent more expensive than the 
less expensive communities. On the Part B side, the range is sub- 
stantially greater, and it's as much as — if you compare our Part B 
outlays per capita in Miami, which is our highest cost Part B com- 
munity, to those in the Twin Cities, which is not our lowest cost 
but is one which is talked about all the time, it's a range of about 
2.5 to 1. 

Mr. Miller. Do you have any type of report on that, the varia- 
bility of States? 

Mr. Vladeck. Yes, sir, we do. 

Mr. Miller. Could we get a copy of that? 

Mr. Vladeck. We certainly will. 

[The information follows:] 

Our latest report on Medicare spending by State disp ays fiscal year (FY) 1992 
and 1993 spending and enrollment figures. National per enrollee spending in Medi- 
care averaged $3,941 in FY 1993. To compare high and low cost States, we suggest 
disregarding data from the District of Columbia and the Commonwealth of Puerto 
Rico. The District exhibits the extreme of high spending due to provider concentra- 
tion in a large urban area, combined with a relatively lower number of enroUees 
actually residing within the District. Puerto Rico's extremely low spending per en- 
rollee suggests substantially diflierent cost and utilization patterns from those seen 
in the 50 States. 

Of the 50 States, Massachusetts had the highest FY 1993 Medicare spending en- 
rollee, at $4,923, while Idaho had the lowest, at $2,402. Thus, the ratio of spending 
in the highest versus lowest cost State is about 2 to 1. 

State-by-State data for the two most recent years for which data are available 
follow: 



342 





Medicare Benefit Payments 


Medicare Enroltees 


F 


($ in thousands) 


As of 


'iscaiYear 


Fiscal Year 


September 


September { 




1992 


1993 


1992 


1993 


ALABAMA 


$Z100.140 


$Z460,573 


606.983 


1 
6182461 


ALASKA 


81.727 


97,340 


28279 


30.0981 


ARIZONA 


2.076.849 


2.178.377 


534.067 


553.500! 


ARKANSAS 


1.309.391 


1,306.041 


404.687 


409.9021 


CAUFORNIA 


15,652,577 


16.487.553 


3.434.524 


3,503.976 1 


COLORADO 


1.242.210 


1.429.580 


383.560 


396.4531 


CONNECnCUT 


1.953.460 


2.0SZ656 


485299 


491.0551 


DELAWARE 


266.962 


368.391 


93.120 


95.5391 


DISTRICT OF COLUMBIA 


1.11Z051 


1,111.826 


78.441 


78.4961 


FLORIDA 


10.361.327 


11.721,988 


2.447.906 


Z493.700I 


GEORGIA 


2.864.106 


3.301.647 


' 771.347 


790.781 1 


HAWAII 


404.329 


47Z706 


136.507 


141.1241 


IDAHO 


299.869 


341.832 


139.119 


142.3091 


ILUNOIS 


5.564.774 


6.136,399 


1.579230 


1 .593.485 1 


INDIANA 


2.454,767 


2.876.565 


790.985 


8025721 


IOWA 


1,241,751 


1.305.372 


466.860 


469.081 1 


1 KANSAS 


1,160,503 


1 ,350.204 


373.408 


376.481 1 


i KENTUCKY 


1,787,513 


1,958,777 


555.198 


564.958 1 


LOUISIANA 


2,318,049 


2,607,035 


553299 


562.561 1 


MAINE 


513.553 


561,490 


190.932 


194.3761 


MARYLAND 


2.262,085 


2.469,631 


567,667 


578.31 1 1 


MASSACHUSETTS 


3,779,672 


4.487.227 


897.540 


911.4201 


MICHIGAN 


4,641,997 


5.171.403 


1.287.741 


1.308.6941 


MINNESOTA 


1,942,733 


^106.232 


608.201 


615.3271 


MISSISSIPPI 


1 ,234.661 


1.327.867 


378.257 


383.9221 


MISSOURI 


2.673,985 


3.12^092 


805.024 


814.2001 


MONTANA 


307,276 


369.612 


! 123.008 


125.084! 


NEBRASKA 


631,275 


689.4-0 


242,929 


244.825 1 


NEVADA 


598.224 


663.596 


159.164 


169.6141 


NEW HAMPSHIRE 


428.024 


462.196 


145.018 


148.4421 


NEW JERSEY 


4.188,080 


4,749.355 


1,130,236 


1.143.6581 


: NEW MEXICO 


489.277 


556.534 


192,341 


198.4661 


NEW YORK 


10,268.609 


1 -, .447,774 


2,573.080 


2.594.326 ! 


NORTH CAROLINA 


3,005,797 


3.242.292 


945,314 


971.2091 


NORTH DAKOTA 


j 35Z151 


347.160 


101,123 


101.9201 


OHIO 


5,720.970 


6.086.116 


1 ,603,389 


: .626.085 1 


OKLAHOiM 


! 1,471,347 


1.546,624 


466.655 


472.900 1 


: OREGON 


1.356.953 


1 ,443,639 


443.961 


452.3531 


PENNSYLVANIA 


8.365,352 


9,270,961 


2.019.052 


2.039.305 1 


RHODE ISLAND 


587.786 


628.236 


163.602 


164.9101 


1 SOUTH CAROUNA 


1.243.924 


1.440,25? 


468.267 


481.173! 


SOUTH DAKOTA 


275.842 


331.488 


113217 


114.5141 


TENNESSEE 


2.894,51 1 


3251.676 


72Z847 


737.9101 


TEXAS 


6,978,035 


8.007.117 


1 .925.526 


1.973.3431 


UTAH 


426,940 


590.761 


171.434 


176.7991 


VERMONT 


200,092 


227.995 


77.7C5 


79.351 1 


1 VIRGINIA 


2,226,413 


2,420,279 


760.930 


779.0061 


WASHINGTON 


2.145,409 


2.166.637 


645.448 


657.780 1 


! WEST VIRGINIA 


1 931.431 


1.017,016 


317,683 


321.9491 


WISCONSIN 


2.125.566 


2,305,182 


735,709 


744.796 1 


WYOMING 


97.803 


138.637 


55,326 


56.921 1 


PUERTO RICO 


555.523 


709.145 


446,172 


456.525 1 


i OTHER OUTLYING AREAS 


5,416 


13.232 


301,776 


317.2051 


: TOTAL 


1 $129,179,077 


$142,933,727 


35,649.173 


36.270.936 1 



343 

Mr. Miller. This was discussed over the last two years during 
the health care debate, because there is a lot of variability. 

Mr. Vladeck. Some of it we can explain and understand in 
terms of cost of living, in terms of styles of medical practice, in 
terms of characteristics of the population, and some of it remains 
a total mystery to us. But we have looked at it quite a lot and will 
be happy to provide you with that information. 

Mr. Miller. My district in Florida, which is Sarasota and Bra- 
denton and such, has the largest number of seniors of any Congres- 
sional district in the United States. So the whole issue of Medicare 
is a big issue in my district for the constituents that are affected, 
but also as an economic activity in our community. You have the 
hospitals and home health agencies and rehab facilities and nurs- 
ing homes and physicians — I mean, it's obviously the biggest em- 
ployer that we have. So there is a great deal of concern. 

FRAUD AND ABUSE 

One of the questions that comes up with some of my constituents 
is the whole issue of fraud. A lot of people think you can balance 
the budget if we just take away the pork from Congress and we do 
away with fraud and give up foreign aid, and that would solve the 
problem. Obviously, it's a much bigger problem than that. 

On the whole issue of fraud, I remember when I first came up 
here two years ago a friend of mine wrote me complaining about 
a doctor that overcharged the Government. I ended up responding 
to him that the big fraud is when you have widespread use of it 
by one provider. You can't send in Medicare police to every single 
practitioner in the country. 

I noticed some articles recently in Louisiana that 10 percent of 
the cost of the Medicaid program is fraud. What is the cost of fraud 
in the system, in both Medicare and Medicaid? And how do you go 
about assessing it for individual cases? We have the vague, system- 
wide durable medical equipment company, that's one thing, but 
that one little provider which may be a single doctor — how do you 
handle those types of cases? And how many resources can you de- 
vote to it? 

GAO STUDY ON FRAUD AND ABUSE 

Mr. Vladeck. In terms of the quantitative estimate, the General 
Accounting Office issued a study some years ago in which they esti- 
mated that 10 percent of Medicare and Medicaid outlays were 
fraud and abuse, and "abuse" is a somewhat broad and somewhat 
imprecise term. And everyone has used that figure since. 

I am very reluctant, frankly, to put any more precise estimate on 
it, or any estimate, because if we really knew how much, it was we 
wouldn't be doing our jobs. There's more than we can put our fin- 
gers on, which means that we have more work to do in identifying 
and eliminating these kinds of problems in the program. 

Strategically, I think in addressing these issues you look at the 
80/20 rule of life; that is to say, that most of the problems, whether 
it's 10 percent or 4 percent or 14 percent, are going to be con- 
centrated in certain areas of the programs and among certain "bad 
guys," for want of a more technical term. And you try to identify 
them and so after them. 



344 

One of the things that has prevented us in the past from being 
nearly as aggressive or proactive as we should be about fraud and 
abuse was exactly the fear that if you really cracked down, you 
would end up hassling the overwhelming proportion of providers 
who are honest and scrupulous and dedicated in order to get the 
few bad apples, and that you would do as much harm as good in 
the process. 

We think that particularly through two mechanisms, which are 
what we increasingly rely on, you can in fact go much more aggres- 
sively after fraud and abuse without making life too much more 
difficult for the honest providers. One is, again, the application of 
increasingly sophisticated statistical and data processing tech- 
niques to our claims records. We've recently had some very good 
success with cracking down on some durable medical equipment 
problems in Florida from precisely that. Consolidation of computer 
processing, the use of some sophisticated variance analysis pro- 
grams, pick out some weird-looking stuff in the claims to follow up 
by some first-hand investigation, to find some serious problem. 

The second thing is, frankly, we — and by "we" I mean all of us 
involved here, since we do prevention, deterrence, detection, but 
not prosecution; we work with the Inspector General and the De- 
partment of Justice on that — we do what every other law enforce- 
ment activity does, we rely an awful lot on informers, competitors 
who feel that the other guy is cheating on them, and increasingly 
on our beneficiaries who get an explanation of benefits, see that 
Medicare was billed for a service that they had never heard of or 
never received, and then call us and tell us that there may be a 
problem out there. 

But I think, again, we're getting much more sophisticated about 
targeting our investigative efforts at places where we have some 
real reason to believe there's a real problem, rather than sort of 
uniformly harassing all the providers. 

Mr. Miller. Let us have an update, then, on this 10 percent 
number. That's the number I find confusing. 

Mr. Porter. Actually, why don't you ask one more question? I'm 
going to have to go to Mr. Stokes. 

Well, let's go to Mr. Wicker and see if he has some other ques- 
tions, and then we'll go to Mr. Stokes. 

Mr. Wicker. I really don't have any other questions. 

Mr. Porter. All right, then Mr. Miller can finish. 

program integrity 

Mr. Miller. There's a lot of discussion about reforming the sys- 
tem to save Medicare, and that we need to get the individual in- 
volved in the process, like this gentleman from Long Boat Key who 
was complaining; he was concerned. It wasn't his money directly, 
but it was his money in the sense that it was the taxpayers' money, 
and he was frustrated that he couldn't do anything about it. 

In going to the competitive bid model and the voucher system 
and such, I realize you never can get rid of fraud entirely, but how 
does that address that issue? 

Mr. Vladeck. Well, I believe the Director of the FBI testified at 
the Senate Aging Committee earlier this week on exactly that 
question. He said that what it does is to change the form and type 



345 

of abuses and crimes you encounter, and therefore requires sub- 
stantial changes on the part of law enforcement and program integ- 
rity folks. But the FBI's perspective — and they know better than I 
do — is that the number of people susceptible to criminal behavior 
out there is basically the same, whether you have a fee-for-services 
system or a capitated system. The particular schemes they come up 
with may vary, depending on the kind of organization or finance 
group, but you can be sure that you'll fmd schemes, either way. 

PROGNOSIS FOR FEE-FOR-SERVICE PRACTICE 

Mr. Miller. Just one general question. On fee-for-service, do you 
think fee-for-service will be around five years from today? 

Mr. Vladeck. I think fee-for-service will be around for a long 
time. 

Mr. Miller. You think so? There is obviously a trend away from 
fee-for-service, but you don't think it's accelerating that fast? 

Mr. Vladeck. I think the trend away from fee-for-service is 
somewhat overstated. If you look at the real growth in managed 
care in the private sector, and even some of the growth in managed 
care in Medicaid, over the last five years or so, much of it is in fee- 
for-service-based managed care, either preferred provider organiza- 
tions or point of service option kind of plans, that sort of thing, 
which are managed care but they are still tied to fee-for-service. 

But you look all over the world, all these countries with so-called 
socialized medicine and national health systems, they pay their 
physicians — not their hospitals, but pay their physicians — and 
other professionals on a fee-for-service basis. 

Mr. Miller. Thank you. 

Mr. Porter. Thank you, Mr. Miller. 

Mr. Stokes. 

STATUS OF section 1115 WAIVERS 

Mr. Stokes. Thank you, Mr. Chairman. 

Mr. Vladeck, it's nice to see you again. Let me thank you once 
again, for the visit you made out to Cleveland, Ohio in conjunction 
with the OhioCare program. I appreciate the assistance you pro- 
vided throughout the waiver process. 

Mr. Vladeck. Thank you for having me. 

Mr. Stokes. How many Medicaid 1115 waivers have been ap- 
proved by the agency, and how many are now pending? 

Mr. Vladeck. If you only count the Statewide demonstration 
waivers, because there are a lot of smaller and more particularistic 
section 1115 waivers, there have been eight since this Administra- 
tion came into office. I believe Ohio was the eighth. And then we 
have about 11 in the pipeline at the moment. There have been a 
number of other projects, smaller in scale, which we have also ap- 
proved under section 1115. 

Mr. Stokes. Can you tell us how many additional individuals be- 
came Medicaid-eligible under each of the approved waivers? 

Mr. Vladeck. We have a count of those that are up and running. 
Of the eight that we've approved, only four are actually operating 
on a large scale at the moment, and we count about half a million 
folks in just those four States that are operating. I think if we look 
at the four States that are approved but not yet operating, there 



346 

are more than 2 million additional covered persons once those pro- 
grams are fully implemented, which in some instances could take 
several years. 

Mr. Stokes. What percent of the total number of individuals ex- 
pected to be served by each of the waivers are new Medicaid 
eligibles? 

Mr. Vladeck. Again, it varies considerably from State to State, 
but the 2 million are all new eligibles. Everyone is different. I be- 
lieve in Ohio we're talking about a 20 to 25 percent increase in the 
number of persons in the Medicaid program over the current sta- 
tus, about 500,000 people, as I understand it. 

In Oregon, actually, the proportion is slightly higher but the 
numbers are smaller because Oregon is a smaller State. 

It just varies a lot from State to State, but I think on average 
it's 20 or 25 percent. 

Mr. Stokes. Are the resources as outlined in the waiver propos- 
als sufficient to expand coverage to these additional eligibles? 

Mr. Vladeck. Well, that's exactly the issue that we're now argu- 
ing about with Illinois. We hope in each of the proposals that we've 
approved — and we hope they will turn out to be in each of the 
States that we have proposals from, because that's obviously one 
of the things about which we're most concerned. We wouldn't have 
approved those eight unless we believed that there were enough re- 
sources to do the job. 

CRITERIA FOR STATEWIDE WAIVERS 

Mr. Stokes. Sure. 

Tell us, how are the criteria established to ensure continued 
quality assurance and measurable outcomes? 

Mr. Vladeck. Well, we have several requirements that we expect 
of all the States in these regards. One is, when there are managed 
care providers involved, we oversee the content of the contract be- 
tween the State and the managed care providers, and between the 
managed care plans and the providers with whom they contract. 
We require each of the managed care plans to have its own quality 
assurance mechanism, which we review. We also require the State 
to arrange for external quality assurance review of the managed 
care plans. 

We also require in each instance that the plans maintain data 
on 100 percent of all patient encounters, patient services, so that 
outside evaluators under contract to us as well as our own staff can 
look independently at what happens to beneficiaries under the 
waiver. 

Mr. Stokes. And, of course, you also have a monitoring process 
in effect as it relates to each of these States, is that correct? 

Mr. Vladeck. With each of the State waivers we have a team of 
our regional office and central office staff that monitors the imple- 
mentation of the State proposal very closely. 

LEARNING FROM EXISTING DEMONSTRATIONS 

Mr. Stokes. There has been a tremendous amount of hardship 
surrounding the Tennessee waiver, TennCare in particular. It 
ranges from patients being denied care and medications, to exten- 



347 

sive waiting periods. Can you elaborate on these problems and 
what is being done to correct them? 

And equally important, what provisions have been incorporated 
in the HCFA waiver process to prevent these problems in other ap- 
proved waivers? 

Mr. Vladeck. We have a lot of anecdotes about the system in 
Tennessee, but we don't yet have the sort of systematic data we 
need to evaluate just what the overall effect has been. Nonetheless, 
two lessons are clear to us from the Tennessee experience, two neg- 
ative lessons that are cause for concern. There are also some very 
positive lessons. 

The first is that when one is implementing such a dramatic 
change in the Medicaid program, you have to have adequate lead 
time and adequate developmental time. The TennCare implementa- 
tion was very rushed, was very rapid, and many of the problems 
that arose occurred just because they tried to do too much of it too 
quickly. We have made it very clear with subsequent States with 
which we talked that we were going to be much more demanding 
about the plans and the timetables for implementation. 

The second thing that became clear in the Tennessee case was 
that we, in a sense, relied on the States to oversee the performance 
of the managed care plans for which they contracted, possibly to a 
greater extent than we should have, and we are making it increas- 
ingly clear with all the States since what we expect of the States 
in terms of their monitoring of the performance of those plans and 
how we will monitor those plans directly ourselves if those States 
fail to do enough of the job. 

Mr. Stokes. Would you say that this particular experience has 
enabled you to transfer knowledge gained from this situation over 
to the other waiver situations around the country? 

Mr. Vladeck. Yes. One of the things we're trying to do more sys- 
tematically is create the mechanisms by which States learn from 
one another without necessarily having to always go through us in 
that regard. We had a conference several weeks ago, attended by 
about 400 people, including a couple hundred State people, to begin 
to look at the common experience and the shared experience from 
the section 1115 waivers and to identify better mechanisms to get 
feedback out to the broader community more quickly. 

POPULATION SERVED BY MANAGED CARE 

Mr. Stokes. Mr. Vladeck, what portion, percentage, and number 
of Americans receive health care services under managed care sys- 
tems? 

Mr. Vladeck. Well, it depends on how you define it. I believe the 
number is that approximately — depending on how you define man- 
aged care — approximately two-thirds of the privately insured popu- 
lation is now enrolled in some kind of managed care arrangement 
or another. 

The proportion of the population with private health insurance at 
the moment is only about two-thirds, so it's about two-thirds of 
two-thirds, which — let me try to do my arithmetic — is about 100 
million folks out of a population of 250 million who are in private 
managed care arrangements. In addition, about 8 million Medicaid 
beneficiaries and 3 million Medicare beneficiaries currently are en- 



348 

rolled in managed care plans. So just under half of the whole popu- 
lation, I guess, is in managed care plans. Another 15 percent of the 
whole population has no health insurance, and the balance are still 
in some fee-for-service arrangement. 

Mr. Stokes. Is there any way to quantify for us, in terms of the 
increase that's taking place, how much of it is attributable to the 
agency's granting of Medicaid waivers? 

Mr. Vladeck. Well, in the last couple of years, Medicaid man- 
aged care has been by far the fastest-growing part of the managed 
care market. We've roughly tripled in the last three or four years. 
Again, it's on a smaller base, but I would say of the 115 million 
Americans in managed care, as a very rough estimate and we can 
get you more precise numbers, there are 5 million more Medicaid 
folks in managed care just in the last two years. So it's a big part 
of the recent growth. 

Mr. Stokes. Please feel free to expand on that question for the 
record. 

Mr. Vladeck. We will get you more information. 

[The information follows:] 



349 



Nationwide, approximately 17.4 percent of the total population is 
enrolled in an HMO. This equates to approximately 50.5 million 
persons nationwide. Using a more expansive definition of managed care 
would raise the enrollment percentage to about 50 percent, by including 
health plan options that have managed care features, such as preferred 
provider organizations that provide services through a selected network 
of providers. 

Enrollment in Medicaid managed care continues to increase. 
Currently, there are approximately 8 million Medicaid beneficiaries, 
representing about 22 percent of the Medicaid population enrolled in 
managed caiQ. Medicaid enrollment in managed care increased more 
than 60 percent between 1993 and 1994. We expect continued and 
more steady growth in 1995 and 1996, and beyond. 

While enrollment in Medicare and Medicaid managed care 
continues to grow, a significant portion of the recent growth is 
attributable to enrollment in Medicaid managed care. 



Medicare/Medicaid HMO Enrollment 

1991 to 1996 
12 




Enrollment 


1991 


1992 


1993 


1994 


1995 


1996 


Medicare ■ 


2.16 


2.35 


2.70 


3.11 


3.68 


4.37 


Medicaid 9 


2.70 


3.63 


4.81 


7.79 


9.25 


11.00 



Projected Estimates for Calendar Years 1995 and 1996 



350 



Section 1115 Statewide waivers represent a relatively new component in 
the expansion of Medicaid managed care. An additional 
1,155,000 people are projected to be covered under Medicaid managed 
care systems in the States of Oregon, Hawaii, Rhode Island, Tennessee, 
and Ohio. In addition, Florida is projected to have 1.1 million expansion 
eUgibles if the State legislature approves implementation of the waiver. 
Eleven additional section 1115 waiver proposals currently under review 
are likely to further expand the Medicaid managed care population. 



351 

GROWING NUMBERS SERVED BY MANAGED CARE 

Mr. Stokes. I think it is a very important question. 

To what extent has there been an increase in the number of 
Medicare-covered individuals receiving their health care under 
managed care? 

Mr. Vladeck. That's been growing at a rate in the last couple 
of years — last year it grew about 16 percent, the year before it 
grew about 11 or 12 percent. This year we're projecting growth of 
about 20 percent. 

Mr. Stokes. Is this a regional trend? 

Mr, Vladeck. Well, what is happening is that our Medicare 
HMO enrollment in the past has always been concentrated in just 
a few regions. What we are seeing now is very rapid growth in re- 
gions where traditionally there has been very little Medicare man- 
aged care activity, particularly the northeast and some parts of the 
midwest. 

Mr. Stokes. The transition to Medicaid-waivered health care 
systems must be carefully planned and executed, and to that end 
there must be a strong disproportionate share program to assure 
viability of safety-net hospitals during the transition to managed 
care. Equally important, there must be the continued assurance of 
health care services for those who are still uninsured after imple- 
mentation of Medicaid managed care plans. 

What is the agency doing to ensure that this is the case? 

Mr. Vladeck. Well, again I would have to answer that with a 
very broad, generic answer which has different specific outcomes in 
the case of each State's proposal. But in general, we expect States 
to maintain some degree of subsidy for essential community provid- 
ers, particularly high disproportionate share hospitals, during any 
transition period. Then for States that are going to continue to 
have a large number of uninsured persons, indefinitely, even sifter 
a waiver. 

Mr. Stokes. Under the Medicaid managed care systems, the role 
of and support needed for graduate medical education must be ad- 
dressed. With respect to health care facilities doing the training, 
what provisions are built into HCFA-approved Medicaid waivers to 
ensure Federal and State funding support for facilities that conduct 
graduate medical education and training? 

Mr. Vladeck. Again, I would say that there is an awful lot of 
variation in what the States propose to us. And there, frankly, we 
are much more flexible than we are on some of these other issues 
we've just discussed, because we feel that in almost every instance 
the States have such a large financial as well as policy investment 
in higher education and particularly graduate medical education in 
their States that they want to have some flexibility as to whether 
they seek to subsidize some of that through the Medicaid program 
as opposed to subsidizing it through support of the university sys- 
tem or whatever. 

But we have approved a very wide variety of arrangements rel- 
ative to graduate medicsd education purposes, and we tend to defer, 
relatively extensively, to the policy preferences of the States in that 
regard. 



352 

Mr. Stokes. Let me ask you another question about an area in 
which, as you know, I have a great deal of concern relative to the 
OhioCare situation, I would have the same concern nationally. 
That is with respect to providers that have traditionally provided 
quality health care services to the Medicaid population in our 
inner-cities, and in particular, minority health providers who have 
been more or less relegated in their practices to inner-city practices 
before it became both popular and profitable. 

What provisions are built into the approved waivers to ensure 
that they continue to be a provider of health care services to this 
particular population? 

Mr. Vladeck. We, frankly, in part because of the concerns we 
heard expressed in Ohio, learned in our approval of that waiver 
how to write special terms and conditions into our approval to ad- 
dress equitable treatment and open participation by minority pro- 
viders, both by themselves and as parts of managed care arrange- 
ments, and to give us, through the formulation of those terms and 
conditions, the hook or the leverage to make sure that the States 
do observe those requirements. 

So we are going to expect — in the case of Ohio, for example — ^that 
whatever bidding process or contracting process they have does not 
discriminate against those traditional providers in any way, and in 
fact reaches out to them in a variety of ways to make sure that the 
traditional providers have a crack at full participation, not only for 
their existing client base, but to expand under the terms of the 
waiver. And we're going to monitor that very closely and we're 
going to insist on that kind of provision. 

Mr. Stokes. I think that's very important and I appreciate your 
commitment in that respect. 

With the welfare debate taking place on the floor — and I antici- 
pate that within the next hour or two we will probably have com- 
pleted our action here in the House on welfare reform — tell us 
what impact is the proposed overhaul of welfare reform expected 
to have on your agency's operations, the programs that it admin- 
isters and the people served by those programs. I would appreciate 
it if you could just take a moment to elaborate, and be as specific 
as you can. 

Mr. Vladeck. Well, I can't give you as many details as I would 
like, Mr. Stokes, frankly, because I probably haven't paid as much 
attention to it as I should have, both because we've been doing 
other things and because of our hope that the House version is not 
the final law that comes back. 

Mr. Stokes. That's my hope, also. 

Mr. Vladeck. I think there are several considerations there. In 
the first instance, there are several million people, as we under- 
stand it, that will lose eligibility for Medicaid by virtue of losing 
eligibility for cash assistance under the bill now on the floor of the 
House. Most of those are immigrants legally in the United States, 
as well as certain disabled children and others. 

Second, and of somewhat more concern, is that as we understand 
it the removal of entitlement from the structure of the program for 
cash assistance raises very significant questions about the basis for 
entitlement for the 70 percent of Medicaid beneficiaries who are en- 
titled as recipients of AFDC. And there are some ways to accommo- 



353 

date that, and I honestly don't know the extent to which that's 
been addressed, but the States will have so much flexibility over 
who gets benefits and who doesn't that the potential for both the 
loss of many millions of other folks from Medicaid coverage on the 
one hand, where the States are playing various games about Med- 
icaid coverage, strikes me as very significant. 

Third, to the extent that States now will have total freedom to 
use what mechanisms they wish to decide who gets cash assistance 
and who doesn't, that implies radical change in the administrative 
infrastructure through which States determine Medicaid eligibility, 
as well. I don't believe that anyone has really thought through the 
implication of that considerable devolution of eligibility responsibil- 
ity to the States on the Medicaid program. We know it's there; 
we've talked to our colleagues in HHS who are knowledgeable 
about welfare. They know that the problem is there, but they agree 
with our perception that no one has really paid very much atten- 
tion to it. 

Mr. Stokes. I'm glad you mentioned that. That's also one of my 
concerns. There are a lot of aspects of this whole program and 
other ramifications that have not been well thought out or well 
considered in terms of the legislation that is now being promoted 
on the floor. The measure looks as though it will emerge from the 
House. Hopefully, once again, in the Senate much more can be 
done about bringing a much more rational and reasoned approach 
to it. 

Mr. Vladeck, I have a number of other questions which I will 
submit to you for the record. 

I appreciate very much the responses that we've had from you 
this morning. 

Mr. Vladeck. Thank you, sir. 

Mr. Stokes. With that, we are adjourned until 10:00 a.m. Tues- 
day morning. 

Mr. Vladeck. Thank you. 

[The following questions were submitted to be answered for the 
record:] 



354 



PAYMENT SAFEGUARDS FUNDING 

Mr. Porter: How much more money could be invested in 
■payment safeguards activities before the returns begin to taper 
off? 

Mr. Vladeck: Any estimate of the rate of return on 
incremental funding would be highly speculative. However, it 
is reasonable to expect that a prudent amount could be invested 
beyond the current request without any significant reduction in 
the return ratio. Over the past several years, HCFA's 
contractors have maintained a relatively constant rate of 
return even though funding has fluctuated somewhat. It is 
reasonable to expect that this performance would continue given 
a limited, additional investment. Benefit Integrity does not 
factor into the return ratio because the changes in scope and 
nature of activities make it difficult to quantify savings for 
this program. Additional funding would include Benefit 
Integrity. 

MEDICARE TRANSITIONS 

Mr. Porter: Your 1996 request includes a $23.5 million 
increase for the costs associated with an increasing number of 
contractors leaving the Medicare program and transferring their 
work to other contractors. What is happening in the program 
that is causing these contractors to pull out? 

Mr. Vladeck: Contractors may choose to leave the prograun 
because of a business decision or because they may not be able 
to continue at the performance level required by HCFA. 

Contractor transition funding is required to update the 
incoming contractor's claims processing system to accommodate 
the increased claims workload. In many cases, the incoming 
contractor must work with individual providers to ensure a 
smooth conversion to the new claims submission protocols. In 
addition, HCFA is responsible for many personnel and equipment 
costs associated with the discontinuation of Medicare 
operations by the outgoing contractor. 

The costs associated with the transition of this workload are 
substantial. In fact, the average contractor transition cost 
was budgeted at $7.7 million in FY 1994. The funding requested 
would pay between three and five contractors leaving in 
FY 1996. 

INCREASE IN THE PAYMENTS TO HEALTH CARE TRUST FUNDS 

Mr. Porter: Your 1996 request for the Payments to the 
Health Care Trust Funds increases by a startling $25.7 billion 
— a 69 percent jump. I realize that this is an entitlement 
account and won't count against our discretionary ceiling, but 
I think an increase of that magnitude deserves some discussion. 
Can you explain the reasons for the $25.7 billion increase? 

Mr. Vladeck: Most of the increase, $25.2 billion, is in 

the payment to the Supplementary Medical Insurance (SMI) Trust 

Fund for the Federal match of Part B premiums. A number of 
factors explain this increase. 



355 



The FY 1996 eetintate of the match includes $6.7 billion to 
repay the SMI Trust Fund for financing an expected shortfall in 
FY 1995. The FY 1995 appropriation was based on FY 1995 
President's Budget estimates, which were revised upward at 
Mid-Session Review and subsequent re-estimates of the program. 

The growth includes projected increases in price, utilization, 
and enrollees, and a higher contingency margin in the event 
actual costs exceed projections. 

The growth also reflects a change in the percentage of aged 
beneficiaries' progreun costs covered by the Part B premium. 
The Omnibus Budget Reconciliation Act of 1990 set the premium, 
for calendar years (CY)s 1991-1995, at absolute dollar amounts 
to cover 25 percent of costs as projected at the time of 
passage. However, based on the latest estimates the CY 1995 
premivim will cover more than 30 percent of these costs. Under 
the Omnibus Budget Reconciliation Act of 1993, the premium 
reverts to a simple 25 percent coverage in CY 1996. To offset 
the loss of premium income, the FY 1996 Federal match will 
increase by $300 million. 

UNDOCUMENTED ALIENS 

Mr. Porter; Although your budget documents include 
almost no mention of it, you are proposing a $150 million 
program to reimburse States for the medical care of 
undocumented aliens. Can you explain how this prograun would 
work, and how the funding would be distributed to States? Have 
you submitted the necessary authorizing legislation for the 
program to the Hill? 

Mr. Vladeck: The President's Budget calls for creating a 
new discretionary grant to help States pay for the emergency 
medical care for undocumented immigrants. Medicaid coverage 
for these services was required under the Medicaid program by 
the Omnibus Budget Reconciliation Act of 1986. As with other 
Medicaid services, the Federal government already shares the 
cost of these services with the States, with matching funds of 
between 50 percent and 78 percent. The new grant funds would 
help pay for the non-Federal share of costs for these services 
in States with the greatest burden of providing them. HHS 
would forward funds to the State Medicaid agency for the non- 
Federal share of these costs, up to the limit of the State's 
allocation for that year. The Administration is currently 
drafting implementing legislation, including the State funding 
distribution procedures, which we plan to send to the Congress. 

MEDICAID ABORTION PROVISION 

Mr. Porter: As you know, the Medicaid abortion general 
provision was debated in the recently passed rescission bill. 
How many States does HCFA consider to be out of compliance with 
the Administration's interpretation of the statute? Have any 
sanctions been imposed against these States? Are they in any 
short-term danger of losing their Medicaid funding? 

Mr. Vladeck: HCFA considers six States (Alabama, 
Kentucky, Mississippi, North Dakota, South Dakota, and Utah) to 
be out of compliance with the statute. HCFA has notified these 
States of their noncompliance. 



356 



The next step in the process is a compliance hearing. 
Participants at the hearing Include the State, HHS Regional 
Office, and the HHS Office of the General Counsel, along with a 
designated hearing officer. The hearing officer will make a 
recommendation to me and I will make the final decision. I 
must also decide the amount of the State's Medicaid funds to be 
withheld if the State(s) are found to be out of compliance. 
Until that time, there will be no sanctions imposed or Medicaid 
funds withheld. 

MEDICARE HANDBOOK 

Mr. Porter: Most people would agree that a new Medicare 
handbook would be nice for beneficiaries to have, but is it 
essential in this budgetary environment? 

Mr. Vladeck: Yes, it is essential that beneficiaries 
have a new and updated Medicare handbook. The last time a 
Medicare handbook was distributed to every Medicare beneficiary 
was approximately 8 years ago. Providing our 37.5 million 
beneficiaries with up-to-date information to make Informed 
health care choices is a top priority of this Agency. It is 
clear from beneficiary feedback and communication with our 
partners that the Medicare handbook is an Indispensable source 
of Information on program benefits and policies for our 
beneficiaries . 

Every private Insurance company provides handbooks and policy 
information to beneficiaries on an annual basis. Informed 
beneficiaries will make better health care choices and reduce 
the number of inquiries to HCFA. 

HCFA ON-LINE INITIATIVE 

Mr. Porter: Tell us more eUsout the HCFA On-Llne 
initiative. Is the technology envisioned something the elderly 
population is likely to use? Why does the start-up of this 
project cost $10 million? 

Mr. Vladeck: HCFA On-Llne is a comprehensive 
communications strategy designed to enhance Interaction between 
HCFA and our 70 million beneficiaries and their f£unilles, our 
partners, and other customers. The five elements of the 
initiative are to: 

— Learn customer and partner information needs and 
preferences; 

— Enhance partnerships with other Federal agencies. States, 
and other entitles; 

— Build and operate data systems meeting the information 
needs and preferences of customers and partners; 

— Harness existing and emerging information technologies to 
provide the best availeUsle service, most 
coat-effectively; and, 

— Employ a variety of customer-driven information delivery 
techniques that are responsive and effective. 

The technology envisioned by HCFA On-Llne will be 
"user-friendly" and designed for the elderly population. The 
technology may include "800" number telephone service, guidance 
for written correspondence, cable television, free-standing 



357 



kiosks, interactive videos, and electronic bulletin boards. 
HCFA On-Llne will also allow beneficiaries who use 
microcomputers the ability to access compact-disc technologies 
containing important health information. 

In the past, information provided by HCFA was confusing, and 
often times was not useful in assisting beneficiaries to make 
informed health care choices. To improve services for 
beneficiaries, HCFA will conduct market research to better 
serve customer health information needs, gather data about 
common questions and inquiries from beneficiaries and other 
customers, establish a separate database environment to improve 
customer access to health information, and develop a plan to 
facilitate dissemination of existing health care information. 

CONSOLIDATED FACILITY 

Mr. Porter: Are you on schedule with your planned move 
to the consolidated office facility in 1995? Will the move and 
the associated expenses be completely funded from the 1995 
appropriation? 

Mr. Vladeck: The project is on schedule and no delays or 
extra charges for construction are expected. We expect 
construction to be completed this month (March 1995) and 
relocation to begin in April 1995. 

Since all final expenses for the new facility will be funded in 
FY 1995, HCFA does not require any funding for the consolidated 
facility in FY 1996. 

PERFORMANCE AND OUTCOME MEASURES 

Mr. Porter: Tell us more about your plans to convert the 
survey and certification program from a process-oriented system 
to one that is based on performance and outcome measures. What 
sort of performance standards do you intend to establish? 

Mr. Vladeck: We plan to replace the process and 
structure requirements in Medicare survey and certification 
with outcome measures whenever possible. To that end, we are 
revising the conditions of participation for hospitals, home 
health agencies, and end-stage renal disease (ESRD) facilities. 
These changes will be made in consultation with the provider 
and beneficiary communities and as part of the public 
rule-making process. We've revised survey processes for home 
health agencies, ESRD, and nursing homes and these survey 
protocols are now in use. We will begin, in the very near 
future, an intensive progrcun to retrain surveyors across the 
country to strengthen their ability to focus on patient 
outcomes. We are going to evaluate continuously evaluate these 
processes and rework them as we identify opportunities for 
improvement . 

As part of our focus on outcomes, we have developed quality 
indicators (Qis) for use in ESRD facilities, nursing homes, and 
home health agencies. ESRD facilities were provided 
comparative information in March on several key outcome 
indicators, such as adec[uacy of dialysis and extent of severe 
anemia in the population. This information will help them 
improve processes of care, with a corresponding increase in 



358 



patient outcomes. Nursing homes in several states are already 
using quality indicators. Computerization of the existing 
nursing home assessment tool, on which the indicators are 
based, is in progress. Full implementation of the nursing home 
project will occur in 2 to 3 years, and the home health project 
will be implemented in 4 to 5 years. Plans are being made to 
develop quality indicators for hospices and intermediate-care 
facilities for the mentally retarded as well. 

FINANCING THROUGH USER FEES 

Mr. Porter: With the current budget constraints, I am 
somewhat surprised you have not resurrected the idea of 
financing the survey and certification program through user 
fees. Do you think that concept has any merit? 

Mr. Vladeck: HCFA proposed the idea of financing the 
survey and certification program through user fees in FY 1991 
through FY 1993. Congress rejected those proposals. 

We would support a new concept, that of charging fees for 
initial surveys relating to provider and supplier participation 
in the Medicare program. States would collect and retain these 
fees to cover the costs of the initial surveys. Medicare has 
experienced an extraordinary growth in the number of providers 
and suppliers requesting to participate in the Medicare 
program. Over the past three years initial surveys of long- 
term care facilities have increased by 27 percent; home health 
agencies by almost 40 percent, and other facilities by over 
45 percent. 

Current projections indicate that the savings from this 
proposal will be approximately $8.7 million in FY 1996. 

INSPECTION OF HOME HEALTH AGENCIES 

Mr. Porter: Can you explain your legislative proposal to 
adjust survey coverage requirements for certain types of 
facilities? 

Mr. Vladeck: Our home health agency (HHA) 
recertification coverage level proposal requires State survey 
agencies to conduct Medicare recertification surveys of HHAs on 
a Statewide average of 24 months while retaining Secretarial 
authority to conduct more frequent surveys when necessary to 
ensure the delivery of quality home health services. It 
further requires that all HHAs be subject to standard surveys 
no later than 36 months after their previous standard survey. 

Historically, HHAs have had a strong record of compliance with 
Medicare requirements. Almost half of HHAs are deficiency-free 
and only about four percent of HHAs have serious deficiencies. 
As a result of this record, HCFA has proposed legislation that 
will allow States the flexibility to target problem facilities, 
while allowing us to inspect the deficiency-free facilities 
less often. 

Specifically, this proposal mandates that all "problem 
facilities," approximately 4 percent of all HHAs, be surveyed 
as often as every six months. Facilities posing a lesser 
threat, the 50 percent of all HHAs with deficiencies that would 



359 



not be considered serious, would be surveyed between 12 and 
24 months. Facilities having no deficiencies would be surveyed 
within 36 months. As a result, this proposal would free up 
resources to target non-mandated facilities. 

EFFECTIVENESS OF LYMPHEDEMA PUMPS 

Mr. Porter: HCFA has questioned the effectiveness of the 
E0652 lymphedema pump relative to the less expensive pumps. 
However, last year's draft proposal to change HCFA's Coverage 
Issues Manual provision to incorporate that view was never 
published, in part because the Office of Health Technology 
Assessment report on which it was based had significant flaws 
and omissions. Moreover, the national Lymphedema Network and 
prominent physicians such as Dr. Susan Love, director of the 
UCLA Breast Center, have expressed the view that this device 
provides superior benefits. Has HCFA made a final 
determination as to the circumstances in which the E0652 pump 
is an allowable expense under Medicare? When will that 
guidance be made public? 

Mr. Vladeck: HCFA has made a preliminary determination 
as to the types of patients for which the E0652 piunp should be 
a covered service under Medicare. This will become a final 
determination when we issue the manual instructions. The 
instructions are currently in draft and in the clearance 
process. These instructions are based on results of the review 
of the medical literature and the recommendations of the 
clinicians who gave us valueUsle input. The revised 
instructions will help ensure the appropriate use of these more 
costly devices by clarifying the type of documentation needed 
to warrant payment of the more advanced pumps (E0652). HCFA 
expects these instructions to be published in several months. 

CURRENT PROCEDURAL TERMINOLOGY (CPT) CODES 

Mr. Porter: In the past two years, how many proposals 
have been received by HCFA for a comprehensive overhaul of the 
CPT codes for reimbursement with a self-monitoring device? How 
many of those specified use of appropriate, independent 
clinical personnel? How has HCFA responded to any such 
request? 

Mr Vladeck: In the past two years, HCFA has received 
only one proposal for a comprehensive overhaul of the CPT codes 
for reimbursement with a self -monitoring device. That proposal 
was submitted in the form of an "approach plan" that was 
discussed with the Administrator in May 1993. 

HCFA also received six comprehensive proposals for developing 
rebundling policy for CPT codes that were in response to a 
Request for Proposal (RFP) published on December 2, 1993. All 
proposals specified the use of clinical personnel. A contract 
was awarded on July 31, 1994 to AdminiStar Federal. 

The contract awarded to AdminiStar Federal is to develop 
rebundling methodologies to control overpayment of Part B 
claims where manipulation of coding ("code gaming") leads to 
inappropriately increased reimbursement. The end product will 
include a final recommendation for rebundling edits to be 
installed in the claims processing systems of all carriers. 



360 



Further, the contract specifies the use of appropriate, 
independent clinical personnel. It also requires AdminiStar to 
circulate for comments all tentative rebundling edits and 
policy to all national physician specialty societies and the 
American Medical Association. 

At the present time, the tentative rebundling edits and 
policies have been drafted and circulated for comment. 
AdminiStar is just beginning its analysis of the comments that 
have been received. A final report is due August 1, 1995. 

HCFA has reviewed a draft report of the GAO that recommends the 
use of commercial software systems to detect billing abuse. 
Demonstrations of the capabilities of these systems by GAO are 
scheduled for May 1995. 

Mr. Porter: How serious a problem do you believe the 
underlying CPT codes are from the perspective of inappropriate 
use of Federal funds from "geuning"? 

Mr Vladeck: We believe that any coding system, 
including CPT, is subject to gaming and that the inappropriate 
use of any Federal funds from gaming is a serious problem. We 
do not know the extent of g£uning but the Office of Inspector 
General estimates losses to the entire health care industry at 
$1 billion to $2 billion per year. 

The processing and paying of claims under the Medicare progr£un 
is handled by contractors (carriers and intermediaries) who 
also are responsible for identifying and preventing fraud, 
waste and abuse. For many years, contractors have had edits in 
their claims processing systems to identify and preclude 
payment for claims where manipulation of coding leads to 
inappropriately increased reimbursement. 

Because of the escalating cost of health care, the growing 
complexity of coding, the growing volvune of claims, and the 
parallel decrease in funding for carrier activities, HCFA must 
develop efficient methods to control overpayment. 
Incorporating rebundling activities into the carriers' claim 
processing systems has provided significant savings to the 
Medicare program. 

In February 1991, HCFA directed all carriers to put in place a 
system of edits to limit overpayment for claims that had been 
unbundled. That methodology, referred to as "rebundling," 
consisted of a HCFA-defined list of 87 codes. The list has 
since been expanded to include several hundred codes. Between 
April 1992 and January 1994, these edits have yielded an 
average of $5 million per month in savings. 

The contract awarded to AdminiStar is expected to expand 
significantly the number of edits. Once the final edits have 
been developed, we will be able to process a seunple of claims 
through the system and determine the savings that can be 
expected once the edits are implemented. We believe it is 
vitally important to address this area prior to the completion 
of the design of the Medicare Transaction System. 



361 



Mr. Porter: Did the Administrator of HCFA Indicate in 
May 1993 that the agency would issue a request for proposals 
for reforming the CPT coding system? Was this commitment 
followed through on? 

Mr. Vladeck: In May 1993, an "approach plan" to 
reforming CPT was presented by a private firm. Venture 
Resources, to the Administrator of HCFA. At that time, a 
Request for Proposal (RFP) to develop rebundling policy for CPT 
codes was under development and the firm was advised that HCFA 
could not discuss the details of its approach since such 
discussions could be viewed by other potential bidders as 
providing the firm an unfair competitive advantage. The firm 
was encouraged to submit a proposal once the RFP was published. 
An RFP entitled "Developing National Rebundling Policy for 
Part B Carriers" was published on December 2, 1993. Six 
companies submitted proposals. Venture Resources did not 
submit a proposal. A contract was awarded on July 31, 1994, to 
AdminiStar Federal. 

INFORMATION, COUNSELING AND ASSISTANCE (ICA) GRANTS 

Mr. Porter: Your 1996 budget requests a decrease in 
funding for the insurance counseling program. Can you tell us 
why you think the progreun can operate with a lower funding 
level? At this funding level, would you allocate funds by 
formula or make discretionary grants? 

Mr. Vladeck: The ICA program strengthens the capcUsility 
of States to provide Medicare beneficiaries with information, 
counseling, and assistance on adequate and appropriate health 
insurance coverage. Funding will support ICA activities 
related to Medicare, Medicaid, Medicare supplemental policies, 
long-term care insurance, and other health insurance benefits. 

The ICA grants program is also a volunteer-based counseling 
program. Since the program has been fully funded to the extent 
of approximately $10 million for each of 3 fiscal years. States 
have had the opportunity to build and train a volunteer base. 
We believe that the ICA grants program will continue to be 
effective, having established this volunteer base. The grants 
will continue to be formula based. 

USES OF ICA GRANTS 

Mr. Porter: What are the main uses of these funds? Is 
any performance data reported by the States? 

Mr. Vladeck: The funds are used primarily for 
administrative costs incurred in operating the State counseling 
programs. Such costs typically include a coordinator's salary; 
travel expenses for volunteer recruitment, training, and public 
presentations; volunteer training expenses; telephone; other 
administrative and presentation equipment; and, various 
promotional expenses. 

Performance data are reported semi-annually by the State 
programs. Reporting requirements include the number of 
beneficiaries served, funds saved as a result of the counseling 
activity, identification of the various issues on which 



362 



counseling was provided, a general narrative of each State 
program's activity, and an accounting of the State's use of 
grant funds . 

OTHER STATE AND LOCAL PROGRAMS 

Mr. Porter: Do any other local or State agencies (such 
as area agencies on aging [AAA]) provide similar services? 

Mr. Vladeck: The State ICA and local program personnel 
work in cooperation with the various State agencies, including 
the State Units on Aging (SUA) and the AAAs, in the various 
outreach activities performed by the ICA program. The 
distinction between the programs is that the local programs are 
involved in a variety of senior-related activities, but lack a 
specific focus, whereas the ICA programs are organized to 
address and focus entirely on health care-related issues and 
needs of the senior community. Many of the volunteers in the 
ICA program are recruited from local programs. 



363 



CAUSES OF MEDICARE SPENDING GROWTH 

Mr. Dickey: Why is spending for Medicare increasing 
annually by almost 10 percent? 

Mr. Vladeck: Enrollment has been growing by 2 percent 
per year or more, in part due to faster growth in the number of 
disabled beneficiaries. Enrollment growth is projected to slow 
over the next ten years to 1.3 percent per year on average. 
Price growth in the large inpatient hospital and physician 
services categories is in the range of 3 or 4 percent per year. 
Other factors such as utilization of these major services also 
contributes to spending growth. 

Moreover, faster growth in smaller but emerging services 
significantly raises the overall Medicare growth rate. In 
Medicare Part A, spending on skilled nursing and home health 
services continues to expand rapidly. Though the rate of 
growth has begun to decline, spending in these areas has been 
rising in the range of 40 percent a year. Skilled nursing 
growth is driven mostly by price increases, while home health 
growth primarily represents increased utilization of home 
visits. In Medicare Part B, physician service utilization 
remains somewhat high. The smaller but faster growing 
outpatient costs and laboratory service utilization continue to 
raise total costs. 

REDUCING GROWTH IN MEDICARE 

Mr. Dickey: What needs to be done to reduce the rate of 
growth in Medicare? 

Mr. Vladeck: The most desiretble approach to controlling 
Medicare expenditures is a comprehensive strategy of health 
care reform. Without comprehensive reform, the number of 
uninsured persons will continue to increase. This would 
ultimately shift costs to the States and the private sector. A 
rational plan for health care reform that reduced Medicare 
spending could also consider issues such as insurance reform, 
long term care, program streamlining, and curbing waste, fraud 
and abuse. 

BLOCK GRANT PROGRAMS 

Mr. Dickey: Some in Congress have advocated a block 
grant program to replace the Medicare program. Could a block 
grant program be fashioned that would cost less and provide 
more services? 

Mr. Vladeck: We have not considered the rsunif ications 
of a block grant program for Medicare; however, it is difficult 
to imagine how one could structure such a block grant without 
causing massive disruptions to the health care market and 
potentially severe problems for Medicare beneficiaries. 

Our concerns about block granting the Medicaid program are that 
cutbacks in Federal Medicaid payments may lead to significant 
reductions in Medicaid coverage and that States may be required 
to drastically reduce provider payments. In addition, there 
are also several technical and equity issues surrounding the 
design of a block grant progreun. For example. States with the 
higher program growth rates and/or the more rapidly growing 



364 



elderly populations would be dieproportionately affected by an 
annual cap on growth. 

PROTECTING SENIORS' HEALTH RIGHTS 

Mr. Dickey: An ophthalmologist, a constituent from my 
district, performed a routine two-year check-up on a Medicare 
beneficiary, checking for such things as glaucoma, cataract, 
and a need for any change in prescription. Since this type of 
preventive care is not covered by Medicare, the beneficiary 
simply paid for the service out of her own pocket and, 
complying with regulations, my constituent informed HCFA of the 
medical service. HCFA soon wrote to my constituent to inform 
her that she had performed a "medically unnecessary service," 
and that she must reimburse the patient the eunount paid for the 
check-up. I understand that the Medicare system acts to 
protect seniors from situations of fraud and theft. To what 
extent does HCFA balance its role as a guardian of seniors' 
health rights and its duty to ensure that seniors receive the 
care they need? 

Mr. Vladeck: We believe that we can achieve both of 
these goals. We have a variety of activities and progreuns which 
support our efforts in these areas. Continuous education of 
our beneficiaries and providers concerning health issues and 
entitlement issues supports our efforts in both the areas. 
Through specific initiatives such as distribution of the 
Medicare Handbook to every beneficiary, which is included in 
the FY 1996 Budget, we are continuing to ensure that our 
beneficiaries have a clear understanding of the Medicare 
program. Our approach to quality oversight is shifting from 
individual case and provider review toward analyzing patterns 
of care in multiple health care settings. This redirection 
will protect the beneficiary and improve the mainstream of 
health care. This approach has already proven its value 
through the Cooperative Cardiovascular Project. We are 
constantly reviewing our total program to ensure that our 
beneficiaries receive the care they require in a quality 
setting. 

In order to ensure the provider' s right to collect and retain 
payment for the services not considered reasonable and 
necessary under Medicare guidelines, the physician must, in 
advance of providing the services, give the beneficiary written 
notice that the Medicare carrier is likely to deny payment for 
the services, and the reason(s) why, and obtain the agreement 
of the beneficiary to pay for the services himself or herself 
on that basis. 

In the present case, the Medicare carrier should have denied 
payment for the ophthalmologist's services under section 
1862(a)(7) of the Act as constituting a routine physical 
checkup, and not under section 1862(a)(1) as being medically 
unnecessary services. The ophthalmologist was entitled, 
therefore, to collect and retain payment for these services 
even though he did not give the beneficiary advance written 
notice of their noncoverage and obtain the advance agreement of 
the beneficiary to pay for the services himself. There was, in 
fact, no reason for the physician to submit a claim for the 
noncovered services unless the beneficiary requested a claim 
determinat ion . 



365 



DMERCs TRANSITION 

Mr. Dickey: I understand that the HCFA transition from 
34 to four regional carriers (DMERCs) has caused a delay for 
home medical equipment dealers who are seeking Medicare 
reimbursement from HCFA. One small business owner in my 
District complained that she has not been reimbursed for 
approximately 70 percent of her claims within the timeframe 
required by law. How is HCFA dealing with the logistical 
problems associated with a transition of such a large 
magnitude? 

Mr. Vladeck: During the initial transition, the durable 
medical equipment regional carriers (DMERCs) did sustain 
significant backlogs in processing the DME claims. This was 
regrettable and may have resulted in delayed reimbursements to 
some providers. However, HCFA and the DMERCs reacted to the 
situation quickly and the backlogs have been eliminated. We 
have gained considereUsle experience from the DMERC transitions 
which will be of benefit to HCFA as we move forward. The 
question raises several other issues related to the DMERC 
transition which should also be addressed. 

Prior to the creation of DMERCs, suppliers could "carrier shop" 
— identify and locate/bill in areas where carrier policy was 
the most liberal. Under our new rules, suppliers must submit 
claims to one of four DMERCS according to where the beneficiary 
lives, thereby reducing the chances for fraudulent or abusive 
billing practices. 

In response to allegations that DMERCs are cutting back 
coverage, we know that, historically, DME claims accounted for 
a very small percentage of a carrier's claims volume. 
Consequently, medical review policy to determine the medical 
necessity of DME items was not always a high priority. 

With just four DMERCs — each with a full-time medical director — 
there is a new level of attention being given to the 
development of sound and consistent local medical review with 
the goal of paying appropriately for those items that are 
reasonsJale and necessary. Also, backlogs in claims processing 
that resulted from the transition should not be construed as a 
cutback in coverage. 

METHODS TO INCREASE MATCHING MEDICAID FUNDS 

Mr. Dickey: Recent newspaper articles detailed illegal 
methods used by 18 States and the District of Columbia to 
increase the eunount of Federal matching funds for Medicaid. 
Some estimates show that States may owe up to $3 billion to the 
Federal Government. What is HCFA's role in correcting this 
situation? 

Mr. Vladeck: Nine States have taxes that are considered 
to be impeirmissible under section 1903 (w) of the Social 
Security Act. These taxes are estimated to represent about 
$480 million. Because these are just estimates, we will be 
scheduling audits in the near future to determine the exact 
amount of the impermissible tax. 



366 



Sixteen States, some which also had impermissible taxes, may 
submit a request for the approval of a waiver of the broad- 
based and/or uniformity requirements in order for the teuc to be 
permissible under the law. We are working with these States in 
either developing or reviewing their waiver requests. 

PREVENTION OF IMPERMISSIBLE TAXES TO INCREASE MEDICAID MONIES 

Mr. Dickey: What plans do you have to ensure that 
similar situations do not happen in the future? 

Mr. Vladeck: States are now required to report on HCFA 
Form 64-llA, the health care related teuces imposed by the 
State. We will be reviewing these reports to ensure that the 
taxes listed have been determined either to be permissible 
under the law or that a waiver request has been submitted. 

MEDICAID SAFEGUARDS FOR UNDOCUMENTED ALIENS 

Mr. Dickey: What safeguards do you have to ensure that 
Medicaid funds are not used for undocumented aliens, except in 
case of emergency treatment? 

Mr. Vladeck: Section 1137(d) of the Social Security Act 
requires that all alien applicants claiming a satisfactory 
immigration status must sign a declaration to that effect and 
submit documents for verification with INS of the claimed 
status. However, aliens who are not lawfully admitted for 
permanent residence or permanently residing in the United 
States under color of law, who are seeking emergency treatment 
only, are exempt by S1137(f) from the declaration requirement. 
They also do not have their immigration status verified with 
INS. 

Those otherwise eligible applicants who sign the declaration 
are eligible to receive all services available under a State's 
Medicaid program, both routine and emergency. Those otherwise 
eligible applicants who do not sign the declaration are 
eligible only for treatment of emergency medical conditions. 

Therefore, when claiming Federal financial participation (FFP), 
States must segregate claims for treatment of emergency medical 
conditions attributable to illegal aliens from claims for other 
Medicaid-eligible persons. Such claims are subject to the 
usual review and audit procedures employed by HCFA in verifying 
claims for FFP. 

MEDICAID TRANSFER OF ASSETS 

Mr. Dickey: A hypothetical couple is applying for 
Medicaid coverage. The husband is 90 years old and his wife is 
80. Their assets include a $75,000 home, 2 lots at $15,000 
each, $50,000 in cash and a monthly income of Social Security 
benefits plus $300 per month. Can the couple sell the 2 lots 
and use the proceeds and their cash to make their home handicap 
accessible without being made ineligible for Medicaid? 

Mr. Vladeck: Yes. The issue here is not one of 
eligibility for Medicaid, but whether the couple transfers an 
asset (the value of the two lots plus the cash) for less than 
fair market value. While a transfer for less than fair market 



367 



value does not affect Medicaid eligibility per se, it can 
result in a penalty which could deprive the couple of payment 
for certain Medicaid services. However, if the value of the 
modifications to the home equals the amount spent, the couple 
would get fair market value for the money it spent, and no 
transfer penalty would be incurred. In the example given, the 
couple would have to make $80,000 worth of modifications in 
return for the $80,000 in assets they would be spending. 

Mr. Dickey; Can the couple sell the 2 lots and their 
home, and use all of the proceeds and their cash to purchase a 
new/modern home without being made ineligible for Medicaid? 

Mr. Vladeck: The transfer of assets policy discussed 
above also applies in this situation. In addition, assiuning 
the new home is the principle place of residence of at least 
one member of the couple, the home would not be counted as a 
resource in determining eligibility for Medicaid. 

Mr. Dickey: Can the couple sell the 2 lots and use the 
proceeds along with their cash to purchase a handicap 
accessible vehicle? 

Mr. Vladeck: Yes. Again, to avoid a transfer penalty 
the value of the vehicle would have to equal the value of the 
assets ($80,000) spent. Assuming this is the case, however, 
under Medicaid the total value of a vehicle is excluded if it 
has been modified to accommodate a handicapped individual. 

Mr. Dickey: Can the couple sell the 2 lots and put the 
proceeds along with their Social Security checks into a Miller 
Trust? 

Mr. Vladeck: No. A Miller trust can be established 
only with income. It cannot be established or augmented with 
resources. While the Social Security checks would be income, 
the proceeds from the sale of the two lots would be a resource, 
and so could not be placed in a Miller trust. 

Mr. Dickey: Is there any type of trust the couple can 
create by putting the 2 lots into the corpus without being made 
ineligible for Medicaid? 

Mr. Vladeck: The new rules for treatment of trusts 
established by Omnibus Budget Reconciliation Act (OBRA) of 1993 
have made it much more difficult to use trusts to shelter 
assets. Under the OBRA 1993 rules, it is unlikely that the 
couple could establish a trust not specifically exempt from 
those rules that would effectively shelter the two lots. The 
couple might be able to establish a "pooled" trust, which is a 
type of trust, managed by a non-profit organization, which is 
exempt from the OBRA 1993 rules. However, the couple would 
have to be completely disabled, and the trust would have to 
meet certain other specific requirements which could make 
establishment of such a trust disadvantageous to the couple, 
particularly in view of the relatively small value of the asset 
($30,000). 



368 



GRADUATE MEDICAL EDUCATION UNDER MEDICAID MANAGED CARE 

Mr. Stokes: Under Medicaid managed care systems, the 
role and support needed for graduate medical education must be 
addressed. The system must not focus on and reward primary 
care alone. With respect to health care facilities doing the 
training, what provisions are included in HCFA-approved 
Medicaid waivers to ensure Federal and State funding support 
for facilities that conduct graduate medical education 
training? 

Mr. Vladeck: In States that currently make payments for 
graduate medical education training, we carefully look at their 
section 1115 waivers to make sure that the States continue to 
make such payments. For other States, Medicaid law does not 
require that medical education payments be made. To date, of 
the approved section 1115 waivers, only Tennessee had 
provisions for such payments but those ceased after the first 
year of the waiver. (In Tennessee, payments for medical 
education were made only as long as full enrollment was not 
reached. ) 

LABORATORY INSPECTIONS 

Mr. Stokes; The agency is projecting that it will 
conduct over 20,000 laboratory inspections in FY 1996. How 
does it compare with the number inspected in FY 1995 and 
FY 19947 

Mr. Vladeck: In FY 1994, we conducted 18,563 laboratory 
inspections, 17,217 of these were initial certification 
inspections and 1,285 were follow-up or complaint inspections. 
In FY 1995, we project that the number of inspections will 
increase slightly to over 20,000. 

STATUS OF CLINICAL LABORATORIES 

Mr. Stokes: The Clinical Laboratory Improvement 
Amendments of 1988 expanded survey and certification of 
clinical laboratories from Medicare participating and 
interstate commerce laboratories to all facilities testing 
human specimens for health purposes. What is the state of the 
nation's laboratories, what is being done to improve them, and 
also, how often might a laboratory be inspected? 

Mr. Vladeck: The inspection data of the laboratories we 
have surveyed show that approximately 10 percent of the 
laboratories were seriously lacking minimum practices that 
ensure accurate and reliable testing. Eighty-four percent of 
the laboratories had some deficiencies cited. Laboratories not 
previously regulated, mostly physician office laJsoratories, 
demonstrated a much higher rate of non-compliance with basic 
requirements for quality control and quality assurance than 
those previously regulated. 

HCFA's specialized progreun for review of cytology laboratories 
has identified many cytology laboratories with serious quality 
problems and/or has removed permission to perform Pap testing. 
Specifically, of the 178 specialized cytology inspections since 
1989, 38 percent had serious deficiencies, including 
misdiagnosis of Pap smears. Eight of these laboratories, which 



369 



%f«r« parfomlng mor* than half a allllon Pap taata annually, 
had auch aavara problama with accuracy in raading Pap amaara 
that thay %Mr« no longar allowed to parform thia taat. 

Laboratoriaa found to ba in noncomplianca with tha raquiranenta 
ara given tha opportunity to raapond and allowad time to 
correct the def icienciea. In caaaa where laboratory practice 
repreaenta aerioua riak of harm to patienta or the laboratory 
refuaea to make the appropriate changea to enaure accurate and 
reliable teat reaulta, aanctiona are impoaed. In extreme 
caaea, a laboratory may loae it a capability to teat legally. 

Inapectiona of facilitiea engaged in laboratory teating are 
performed every t%ra yeara in accordance with the law. 

STATUS OF HOME HEALTH AGENCIES 

Mr. Stokea: What ia the at ate of the nuraing homea and 
home health agenciea? 

Mr. Vladeckt Aa a result of the Omnibus Budget 
Reconciliation Act of 1987 (OBRA 1987), improvements have been 
made in the care provided to residents in nursing homes in such 
areas aa inappropriate physical restraints, a 50 percent 
reduction, as well as a aignificant reduction in the 
inappropriate use of psychoactive drugs. Studies further 
reflect an 18 to 59 percent reduction in the use of 
antipsychotic drugs. 

During this same period, nursing homes have also become much 
more attentive to the quality of life of their residents. 

Home health agenciea (HHAa) have had a strong record of 
compliance with Medicare requirementa. Almoat half of the HHAs 
are deficiency-free and only about 4 percent of HHAa have 
serious deficiencies. 

INSPECTION OP HOME HEALTH AGENCIES 

Mr. Stokest According to the justification, the agency 
is proposing legislation that would give the States the 
flexibility to target those home health agencies that are most 
prone to deficiencies. What ie the status of the proposal and 
if it is not implemented, to what extent does the agency's 
current authority allow you to exercise such responsibility? 

Mr. Vladeck: The proposal is a part of the President's 
FY 1996 Budget Bill. If the proposal ia not Implemented, HCFA 
will continue to abide by OBRA 1987, which mandates that 
recertif ication surveys of home health agencies be conducted 
every year. 

EMERGING ISSUES 

Mr. Stokes: Nursing homes have raised concern over 
hospitals installing nursing home beds. They are concerned 
that the high costs for the hospitals to buy and operate beds 
would be passed along to consumers and taxpayers. Would you 
comment on this matter? 



370 



Mr. Vladeck: The Medicare program has witnessed a 
marked increase over the last few years in the nvunber of 
hospital-based SNFs becoming certified for Medicare. This 
trend seems to be one that is evolving nationally as hospitals 
seek to manage cost containment pressures resulting from 
hospital prospective payment and position themselves favorably 
in a growing market for post-acute and "sub-acute" services. 

It is true that, generally, hospital-based SNFs have higher 
costs than their freestanding counterparts. This has resulted 
in higher costs for the Medicare program, taxpayers and for 
consumers of hospital-based SNF services. 

MEDICARE CONTRACTOR LEGISLATION 

Mr. Stokes: The Agency indicates that it is proposing 
legislation that will provide flexibility in Medicare 
contracting. What are the major features of the proposal, and 
what will it allow the Agency to do that it currently does not 
have the authority to do? 

Mr. Vladeck: Contracting reform legislation will 
provide HCFA with the flexibility to adapt to the changing 
health care market place and the ability to streamline its 
contracting to achieve opportunities for administrative 
savings. Contracting reform has two main themes. The first is 
to make Medicare contracting more like other government 
contracting. The second is to increase flexibility in the 
administration of the Medicare program. Both of these themes 
arise from Medicare's critical need to respond to the 
proliferation of vertical integration within the health 
insuring industry and within an increasingly tight budget. 

Medicare contractors have begun to acquire medical providers, 
such as hospitals, physician networks, laboratories, etc., in 
addition to the health maintenance organizations which they 
have developed during the last ten years. Processing the 
claims or settling the cost reports of providers which are 
owned by the same corporation is a blatant conflict of 
interest. Unfortunately, many of our effective contractors 
have developed corporate visions in which they evolve from 
insurers of health care to providers of health care. We cannot 
afford to lose totally the knowledge and experience of these 
contractors. Thus, vertical integration by health insurers 
threatens the integrity of the current contracting environment 
because contractors are either placed in a position where they 
may be asked to perform program integrity functions like claims 
review on their own providers. This could result in the loss 
of good contractors. 

MEDICARE CONTRACTOR LEGISLATION 

Mr. Stokes: What is the status of the legislation and 
when is it expected to be submitted to the Congress? 

Mr. Vladeck: HCFA is working closely with the 
Department and the Office and Management and Budget to develop 
the legislative proposal that will improve HCFA's contracting 
flexibility. By allowing HCFA increased flexibility, we can 
improve the cost effectiveness of the Medicare contractor 



371 



budget and better protect program integrity for taxpayers and 
beneficiaries . 

ESCALATING COST OF MEDICATION 

Mr. Stokes: According to the recent New York Times 
article entitled "Some Drugs Rise in Price at a Fast Pace," 
pharmaceutical companies have increased the pace of price 
increases on many of their best-selling drugs since the 
collapse of the universal health care proposal. What impact 
will this price escalation have on the agency's programs and 
service population? 

Mr. Vladeck: The prescription drug market is complex 
and predicting the impact of price increases of specific drugs 
on Medicaid beneficiaries and State programs is difficult. 
However, price increases mean that States may have to pay more 
for prescription drugs. Legislation included in OBRA 1991 
affords States some protection against price increases 
exceeding inflation for brand name drugs. To the extent this 
legislation is ineffective, some States may find it necessary 
to limit the number of prescriptions or refills, increase 
copayments, reduce dispensing fees to pharmacists, or find 
other cost controls that might result in decreased beneficiary 
access to medically necessary drugs. On the other hand, drug 
companies must offer Medicaid their best price through the 
rebate progreun. The trend towards negotiated prices in the 
private market may continue to allow the Medicaid program one 
discount as a large purchaser of prescription drugs. 

Medicare does not cover outpatient prescription drugs. 
However, escalating prices could further disadvantage an 
estimated 40 percent of Medicare beneficiaries who are without 
third-party coverage, such as employer- sponsored insurance, 
Medigap, or Medicaid, for prescription drugs. The Feunilies USA 
report "Worthless Promises: Drug Companies Keep Boosting 
Prices", upon which the New York Times article was based, cites 
several examples of Medicare beneficiaries who skip pills or 
meals to stretch or purchase necessary medications. 

SLOW MEDICARE AND MEDICAID EXPENDITURES 

Mr. Stokes: Expenditures for Medicare and Medicaid are 
projected to be reduced by $79 billion and $133 billion 
respectively over a five-year period, according to the FY 1996 
budget request. Specifically, how are these reductions to be 
achieved, and which services would no longer be provided or 
curtailed under Medicare and Medicaid? 

Mr. Vladeck: The President's economic program, combined 
with improved efficiency in program administration, has 
resulted in a significant reduction in the projected baseline 
growth in Medicare and Medicaid spending. 

For Medicare, projections of the average annual rate of growth 
for FY 1994 to FY 1998 were lowered from 11.9 percent in the 
January 1993 baseline to 9.9 percent in the FY 1996 President's 
budget. This translates into a $79 billion drop in projected 
spending over the five-year period. 



372 



In the FY 1996 President's budget, the primary contribution to 
lower Medicare projections is slower growth in Hospital 
Insurance (Part A) expenditures. The slower projected Part A 
growth results primarily from a decline in forecasted hospital 
cost inflation and slower growth in the complexity of Medicare 
inpatient cases. 

For Medicaid, projections of the average annual rate of growth 
for FY 1994 to FY 1998 were lowered from 13.9 percent in the 
January 1993 baseline to 8.7 percent in the FY 1996 President's 
Budget. This translates into a $133 billion drop in projected 
spending over the five-year period. 

The drop in projected Medicaid spending is attributedsle to 
several factors. First, similar to the Medicare program, 
Medicaid has benefitted from the success of the Clinton 
economic progreun. Second, lower projections of Medicaid 
spending also stem from lower actual State spending, improved 
economic conditions, slower projected growth in provider cost 
inflation, and slower projected growth of the population 
receiving Supplemental Security Income benefits. Finally, the 
bipartisan passage of the 1991 provider t£uces and donation law 
and the successful implementation of its regulations have had a 
significant effect on the growth of Medicaid disproportionate 
share hospital payments as well as limiting States' use of 
creative financing mechanisms to increase Federal payments. 

ADAPTIVE DEVICES FOR LOW-VISION DIABETICS 

Mr. Stokes: The service most frequently requested by 
people who have diabetes and visual impairment is to learn to 
draw insulin no-visually. I understand that there are many 
kinds of adaptive equipment currently available which make it 
possible for people with low vision or no vision to measure 
insulin safely and accurately. This appears to be one 
situation where both the financial savings and the human needs 
support the Scune course of action. Does the agency provide or 
has it considered providing Medicare and Medicaid coverage for 
adaptive insulin equipment, would you respond to this concern? 

Mr. Vladeck: For Medicare to cover equipment, it must 
fall into a statutorily-def ined benefit. This equipment does 
not fit in any current benefit. Self-administered insulin is 
not covered due to the statutory prohibition on coverage of 
self -administered drugs. 

Under Medicaid, State Medicaid programs may cover adaptive 
insulin equipment. 

MEDICARE OUTREACH 

Mr. Stokes: The agency has indicated that one of its 
goals is to strengthen its outreach and consumer-oriented 
emphasis. What role do the ICA programs have in this 
initiative? 

Mr. Vladeck: The ICA programs support this initiative 
by providing education and outreach services to the beneficiary 
population, especially targeted populations such as rural and 
minority. The ICA programs provide information and referral 
services both over the phone and in person, counseling services 



373 



in health care and health insurance options, and assistance 
with understanding and resolving payment and other related 
items. 

INCREASED UNDERSTANDING THROUGH ICA GRANTS 

Mr. Stokes: To what extent does this progreun provide 
assistance services to the elderly to increase their 
understanding of the Medicare system and Medicare benefit 
forms? 

Mr. Vladeck: The ICA progreuns provide one-on-one 
insurance counseling, and phone information and counseling 
through the use of toll-free lines. The ICA counselors also 
hold group seminars and presentations. Additionally, ICA 
counselors will provide one-on-one assistance in explaining and 
resolving questions on the Medicare benefit forms. 

BUDGET FOR OUTREACH SERVICES 

Mr. Stokes: How much is included in the FY 1996 budget 
request for such outreach services and for the information, 
counseling and assistance programs? 

Mr. Vladeck: HCFA has requested $4.5 million in FY 1996 
for the Information, Counseling and Assistance (ICA) program. 
There is no single budget item which encompasses HCFA outreach 
activities. The President and Vice President have empowered 
each government agency to build outreach and education 
activities into every routine activity. As a part of its 
strategic planning, HCFA has focussed on improving outreach and 
education in all of its activities. Therefore, costs for 
outreach activities are included in many areas and are not 
separately identifiable. 

HCFA conducts outreach activities in a number of ways. HCFA's 
carriers and intermediaries conduct direct outreach to 
beneficiaries through staff educators and beneficiary liaisons. 
In addition, carriers have toll-free lines which provide 
information on Part B claims to beneficiaries. Durable Medical 
Equipment Regional Carriers (DMERCs) and Peer Review 
Organizations (PROs) conduct outreach and education activities 
on durable medical equipment and quality of care, respectively. 
DMERCs and PROs also have toll-free lines to answer beneficiary 
questions. Outreach activities conducted by contractors are 
included in HCFA's contractor budget. 

HCFA On-Line is a comprehensive communications strategy 
designed to enhance interaction between HCFA and our 
beneficiaries. The technology envisioned by HCFA On-Line will 
be "user-friendly" and designed for the elderly population. 
The technology will also include a "800" telephone number, 
guidance for written correspondence, cable television, free- 
standing kiosks, interactive videos, and electronic bulletin 
boards. HCFA On-Line will also allow beneficiaries who use 
microcomputers the eUaility to access compact-disc technologies 
containing important health information. HCFA will conduct 
market research to better serve customer health information 
needs, gather data about common questions and inquiries from 
beneficiaries and other customers, establish a separate 
database environment to improve customer access to health 



374 



information, and develop a plan to facilitate diasemination of 
existing health care information. 

The Office of the Associate Administrator for Customer 
Relations and Communications (AACRC) prints a number of 
publications for use by beneficiaries. In addition, AACRC 
conducts outreach programs such as quarterly beneficiary 
association meetings, disability outreach, and consumer survey 
coordination. 

The Office of Research and Demonstrations currently has 
projects which focus on improving beneficiaries aUaility to 
choose between health plans and providers, and make more 
informed health care choices. 

FY 1994-1995 FUNDING FOR OUTREACH SERVICES 

Mr. Stokes: How does this compare with the FY 1995 and 
FY 1994 funding levels for each? 

Mr. Vladeck: In FY 1994, HCFA obligated $9.9 million 
for the Information, Counseling and Assistance (ICA) program. 
In FY 1995, HCFA was appropriated $10.0 million for the ICA 
program; however. House and Senate rescission bills propose a 
reduction in funding to $4.5 million. 



375 



PAYMENT SAFEGUARDS 

Mr. Hoyer: When Secretary Shalala came to speak with 
this Committee, she presented some very impressive figures on 
what you, working with the Inspector General, have been aible to 
achieve in your fight against waste, fraud and abuse. Could 
you review for this Committee your efforts to preserve the 
integrity of your trust funds and give us a preview of coming 
attractions in that area? 

Mr. Vladeck: HCFA has developed a three-prong strategy 
to combat fraud and adsuse that includes prevention, early 
detection and management, and multi-component coordination and 
cooperation. HCFA and the Department will be proposing 
legislation to protect the integrity of the Medicare trust 
funds through our new program integrity initiative. This 
initiative will provide a stable and reliable funding source 
that will allow HCFA and the Office of Inspector General to 
combat fraud and abuse in our programs. 

In recognition of the fact that we will never have enough 
resources to pursue each and every fraud case in a postpayment 
manner, we have developed a strategy that emphasizes prevention 
and paying claims right the first time. Examples include: 

— Implementing specialized contractors for dureUsle medical 
equipment and home health agency claims. 

— Identifying and correcting existing vulnerabilities in 
current policies and operating procedures. 

Secondly, in the area of early detection and management, we are 
working to utilize our databases to target better our payment 
safeguard activities, specifically medical review and audit. 
Exeunples include: 

— Suspension of payments to providers suspected of fraud. 

— Issuance of fraud alerts on emerging issues/problems. 

— Facilitating contractor acquisition of sophisticated 
fraud detection and analysis software. 

Finally, in the area of multi-component coordination and 
cooperation. Medicare contractor fraud units detect and conduct 
preliminary fraud investigations. HCFA implemented agreements 
with the Department of Justice and Federal Bureau of 
Investigation to permit information sharing. Exeunples include: 

— Participating in multi-Agency regional fraud task 
forces. 

— Conducting beneficiary education in detecting fraud and 
abuse. 

Facilitating contractor and law enforcement staff 
cross-training . 

MANAGED CARE 

Mr. Hoyer: What is happening in the area of managed 
care? Is it truly saving money? What steps are you taking to 
ensure quality? 

Mr. Vladeck: Approximately 8 million Medicaid 
beneficiaries are currently enrolled in managed care. 



376 



representing about 22 percent of the Medicaid population. 
Also, over 3 million Medicare beneficiaries are currently 
enrolled in managed care, representing about 9 percent of the 
Medicare population. 

Enrollment in Medicaid managed care increased more than 
60 percent between 1993 and 1994. We expect continued and more 
steady growth in 1995, and beyond. Enrollment in Medicare 
managed care increased approximately 16 percent between 1993 
and 1994. We expect continued and comparable enrollment growth 
in 1995 and 1996. 

A recent utilization finding has demonstrated that the TEFRA 
Risk Program is cost effective and has the potential to save 
money for the Medicare progreun, if the payment formula is 
corrected. The Datis Corporation reported that increased 
Medicare risk penetration results in hospital savings due to 
reductions in average length of stay. 

HCFA is moving to develop performance measures to better 
address the care provided to beneficiaries, and to collect 
reliable and meaningful data to ensure continuous quality 
improvement by managed care organizations. One aspect of 
quality measurement is HCFA's ongoing evaluation of contracting 
IDlO's internal quality assessment and improvement programs. In 
addition, plans which receive risk-based payment are subject to 
Peer Review Organization (PRO) review of the care they provide. 
PROS perform review of random seunples of cases as well as all 
beneficiary complaints received. 

HCFA recently established a Quality and Performance Standards 
Team to concentrate on ways of ensuring and improving quality 
of care for Medicare and Medicaid beneficiaries in managed 
care. The team has focused initially on the following 
initiatives: 

— Medicaid Managed Care Quality Assurance Initiative 
(QARI); 

— Medicaid Health Plan Employer Data and Information Set 
(HEDIS); 

— Medicare Managed Care Quality Improvement Project 
(formerly called the Delmarva Project); and 

— Coordinated monitoring of managed care plan quality 
assurance and improvement systems. 

REDUCING MANAGED CARE COSTS 

Mr. Hoyer: In addition to Managed Care, what other 
management steps are you taking to reduce costs? 

Mr. Vladeck: Projected savings from several initiatives 
are factored into the development of the contractor unit cost 
targets used in the budget and performance requirements. Unit 
cost targets are used by HCFA regional offices as a base for 
their negotiations with the contractors. In this way, the 
contractors are alerted to HCFA's expectations with regard to 
cost and progreun efficiencies and are encouraged to perform in 
a cost effective and efficient manner. Specifically, HCFA 

— continues aggressive efforts to maintain rates of 
electronic media claims (EMC) submissions already 



377 



attained. Use of EMC has been the largest single 
contributor to contractor unit cost reductions. 

— expects contractors to achieve additional savings from 
reduced overhead and general technological improvements 
related to increasing workloads. 

— continues to stress the use of electronic data 
interchanges for electronic funds transfers, electronic 
remittance advices and other activities that can be done 
in a standardized, automated manner. 

Additionally, savings are anticipated in payment safeguard 
activities. HCFA has begun an initiative in the audit area to 
focus desk reviews and field audits on areas of high risk and 
potential benefit savings to the program through limited review 
procedures. 

ENTITLEMENT SPENDING 

Mr. Hoyer: In order to achieve a balanced budget, we 
have to get entitlement spending under control. You oversee 
two of the three largest spenders in our budget: Medicaid and 
Medicare. Any discussion of controlling expenditures in these 
programs is bound to be politically difficult and 
controversial . 

In your view, what issues do we — all of us, in the Congress, 
the Administration, the media, and the public — need to tackle 
to control these costs? 

Mr. Vladeck: The most desirable approach to controlling 
Medicare expenditures is a comprehensive strategy of health 
care reform. Without comprehensive reform, the number of 
uninsured persons will continue to increase. This would 
ultimately shift costs to the States and the private sector. A 
rational plan for health care reform that reduced Medicare 
spending could also consider issues such as insurance reform, 
long term care, program streamlining, and curbing waste, fraud 
and abuse. 

We are now exploring ways to expand managed care options in a 
way that preserves choice and high quality. In addition, we 
are trying to promote greater efficiency in the delivery of 
health care services. 

Mr. Hoyer: Do you have any recommendations to make 
these discussions more fruitful? 

Mr. Vladeck: A comprehensive solution to health care 
reform requires a non-partisan commitment to the examination of 
all the multi-faceted issues and interests that comprise our 
health care system. Discussions should not be held in a vacuum 
and should include the input of the American public, providers, 
and a wide range of professional interest groups. 



378 



JUSTIFICATIC»I OF THE BUDGET ESTIMATES 



HEALTH CARE FINANCING ADMINISTRATION 



•* 




STRATEGIC PLAN BUDGET 

FISCAL YEAR 1996 




379 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 



HEALTH CARE HNANCING ADMINISTRATION 



Section 

Grants to States for Medicaid 

Payments to the Health Care Trust 
Funds 

Program Management 

Health Maintenance Organization 
Loan and Loan Guarantee Fund 



1996 Estimate 
FTEs 



4,147 



Amount 

$95,977,200,000 I 

$63,313,000,000 II 

$2,299,322,000 III 

IV 



380 




381 



HCFA SERVES 
70 MILUON BENEFICIARIES 



EXECUTIVE SUMMARY 

The enactment of Medicare and Medicaid legislation in 1965 marked a new chapter in the 

provision of services by the Federal Government to its citizens. The Medicare emd Medicaid 

programs have dramatically altered the quality of life for many of our most vulnerable 

citizens by increasing access to care, 

improving physical health, and 

minimizing tears of financial ruin 

from medical bills. As these 

programs approach their thirtieth 

year, the Health Care Financing 

Administration (HCFA) is 

submitting a budget which will begin 

a dramatic improvement in this 

Agency's services to our primary 

customers-the almost 70 million 

aged, disabled, and needy 

beneficiaries served by these 

programs. 



80r 

70 

60 

SO 

40 

30 



^ 



i t 



I ft 



10^ 1882 1989 1( 



To provide improved levels of 

beneficiary service and improved 

operating efficiency, HCFA has embarked on a number of initiatives, notably the 

development of an Agency strategic plan and the creation of a total quality work 

environment with fewer but highly-trained employees. The budget also incorporates new 

directions such as Agency streamlining; multi-year budgeting; cost-saving initiatives; and the 

correlation of resources, mission, measurable goals, and results. 

Finally, this budget proposes an investment called HCFA On-Line, to realign HCFA into a 
proactive, customer-focused Agency. This investment is essential to improving the long-term 
effectiveness and efficiency of this Agency. Most importantly, we would accomplish this plan 
with a current law budget request for Program Management which is almost the same as last 
year's appropriation. 

AGENCY STRATEGIC PLAN BUDGET 

The HCFA Strategic Plan provides a direction and focus for all elements of HCFA- The 
seven goals provide a framework for moving toward our vision for the future which is "We 
guarantee equal access to the best health care" while continuing to perform our current 
mission which is "We assure health care security for beneficiaries." This budget was 
developed around our strategic plan which caused us to focus on and demonstrate how we 
plan to meet these goals with the funding requested. Beyond the Agency's direct control, 
however, is the need for specific program legislation to reduce Medicare benefit cost growth 
and insure the fiscal integrity of the program beyond this decade. The budget request 
following this summary is presented in the traditional format for easy reference. 



382 



The following is a summaiy of our request by goal: 



Build a high quality, customer-focused team . . . 
Ensure programs and services respond to the 

heahh care needs of beneficiaries 

Promote improved health status of beneficiaries 
Be a leader in health care information 

resources management 

Promote fiscal integrity of HCFA programs . . . 
Create excellence in the design and administration 

of our programs 

Provide leadership in the continuing 

evolution of the health care system 

Total Funding 



FY 1995 
Current Estimate 


FY 1996 
Estimate 
($ in millions) 


$ 41.7 


$ 43.5 


1,134.2 
330.9 


1,241.9 
962.4 


71.9 
537.6 


76.5 
506.7 


127.7 


154.7 


81.1 

$2,325.2 


101.7 
$3,087.2 



The following is a summary of the request by appropriation category: 

FY 1995 FY 1996 

Current Estimate Estimate 
($ in millions) 

A ppropriated: 

Program Management $2,198.6 $2,253.8 

Included above (non-add): 

HCFA On-Line — (10.0) 

HMO Loan Guarantee Fund ; . . . 15.0 — 

Revolving and Other: 

Health Maintenance Organization User Fee 0.1 0.1 

Peer Review Organizations 54.8 777.2 

ESRD Networks 10.7 10.7 

CLIA 45.8 45.4 

Total Funding $2,325.2 $3,087.2 

Full-Time Equivalent Employment 4,129 4,147* 

*The increase in FTE reflects 43 FTEs transferred from HHS regional offices to HCFA 
as part of a regional office streamlining effort. 



EXECUTIVE SUMMARY - 2 



383 



mnm JCHTS of oint program 



HCFA's underlying concerns in every program area are customer service, efficiency, and 
effectiveness. These themes are woven throughout our Strategic Plan and are the 
foundation that link the goals together. In each of our programs we are constantly reviewing 
and validating the objectives and our achievement of those objectives. 



Medicaid Grants to States 

HCFA's Medicaid program, which serves 37.6 million low-income recipients and the largest 
funding source of health care for the poor, has estimated total Federal Medicaid obligations 
of $96.0 billion for FY 1996. This is an increase of 8.5-percent or $7.5 billion from the 
FY 1995 estimated obligations. 

The FY 1996 request of $82.1 billion is a $7.1 billion decrease from FY 1995 due to a 
$13.8 billion unobhgated balance to be carried over from FY 1995. However, the overall 
growth in the Medicaid program is also slowing due to decreases in State expenditures and 
actual outlays over the past year, lower medical price inflation and a gradual slowdown in 
recipient growth. 



Payments to Health Care Trust Funds 

The Payments to Health Care Trust Funds accoimt is a passthrough ciccount which 
reimburses the Medicare Trust Funds for charges related to the General Fund. The 
payment to the Supplementary Medical Insurance (SMI) Trust Fund is the Federal match 
of premiums paid by or for indrviduzils voluntarily enrolled in SMI, also known as Part B of 
Medicare. This payment to the SMI Trust Fund increases by $25.2 billion in FY 1?%. 



Program Management 



Research 

Providing leadership in the continuing evolution of the health care system requires a clear 
focus. The major change in this area is in rural research. We are phasing out the less 
effective Rural Health Transition Grants and replacing them with Rural Health Network 
Reform. We are starting this program at a cautious level to ensure that we are properly 
focused on the needs of rural communities. Also, FY 1995 is the final year we plan to fund 
the essential access community hospital and rural primary care hospital (EACH/RPCH) 
grant program. Providers are now receiving equitable compensation for services through 
Medicare payments, hence, there is no longer a need for this program. 



EXECUTIVE SUMMARY - 3 



384 



Medicare Contractors 

We must ensure that our partners, the Medicare contractors, pay claims in a timely and 
accurate manner. Our highest priority for funding is claims payment However, we have 
major on-going and new efforts which will improve service provided by the contractors and 
foster efficiency and effectiveness. 

The Medicare Transaction System (MTS) will further standardize, consolidate, and 
modernize our claims processing systems. Once fully implemented, it will result in claims 
processing savings. The project is currently in the design phase and the FY 1996 request 
includes funding for several activities leading up to and supporting implementation. While 
we are working with our design contractor to develop a cost-effective system, major MTS 
related efficiencies will not occur until implementation. 

In recent years we have experienced an increase in Contractors leaving the Medicare 
program. It is likely that this trend will continue. This request provides funding to cover 
these transitions. 

Protecting the solvency of the Medicare trust funds is a basic element of our mission, and 
the Payment Safeguards Program is a crucial part of this effort. In cooperation with the 
Office of the Inspector General (OIG), we stand in the forefront of the insurance industry' 
in re-engineering current procedures to guard against fraud and abuse. As health care 
delivery systems become increasingly complex, our activities must expand. We are examining 
irmovative methods to fund and carry out these important program integrity responsibilities 
to detect fraud and abuse and to prevent erroneous payments from the Medicare Trust 
funds. 



State Certification 

Promoting improved health status of beneficiaries and ensuring the quality of the care they 
receive is a critical element of moving toward our vision. This area has been held level, in 
current dollars, having to absorb price increases since FY 1991. We must ensure that we 
do not continue to neglect this area which has a direct impact on our customers, the 
beneficiaries. Emphasis in this area will be to invest in the transformation of our process 
oriented surveys to more cost-effective evaluations that focus on performance indicators and 
outcome measures. 

A legislative proposal to provide flexibility in the frequency with which home health agencies 
are surveyed will improve the cost effectiveness and efficiency of this program without 
compromising the quality of care beneficiaries receive. 



EXECUTIVE SUMMARY - 4 



385 



Administrative Costs 

After carehil consideration of the areas where service to 70 million beneficiaries and our 
other customers needs substantial improvement, HCFA has developed an investment plan- 
HCFA On-Line. Highlights of the investment include implementation of an on-going 
customer-focused needs assessment, an interactive "800" number telephone system, improved 
data systems which will allow data to be transformed into usable information for all 
customers, research and demonstration projects on health status and consumer choice, 
expanded availability of quality-of-care data, improved beneficiary and provider outreach 
programs, and enhancement of the Federal-State partnership. Investing in HCFA On-Line 
is essential to improving the level and quality of HCFA beneficiary service, and in making 
visible progress in achieving our strategic vision. 

With employment ceiUngs constrained, use of systems technology is the best means available 
to improve significantly service to beneficiaries without substantial personnel increases. The 
FY 1996 increment will be devoted to ensuring that our policies and procedures meet our 
beneficiaries' needs. 

Responding to beneficiaries' needs is essential. We must provide the beneficiaries and their 
families information about HCFA programs. In FY 1996 we plan to update and improve 
the Medicare Handbook, which we will provide to all beneficiaries. 

HCFA has already begun streamlining efforts to increase its employee-to-supervisor ratio. 
The initial effort, which focused on reducing the number of supervisory positions, is not 
expected to produce significant savings in full-time equivalent (FTE) employment, however 
the workforce will begin the cultural change required for success in the future. Non- 
supervisory employees will be assuming non-managerial tasks currently performed by 
supervisors. HCFA utilized the early-out, buy-out, and discontinued service retirement 
options to help achieve the FTE targets for FY 1994 and FY 1995. This approach also will 
provide new employment opportunities to increase diversity and acquire more speciedized 
staff capable of handling the technical needs of the workplace of the future. 

The FY 1996 budget assumes HCFA will achieve its FY 1995 target of 4,129 FTEs. In 
FY 1996 HCFA's FTE level increases to 4,147. This is a combination of 2 initiatives: 
downsizing the HCFA's current FTE level and redistribution within HHS of regional FTEs. 
The current Agency FTE level reduces by 25 to 4,104 FTE in FY 1996. We will accomplish 
this while continuing to serve our growing beneficiary population, as well as meeting 
statutory obUgations and performing tasks required by our peirtners, including the Congress, 
contractors, the Department of Health and Human Services, and the Office of Management 
and Budget. The reassignment of the regional offices functions and FTEs from HHS to 
HCFA results in HCFA gaining 43 FTEs to perform missions previously accomplished by 
HHS in the regions. 



EXECUTIVE SUMMARY - 5 



Peer Review Organizations (PROs) 

Funding for the Peer Review Organizations (PROs), which is not appropriated, accounts for 
$722.4 million of the $762 million increase in FY 1996. Funding for the 3-year cycle, or the 
fifth round, beginning in FY 1996, is $820.6 million. This amount is $69.1 million less than 
the cxurent cycle. Obligations in FY 1996 will be $777.2 million because the majority of 
funds JU"e awarded in the first year of a cycle. The fifth round of the PRO contracts 
continues implementation of the Health Care Quality Improvement Program (HCXJIP). 
Under HCQIF, ?ROs will shift fi-om traditional review of individual inpatient care to an 
analysis of patterns of care. This approach can be more directly translated into higher 
quality health care, the original intent of the PRO program. 

We are continuing our efforts to ensure the best use of our resources. A legislative proposal 
will be submitted which will enhance quality control of the PROs through clarification of the 
Secretary's authority to non-renew contracts with specific PROs. We are examining 
alternative approaches designed to streamline the appeals process. In addition, we are 
reviewing pre-procedure approval requirements that may be inefficient and inconsistent with 
the overall direction of the PRO program under HCQIP. 



EXECUTIVE SUMMARY - 6 



387 



Summary of Significant Changes in Program Management Funding Levels' 
(Dollars in millions) 



,_, — ._^ 


FY 1995 
Appropriation 


FY 1996 
Request 


Difference | 


Claims Payment 


853.5^ 


854.1 


+0.6 


Medicare Handbook 


1.2 


20.0 


+ 18.8 


Contractor Transitions 


5.0 


28.5 


+23.5 


Sur/ey and Certification 


145.8 


162.1 


+ 16.3 


HCFA On-Line 


- 


10.0 


+ 10.0 


Medicare Transaction System (MTS) 


11.8 


20.2 


+8.4 


Payment Safeguards 


396.3' 


396.3 


- 


Rural Health Transition Grants 


17.6 


-- 


-17.6 


Administrative Simplification 


32.2 


17.5 


-14.7 


EACH/RPCH 


3.5 


. 


-3.5 



' The Administration is proposing a supplemental which will reduce the Program Management 
Account by S20.0 million. Details are discussed in the Supplemental Section of this document 

^ The current estimate for FY 199S Claims Payment is S829.6 million. 

' The cunent estimate for FY 199S Payment Safeguards is S414.6 million. 

EXECUTIVE SUMMARY - 7 



388 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 

HEALTH CARE FINANCING ADMINISTRATION 

GRANTS TO STATES FOR MEDICAID 



Budget for Fiscal Year 1996 

Appropriation language 1 

Language analysis 2 

Amounts available for obligation 4 

Summary of changes 5 

Budget authority by activity 6 

Budget authority by object 7 

Significant items 8 

Authorizing legislation 10 

Appropriations history table 11 

Justification : 

A. Summary table 13 

B. Purpose and method of operations 14 

C. Rationale for the budget estimate 15 

D. Impact of proposed legislation • 19 

E. Adjustments to State estimates 19 

F. National trends 22 

G. Changes in State estimates 28 

H. State table (FYs 1995-1996) 37 



389 



HEALTH CARE FINANCING ADMINISTRATION 

Grants to States for Medicaid 
Appropriation Language 



For carrying out, except as otherwise provided, titles XI and XDC of the Social Security Act 
[$62,640,775,000] $55,094,355,000, to remain available until expended. 

For making, after May 31, [1995] 1996, payments to States under title XIX of the Social 
Security Act for the last quarter of fiscal year [1995] 1996 for unanticipated costs, incurred 
for the current fiscal year, such sums as may be necessary. 

For making payments to States under title XIX of the Social Security Act for the first 
quarter of fiscal year [1996, $27,047,717,000] 1997, $26,155,350,000, to remain available until 
expended. 

Payment under title XIX may be made for any quarter with respect to a State plan or plan 
amendment in effect during such quarter, if submitted in or prior to such quarter and 
approved in that or any subsequent quarter. 



390 

GRANTS TO STATES FOR MEDICAID 
Language Analysis 



Language Provision 



Explanation 



For carrying out, except as otherwise 
provided, titles XI and XIX of the Social 
Security Act, $55,094,355,000, to remain 
available until expended. 



This section provides a one-year 
appropriation for Medicaid. This 
appropriation is in addition to the advance 
appropriation of $27.0 billion provided for 
the first quarter of FY 1996 under the 
FY 1995 Labor, HHS, Education and 
Related Agencies Appropriations Act 
(P.L. 103-333). Funds will be used under 
title XIX for medical assistance payments 
and State administrative costs and under 
title XI for demonstrations and waivers. 



For making, after May 31, 1996, payments 
to States under title XIX of the Social 
Security Act for the last quarter of fiscal 
year 1996 for unanticipated costs, incurred 
for the current fiscal year, such sums as 
may be necessary. 

For making payments to States under title 
XIX of the Social Security Act for the first 
quarter of fiscal year 1997, 
$26,155,350,000, to remain available until 
expended. 



Tliis section provides indefinite authority 
in the last quarter of fiscal year 1996 to 
meet unanticipated costs. 



This section provides an advanced 
appropriation for the first quarter of fiscal 
year 1997 to ensure continuity of funding 
for the Medicaid program in the event a 
regular appropriation for fiscal year 1997 
is not enacted by October 1, 1996. 



391 

GRANTS TO STATES FOR MEDICAID 

Language Analysis 



Language Provision Explanation 



Payment under title XIX may be made for This section makes clear that funds are 

any quarter with respect to a State plan or available with respect to State plans or 

plan amendment in effect during such plan amendments only for expenditures on 

quarter, if submitted in or prior to such or after the beginning of the quarter in 

quarter and approved in that or any which a plan or amendment is submitted 

subsequent quarter. to HHS for approval. 



392 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 

HEALTH CARE FINANCING ADMINISTRATION 

GRANTS TO STATES FOR MEDICAID 



Amounts Available for Obligation 







1995 






1994 


Current 


19% 




Actual 


Estimate 


Estimate 


Appropriation 


$89,077,413,000 


$89,240,775,000 


$82,142,072,000 


Indefinite appropriation 








Unobligated balance, 
start of year 


5,228,590,000 


13,032,713,000 


13,835,128,000 


Unobligated balance, 
end of year 


-13.032.713.000 


-13.835.128.000 





Total obligations 



$81,273,290,000 $88,438,360,000 $95,977,200,000 



393 



GRANTS TO STATES FOR MEDICAID 
Summary of Changes 

1995 Budget authority $89,240,775,000 

1996 Estimated budget authority 82.142.072.000 

Net Change -$ 7,098,703,000 

Explanation of Changes 



Increases: 

1. State Estimates 

Medical Assistance Payments 

2. Financial Adjustments 

3. Vaccine Purchase 



1995 Current 
Estimate Base 



$88,652,194,000 

-4,807,878,000 

376.700.000 



Change From 
Base 



$5,007,810,000 

2,667,510,000 

35.500.000 



Subtotal, increases 



$84,221,016,000 



$7,710,820,000 



Decreases: 

1. State Estimates 
State Administration 

2. Unobligated balance 

start of year 

3. Unobligated balance 

end of year 

4. Drug/Ale. Prov. (P.L. 103-296) 

5. Medicaid Initiatives 



4,558,344,000 

-13,032,713,000 

13,835,128,000 



-341.000.000 



-135,980,000 

-802,415,000 

-13,835,128,000 

-5,000,000 

-31.000.000 



Subtotal, decreases 
TOTAL 



$ 5,019,759,000 
$89,240,775,000 



-$14,809,523,000 
-$ 7,098,703,000 



394 



GRANTS TO STATES FOR MEDICAID 

Budget Authority by Activity 
(Dollars in thousands) 



Medical Assistance Payments 

State Administration 

Subtotal 

Indefinite Appropriation 

Unobligated balance 
start of year 

Unobligated balance 
end of year 

Total budget authority 

(Obligations) 





1995 




1994 


Current 


19% 


Actual 


Estimate 


Estimate 


$78,176,262 


$84,835,700 


$92,235,200 


3.097.028 


3.602.660 


3.742.000 


$81,273,290 


$88,438,360 


$95,977,200 











-5,228,590 


-13,032,713 


-13,835,128 


13.032.713 


13.835.128 
$89,240,775 





$89,077,413 


$82,142,072 


(81,273,290) 


(88,438,360) 


(95,977,200) 



395 



GRANTS TO STATES FOR MEDICAID 
Budget Authority by Object 



Grants, Subsidies 
and Contnbutions 

Total budget authority 



1995 
Current Estimate 



1996 
Estimate 



$89.240.775.000 $82.142.072.000 
$89,240,775,000 $82,142,072,000 



Increase 

or 
Decrease 



$7.098.703.000 
$7,098,703,000 



396 



SIGNIFICANT ITEMS IN HOUSE AND SENATE 
APPRPRIATIONS COMMITTEE REPORTS 



Item 



Action to be Taken 



FY 1995 Senate Report 103-318 
Medicaid 



Automation Demonstration Project 
The Committee recommends an increase 
of $3,000,000 for the Medicaid fraud 
control units to conduct a pilot 
demonstration of an information system 
designed to help investigators detect 
potential Medicaid fraud. The 

demonstration should be conducted in four 
to six States to include a diverse Medicaid 
recipient and provider population, using 
technologies that would allow rapid 
analysis of large volumes of Medicaid 
claims. The results of the demonstration 
project should be continually monitored 
and reported to the HHS inspector general 
within the first 2 years of the system's 
operation. That report should include an 
analysis of the system's performance and 
its costs and benefits. 

VFC Fee Schedule 

The Secretary has also established a fee 
schedule, based on customary charges, for 
private physicians who administer VFC- 
purchased vaccine. The General 

Accounting Office has found that this 
schedule is not in accordance with OBRA 
'93, which requires that fees be based on 
actual costs, rather than prevailing 
charges. The Committee shares GAO's 
concern that the Secretary's fee schedule 
represents an incentive to physicians at the 
expense of children who are uninsured. 



The Office of Inspector General is 
working with the National Association of 
Medicaid Fraud Control Units 
(NAMFCU) to develop a health care 
antifraud pilot project. The NAMFCU is 
currently canvassing its members to 
determine if 4-6 State fraud control units 
are financially able to implement the 
demonstration project. The expenditure 
of part or all of the $3.0 million is 
contingent upon the State Units obtaining 
matching appropriated grant funds from 
their State legislatures. The matching 
grant funds are required to supplement 
the Federal funds due to the nature of the 
grant. 



HCFA has initiated a contract to gather 
the cost data necessary for the 
establishment of fee caps on the basis of 
costs. The contract is currently in the 
stage of methodology development, but it 
is expected that the contractor's approach 
will include on-site visits to compute the 
costs. After the contract is completed and 
their data has been reviewed, we will 
publish a Federal Register notice to 
update the caps on the maximum fees 
participating VFC providers can charge. 



397 



SIGNinCANT ITEMS IN HOUSE AND SENATE 
APPRPWATIONS COMMITTEE REPORTS 



Item Action to be Taken 



Accordingly, the Committee directs the 
Secretary to compute the actual cost of 
administering vaccines and to revise the 
fee schedule prior to October 1, 1994, and 
in accordance with the requirements of 
OBRA '93. 



398 



GRANTS TO STATES FOR MEDICAID 
Authorizing Lerislation 



1995 1995 1996 1996 

Amount Current Amount Budget 

Authorized Estimate Authorized Estimate 



Grants to States 

for Medicaid 

(Social Security 

Act, title XDC, 

Section 1901) Indefinite $89.240.775.000 Indefinite $82.142.072.000 

Total budget 
authority $89,240,775,000 $82,142,072,000 



10 



399 



GRANTS TO STATES FOR MEDICAID 
A ppropriations History Table 





Budget 










Estimate 


House 


Senate 




Year 


to Congress 


Allowance 


Allowance 


Appropriation 


1978 


$11,765,000,000 


$11,413,400,000 


$10,699,000,000 


$10,699,000,000 


1979 


12,138,589,000 


12,050,589,000 


11,785,589,000 


11,758,589,000 


1980 


14,865,629,000 


14,735,139,000 


14,705,139,000 


14,705,139,000 


1981 


15,877,052,000 


15,877,052,000 


... 


17,071,043,000' 


1982 


18,918,365,000 


17,539,843,000 


... 


17,539,843,000' 


1983 


17,006,162,000 


17,895,162,000 


... 


19,361,845,000' 


1984 


20,737,578,000 


20,737,578,000 


20,673,708,000 


20,673,708,000 


1985 


21,213,000,000 


21,213,000,000 


21,845,491,000 


21,845,491,000 


1986 


23,690,469,000 


23,690,469,000 


24,295,492,000 


24,643,904,352^ 


1987 


24,708,122,000 


25,880,359,000 


26,270,000,000 


27,612,359,812' 


1988 


28,120,000,000 


30,046,000,000 


30,046,000,000 


30,768,496,80r 


1989 


32,732,589,000 


32,739,589,000 


34,236,000,000 


34,857,674,120^ 


1990 


37,398,197,000 


38,616,497,000 


39,136,654,000 


40,690,085,460* 


1991 


44,901,509,000 


45,014,966,000 


47,281,301,000 


53,393,353,752' 


1992 


59,807,649,000 


59,899,149,000 


59,899,149,000 


69,765,840,968' 


1993 


84,401,234,000 


84,411,234,000 


82,605,650,000 


82,595,650,000 


1994 


89,060,413,000 


89,077,413,000 


89,077,413,000 


89,077,413,000 


1995 


89,237,775,000 


89,237,775,000 


89,240,775,000 


89,240,775,000 


1996 


82,142,072,000 









' The Senate did not pass an appropriation for this account. The figure in the appropriation column 
represents the continuing resolution level. 

^ Includes $754.9 million under the indefinite authority. 

' Includes S1342.9 million under the indefinite authority. 

* Includes S722.S million under the indefinite authority. 

' Includes $621.7 million under the indefinite authority. 

Includes $1,553.4 million under the indefinite authority. 

' Includes $6,027.0 million under the indefinite authority. 

' Includes $9,866.7 million under the indefinite authority. 

11 



400 





jusnncATioN 

GRANTS TO STATES FOR MFDICAID 

Authorizing Legislation 
(Dollars in thousands) 




Medicaid 
Activitv 


FY 1995 
Current 
Estimate 


FY 19% 
Estimate 


Increase/ 
Decrease 


Medical Assistance 
payments 


$85,638,115 


$78,400,072 


-$7,238,043 


Administration 


3,602.660 


3.742.000 


+ 139.340 


Appropriation/ 
budget authority 


$89,240,775 


$82,142,072 


-$7,098,703 



13 



401 



Purpose and Method of Operations 

Title XIX of the Social Security Act was enacted to assist States in providing medical care 
to low-income populations. Grants for medical assistance are made to States and 
jurisdictions having Medicaid plans approved by the Department of Health and Human 
Services. Including the Arizona Waiver, there is a Medicaid program in each of the 
50 States, the District of Columbia, Puerto Rico and the Territories. In FY 1996, the 
Medicaid program, which is the largest single funding source of health care coverage for the 
poor in the United States, will finance health care services for nearly 37.6 million low-income 
recipients. In general, eligibility for the Medicaid program is automatically linked to 
eligibility for the Aid to Families with Dependent Children (AFDC) and Supplemental 
Security Income (SSI) cash assistance programs. All AFDC and most SSI beneficiaries must 
be covered under the State Medicaid program. At their option, States may also cover the 
medically needy. Medically needy recipients are not eligible for SSI or AFDC because they 
do not meet the income or resource standards, but incur large medical expenses. Medicaid 
also covers a number of low-income groups including qualified Medicare beneficiaries, 
pregnant women, infants, and children who meet certain eligibility criteria. 

Title XIX requires States to provide a minimum benefit package including hospital inpatient 
and outpatient services, health screening services to children under 21, physician services, 
and nursing home care for individuals aged 21 or older. States may also elect to cover 
additional items such as drugs, dental care, and services in intermediate care facilities. 
States have considerable flexibility in structuring their programs within broad guidelines 
established by the Federal Government. Therefore, Medicaid programs can differ greatly 
from State to State. 

The Medicaid program is administered by States and financed through joint Federal and 
State funding. Under current law. Federal funds are made available for medical benefit 
costs on the basis of a formula which determines the percentage of total program costs to 
be matched by Federal dollars. Under section 1905(b) of the Social Security Act, the match 
rates for vendor payments may range from 50 to 83 percent, depending upon each State or 
jurisdiction's relative per capita income. In FY 1996 the highest match rate for vendor 
payments is 78.07 percent (Mississippi). 

Enhanced Federal reimbursement is available for certain benefits and certain administrative 
activities. A 90 percent Federal match is available for family planning services; 100 percent 
for Indian health services. The Federal share of administrative costs is generally 50 percent, 
though higher rates are applicable for specific items. For example, a 90 percent Federal 
match is available for development of automated claims systems; a 75 percent match for 
Peer Review Organization (PRO) activities; and a 100 percent for immigration status 
verification systems. 



14 



402 



Medicaid operates as a vendor payment program under which payments are made directly 
to the health care provider for services rendered to an eligible individual. Providers must 
accept the State's Medicaid payment as full recompense. By law, Medicaid is the payor of 
last resort. If any other party (including Medicare) is legally liable for services provided to 
a Medicaid recipient, that party must Hrst meet its Onancial obligation before Medicaid 
payment is made. 

Funding levels and outlays for the past five fiscal years are provided below: 

A ppropriation Actual Outlays 



1991 $53,393,353,752 $52,532,714,000 

1992 69,765,840,968 67,827,253,000 

1993 82,595,650,000 75,774,060,000 

1994 89,077,413,000 82,033,658,000 

1995 89,240,775,000 (Est.) 88,438,360,000 

Rationale For Budget Estimate 

Federal Medicaid obligations in FY 1996 are estimated to be $%.0 billion. This amount 
represents an increase of $7.5 billion over the FY 1995 estimated obligations. This estimate 
is based upon spending estimates submitted by the States during the November 1994 
reporting cycle adjusted to project more accurately the Federal share of program 
expenditures under current law. These adjustments are displayed and discussed on the 
following pages. 

The FY 1996 appropriation request of $82.1 billion reflects the amount of new budget 
authority required. The appropriation request is the result of the estimated rY 1996 
obligations reduced by the unobligated balance brought forward at the end of FY 1995. The 
FY 1995 unobligated balance is estimated to be $13.8 billion. 

The estimated FY 1996 Federal share of $96.0 billion represents 56.8 percent of the total 
$169.0 billion which is projected for Federal, State and local expenditures under the 
Medicaid program. 



IS 



403 



State Estimates For Medical Assistance Payments CMAP^ And State/Local 
Administration TADMI 

Estimates of the Federal share of Medicaid costs are based on the November 1994 States 
estimates adjusted for the impact of initiatives, legislation, and recent expenditure and 
outlay experience. The States estimated the FY 1996 Federal share of MAP and ADM 
costs at nearly $97.9 billion which is $4.9 billion higher than the FY 1995 Federal share of 
$93.0 billion projected by the States. The increase of $4.9 billion represents a growth rate 
of 5.2 percent over FY 1995. 

Medicaid State Survey And Certification 

The current FY 1996 Federal Financial Participation estimate for Medicaid State 
Certification is $154.0 million. This increase of $7.4 million above the current FY 1995 
estimate of $146.6 million reflects a 5-percent growth rate. 

In FY 1996, there will be 8,100 Intermediate Care Facilities for the Mentally Retarded 
(ICF/MRs) surveyed, an increase of 400 ICF/MRs over FY 1995. In addition, there will be 
12,600 Nursing Facilities (NFs) that participate as dually-participating Medicare/Medicaid 
NFs surveyed in FY 1996, an increase of 600 over FY 1995. The cost of surveying NFs is 
shared equally between the Medicare and Medicaid programs. Approximately 3,400 
Medicaid-only NFs will be surveyed in FY 1996. 

State Medicaid Fraud Control Units 

This appropriation provides funds for establishing and operating Medicaid fraud control 
units which identify, investigate, and prosecute cases of fraud, abuse or patient neglect. 
These units also make recommendations to the State Medicaid agencies on corrective 
actions. Section 13625 of the Omnibus Budget Reconciliation Act of 1993 requires that all 
States have Medicaid fraud control units. In FY 1995 and FY 1996, 51 fraud control units 
are expected to be in operation at a projected cost of $76.0 and $79.0 million, respectively. 
For FY 1995 Congress approved an additional $3.0 million specifically targeted to States for 
pilot demonstrations of an information system designed to help investigators detect potential 
Medicaid fraud. 



16 



404 



STATEWIDE DEMONSTRATION WAIVERS 

Recently, a growing number of States have requested to use the authority available under 
Section 11 IS of the Social Security Act to launch statewide Medicaid demonstration 
programs around the country. Although HCFA's Office of Research and Demonstrations 
(ORD) has operated research and demonstration projects involving Medicaid recipients for 
many years, the proliferation of statewide demonstrations is relatively new. This interest is 
due in part to the publication last year of the Department of Health and Human Services' 
(DHHS) policy guidelines on Section 1115 demonstrations and to the discussions that took 
place on the need for national health reform. The increased number of requests for 
demonstration waivers was also due to the States' interest in finding flexible approaches to 
solving their own State health care problems. 

As of January 1993, the country's only major Medicaid reform demonstration was the 
Arizona Health Care Cost Containment Program (AHCCCS), the only statewide Medicaid 
program run entirely on a managed care basis. In contrast, as of February 1, 1995, 
seven additional States (Oregon, Tennessee, Hawaii, Kentucky, Rhode Island, Florida, and 
Ohio) have had projects approved based on major managed care expansions. Of the seven, 
four are currently operational, with Kentucky, Florida, and Ohio on hold pending the 
passage of implementing State legislation. Nine other States (South Carolina, Massachusetts, 
Missouri, Minnesota, New Hampshire, Delaware, Illinois, Louisiana, and Oklahoma) have 
major reform proposals under consideration at HCFA, while another eight have discussed 
reform plans with us in the concept stage. 

Although the State waiver proposals differ widely from one another in detail, many employ 
a common overall approach. This is to expand the use of cost-effective managed care 
delivery systems for the Medicaid population and to use the resulting cost savings to provide 
health care coverage for the uninsured. Many of the Section 1115 demonstrations propose 
to expand coverage to uninsured families with incomes as high as 200 or even 300 percent 
of the Federal Poverty Level (FPL). For the most part, they envision cost-sharing 
responsibilities for people at the higher end of a sliding income scale. Through the use of 
managed care techniques, most also hope to provide improved access to primary care for 
low-income beneficiaries, along with increased exposure to preventive care measures and 
health education. 



17 



405 

MEDICAID REQUIREMENTS 
(Dollars in thousands) 

1995 1996 

November *94 State Estimates 

(MAP & ADM) $92,984,938 $97,849,538 

State Certification 146,600 154,000 

Fraud Control Units 79.000 79.000 

Total, unadjusted estimates $93,210,538 $98,082,538 

Adjustments 

Financial adjustments -4,807,878 -2,140,538 

Medicaid Initiative: 

Medicaid Financial Mgt. Reviews -341,000 -372,000 

Vaccine purchase 376,700 412,200 

Substance Abusers Provisions 

SSA Reform Act of 1994 (P.L. 103-296) -5.000 

Subtotal, adjustments -$4,772,178 -$2,105,338 

Current law requirement $88,438,360 $95,977,200 

Unobligated Balances, 

Start of year -13,032,713 -13,835,128 

End of year 13.835.128 

Appropriation/budget authority $89,240,775 $82,142,072 



18 



406 



Impact of Proposed Legislation 
(Dollars in thousands) 

FY 1996 Current Law Estimate $95,977,200 

Proposed Law for Later Transmittal 

Reduce Excise Tax, Vaccine for Children Program -46,800 

FY 1996 Estimate, Including Legislative Proposals $95,930,400 

The savings to the Medicaid program in FY 19% are the result of the Administration's 
proposal to reduce the tax revenue to the Vaccine Injury Trust Fund by 50 percent. 
Reducing the vaccine excise tax results in lowering vaccine costs for public and private 
purchasers, which also lowers program costs in mandatory vaccine purchases for the Vaccine 
for Children program. 

Adjustments to State Estimates 

Various adjustments have been made to the November 1994 State estimates in order to 
arrive at an accurate estimate of Medicaid expenditures. 

1. Financial Adjustments 

The estimates and growth assumptions contained in the November 1994 State 
submitted estimates for FY 1995 and FY 19% are not consistent with and are not 
supported by the actual FY 1994 outlays and recent quarterly Medicaid expenditure 
reports. For example, the November 1992 State submitted estimate for FY 1994 
Medical Assistance Payments (MAP) was $85.8 billion. This estimate was $7.6 billion 
higher than the $78.2 billion obligated during FY 1994. 



19 



407 



The November 1994 State estimates represent the first time States have submitted 
estimates for FY 1996. Typically State estimation error is most likely to occur early 
in the budget cycle because some States are occupied with their current year budget 
and have not focused on their projections for the Federal budget year. The following 
table displays the States who, in their November 1992 estimates, overestimated 
FY 1994 Medicaid benefit expenditures the most: 



STATE 


OVERESTIMATE 
(DOLLARS) 


OVERESTIMATE 

(PERCENT) ' 


New York 


$1.5 billion 


13.8% 


Louisiana 


.9 billion 


28.9% 


Florida 


.8 billion 


27.9% 


Tennessee 


.7 billion 


39.4% 


New Jersey 


.5 billion 


20.2% 


Indiana 


.5 billion 


29.8% 



HCFA's Office of the Actuary developed the MAP estimate for FY 1995. The 
FY 1995 MAP state submitted estimate of $88.7 billion was reduced by $3.9 billion to 
$84.8 billion to reflect recent State overestimation due to a combination of several 
factors. The primary reasons are lower actual expenditure and outlay growth as 
measured by the most recent HCFA-64 quarterly expenditure reports, and monthly 
Department of Treasury outlays that no longer support earlier estimates. Additional 
factors for the adjustment include the legislative limits imposed on disproportionate 
share hospital expenditures, the continued effects of Umitations on provider taxes and 
donations, and lower medical price inflation which may have contributed to slowing 
recipient growth. 

HCFA's Office of the Actuary also developed the MAP estimates for FY 1996. Using 
the first three quarters of FY 1994 State-reported expenditures as a base, the 
actuaries projected expenditures for FY 1995 and FY 1996 by applying factors to 
account for assumed growth in Medicaid caseloads, utilization of services, and 
reimbursement rates. These growth rates were derived mainly from economic 
assumptions promulgated by the Office of Management and Budget and demographic 
assumptions developed by the Administration for Children and Families for the Aid 
to Families with Dependent Children (AFDC) program and the Social Security 
Administration for the Supplemental Security Income (SSI) program. 

Administration costs (excluding State survey and certification and fraud control units) 
were reduced $956.0 million for FY 1995 and $680.0 million for FY 19% primarily to 
adjust for unallowable claims included in the State estimates. 



20 



408 



The foUowing adjustments have been made to the State estimates for FY 19%: 
($ in thousands) 



FY 1996 



MAP 



-$1,460,164 



ADM 



-$680,374 



TOTAL 



-$2,140,538 



3 



2. Medicaid Initiative - Medicaid Financial Management Reviews 

Medicaid financial management reviews conducted by HCFA regional staff, 
augmented by reviews performed under contract, are expected to produce savings of 
$341.0 million in FY 1995, and $372.0 million in FY 1996. 

3. Vaccine Purchase - Pediatric Immunizations 

Under the provisions of Section 13631 of the Omnibus Budget Reconciliation Act of 
1993 (P.L. 103-112), Medicaid eligible children, uninsured children, underinsured 
children served by Federally-qualified health centers and rural health clinics, and 
Indian children are entitled to free vaccines purchased for them by the Secretary. The 
Secretary will negotiate discounted vaccine prices with the manufacturers. States will 
be permitted to purchase, at their own expense, additional vaccines at the discount 
price for children not covered by the Federal program. This program was effective 
October 1, 1994, and is administered by the Centers for Disease Control and 
Prevention (CDC). 

Savings in Medicaid program costs for vaccine expenditures are included in the State 
estimates and Medicaid baseline. New Federal program costs are estimated to be 
$376.7 million for FY 1995 and $412.2 million for FY 1996. 

4. Provisions Relating to Restricted Benefits for Substance Abusers. 
Social Security Administrative Reform Act of 1994 fP.L. 103-296;) 

Section 201 of P.L. 103-296 places restrictions on disability income (DI) and SSI 
benefit payments to individuals disabled by drug addiction and alcoholism, and 
suspends cash benefits for substance abusers who fail to comply with treatment 
requirements. Medicaid benefits will be terminated if the abuser has been in non- 
compliance for 12 consecutive months. Estimated Medicaid savings of $5.0 million are 
expected for FY 19%. 



21 



409 



NATIONAL TRENDS 
HCFA ACTUARIAL ESTIMATES 



Expenditures for medical assistance payments in all service categories are expected to 
increase by $7.4 billion (8.7 percent) from FY 1995 to FY 1996. The greatest increase, 
$2.4 billion (32.5 percent of total growth), is for hospital payments. The following table 
shows the distribution of the program dollar growth, grouped by major service categories. 

MEDICAL ASSISTANCE PAYMENTS 

MAJOR SERVICE GROWTH 

FY 1995 - FY 1996 

(Dollars in millions) 



Major Service Category 

Hospital' 

Health Insurance Payments^ 

Long-Term Care' 

Other Acute Care^ 

Institutional Alternatives' 

Remaining Services' 

Physician/Practitioner/Dental 

TOTAL 







Percent 


Dollar 


Percent 


of Total 


Growth 


Growth 


Growth 


$2,399 


7.8 


32.5 


1,528 


19.8 


20.7 


1,202 


5.4 


16.2 


708 


9.1 


9.6 


653 


12.2 


8.8 


456 


11.1 


6.2 


441 


7.1 


6.0 



$7,385 



8.7 



100.0 



' Inpatient and Outpatient Hospitals, Menial Health Facilities, and Disproportionate Share Hospital 
Payments 

^ Medicare Premiums, Coinsurance and Deductibles, Group Health and Other Premiums 

' Nursing Facilities, ICFs/MR 

* Prescription Drugs and Rebates, Lab/X-Ray, Clinics, Rural Health Clinics, Federally Qualified 
Health Clinics, Early and Periodic Screening and Diagnostic Treatment (EPSDT) 

' Personal Care, Home Health, Home and Community-Based Waivers, Home & Community Based 
Care for the Frail Elderly, Community-Supported Living Arrangement Services 

* Targeted Case Management, Abortions, Sterilizations, Hospice, All Other Services, Collections & 
Adjustments 

22 



410 



The projected FY 1995 to FY 19% growth rates for major service categories range from an 
increase of S.4 percent for long-term care to an increase of 19.8 percent for health insurance 
payments. Figure 1 displays the projected growth rates from FY 1995 to FY 1996 for the 
largest service categories. 



GROWTH RATES FOR MEDICAID SERVICES 

FY 1995 - FY 1996 

Figure 1 



HEALTH INS. PAYMENTS 



INST ALTERNATIVES 



REMAINING SERVICES 



OTHER ACUTE CARE 



HOSPITAL 



PHYSAPRACTADENT 



LONG-TERM CARE 




25* 



23 



411 



Figure 2 displays the distribution of projected Medicaid services for FY 19% as reflected in 
the FY 1996 President's Budget estimates. 



DISTRIBUTION OF MEDICAL ASSISTANCE PAYMENTS BY SERVICE CATEGORY 

HCFA ACTUARIAL ESTIMATES FOR FY 1996 

Figure 2 



HLTH INSURANCE 10 0% 



LONG-TERM CARE 25 . 35K 



ACUTE CARE 9 2% 



INST, ALTERNATIVES 6 




HOSPITAL 36 85K 



PHYSICIAN, ETC 7 2% 

REMAINING SERVICES 5 05K 



The table on the following page displays estimated medical assistance payments for 34 
individual service categories for FY 1995 and FY 19%. Projected rates of growth for 
individual service categories range from zero growth for community supported living 
arrangements to an increase of 25 percent for insurance payments-other and rural health 
clinics. 



24 



412 

MEDICAL ASSISTANCE PAYMENTS 

BY TYPE OF SERVICE CATEGORY 

HCFA ACTUARIAL ESTIMATES 

(Dollars in millions) 



FY 1995 



FY 1996 



Nursing Facility 

Inpatient Hosp - Reg Pmnts 

Inpatient DSH Adj Payment 

Prescribed Drugs 

Physician 

Ins. Payments - Other 

Outpatient Hospital 

ICF/MR Public 

All Other 

Home and Commun. Waivers 

Mental Health DSH Adj. 

ICF/MR Private 

Clinic 

Personnel Care 

Mental Health Pmnts 

Ins Pmts - Pt B Prms 

Ins Pmnts - Group Health 

Home Health 

Dental 

Other Practitioners 

Targeted Case Management 

Ins Pmnts - Pt A Prms ' 

EPSDT Screening Services 

Lab &. Radiological 

Ins Pmnts - Coins. & Deduct. 

Federal Qualified Health Ctr 

Rural Health Clinics 

Sterilizations 

Hospice 

H&C Care Disabled Elderly 

Community Supported Living 

Abortions 

Drug Rebate Offset 

Subtotal 

Collections/Adjustments 
Total 



Amount 


% 


Amount 


% 


$16,586 


19.6 


$17,528 


19.9 


15,744 


18.6 


16,966 


18.5 


8,261 


9.8 


8,871 


9.7 


5,966 


6.7 


6,091 


6.6 


4,686 


5.5 


4,983 


5.4 


4,109 


4.9 


5,137 


5.6 


3,968 


4.7 


4,284 


4.7 


3,502 


4.1 


3,668 


4.0 


3,027 


3.6 


3,341 


3.6 


2,488 


2.9 


2,846 


3.1 


2,103 


2.5 


2,242 


2.4 


1,978 


2.3 


2,070 


2.3 


1,809 


2.1 


2,000 


2.2 


1,785 


2.1 


1,975 


2.1 


1,487 


1.8 


1,598 


1.7 


1,353 


1.6 


1,412 


1.5 


1,349 


1.6 


1,679 


1.8 


990 


1.2 


1,090 


1.2 


927 


1.1 


1,000 


LI 


594 


0.7 


665 


0.7 


556 


0.7 


666 


0.7 


515 


0.6 


615 


0.7 


474 


0.6 


544 


0.6 


471 


0.6 


518 


0.6 


374 


0.4 


386 


0.4 


257 


0.3 


288 


0.3 


163 


0.2 


203 


0.2 


151 


0.2 


155 


0.2 


135 


0.2 


163 


0.2 


58 


0.1 


62 


0.1 


25 


0.0 


25 


0.0 





0.0 





0.0 


-1,068 


-1.3 


-1,143 


-1.2 


$84,543 


100.0% 


$91,928 


100.0% 


-256 




-256 





$84,799 



$92,184 



25 



413 



RECIPIENT DATA 

The following table reflects the estimated annual unduplicated number of recipients (by basis 
of eligibility) receiving Federal medical assistance under the Medicaid program. The data 
are based upon the 57 jurisdictions participating in the program. HCFA makes projections 
based upon prior budget data or information from the form HCFA-2082, Statistical Report 
on Medical Care. 

The AFDC Adults and AFDC Children eligibility categories include certain low-income 
groups as well as AFDC and AFDC-related recipients. 

Number of Recipients 
(In thousands) 





FY 1995 


FY 1996 


% chance 


Aged 65 and Over 


4,214 


4,373 


3.8 


Blind and Disabled 


6,138 


6,474 


5.5 


AFDC Adults 


7,893 


8,211 


4.0 


AFDC Children 


17,178 


17,879 


4.1 


Other Title XK 


642 


642 


OO 


Unduplicated Total 


36,065 


37,579 


4.2 



Figure 3 displays the growth rates for the eligibility categories for FY 1995 and FY 1996. 



MEDICAID RECIPIENT GROWTH RATES, FY 1995 - FY 1996 
Figure 3 



AGED 65 t. OVER 



BLIND e< DISABLED 



NEEDY ADULTS 



NEEDY CHILDREN 



OTHER TITLE XIX 




oos 2 OK 4cm em 



e OK 10 OK 12 OK 



26 



414 



Needy adults and children are expected to comprise approximately 69 percent of the 
projected FY 1996 Medicaid population. Historically, although this group comprises over 
half of the Medicaid population, they have accounted for less than 30 percent of program 
spending. In FY 1995, needy adults and children represented 70 percent of the Medicaid 
population, accounting for only 26 percent of the Medicaid outlays. In contrast, the elderly 
and disabled population made up over a quarter of the Medicaid population, yet accounted 
for approximately 60 percent of the program spending in FY 1995. Figure 4 illustrates the 
distribution of the Medicaid population by eligibility category. 



MEDICAID RECIPIENTS BY ELIGIBILITY CATEGORY, FY 1996 
Figure 4 



BLIND/ DISABLED 1796 



AGED 65 & OVER 12* 

OTHER TITLE XIX 2% 



NEEDY ADULTS 21X 




NEEDY CHILDREN 



27 



415 



EXPLANATION OF CHANGES IN STATE ESTIMATES 







FY 1995 - FY 1996 










(Dollars in thousands) 








FY 


FY 


Dollar 


Percent 




1995 


1996 


Growth 
$1,624,200 


Growth 


New York 


$13,144,633 


$14,768,833 


12.4 


Texas 


6,127,688 


6,648,343 


520,655 


8.5 


Florida 


3,697,015 


4,117,899 


420,884 


11.4 


Ohio 


3,865,120 


4,261,438 


396,318 


10.3 


North Carolina 


2,445,832 


2,772,985 


327,153 


13.4 


Michigan 


3,159,681 


3,401,975 


242,294 


7.7 


Louisiana 


3,041,488 


3,270,652 


229,164 


7.5 


New Jersey 


2,572,191 


2,746,128 


173,937 


6.8 


Georgia 


2,301,771 


2,473,153 


171,382 


7.5 


Massachusetts 


2,388,623 


2,535,391 


146,768 


6.1 


Illinois 


3.134.551 


3.275.735 


141.184 


45 


Subtotal 


$45,878,593 


$50,272,532 


$4,393,939 


9.6 


All Other 


47.106.345 


47.577.006 


470.661 


1.0 


Totals 


$92,984,938 


$97,849,538 


$4,864,600 


5.2 



Anticipated increases in 11 States account for over 90 percent of the $4.9 billion growth in 
State estimates of Federal Medicaid expenditures between FY 1995 and F"V 1996. 
Explanations of changes for individual States ere provided on the following pages. 



28 



416 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



NEW YORK TOTAL: 

MAP; 
ADM 



+$1.6 Billion, -1-12% 

+$1.6 Billion, +13% 

-$3.6 Million, % 



liar Growth 


Percent 


fin millions') 


Growth 


602 


38 


324 


20 


210 


13 


112 


7 


106 


7 



Approximately 85 percent of New York's estimated Medicaid growth in FY 19% can be 
explained by growth in the following services. 



Inpatient/Outpatient Hospitals 

Nursing Facilities 

Managed Care 

Home & Community Waivers 

Personal Care 

Total $1,354 

Reimbursement increases contribute to approximately 56 percent of New York's projected 
FY 1995 to FY 1996 growth. The number of eligibles is expected to rise 4-percent. New 
York expects payment rate increases of 10 percent for outpatient hospitals and managed 
care plans, 8 percent for inpatient hospitals, 6 percent for nursing facilities and only 2 and 
4 percent for personal care and Home and Community-Based Waivers (HCBWs). 
Utilization increases of 4 and 5 percent are projected for outpatient hospitals and HCBWs, 
but no significant changes in utilization are forecast for inpatient hospitJils, nursing facilities 
or personal care. 

The significant expansion of Managed Care Plans (MCPs) throughout the State explains 
most of the 58-percent growth in this category. The expansion results from a 1991 State law 
requiring 50 percent of the non-exempt Medicaid population to participate in managed care 
within seven years. Enrollment in MCPs will reach 712,000 eligibles in 19%, an increase 
over FY 1995 of 47 percent. 



29 



417 



EXPLANATION OF CEIANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



TEXAS TOTAL: 

MAP 
ADM 



+$520 Million, +9% 
+$513 Million, +9% 
+$ 7 Million, +3% 



Services under contract with Texas' insuring agent. National Heritage Insurance Company 
(NHIC), are expected to increase 13 percent. Recently negotiated premium amounts 
include inpatient and outpatient hospitals, physicians, other practitioners, lab, x-ray, and 
home health services. A decline in the Federal matching rate will reduce expenditures by 
$104.0 million. 

Additional purchased health services for rehabilitation. Early Periodic Screening Diagnostic 
Testing (EPSDT), and undocumented aliens covered under the NHIC contract accounted 
for 15 percent of the growth. Prescription drugs and reimbursement rates for nursing 
facilities are expected to grow by 5 percent. However, utilization growth in prescription 
drugs is forecast at 10-percent while only a 2-percent utilization growth is expected in 
nursing facilities. 



FLORIDA TOTAL 

MAP 
ADM; 



+$421 Million, +11% 
+$403 Million, +11% 
+$ 18 Million, +20% 



The State's Medicaid growth rate of 11 percent for FY 1996 is driven mainly by a 5 percent 
general rate increase. The overall eligibility rolls are estimated to rise an additional 
2 percent from FY 1995 along with a 3-percent increase in utilization. However, these 
increases do not reflect the statewide impact of the Section 1115 Waiver which has been 
submitted to the State Legislature. 

Approximately 77 percent of Florida's MAP growth between FY 1995 and FY 1996 is 
explained by increases in health insurance-group health plans, nursing facilities, and 
prescription drugs. 

Florida projects that 35 percent of MAP growth will be in health insurance-group health 
plans as a result of a 13-percent increase in reimbursement rates and a 21-percent increase 
in eligibles. Rate increases of 13 percent account for 75 percent of the growth in nursing 
facilities while a 4-percent increase in eligibles account for the remaining 25 percent. The 
expected growth in prescription drugs is caused by a 13-percent increase in reimbursement 
rates and a 3-percent increase in utilization. 



30 



418 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



OfflO TOTAL: 

MAP; 
ADM 



+$396 MiUlon, +10% 

+$393 Million, +10% 

+$ 3 Million, + 3% 





Dollar Growth 




rin millions'J 


Group Health Plans 
Nursing Facilities 
Clinics 


89 
73 
49 


DSH Payments 
Prescription Drugs 
Home & Community 


41 

36 

Waivers 31 



The State is projecting a Medicaid growth rate of 10 percent for FY 1996. Approximately 
80 percent of Ohio's total program growth between FY 1995 and FY 1996 is explained by 
increases in the following services. 

Percent 
Growth 

23 
18 
12 
10 
9 
8 

Total $319 

Ohio projects that the reimbursement rate for group health plans will grow in excess of 
6 percent. Nursing facility eligibility increases reflect recent growth patterns and a projection 
of an additional 3,300 beds. Prescribed drug costs are expected to grow by 10 percent per 
claim as a result of the dispensing fee being increased by $.27 per claim. The largest part 
of the increase in Home and Community-Based Waiver services is in the Passport waiver 
program administered by the Department of Aging. The number of eligibles for the waiver 
are projected to increase from 16,501 in FY 1995 to 17,968 in FY 19%. Overall, the State 
projects that eligibles will increase just over 3 percent, with higher rates of increase within 
the aged, blind, and disabled Medicaid populations. 

Ohio has recently had approved a Section 1115 Research and Demonstration Waiver called 
OhioCare. Under OhioCare, the State plans to expand Medicaid eligibility to include the 
uninsured population with incomes up to 100 percent of the Federal poverty level. Clients 
are to be enrolled in managed care capitated-fee delivery systems. Home and community- 
based waiver and long-term care clients will remain under a fee-for-service system and the 
State plans to phase in the aged, blind, and disabled clients into managed care within a few 
years after implementation. The project's first phase is projected to be implemented on 
January 1, 19%. The implementation will depend on passage of State legislation approving 
OhioCare. 



31 



419 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



NORTH CAROLINA 



TOTAL! 
MAP: 
ADM 



+$327 Million, +13% 
+$320 MilUon, +13% 
+$ 6 Million, +10% 



Approximately 79 percent of North Carolina's MAP growth between FY 1995 and FY 1996 
is explained t^ the following services. 



Dollar 


Growth 


Percent 


0n 


millions') 


Growth 


Inpatient Hospital 


63 


20 


Prescription Drugs 


45 


14 


DSH Payments 


39 


12 


Nursing Facilities 


37 


12 


Outpatient Hospital 


27 


8 


Physician Services 


21 


7 


Home & Community Waivers 


19 


6 



Total 



$251 



Overall, the State forecasts reimbursement rates and eligibles to increase by 7 and 6 percent 
respectively. Projected growth in eligibles is due to the change in North Carolina's eligibility 
status which expands the coverage to aged, blind and disabled recipients. No growth in 
utilization is forecast between FY 1995 and FY 1996. 

For the services listed above, projected reimbursement rate increases range from a low of 
6 jjercent for nursing facilities to 12 percent for outpatient hospitals. The growth in 
eligibles is expected to be 2 percent for nursing facilities; 6 percent each for inpatient 
hospitals, outpatient hospitals and physicians' services; 1 1 percent for prescription drugs; and 
19 percent for Home and Community-Based Waiver services. 



32 



420 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



MICfflGAN TOTAL: +$242 Million, +8% 

MAP: +$237 Million, +8% 

ADM: +$ 5 Million, +4% 

Approximately 91 percent of Michigan's estimated MAP growth in FY 1996 can be 
explained by increases in the following categories. 

Percent 
Growth 

24 
21 
13 
12 
11 
10 

Total $215 

The State is projecting a 6-percent utilization growth rate and an inflation rate adjustment 
of almost 5 percent over FY 1995 in nursing facility payments. Inpatient hospital regular 
payments are expected to increase as a result of full implementation of the State's Healthy 
Kids Initiative (HKI). This initiative provides full coverage of children up to age 16 living 
at or below 150 percent of poverty. Inpatient hospitali2^tion is expected to cost 
approximately 20 percent of the HKI program expense. 

Clinic services are expected to rise 9 percent, due to a 7-percent increetse in eligibles and a 
2-percent increase in utilization from service expansions. Home and community-based 
waiver services are also expected to show a 50-percent utilization increase as a result of a 
revised mental health child waiver. 

Other health insurance payment increa^^es result from Health Maintenance Organization 
(HMO) utilization growth in managed care expansion including more months of coverage 
and additional participating HMOs. Most of the prescribed drug increase reflects drug 
product inflation of 12 percent. Eligibles are also expected to increase slightly as a result 
of HKI. 



Dollar Growth 


(in 


millions) 


Nursing Facilities 

Inpatient Hospital - Regular 

Clinic Services 


56 
50 
31 


Home & Community Waivers 
Health Insurance Payments 
Prescription Drugs 


28 
26 
24 



33 



421 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



LOUISIANA TOTAL; 

MAP: 
ADM 



•t-$229 Million, •<-8% 
+$221 Million, +7% 
+$8 Million, -<-17% 



Louisiana estimated FY 1996 growth at 22 percent, excluding changes in Disproportionate 
Share Hospital (DSH) Payments. With the exception of long-term care facilities, which the 
State expects will grow 5 percent, Louisiana has estimated substantial growth in all other 
categories of services. For most other services, the State estimated reimbursement growth 
at 6 percent, utilization growth of 10 to 16 percent and eligibility growth of 7 to 8 percent. 

A large decrease in projected DSH expenditures reflect the cost limit change effective 
July 1, 1995, from 200 percent to 100 percent of uncompensated costs in accordance with 
OBRA 93. 



NEW JERSEY TOTAL: 

MAP: 
ADM 



+$174 Million, +7% 
+$167 Million, +7% 
+$7 Million, +8% 



Approximately 80 percent of New Jersey's estimated Medicaid growth in FY 1996 is 
explained by the net growth in Group Health Plans (GHPs) of $143.0 million, inpatient 
hospitals of $73.0 million, nursing facilities of $44.0 million, and Intermediate Care Facilities 
for the Mentally Retarded (ICF/MRs) of $25.0 million. New Jersey also projects an overall 
reimbursement rate increase of 7 percent, a decline in utilization of 3 percent and eligibility 
growth of 3 percent. 

The growth in enrollment in New Jersey's Garden State GHP, and the phase-in of other 
managed care plans, explains a 181-percent increase in GHP costs. By FY 1996, 57 percent 
of New Jersey's Medicaid eligible population will be enrolled in managed care. The State 
also forecasts reimbursement rate growth of 5 percent for nursing facilities and ICF/MRs. 
Utilization in those services is expected to grow 3 percent and almost 10 percent, 
respectively. 

A modest 3-percent growth in eligibility is also estimated. While pregnant women and 
disabled populations are forecast to rise 8 and 10 percent, New Jersey projects minimal 
growth in non-disabled children as a result of new welfare restrictions. 



34 



422 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



GEORGIA TOTAL: +$172 Million, +7% 

MAP: +$170 Million, +8% 

ADM: +$ 2 Million, +3% 

Approximately 74 percent of Georgia's estimated MAP growth between FY 1995 and 
FY 19% is reflected in the following table. 





Dollar Growth 


Percent 




On 


millions') 


Growth 


Physician Services 




38 


22 


Inpatient Hospitals 




27 


16 


Outpatient Hospitals 




19 


11 


DSH Payments 




18 


11 


Part B Premiums 




9 


5 


Prescribed Drugs 




16 


9 



Total $127 

Most of Georgia's expected growth between FY 1995 and FY 1996 is due to a 4-percent 
increase in both utilization and eligibles. Although no change in overall reimbursement rates 
are forecast for FY 1996, the State does project a 3-percent price increase for physicians' 
services and inpatient hospitals. No rate increases for the remaining categories are expected. 

With the exception of a 2-percent growth in eligibles for outpatient hospitals as well as 
prescribed drugs, Georgia projects no increases in the remaining categories cited above. The 
number of non-disabled children are expected to rise 6 percent representing 66 percent of 
the eligible growth in FY 1995. 



35 



423 



EXPLANATION OF CHANGES IN STATE ESTIMATES 
FY 1995 - FY 1996 



MASSACHUSETTS TOTAL; 

MAP 
ADM 



+$147 Million, +6% 
+$143 Million, +6% 
+$4 Million, +6% 



Massachusetts projects a 6-percent growth in FY 1996, which is lower than experienced in 
FY 1994 or projected in FY 1995. An 8-percent increase in expenditures for most private 
providers is anticipated, while costs for most public providers will remain static. 

Increases in nursing facilities and inpatient hospitals comprise 55 percent of the total growth. 
Costs for HCBWs will rise 26 percent as the State plans to expand their waiver for the 
developmentally disabled. The State forecasts a decline of nearly $3.0 million for DSH 
payments. Also, costs for public ICFA^Rs are expected to decrease $27.0 miUion due to the 
closing of one facility in FY 1996. 



ILLINOIS TOTAL 

MAP 
ADM 



+$141 Million, +5% 
+$141 Million, +5% 
+$ Million, +0% 



Illinois derived its FY 19% estimate by applying an across-the-board increase of almost 
5 percent to its FY 1995 MAP estimate. This growth rate reflects the Chicago area 
consumer price index for medical care. 



36 



424 



STATE TABLES 



ESTIMATES OF GRANT AWARDS 

(Dollars in thousands) 





FY 94 


FY 95 


FY% 




Obligations 


Estimate 


Estimate 


Alabama 


$1,279,514 


$ 1,340,765 


$1,419,557 


Alaska 


177,513 


178,215 


183,780 


American Samoa 


2,140 


2,240 


2,350 


Arizona 


1,066,023 


1,224,007 


1,335,309 


Arkansas 


821,638 


888,073 


901,629 


California 


7,500,256 


10,182,756 


9,726,846 


Colorado 


644,842 


820,604 


749,803 


Connecticut 


1,164,813 


1,324,933 


1,425,338 


Delaware 


152,378 


181,682 


202,559 


Dist. of Columbia 


373,756 


433,640 


438,192 


Florida 


2,920,144 


3,697,015 


4,117,899 


Georgia 


2,055,881 


2,301,771 


2,473,153 


Guam 


3,685 


3,870 


4,060 


Hawaii 


245,066 


284,933 


289,395 


Idaho 


231,618 


256,152 


280,232 


Illinois 


2,724,779 


3,134,551 


3,275,735 


Indiana 


1,645,334 


1,907,589 


1,882,221 


Iowa 


694,387 


764,257 


827,949 


Kansas 


599,967 


597,811 


643,638 


Kentucky 


1,310,018 


1,401,726 


1,518,554 


Louisiana 


3,078,988 


3,041,488 


3,270,652 


Maine 


604,372 


627,446 


648,857 


Maryland 


1,176,037 


1,422,208 


1,546,831 


Massachusetts 


2,151,763 


2,388,623 


2,535,391 


Mass. (Blind) 


40,077 


44,969 


45,867 


Michigan 


2,858,157 


3,159,681 


3,401,975 


Minnesota 


1,388,700 


1,565,910 


1,688,827 


Mississippi 


1,068,532 


1,156,991 


1,214,371 


Missouri 


1,573,280 


1,677,302 


1,737,409 


Montana 


274,936 


260,079 


283,603 



37 



425 



STATE TABLES 



ESTIMATES OF GRANT AWARDS 

(Dollars in thousands) 



Nebraska 
Nevada 

New Hampshire 
New Jersey 
New Mexico 

New York 
North Carolina 
North Dakota 
N. Mariana Islands 
Ohio 

Oklahoma 
Oregon 
Pennsylvania 
Puerto Rico 
Rhode Island 

South Carolina 
South Dakota 
Tennessee 
Texas 
Utah 

Vermont 
Virginia 
Virgin Islands 
Washington 
West Virginia 
Wisconsin 
Wyoming 

Subtotal 

Survey & Certification 
Fraud Control Units 
Adjustments 

Total Obligations 



FY 94 


FY 95 


FY 96 


Obligations 


Estimate 


Estimate 


$ 421,313 


$ 436,182 


$ 472,305 


192,318 


227,103 


229,806 


490,406 


358,656 


296,534 


2,448,318 


2,572,191 


2,746,128 


510,447 


567,828 


636,688 


10,614,685 


13,144,633 


14,768,833 


2,090,306 


2,445,832 


2,772,985 


199,060 


205,329 


214,569 


1,108 


1,160 


1,220 


3,472,896 


3,865,120 


4,261,438 


760,897 


817,677 


899,372 


747,704 


901,428 


1,009,994 


3,947,465 


4,290,400 


4,017,928 


116,500 


122,200 


128,200 


440,083 


488,363 


485,459 


1,331,358 


1,538,569 


1,375,325 


203,399 


232,544 


255,420 


2,000,352 


2,426,550 


2,252,095 


5,548,396 


6,127,688 


6,648,343 


414,098 


442,365 


491,118 


186,253 


199,618 


209,594 


955,793 


1,095,394 


1,206,585 


3,838 


4,030 


4,230 


1,443,806 


1,624,258 


1,653,722 


936,059 


956,575 


1,060,563 


1,474,056 


1,507,608 


1,566,474 


96,227 


114.350 


112.628 


$80,875,735 


$92,984,938 


$97,849,538 


125,292 


146,600 


154,000 


61,852 


79,000 


79,000 


210.411 


-4.772.178 


-2,105,338 


$81,273,290 


$88,438,360 


$95,977,200 



38 



426 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 
HEALTH CARE FINANCING ADMINISTRATION 
PAYMENTS TO HEALTH CARE TRUST FUNDS 



Fiscal Year 1996 Budget Page 

Appropriation language 1 

Language analysis 2 

Amounts available for obligation 3 

Summary of changes 4 

Budget authority by activity 5 

Budget authority by object 6 

Authorizing legislation 7 

Appropriations history table 8 

Justification; 

A. Account summary 9 

B. General statement 10 

C. Activities: 

1. Federal Payment for Supplementary Medical Insurance 11 

2. Hospital Insurance for the Uninsured 16 

3. Hospital Insurance for Uninsured Federal Annuitants 19 

4. Program Management Administrative Expenses 20 

5. Quinquennial Adjustment for Military Service Credits 22 



427 



HEALTH CARE nNANCING ADMIWSTRATION 
Payments to Health Care Trust Funds 

Appropriation Language 



For payment to the Federal Hospital Insurance and the Federal Supplementary Medical 
Insurance Trust Funds, as provided under sections 217(g), 229(b), and 1844 of the Social 
Security Act, sections 103(c) and 111(d) of the Social Security Amendments of 1965, 
section 278(d) of Public Law 97-248, and for administrative expenses incurred pursuant to 
section 201(g) of the Social Security Act, [$37,546,758,000] $63,313,000,000. (Department of 
Health and Human Services Appropriations Act, 1995.) 



428 

PAYMENTS TO HEALTH CARE TRUST FUNDS 
Language Analysis 



Language Provision Explanation 



As provided under sections 217(g), Funding is requested for the quinquennial 
229(b) ... adjustment for military service credits, to 

be paid on December 29, 1995. 



429 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 
HEALTH CARE HNANCING ADMINISTRATION 
PAYMENTS TO HEALTH CARE TRUST FUNDS 

Amounts Available for Obligation 



1994 


1995 


1996 


Actual 


Appropriation 


Estimate 


Appropriation: 

Annual $45,731,440,000 


$37,546,758,000 


$63,313,000,000 


Lapse 6,772,047,000 






Anticipated SMI shortfall 
(non-add) 


[6,613,000,000] 




Payback of SMI shortfall 
(including interest) 
(non-add) 




[6,737,000,000] 


Total 
obligations $38,959,393,000 


$37,546,758,000 


$63,313,000,000 



The 19% estimate of $63,313.0 million is $25,766.2 million more than the FY 1995 
appropriation. A large portion of this dramatic increase is due to an anticipated shortfall 
in the Federal Contribution for SMI in FY 1995. Obligations are projected to exceed the 
FY 1995 appropriation by $6,613.0 million. The FY 19% estimate includes $6,737.0 -lillion 
to make up for the FY 1995 shortfall with interest. 

In addition, a shortfall is expected in the program management administrative expenses 
activity in FY 1995 as a result of the final reconciliation of FY 1994. This shortfall will be 
passed through to FY 19% and will increase the request for that year. The justifications for 
these two activities provide more detail on the differences between expenditures and 
amounts appropriated. 

The FY 19% estimate also includes $625.0 million for an adjustment made once every five 
years to military service credits. This quinquennial adjustment is to be paid to the Hospital 
Insurance Trust Fund on December 29, 1995. 



430 

PAYMENTS TO HEALTH CARE TRUST FUNDS 
Summary of Changes 



1995 Appropriation 

1996 Estimate 

Net Change 



$37,546,758,000 

63.3 13.000.000 

+$25,766,242,000 



Changes: 



1995 Current 

Estimate Base 

Budget Authority 



1996 

Change 

From Base 



1. Federal Payment for 

Supplementary Medical 
Insurance 

2. Hospital Insurance for 

the Uninsured 

3. Hospital Insurance for 

Uninsured Federal 
Annuitants 

4. Program Management 

Administrative 
Expenses 

5. Quinquennial Adjustment 



$36,955,000,000 
406,000,000 

56,000,000 

129,758,000 



+$25,167,000,000 
-48,000,000 

+7,000,000 

+ 15,242,000 
+625.000.000 



Net Change 



$37,546,758,000 



+$25,766,242,000 



431 



PAYMENTS TO HEALTH CARE TRUST FUNDS 





Budget Authority bv Activity 

(Dollars in thousands) 






1994 


1995 


1996 


Supplementary 
Medical Insurance 


Actual 
$45,097,000 


Appropriation 
$36,955,000 


Estimate 
$62,122,000 


Hospital Insurance 
for the Uninsured 


458,000 


406,000 


358,000 


Hospital Insurance 
for Uninsured 








Federal Annuitants 


48,000 


56,000 


63,000 


Program Management 
Administrative 








Expenses 


128,440 


129,758 


145,000 


Quinquennial Adjustment 






625.000 


Total Budget 
Authority 


$45,731,440 


$37,546,758 


$63,313,000 



432 



PAYMENTS TO HEALTH CARE TRUST FUNDS 
Budget Authority by Object 





1995 
Appropriation 


19% 
Estimate 


Increase 

or 
Decrease 


Grants, Subsidies, 
and Contributions 


$36,955,000,000 


$62,122,000,000 


+$25,167,000,000 


Insurance claims 
and indemnities 


462,000,000 


1,046,000,000 


+584,000,000 


Other Services 


129,758.000 


145.000.000 


+ 15,242,000 



Total Budget Authority 
by object 



$37,546,758,000 $63,313,000,000 +$25,766,242,000 



433 



PAYMENTS TO THE HEALTH CARE TRUST FUNDS 
Authorizing Legislation 





1995 


1996 


1996 




Amount 


Amount 


Budget 




Authorized 


Authorized 


Estimate 


Payments to Health 








Care Trust Funds 








(sections 201(g), 








217(g), 229(b) and 1844 








of the Social 








Security Act, 








sections 103(c) and 








111(d) of the Social 








Security Amendments 








of 1965, and 








section 278(d) of 








Public Law 97-248) 


Indefinite 


Indefinite 


$63,313,000,000 


Total Budget 








Authority 






$63,313,000,000 



434 

PAYMENTS TO HEALTH CARE TRUST FUIVDS 
Appropriations History Table 

Budget 

Estimate House Senate 

Year to Congress Allowance Allowance A ppropriation 

1987 20,357,000,000 20,826,000,000 20,826,000,000 20,826,000,000 

1988 26,958,000,000 25,893,000,000 25,364,000,000 25,893,000,000' 

1989 32,100,000,000 31,227,000,000 31,227,000,000 31,227,000,000 

1990 36,338,500,000 36,338,500,000 36,338,500,000 36,338,500,000 

1991 37,056,000,000 37,056,000,000 35,335,000,000 35,335,000,000 

1992 39,401,083,000 39,421,485,000 39,401,083,000 39,421,485,000 

1993 43,201,713,000 43,963,192,000 45,962,862,000 45,962,862,000 

1994 45,731,440,090 45,731,440,000 45,731,440,000 45,731,440,000 

1995 37,546,758,000 37,546,758,000 37,546,758,000 37,546,758,000 

1996 63,313,000,000 



Appropriation column represents continuing resolution funding level for entire year. 

8 



.435 

JUSTinCATION 

PAYMENTS TO HEALTH CARE TRUST FUNDS 

Account Summary 







Increase 


1995 


1996 


or 


Appropriation 


Estimate 


Decrease 



Supplementary 
Medical 
Insurance $36,955,000,000 $62,122,000,000 $25,167,000,000 

Hospital 
Insurance for 
the Uninsured 406,000,000 358,000,000 -48,000,000 

Hospital Insurance 
for Uninsured Federal 
Annuitants 56,000,000 63,000,000 +7,000,000 

Program Management 
Administrative 
Expenses 129,758,000 145,000,000 +15,242,000 

Quinquennial Adjustment for 
Military Service Credits 625.000.000 +625.000.000 

Total Budget 
Authority' $37,546,758,000 $63,313,000,000 +$25,766,242,000 



' A permanent indefinite appropriation of general funds for Self-Employment Contribution Act 
(SECA) tax credits and taxation of Social Security benefits is made through this account. Due to the 
permanent indefinite appropriation of these credits, this request does not include funding for this activity 
and the amount of the credits is not reflected in this toul. SECA credits are estimated at S2.0 million for 
FY 1996; the Federal payments for taxation of benefits are estimated to be $4,268.0 million in FY 1996. 



436 



GENERAL STATEMENT 

This appropriation estimate includes five general fund Payments to Health Care Trust 
Funds. Four of the five payments, totaling $1,191.0 million, are to the Federal Hospital 
Insurance (HI) Trust Fund. The fifth payment, in the amount of $62,122.0 million, is to the 
Federal Supplementary Medical Insurance (SMI) Trust Fund. 

The payment to the SMI Trust Fund is the Federal match of premiums paid by or for 
individuals voluntarily enrolled in SMI (Part B) of Medicare. Two payments in this account 
compensate the HI Trust Fund for the benefit and administrative costs of two uninsured 
groups: persons aged 65 years and above who were grandfathered into the program at its 
inception and Federal annuitants grandfathered into the program after 1982. A third 
payment to the HI Trust Fund finances administrative expenses previously financed by a 
general fund appropriation to HCFA's Program Management account. In addition to 
funding current year costs, the three payments to the HI Trust Fund also include 
adjustments for differences between amounts previously appropriated and actual program 
costs. On December 29, 1995, an adjustment-made once every five years-to military service 
credits made previously will be transferred to the HI Trust Fund. 



10 



437 



1. FEDERAL PAYMENT FOR SUPPLEMENTARY MEDICAL INSURANCE 
Authorizing Legislation - section 1844 of the Social Security Act 



FY 1995 


FY 1996 




Estimate 


Estimate 


Increase 


Total 


Total 


or 


Obligations 


Obligations 


Decrease 



$36,955,000,000 $62,122,000,000 +$25,167,000,000 

PURPOSE AND METHOD OF OPERATIONS 

The Social Security Act provides a voluntary Supplementary Medical Insurance (SMI) plan for 
which most persons aged 65 and above are eligible. Two groups under age 65 may also qualify 
for Medicare SMI (Part B) services. Disabled individuals entitled to Social Security or Railroad 
Retirement benefits for at least 24 months may enroll in the program. Most individuals who 
begin treatment for chronic renal disease may also enroll, either immediately after beginning 
treatment or after a three-month waiting periou, depending on treatment modality. 

Medical insurance benefits and administrative expenses are financed by monthly premiums paid 
by enrollees and matched with a substantial Federal Contribution. Prior to the Social Securi.y 
Amendments of 1983, the premium and the Federal Contribution were promulgated each 
December by the Secretary of Health and Human Services for the 12-month period beginning 
July 1. As a result of the 1983 Amendments, the premium is now on a calendar year (CY) 
basis with promulgation in September for the 12-month period beginning January 1. Annual 
financing is based on an actuarial determination of the amount required to finance the incurred 
costs of the program each year and maintain an adequate trust fund reserve. 

At the beginning of the SMI program, the premium was set at 50 lercent of estimated incurred 
costs. This premium amount is called the monthly actuarial rate. With the benefit years 
beginning after July 1973, however. Congress mandated that the premium be equal to the lesser 
of either half of the estimated average monthly incurred costs for aged enrollees or the 
previous year's premium, increased by a percentage equal to the previous year's Social Security 
cash benefit cost-of-living adjustment (COLA). 

Since the rate of increase in SMI benefits exceeded the COLA during the period from FY 1973 
to FY 1982, the percentage of incurred costs financed through enrollee premiums declined to 
less than 25 percent. To prevent further erosion of the premium's contribution to SMI 
financing. Congress mandated that monthly premiums be established at 25 percent of estimated 
incurred costs for the aged beginning July 1, 1983, through the Tax Equity and Fiscal 
Responsibihty Act of 1982 (P.L. 97-248). Congress extended this provision for subsequent 
benefit years through the Deficit Reduction Act of 1984 (P.L. 98-369), the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272), and the Omnibus Budget 
Reconciliation Acts of 1987 and 1989 (P.L. 100-203 and P.L. 101-239). 

11 



438 



The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) set specific monthly premium 
amounts for five calendar years beginning in 1991, based on projections of 25 percent of 
program costs at the time of passage. The monthly premium for calendar year 1995, the last 
year for which the premium is specified, is $46.10. Because benefit outlays have grown more 
slowly than anticipated at the time of the OBRA 90 projections, under current law, the 
premium will cover 31.5 percent of the program's estimated incurred costs for the aged in 
CY 1995. 

However, the Omnibus Budget Reconciliation Act of 1993 (OBRA 93) provides that, for 
1996-1998, the premium will again be based on the pre-OBRA 90 rate-setting methodology. 
That is, the premium will be set annually to cover 25 percent of program costs for aged 
beneficiaries. This creates an anomaly in CY 1996 whereby the monthly SMI premium will 
actually decrease $2.60, to $43.50 under current law estimates. This decrease in the monthly 
premium will account for $1.1 billion of the increase in the Federal Contribution for SMI 
in CY 1996. 

Effective beginning in calendar year 1999, the Administration proposes the permanent 
extension of the 25 percent Part B premium provision. 

Barring Congressional action, in 1999 and subsequent years the Part B premium would 
increase by the percentage of the Social Security cash benefit COLA. Given the SMI 
program experience from 1973 to 1982 under this methodology, and historical annual 
benefits growth which has consistently outpaced the SSA COLA, a return to this premium- 
setting methodology would lead to erosion of the premium's share of SMI financing below 
the 25 percent leVel. 

Funding levels for the past five fiscal years were as follows: 

1991 $34,730,000,000 

1992 $38,684,000,000 

1993 $45,478,000,000 

1994 $38,352,431,000 

1995 appropriation $36,955,000,000 

1995 current estimate . . . $36,955,000,000 

RATIONALE FOR THE BUDGET ESTIMATE 

The estimate of $62,122.0 million for FY 1996 SMI benefit outlays is $25,167.0 million more 
than the FY 1995 appropriation. This dramatic increase is primarily the result of four 
factors, one involving 1995 funding, the remaining three related to the FY 1996 estimate. 



12 



439 



First, the FY 1995 base of $36,955.0 million is artificially low due to an anticipated shortfall 
of $6,613.0 million. The FY 1995 appropriation was based on FY 1995 President's Budget 
estimates, which were revised upward in subsequent re-estimates of the program. The SMI 
Trust Fund will be drawn down to cover FY 1995 obligations in excess of the appropriation, 
but must be repaid in FY 1996, with an adjustment for interest lost. The FY 19% estimate 
includes $6,737.0 million to repay the anticipated FY 1995 shortfall, including a 
$124.0 million interest adjustment. 

The second major factor driving the increase in the FY 1996 Federal Contribution for SMI 
is continued growth in program outlays due to medical service price inflation, increased 
utilization of medical services, and demographic growth in the beneficiary pool. 

A third factor is the sunset of the OBRA 90 premium provision. The prospectively 
determined premiums for calendar years 1991 through 1995-fixed amounts set by OBRA 90 
based on projections of 25 percent of program costs-have increased faster than the actuarial 
rate. This is due in part to legislation such as OBRA 93 which mandated cuts in benefit 
outlays. Thus, in CY 1995, the monthly premium represents 31.5 percent of monthly 
program costs for an aged beneficiary. 

Beginning in CY 1996, when the OBRA 93 premium provision becomes effective, the 
monthly premium will again be set annually at 25 percent of program costs for aged 
beneficiaries. To offset the loss of income to the SMI Trust Fund when the beneficiary 
share reverts to 25 percent, the general revenues must make up the difference. In other 
words, the Federal share will increase 6.5 percent, from an unusually low 68.5 percent of 
estimated program costs in 1995, to the "normal" 75 percent level in 1996. 

Finally, a technical change in the calculations used to estimate the Federal Contribution to 
SMI accounts for a large portion of the increase from FY 1995 to FY 1996. Statute requires 
a contingency margin sufficient to cover a moderate degree of variation between actual and 
projected costs. Previously, actuarial proje*.rions indicated that the contingency margin had 
grown too large. To compensate, significant negative adjustments were used to lower the 
"actuarial rate" or estimate of monthly program costs per beneficiary. Current projections 
support a substantially higher contingency margin, resulting in a higher actuarial rate. The 
higher income requirements necessary to accommodate these estimates produce a higher 
monthly premium and a corresponding increase in the Federal Contribution for SMI. 



13 



440 



Summary of Changes from Previous Estimate 
for Supplementary Medical Insurance 

The following tables for aged and disabled Part B beneficiaries show the average monthly 
cost per beneficiary, including the share represented by the enroUee's monthly premium and 
the portion borne by the Federal government. The tables compare the change between the 
FY 1995 President's Budget estimates ~ the basis for the FY 1995 appropriation ~ and the 
current estimates. 

The beneficiary share of monthly program costs decreases for both aged and disabled 
enrollees from FY 1995 to FY 1996. OBRA 90 set the 1995 premium at $46.10 based on 
projections of 25 percent of program costs for the aged at the time of passage. OBRA 93 
provides that for 1996-1998, the premium will be set annually to cover 25 percent of 
program costs for aged beneficiaries. 

Aged 





Previous 
Estimate ' 


Current 
Estimate 


Change 


CY1995 
Average monthly cost 

per enrollee 
Average premium 


$129.80 
-46.10 

$83.70 


$146.20 
-46.10 

$100.10 


$16.40 


Average Federal payment 
per enrollee 


$16.40 


Beneficiary share of monthly cost 


35.5% 


31.5% 


-4.0% 


CY19% 
Average monthly cost 

per enrollee 
Average premium 
Average Federal payment 

per enrollee 


$171.60 
-42.90 

$128.70 


$173.80 
-43.50 

$130.30 


$2.20 
-.60 

$1.60 


Beneficiary share of monthly cost 


25.0% 


25.0% 


„ 


Enrollees (in thousands) 
FY 1995 
FY 1996 


31,697 
32,000 


31,734 
32,065 


+37 
+65 



* Previous estimates are from the FY 199S President's Budget. 

14 



441 



Summary of Changes from Previous Estimate 
for Supplementary Medical Insurance 







Disabled 






Previous 


Current 






Estimate ' 


Estimate 


Change 


CY1995 








Average monthly cost 








per enroUee 


$159.40 


$211.60 


$52.20 


Average premium 


-46.10 


-46.10 


— 


Average Federal payment 








per enrollee 


$113.30 


$165.50 


$52.20 


Beneficiary share of monthly cost 


28.9% 


21.8% 


-7.1% 


CY 1996 








Average monthly cost 








per enrollee 


$194.00 


$206.80 


$12.80 


Average premium 


-42.90 


-43.50 


-.60 


Average Federal payment 








per enrollee 


$151.10 


$163.30 


$12.20 


Beneficiary share of monthly cost 


22.1% 


21.0% 


-1.1% 


EnroUees (in thousands) 








FY 1995 


3,954 


3,885 


■69 


FY 19% 


4,244 


4,143 


-101 



' Previous estimates are from the FY 199S President's Budget 

15 



442 



2. HOSPITAL INSURANCE FOR THE UNINSURED 

Authorizing Legislation - sections 103(c) and 111(d) of the Social Security Amendments 
of 1965 



FY 1995 
Estimate 
Budget 
Authority 


FY 19% 
Estimate 
Budget 
Authority 


Increase 

or 

Decrease 


$406,000,000 


$358,000,000 


-$48,000,000 


PURPOSE AND METHOD OF OPERATIONS 





The Social Security Act provides hospital insurance coverage for most individuals age 65 and 
above that pays for the costs of hospital and related post-hospital services, subject to certain 
deductibles and coinsurance requirements. Coverage extends to all persons age 65 and 
above entitled to Social Security or Railroad Retirement benefits. When Medicare (Part A) 
was first implemented, Congress also provided hospital insurance coverage to people who 
were already age 65 and above and were not insured under the Social Security or Railroad 
Retirement programs. Congress took this action because most of these people had an 
insufficient opportunity to obtain program coverage. Hospital insurance benefits and 
administrative costs for persons on the Social Security or Railroad Retirement rolls are 
financed by a payroll tax on employees, employers, and self-employed persons. The cost of 
providing benefits to this aged uninsured group is financed through this appropriation from 
general revenues. 

For uninsured persons who attained age 65 before 1968, no wage credit under Social 
Security is required for this Federally-funded coverage. For men who attained age 65 after 
1%7 and before 1975 (before 1974 for women), wage credits on a sliding scale are required 
for Federally-funded entitlement. For men who attained 65 after 1974 (after 1973 for 
women), the requirements for entitlement to hospital insurance benefits are identical to the 
requirements for Social Security or Railroad Retirement benefits. Thus, a gradually 
decreasing number of uninsured persons are eligible for hospital insurance benefits financed 
from general revenues. 

Uninsured aged individuals who cannot meet these wage credit requirements also can obtain 
hospital insurance protection, but must pay a monthly premium. The full monthly premium 
rate is estimated at $261 for CY 19%. 



16 



443 



Funding levels for the past five fiscal years were as follows: 

1991 $559,000,000 

1992 $584,000,000 

1993 $328,000,000 

1994 $458,000,000 

1995 $406,000,000 

RATIONALE FOR THE BUDGET ESTIMATE 

The FY 1996 estimate is $358,000,000. 

The estimate is comprised of: 

1. FY 1996 Requirements 

a. Benefit payments 

b. Administrative costs 
Total 



$247,000,000 

3.000.000 

$250,000,000 



2. Adjustments 



FY 1995 benefits and interest costs 
FY 1994 benefits and interest costs 
FY 1993 benefits and interest costs 
FY 1992 benefits and interest costs 
FY 1991 benefits and interest costs 



+34,984,000 

+40,225,000 

+36,837,000 

-3,458,000 

-588,000 



Total Adjustments 
Total FY 1996 request 



+ 108,000,000 
+358,000,000 



More recent data on the Medicare costs of these beneficiaries lead to both a higher FY 1995 
requirement, relative to the prior year's estimate, and to a substantial upward adjustment 
in earlier years' benefits. Relative to the FY 1995 estimate of $406.0 million (including 
adjustments), estimated costs for this beneficiary group for FY 1996 have decreased to 
$378.0 million. 



17 



444 



Benefit Payments 

Benefit payments for FY 1996 are estimated at $247.0 million, a decrease of $27.0 million 
below the comparable FY 1995 level of $274.0 million. This decrease occurs because 
increases in the cost and utilization of covered services for this uninsured group were more 
than offset by the decrease in the size of the group. The number of individuals in this group 
will continue to decline from an estimated average of 89,000 in FY 1995 to an estimated 
average of 66,000 in FY 1996. 

Administrative Gasts 

Administrative costs for the hospital insurance program for the uninsured groups are 
included in the justifications for HCFA, SSA, and other agencies' administrative expenses 
estimates. The agencies allocate administrative costs for the uninsured groups based on the 
ratio of benefit payments for the uninsured to total hospital insurance benefit payments for 
the aged. Estimated FY 1996 administrative costs for this group are $3.0 million. 



/ 



18 



445 



3. HOSPITAL INSURANCE FOR UNINSURED FEDERAL ANNUITANTS 



Authorizing Legislation 


- section 278 


(d) of Public Law 97-248 




FY 1995 
Estimate 
Budget 
Authority 




FY 1996 
Estimate 
Budget 
Authority 


Increase 

or 

Decrease 


$56,000,000 




$63,000,000 


+$7,000,000 


PURPOSE AND METHOD OF OPERATIONS 





The Tax Equity and Fiscal ResponsibOity Act of 1982 (P.L. 97-248) extended Medicare 
coverage to Federal employees. Federal wages earned after December 31, 1982, are 
counted toward quarters of coverage needed to establish Medicare eligibility. Persons who 
were employed by the Federal government prior to 1983 and during January 1983 can 
receive credit toward eligibility for noncontributory quarters worked in the Federal 
government. 

P.L. 97-248 authorized an appropriation to the Federal Hospital Insurance Trust Fund to 
cover benefit costs of these individuals, associated administrative costs, and an interest 
payment putting the trust fund in the same position at the end of the fiscal year as it would 
have been if transitional coverage had not been created. 

Funding levels for the past five fiscal years were as foUows: 

1991 $46,000,000 

1992 $37,000,003 

1993 $39,000,000 

1994 $48,000,000 

1995 $56,000,000 

RATIONALE FOR THE BUDGET ESTIMATE 

The estimated amount for this activity is $63.0 million, an increase of $7.0 million from the 
FY 1995 estimate. Nominal administrative costs are included in this amount. The number 
of eligible annuitants in this group was 25,000 in FY 1995 and will decrease to 24,000 in 
FY 1996. 



19 



446 



4. PROGRAM MANAGEMENT ADMINISTRATIVE EXPENSES 

Authorizing Legislation - section 201(g) of the Social Security Act 

FY 1995 FY 1996 

Estimate Estimate Increase 

Budget Budget or 

Authority Authority Decrease 

$129,758,000 $145,000,000 +$15,242,000 

PURPOSE AND METHOD OF OPERATIONS 

Beginning in FY 1992, HCFA funds all Program Management activities from a single trust 
fund limitation, similar to the Social Security Administration's Limitation on Administrative 
Expenses, which authorizes administrative funding for four trust funds and a general fund 
program. HCFA's Program Management appropriation language prior to FY 1992 set two 
distinct limitations on obligations: trust fund and general fund. HCFA's inability to make 
adjustments between the two limitations contributed to the Office of Inspector General's 
recommendation that HCFA's cost allocation system be cited for a material non- 
conformance under section 4 of the Federal Managers Financial Integrity Act of 1982. 

Under the current funding mechanism, the Federal Hospital Insurance (HI) Trust Fund 
advances the general fund share of HCFA administrative costs as outlays occur. Funds 
appropriated through this activity are then paid back to the HI Trust Fund on March 31 of 
each year. Then, 18 months after the close of the fiscal year, a final adjustment, including 
interest, is made to ensure that the HI Trust Fund is maintained whole. Thus, the FY 1995 
estimate includes the final reconciliation for FY 1993. A final reconciliation for the amount 
appropriated for FY 1996 will not occur until March 31, 1997. 

Funding levels for the past five fiscal years were included in HCFA's Program Management 
account as follows: 

1991 $100,367,000 

1992 $116,485,000 

1993 $117,862,000 

1994 $128,440,000 

1995 $129,758,000 



20 



447 

RATIONALE FOR THE BUDGET ESTIMATE 
The FY 19% estimate is $145,000,000 

The estimate is comprised of: 

1. FY 1996 Requirements $139,000,000 

2. Shortfall carried forward from 1995 

including interest adjustment +6.000,000 

3. Total FY 1996 Estimate $145,000,000 

This FY 1996 appropriation estimate for Payments to Health Care Trust Funds includes an 
estimate of $139.0 million for the general fund share of HCFA's Program Management 
expenses. FY 1996 needs of $139.0 million are based on current law estimates for the 
general fund share of administrative costs and are discussed in greater detail in the Program 
Management section of this Justification. The amount appropriated for this general fund 
share will be transferred to the HI Trust Fund on March 29, 1996, (the last business day in 
March) from the Payments to Health Care Trust Funds appropriation. The actual general 
fund share will be determined, after the close of the fiscal year, during FY 1997. 
Reconciliation of FY 1996 will occur on March 31, 1998, or March 31, 1997, if the final cost 
allocation and determination of interest due has been made by that date. 

The FY 1996 estimate includes an adjustment of $6.0 million, which represents the estimated 
shortfall for FY 1995, adjusted for interest. 



21 



448 



5. QUINQUENNIAL ADJUSTME>4T FOR MILITARY SERVICE CREDITS 
Authorizing Legislation - section 217(g) and 229(b) of the Social Security Act. 



FY 1995 
Estimate 
Budget 
Authority 



FY 1996 
Estimate 
Budget 
Authority 

$625,000,000 



Increase 

or 

Decrease 

+$625,000,000 



PURPQSE AND METHQD QF QPERATIQNS 

The 1946 Social Security Amendments authorized the payments of benefits to veterans of 
World War II and their survivors. These payments were based upon noncontributory wage 
credits of $160 for each month that the veteran was active in the military. Subsequent 
amendments extended the period for which noncontributory wage credits were granted 
through December 1956. The Servicemen's and Veteran's Survivors Benefit Act of 1956 
ended this practice and required contributions based on military service wages beginning 
January 1957. 

Prior to the Social Security Amendments of 1983, reimbursement was provided to the 
HI Trust Fund from the general fund of the Treasury. This reimbursement was to finance 
the additional costs incurred by paying benefits which are based on periods of military 
service for which no contributions were made. The Secretary of Health and Human Services 
was instructed to determine by September 1965 (and each fifth September afterwards, 
ending 2010) the amount of -eimbursement in equal annual installments necessary to place 
the trust fund in the same position on September 30, 2015, that it would have been if 
noncontributory military service credits (quinquennial adjustments) had not been provided. 

The Social Security Amendments of 1983 modified this provision. First, it stipulated that 
a lump sum amount be transferred from the genera! revenues to the HI Trust Fund for the 
excess of the actuarial present value of past and future benefits over any amounts previously 
transferred for such benefits. Second, the fund was to be credited with an estimate of the 
combined employer-employee taxes on wage credits for service between 1965 and 1983. The 
Amendments provided for an adjustment to the initial estimate in 1985 and every five years 
thereafter. On May 20, 1983, $3,456.0 million was transferred from Treasury into the 
HI Trust Fund for these purposes. After 1983, annual appropriations are authorized for the 
current HI taxes on noncontributory wage credits. The last quinquennial adjustment was on 
December 31, 1990, in fiscal year 1991. 



22 



449 



DETERMINATION OF T HE ADJUSTMENT TO BF. MADE DECEMBER 31. 1995 

The $625.0 million requested for this activity in FY 1996 is based on preliminary actuarial 
estimates. The final determination will be as part of preparing The 1995 Annual Report of 
the Board of Trustees of the Federal Hospital Insurance Thist Fund in April 1995. A final 
determination, including interest adjustments reflecting mid-session review economic 
assumptions will be prepared in June 1995. 



23 



450 



DEPARTMENT OF HEALTH AND HUMAN SERVICEST 

HEALTH CARE FINANCING ADMINISTRATION 

PROGRAM MANAGEMENT 



Fiscal Year 1996 Budget Page 

Appropriation language 1 

Language analysis 2 

Amounts available for obligation 3 

Summary of changes 4 

Budget authority by activity 5 

Budget authority by object 6 

Significant items in House and Senate 

Appropriations Committee reports 15 

Authorizing legislation 28 

Appropriations history table 29 



451 



Justification : 

A. Account summary y 

B. General statement 31 

C. Activities: 

1. Research, Demonstrations and Evaluation 33 

2. Medicare Contractors 41 

3. State Certification 65 

4. Clinical Laboratory Improvement Amendments of 1988 (CLIA) 79 

5. Administrative Costs 85 



452 



HEALTH CARE HNANCING ADMINL^TRATION 

Appropriation Language 

Program Management 



For carrying out, except as otherwise provided, titles XI, XVIII, and XIX of the Social 
Security Act, title XIII of the Public Health Service Act, the Qinical Laboratories 
Improvement Amendments of 1988, section 4360 of Public Law 101-508, and section 4005(e) 
of Public Law 100-203, not to exceed [$2,207,135,000] $2,253,794,000, together with all funds 
collected in accordance with section 353 of the Public Health Service Act, the latter funds 
to remain available until expended; the [$2,207,135,000] $2,253,794,000 to be transferred to 
this appropriation as authorized by section 201(g) of the Social Security Act, from the 
Federal Hospital Insurance and the Federal Supplementary Medical Insurance Trust Funds: 
Provided, That all funds derived in accordance with 31 U.S.C. 9701 from organizations 
established under title XIII of the Public Health Service Act are to be credited to and 
available for carrying out 'he purposes of this appropriation. 



1 



453 



Language Analysis 



Language Provision 



Explanation 



For carrying out, except as otherwise 
provided, titles XI, XVIII, and XIX of the 
Social Security Act, title XIII of the Public 
Health Service Act, the Clinicai 
Laboratories Improvement Amendments 
of 1988, section 4360 of Public Law 101- 
508, and section 4005(e) of Public Law 
100-203, not to exceed $2,253,794,000, 
together with all funds collected in 
accordance with section 353 of the Public 
Health Service Act, the latter funds to 
remain available until expended; 



Provides funding for the administration of 
the Medicare and Medicaid programs and 
total funding for the Clinical Laboratories 
Improvement Act (CLIA) program. The 
CLIA program is funded solely from user 
fees collected and these collections are 
available to be carried over from year to 
year. 



the $2,253,794,000 to be transferred to this 
appropriation as authorized by section 
201(g) of the Social Security Act, from the 
Federal Hospital Insurance and the 
Federal Supplementary Medical Insurance 
Trust Funds: 



Funding for the administration of the 
Medicare and Medicaid programs is 
transferred from the HI and SMI Trust 
Funds. The HI Trust Fund will be 
reimbursed for the Federal Funds 
allocation of these costs through an 
appropriation in the Payments to the 
Health Care Trust Funds account. 



Provided, That all funds derived in 
accordance with 31 U.S.C. 9701 from 
organizations established under title XIII 
of the Pubhc Health Service Act are to be 
credited to and available for carrying out 
the purposes of this appropriation. 



Authorizes the crediting of HMO user fee 
collections to the Program Management 
account. 



454 



DEPARTMENT OF HEALTH AND HUMAN SERVICES 

HEALTH CARE FINANCING ADMINISTRATION 

Program Management 



Amounts Available for Obligation 

1994 1995 

Actual A ppropriation 

Appropriation 1/ — r- 

Proposed supplemental 
Appropriation 2/ — 

Offsetting collections from 
Non-Federal sources: 

HMO User Fees 3/ $363,000 $124,000 

CLIA User Fees 3/ 31,232,000 45,060,000 

Subtotal, Non-Federal $31,595,000 $45,184,000 

Receipts and reimbursements 
from Trust funds: 

Trust funds transfer 2,057,144,000 2,077,377,000 

HI Federal funds 

Limitauon 133.830.000 129.758.000 

Subtotal, receipts $2,190,974,000 $2,207,135,000 

Unobligated balance start of yr. 10,388,000 19. 192,000 

Unobligated balance end of yr.. (19,192,000) (19,192,000) 

Unobligated balance lapsing (28,658,000) — 

Total obligations $2,185,107,000 $2,252,319,000 



1995 Current 
Estimate 



— ($20,000,000) 



$124,000 

45.800.000 

$45,924,000 



1996 
Estimate 



$128,000 

45.400.000 

$45,528,000 



2.068,986.000 2,108.794.000 



129.758.000 
52,198,744,000 

19.192,000 
(19,192.000) 



145.000.000 
$2,253,794,000 

19.192.000 
(19,192.000) 



$2,224,668,000 $2,299,322,000 



1/ Federal Funds appropriations are not requested in Program Management for FY 1996. Appropriations requested in the Payments to the 
Health Care Trust Funds account will reimburse the HI Trust Fund for the estimated Program Management Costa. 

2/ The FY I99S appropriation level for Research activitiy was $20.4 million more than the Administration's request. The Current estimate reflecu 
a proposed negative supplemental of $20.0 million that reduces the difference between the request for FY 1995 and the appropriation. 

3/ Resources to fund the Administrative Cost activity are offset by the collection of HMO user fees under the User Charge Statute 

(31 U.S.C. 9701). The resources to fund CLIA activities are offset by the collection of CLIA user fees under the Public Health Service 
Act, Tide XIII, section 3S3 



455 



PROGRAM MANAGEMENT 
Summary of Changes 

1995 Appropriation $2,252,319,000 

1995 Appropriation Reductions 7,651,000 

1995 Appropriation (Adjusted) 2,244,668,000 

1995 Proposed Supplemental (20,000,000> 

1995 Current Estimate 2,224,668,000 

1996 Estimate 2,299,322,000 

Net Change $74,654,000 

1995 Current Estimate Base Change from Base 

Increases: FTE Budget Authority FTE Budget Authority 

A. Built-in 

1 . Annualization of 

FY 1995 Pay Raise $1,946,000 

2. FY 1996 Pay Raise 4,476,000 

3. Increase of 16 FTEs 4,063 18 918,000 

4. Increase m Personnel Benefits 8,982,000 

5. Additional day of Pay 1,011,000 

6. Within Grades 3,057,000 

7. Other Payroll Increases 4,619,000 

8. Space Rencal 3,436,000 

9. Other Services 18,565,000 

Subtotal $47,060,000 

B. Program 

1. Research 46,226,000 1,774,000 

- Rural Grants/Health Networks.... 1,737,000 263,000 

- Current Bene Survey 9,920,000 80,000 

- Proposed Supplemental (20,000,000) 20,000,000 

2. Medicare Contractors 1,609,671,000 21,429,000 

3. State Certification 145,800,000 16,300,000 

4. Administrative Costs 

-HCFA ON-LINE 10,000,000 

Subtotal $69,846,000 

Total Increases 18 $116,906,000 

Decreases: 

A. Built-in 

1. Postage (1,500,000) 

Subtotal ($1,500,000) 

B. Program 

1. Research 

- Rural Transition Grants 17,584,000 (17,584,000) 

- EACH/RPCH 3,500,000 (3,500,000) 

- Info Counseling 10,036,000 (5,536,000) 

2. Administrative Costs 

- Single Site (12,100,000) 

- Data Systems (1,632,000) 

4. CLIA 66 45,800,000 (400,000) 

Subtoul ($40,752,000) 

Total Decreases ($42,252,000) 

Net Change 18 $74,654,000 



456 



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3 



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457 



PROGRAM MANAGEMENT 
RESEARCH 





1995 
AoDrooriation 


1995 Current 
Estimate 


1996 

Estimate 


Increase or 
Decrease 


Consulting Services 


$2,808,000 


$2,808,000 


$1,000,000 


($1,808,000) 


Other Services 


25,832,000 


25,832,000 


47,000,000 


21,168,000 


Grants, Subsidies, 
& Contributions 


60,363,000 


60,363,000 


16,500,000 


(43,863,000) 


Proposed supplemental 


— 


(20.000.000) 
$69,003,000 





20.000.000 


Total budget authority 
by object 


$89,003,000 


$64,500,000 


($4,503,000) 



458 



Printing and 
Reproduction 

Other Services 

Total budget authority 
by object 



PROGRAM MANAGEMENT 
MEDICARE CONTRACTORS 

Budget Authority by Obj ect 

1995 1995 Current 1996 Increase or 

A ppropriation Estimate Estimate Decrease 



$2,000,000 $2,000,000 $1,800,000 ($200,000) 
1.613.700.000 1.607.671.000 1.629.300.000 21.629.000 

$1,615,700,000 $1,609,671,000 $1,631,100,000 $21,429,000 



459 



PROGRAM MANAGEMENT 
STATE CERTIFICATION 

Budget Authority by Object 

1995 1995 Current 1996 Increase or 

A ppropriation Estimate Estimate Decrease 



Consulting Services 

Other Services 

Total budget authority 
by object 



$4,000,000 
141.800.000 



$4,000,000 
141.800.000 



$12,200,000 
149.900.000 



$8,200,000 
8.100.000 



$145,800,000 $145,800,000 $162,100,000 $16,300,000 



460 



PROGRAM MANAGEMENT 
CLIA 

Budget AutfaOTJtv bv Object 



Total personnel 
compensation 

Personnel benefits 





1995 


1995 Current 


1996 


Increase or 




Appropriation 


Estimate 


Estimate 


Decrease 


Total number of full-time 


66 


66 


66 





permanent positions 










Total compensable work years: 








Full-time equivalent 
employment 


66 


66 


66 


— 


Full-time equivalent of 
overtime and holiday 


0.4 


0.4 


0.4 


— 


Average ES salary 


— 


— 


— 


— 


Average OS grade 


12.80 


12.80 


12.90 


0.1 


Average OS salary 


$51,349 


$51,349 


$54,933 


$3,584 


Average salary of ungraded 
positions 










Personnel compensation: 










Full-time permanent 


$4,050,000 


$4,050,000 


$4,261,000 


$211,000 



$4,050,000 $4,050,000 $4,261,000 $211,000 

550.000 550.000 611.000 61,000 



461 



1995 1995 Current 1996 Increase or 

A ppropriation Estimate Estimate Decrease 

Travel $467,000 $467,000 $707,000 $240,000 

Transportation of Things — — — — 

Rents, Communications and Utilities: 

Rental Payments to GSA — — — — 

Communications, Utilities, and 



Miscellaneous Charges 


530.000 


530,000 


714,000 


184.000 


Printing and Reproduction 


48.000 


48,000 


53,000 


5.000 


Consulting Services 


16,729,000 


16,729,000 


18,863.000 


2.134,000 


Other Services 


23,376.000 


23.376,000 


20.130.000 


(3,246.000) 


Supplies and Materials 


50,000 


50.000 


61,000 


11.000 


Total budget authority 
by object 


$45,800,000 


$45,800,000 


$45,400,000 


($400,000) 



10 



462 



PROGRAM MANAGEMENT 
ADMINISTRATIVE COSTS 

Budget Authority by Object 





1995 


1995 Current 


1996 


Increase or 




Appropriation 


Estimate 


Estimate 


Decrease 


Total number of full-time 


4,063 * 


4,063 • 


4,081 * 


18 


permanent positions 










Total compensable work years: 










Full-time equivalent 










employment 


4.063 


4,063 


4,081 


18 


Overtime and holiday work year 


9 


9 


9 


— 


Average ES salary 


$107,138 


$107,138 


$108,754 


$1,616 


Average OS grade 


12.8 


12.8 


12.8 


— 


Average OS salary 


$51,349 


$51,349 


$54,355 


$3,006 


Average salary of ungraded 










positions 


$27,922 


$27,922 


$9,300 


($18,622) 


Personnel compensation: 










Full-time permanent 


$198,200,000 


$198,200,000 


$209,143,000 


$10,943,000 


Other than full-time 










permanent 


6,259,000 


6.259,000 


8,044,000 


1.785,000 


Other personnel 










compensation 


4.173,000 


2.822.000 


4,634,000 


1,812.000 


Total personnel 










compensation 


$208,632,000 


$207,281,000 


$221,821,000 


$14,540,000 


Personnel benefiu 


36,084,000 


36,084,000 


46.553,000 


10,469.000 



• Does not include 66 CLIA FTEs that will be funded by CLIA uicr fees. 



463 



1995 
ADoroDriation 


1995 
Cyrrent Estimate 


1996 
Estimate 


Increase or 
Decrease 


$5,319,000 


$5,319,000 


$5,000,000 


($319,000) 


431.000 


431,000 


418.100 


(12.90C) 



Travel 

Transportation of Things 

Rents, Communications and Utilities: 

Rental Payments to GSA 28.384,000 27,401,000 30,887,000 3,486,000 

Rental Payments to Other — — — — 

Communications, Utilities, and 
Miscellaneous Charges 13.934,000 13.934,000 6.631.300 (7.302,700) 

Printing and ReproducUon 3.665.000 3.665,000 3.516.400 (148,600) 

Consulting Services 900.000 900,000 900,000 — 

Other Services 1/ 27,720,000 27,844,000 66,227,600 38,383,600 

Purchases of Goods and Services 
from other Government Accou 10,020.000 9.992,000 8.983,500 (1.008.500) 



Operation of GOCOs 


— 


— 


— 


— 


Supplies and Materials 


1.064.000 


1.064,000 


750.000 


(314,000) 


Equipment 


8,199.000 


8.199.000 


4.343.300 


(3,855.700) 


Land & Structures 


12.100.000 


12,100.000 





(12,100,000) 


Insurance Claims 
and Indemnities 


180.000 


180.000 


191.000 


11.000 


Subtotal budget authority 
by object 


$356,632,000 


$354,394,000 


$396,222,200 


$41,828,200 


Total budget authority 
by object 


$356,632,000 


$354,394,000 


$396,222,200 


$41,828,200 



1/ FY 1996 includes HMO User Fee (S128.000); HCFA On-Line lovestmeot ($10.0 miUion); and ($20.0 raiUkxi) for the 
KMkarc Huidbook. 



12 



464 



Administrative Costs* 

(Budget Authority) 

FY 1995 
Current 
Estimate 

Personnel Compensation: 

Full-time permanent (11.1) $202,250 

Other than Full-Time Permanent (11.3) 6,259 

Other Personnel Compensation (11.5) 2.822 

Total Personnel Compensation (11.9) $211,331 

Civilian Personnel Benefits (12.1) 36,634 

Travel (21.0) 5,786 

Transportation of Things (22.0) 431 

Rental Payments to Others (23.2) — 

Communications, Utilities, 
and Miscellaneous Charges (23.3) 14,464 

Printing and Reproduction (24.0) 5,713 

Consulting Services (25.1) 24,468 

Other Services (25.2) 1,826,491 

Purchase of Goods & Services from 
other Government Accounts (25.3) 9,993 

Operation of GOCOs (25.4) 

Supplies and Materials (26.0) 1.114 

Total..... '. $2,136,425 

* FY I99S total includes CLIA User Fees of $45.8 miUion, and S4S.4 million for FY 1996 



FY 1996 




Estimate 


Change 


$213,404 


$11,154 


8,044 


1,785 


4.634 


1.812 


$226,082 


$14,751 


47,164 


10,530 


5,707 


(79) 


418 


(13) 



7,345 


(7,119) 


5,369 


(344) 


32,964 


8,496 


1,912,558 


86,067 


8,984 


(1.010) 








811 


L3Q3) 


$2,247,402 


$110,977 



13 



465 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



FY 1995 House Report 103-553 



Survey and Certification 

Abuse and Neglect in Nursing Homes 
The Committee is concerned by reports 
about abuse and neglect in the nation's 
nursing homes. TTiere are troubling 
indications that nurse aides with records of 
crime, patient abuse and theft migrate 
across the country and find it relatively 
easy to secure employment in nursing 
homes where providers fail to conduct 
proper screening or lack adequate means 
to perform background checks. The 
Committee urges HCFA to study the 
potential options for improving interstate 
sharing of information about abusers, 
including the possibility of establishing a 
national clearinghouse of abuse informa- 
tion to facilitate proper background 
checks. The Committee requests that 
HCFA prepare a report on this issue prior 
to hearings on the 1996 appropriations 
request. 



HCFA is in the process of gathering 
information to recommend whether 
Congress should replace the mandate for 
State-based nurse aide registries with a 
national registry. 

HCFA is considering two options. One 
option is to continue with a State-based 
nurse aide registry. Though not a 
panacea, the current statute has been a 
good first step toward addressing the 
problem of abuse. 

The second option would be to v,ieate a 
Contiguous States registry. This would 
eliminate the movement of nurse aides 
from one State to another. However, it 
would fail to take into account movement 
beyond contiguous State borders. 



15 



466 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



Research, demonstration, and evaluation 

Program for All-inclusive Care for the 
Elderly (PACE) 

The Committee urges the Department to 
expedite the development and approval of 
the 15 community-based long-term care 
sites (PACE) authorized under the Social 
Security Act. These programs are 
providing a needed, cost-effective 
alternative to institutional care for the frail 
elderly. 



Currently there are nine operational 
PACE demonstration sites. These sites 
are located in East Boston, Massachusetts; 
Portland, Oregon; Bronx, New York; 
Columbia, South Carolina; Milwaukee, 
Wisconsin; Denver, Colorado; El Paso, 
Texas; Rochester, New York; and 
Sacramento, California. Sacramento 
became operational in May 1994. 
Chicago, which was in the demonstration, 
withdrew in April 1994. HCFA has 
received an application for a tenth site in 
Oakland, California. The application is 
being processed, and it is expected that 
this site will implement the demonstration 
in 1995. In addition to these operational 
sites. On Lok Senior Services, which 
developed the PACE model, has been 
actively working with potential sites in 
Detroit, Michigan; Baltimore, Maryland; 
Madison, Wisconsin; Seattle, Washington; 
and Los Angeles, California. Following a 
developmental phase, these additional sites 
are expected to seek waivers to participate 
as PACE demonstration sites. 



16 



467 



Significant Items in House and Senate 
Appropriations Committee Repoits 



Item 



Action Taken or To Be Taken 



FY 1995 Senate Report 103-318 

Survey and Certification 

Evaluation of Computer Technology 
The Committee recommends that up to 
$1,000,000 of HCFA/CLIA user fees for 
CDC to be used to conduct research 
evaluating the effectiveness of computer 
and facsimile-based technology as 
compared to on-site glass slide testing for 
the National Cytology Testing Program. 
The National Cytology Testing Program is 
required by the Clinical Laboratory 
Amendments of 1988, Public Law .00-578. 
This study is to be submitted to the 
Committee no later than September 1995. 



In FY 1994 the Centers for Disease 
Control and Prevention (CDC) initiated 3 
cooperative agreements to conduct 
research evaluating the feasibility of using 
computer images in lieu of glass slides for 
proficiency testing in cytology. In FY 1995 
CDC awarded a contract for a national 
study to compare referenced glass slides 
with computer-based cytology proficiency 
testing methods. The cooperative 
agreements will be concluded in FT 1995. 
The estimated completion time for the 
contract is 2 years. 



Certifying Room Size 

The Committee is concerned that scarce 
dollars are being wasted in survey and 
certification of nursing homes for 
room-size requirements, particularly in 
annual inspections and recertification of 
existing facilities that were deemed to 
meet the standards when originally 
constructed and licensed. No concrete 
evidence exists that health and safety of 
residents is contingent upon a room of a 
particular size without regard to the 
condition of the resident, and the burden 
imposed on owners seeking variances to 
room-size requirements is immense. The 
Committee directs HCFA to make widely 



As promulgated through the regulatory 
process current regulations at 42 CFR 
483.70(d)(3) state that: 

HCFA, or in the case of a nursing facility 
the survey agency, may permit variations 
in requirements specified in paragraphs 
(d)(l)(i) and (ii) of this section relating to 
rooms in individual cases when the facility 
demonstrates in writing that the 
variations— 

(i) Are in accordance with the special 
needs of the residents; and 



17 



468 



Signiflcant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



available immediately the specific criteria 
utilized for granting variances to room-size 
requirements and encourages States and 
HCFA to accept a prior-year variance as 
documentation of no adverse impact on 
patient health and safety for rooms in 
existing facilities in which the need of the 
residents have not changed since the last 
annual inspection. 



Research, demonstration, and evaluation 

Multiyear plan 

The Committee directs HCFA to prepare 
a multiyear plan for investing in and 
achieving the development of 



(ii) Will not adversely affect residents' 
health and safety. 

The nursing home reform requirements in 
OBRA 87 mandated that the variation in 
room size must be in accordance with the 
special needs of the residents and must 
not adversely affect the health or safety of 
resic^ents. In addition, reasonable facility 
hardship as a basis for granting a variation 
for Intermediate Care Facilities (ICFs) 
that became Nursing Facilities (NFs) was 
deleted as a basis for granting a variation 
for all NFs and Skilled Nursing Facilities. 
However, even without this change the 
NFs also had to demonstrate that "the 
waiver serves the particular needs of the 
residents and does not adversely affect 
their health and safety." 

Since the special needs of residents may 
change periodically, or different residents 
may be transferred into a room that has 
been granted a variation, the variation 
must be reviewed and renewed during 
each annual survey to assure that the 
special needs of residents have not 
changed since the variation was first 
approved. 



As part of HCFA's plan to develop risk 
adjustment methodologies for children, 
five projects were awarded in FY 1994 



18 



469 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



methodologies for risk adjustment, 
reinsurance, and carve-outs based on a 
pediatric population. This research 
agenda should include consultation with 
managed care plans, State Medicaid 
programs, and providers, including 
children's hospitals, experienced 
specifically in serving children with the 
most challenging health care needs. The 
research agenda also should plan for and 
disseminate the results of regular surveys 
of States' current methodologies for 
adjusting for pediatric care populations 
under Medicaid managed care. 

Nurse Practitioner Services 
The Committee again reiterates its interest 
in research projects which address the 
issue of effectively utilizing nurse 
practitioner care services. The Committee 
remains especially interested in exploring 
the availability of pediatric and family 
nurse practitioner care under the various 
State Medicaid programs, as authorized 
under the Federal Medicaid statute and 
recommends that HCFA work 
collaboratively with nurse-run clinics and 
nursing schools in this endeavor. 



that address risk adjustment for the under- 
65 population, including children. HCFA 
will be analyzing the results of these 
studies as they are completed over the 
next 3 years. 



HCFA awarded a cooperative agreement 
to the Research Triangle Institute in 
September 1994 to study the availability of 
nurse practitioners in providing services to 
the Medicaid population, as well as to 
Medicare beneficiaries. This 1-year study 
will provide information on health care 
services provided by nurse practitioners 
who are and are not providing services to 
the Medicaid and Medicare population; 
the financial arrangements used to 
reimburse them for their services; the 
autonomy of their practices; and the 
environment in which they practice. 
HCFA FY 1995 general grants solicitation 
expresses HCFA's continued interest in 
proposals that study the effective use of 
pediatric and family nurse practitioners in 
rendering care to vulnerable populations. 



19 



470 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



Ventilator Dependent Unit Demonstration 
The Committee is encouraged by the 
positive report on the resuhs, thus far, of 
the HCFA project, "Demonstration 
Projects With Respect to Chronic 
Ventilator-Dependent Units in Hospitals". 
... A recent independent evaluation of 
the project concluded that continued 
monitoring of this treatment of ventilator 
dependent patients could demonstrate 
conclusively whether the projects are cost 
effective as compared with other forms of 
treatment. Therefore, the Committee 
directs that the demonstration projects be 
extended for an additional 3 years. 

Medicare Contractors 



HCFA believes that payment for services 
rendered in ventilator dependent units in 
hospitals can be accommodated within the 
existing definition of services provided and 
paid for under the regular Medicare 
program. HCFA has been working with 
Temple University to examine alternative 
payment mechanisms that already ex'st 
within the Medicare program with the 
objective of identifying a permanent 
payment solution. HCFA and the 
hospitals prefer to avoid the temporary 
solution waivers provide. 



Payment Safeguard Methods Used by 
Private Insurers 

The Committee is concerned that HCFA 
has not adopted payment safeguard 
methods that have been effectively used by 
private insurers. HCFA should explore 
the advantages of incorporating such 
methods in the Medicare Program. The 
Committee expects to have ongoing 
discussions with HCFA on this subject. 



HCFA has adopted numerous activities 
which place HCFA at the forefront of 
Medicare Secondary Payer activities. 
HCFA has implemented both prepayment 
and postpayment activities to prevent and 
recover improper payments. Like private 
insurers, we conduct prepayment and 
postpayment review, and develop and 
disseminate to providers medical policy 
that addresses problem areas. We differ 
from private insurers by allowing our 
Medicare contractors to conduct provider 
onsite postpayment compliance audits 
used when patterns of inappropriate 
billing are detected. 



20 



I] 



471 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



Improving Program Management 
The Committee is concerned that 10 
percent of Medicare Program dollars are 
lost to waste, fraud, and abuse, according 
to the testimony of experts. The 
Committee thereby directs the Health 
Care Financing Administration to intensify 
its efforts to eliminate waste, fraud, and 
abuse in the Medicare Program, and to 
continually enhance claims processing to 
achieve greater efficiency. The Committee 
recognizes that such improvements can be 
attained through various initiatives, but, 
believes that an effective strategy must 
include, at a minimum, a streamlined 
claims process; an adequate investment in 
payment safeguards; incentives to prevent 
erroneous Medicare payments; 
reimbursement policies that preclude 
excessive costs for durable medical 
equipment; and upgrading the automated 
claims process. 

Incentives to Prevent Medicare 
Overpayments 

The Committee strongly urges HCFA to 
consider revising carrier performance 
measures to focus more on the outcome of 
medical review activities. The Committee 
also believes it is important that HCFA 
document the savings that can be achieved 
from increased medical review investments 
compared with other spending priorities. 



HCFA continues to invest in payment 
safeguard activities. In FY 1995, HCFA 
anticipates spending $414.6 million which 
will generate $6,319.9 million in savings, a 
return on investment of 15:1. In FY 1996, 
HCFA will continue to invest in payment 
safeguard activities with special emphasis 
placed on: paying claims correctly the first 
time; utilizing data to trigger medical 
review or fraud investigations, to identify 
patterns and trends, to measure 
effectiveness of corrective actions; 
establishing and enhancing multi- 
component coordination and cooperation 
with law enforcement agencies, State 
Medicaid agencies. State survey and 
certification agencies, and private 
insurance companies; and soliciting and 
supporting provider communities "nd 
beneficiary involvement in fraud and abuse 
prevention and detection. 



Medicare has revised and continues to 
refine its process for evaluating 
contractors. The new process focuses on 
outcome not process. In 1995. we plan to 
involve the Office of the Inspector 
General in the evaluation program. 



21 



472 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Talien or To Be Talien 



Medicare Transaction System (MTS) 
The Committee strongly urges HCFA to 
consider the recommendations contained 
in GAO's January 1994 report entitled 
"Medicare: New Claims Processing 
System Benefits and Acquisition Risks". 
To ensure that MTS supports Medicare 
Program improvements and health care 
reforms, th"; report call" " »■ HCFA to use 
a strategic planning process that analyzes 
Medicare business functions, planned 
program improvements, and potential 
system improvements. In May 1994, GAO 
issued an executive guide, entitled 
"Improving Mission Performance Through 
Strategic Information Management 
Technology." The guide identifies 
important practices that agencies should 
use to manage information resources. The 
Committee believes HCFA should also 
evaluate these practices and implement 
them as appropriate. 

National Uniform Billing, Claims and Data 
System 

The Committee directs that HCFA 
continue its development of nationally 
acceptable, standardized claims. The 
Committee also directs that HCFA 
establish milestones and a time-frame for 
nationwide implementation of a 
standardized claims process. The 
milestones should include semi-annual 
reporting on the progress of 
implementation and the costs and benefits 
of standardized claims. 



The MTS Executive Committee which 
includes the HCFA Administrator, Deputy 
Administrator, Associate Administrators, 
and Bureau Directors continues to meet 
on a quarterly basis to review the progress 
of the MTS project and provide guidance 
and direction to the MTS project 
Management Team. 



HCFA continues the development of 
nationally acceptable standardized claims, 
as well as associated administrative paper 
and electronic transactions such as 
remittance advices. We are working with 
the American National Standards Institute, 
the National Uniform Billing Committee, 
and other national organizations in the 
development of standards by consensus. 
We have obtained plan$ with timetables 
from Medicare contractors to assure an 



22 



473 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Tal(en or To Be Taken 



orderly migration to standard formats by 
July 1996. Contractors are required to 
report at least semiannually with respect 
to their progress. 



Claims for Unallowable Costs and Penalties 
The Departments of Labor, Health and 
Human Services, and Education have 
experienced problems with contractors and 
grantees who repeatedly make claims for 
reimbursement for costs that are 
unallowable. Consequently, the 

Committee has recommended that 
contractors and grantees certify that they 
will not claim costs that have been 
determined earlier to be unallowable. 
Additionally should a contractor be 
convicted of filing such fraudulent claims, 
the conviction will be a felony, punishable 
by fines and/or imprisonment. 

Cost of Durable Medical Equipment 
The Committee has been concerned about 
inflated prices and reimbursements for 
durable medical equipment. Prices for 
such equipment should be reasonable: that 
is, reflecting cost plus a fair profit margin, 
and considering, among other things, the 
price decreases that accompany maturing 
technologies. The Committee urges the 
Secretary to give prompt and full 
consideration to adjusting reimbursements 
for durable medical equipment, including 
those items governed by a fee schedule, 
when fees are determined to be excessive. 



HCFA has considered the 
recommendation of the Committee 
■ egarding contractor certifications. HCFA 
is currently discussing whether to include 
the certification as a contractual issue or 
to require its inclusion when contractors 
submit expenditure reports. We agree 
with the Committee's intent. 



HCFA is currently in the process of 
applying inherent reasonableness authority 
to oxygen. Oxygen represents 

approximately one half of all durable 
medical equipment payments. In addition, 
public law 103-432 of the 1994 Social 
Security Act Amendments requires that 
HCFA determine whether payments for 
Transcutaneous Electrical Nerve 
Stimulator (TENS) devices and Decubitus 
Care equipment are inherently reasonable. 
HCFA will be looking into these items as 
well as other durable medical equipment 



23 



474 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



In accordance with section 1834(a)(10)(B) 
of the Social Security Act, the Secretary 
should determine when the payment 
amounts for durable medical equipment 
are not inherently reasonable, and limit 
the amount of reimbursement in such 
cases. 



items in 1995. HCFA has suggested that 
Congress reduce the burdensome 
requirements that are required to apply 
inherent reasonableness. 



Fe. lend Administration 



Data Processing Needs 
The Committee recommends that 
$6,632,000 be restored over the House 
Allowance, to the Federal administration 
account for the replacement of HCFA's 
aging mainframe computer and mass 
storage devices to meet its critical data 
processing needs. 



HCFA has recently purchased an IBM 
ES/9000 Model 832 mainframe computer 
and ancillary equipment. The processor 
will be installed in the spring of 1995 at 
the new single site facihty and will 
facilitate bridging of HCFA Data Center 
ADP operations to the new location. This 
system will provide 168 MIPS of 
mainframe processing capacity, and is 
equipped with 768 MB of processor 
storage, 512 MB of expanded storage, and 
128 high-speed channels to which HCFA's 
Direct Access Storage Devices (DASD), 
tape, and other peripheral devices will be 
attached. 



Data Capacity Alternatives 
The Committee also recommends that in 
order to improve the availability of 
computer capacity, HCFA should consider 
several capacity management alternatives, 
including data base optimization, adjusting 
scheduling, and remote processing. 



HCFA recently contracted technical staff 
from a private contractor to evaluate 
HCFA's capacity planning methodologies. 
The contractor found that HCFA's 
methodology to predict MIPS 
requirements is reasonable. HCFA staff 
analyze historical production processing 
jobs on a continual basis in order to 



24 



475 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taicen or To Be Taken 



Health Care Information Infrastructure 
The Committee urges HCFA to develop a 
health care information infrastructure. 
Health care is an information business and 
the existence of high-speed data networks 
in health care is needed to bring our 
health system into the 1990's. Last year 
and in fiscal year 1993, the Committee 
directed HCFA to fund pilot projects for 
the electronic data interchange of health 
care information. These projects have not 
taken place. The Committee expects 
HCFA to initiate these projects in fiscal 
year 1995. 



maximize data center utilization. The user 
community is also surveyed to determine 
new initiatives and projects requiring 
future resources. Central Processing Unit 
(CPU) workload requirements are 
monitored to determine trends in peak 
hours of usage. Adjustments are made to 
schedule jobs during off-peak hours in an 
effort to balance CPU usage. Software 
such as PC SAS and dBASE II is utilized 
to download mainframe data to be 
processed at the PC level. HCFA also 
maintains intra/interagency agreements 
with the Social Security Administration's 
National Computer Center and the Public 
Health Service's Parklawn Computer 
Center to utilize their mainframe 
computers for remote processing capabiUty 
when necessary. 



Major initiatives HCFA has developed as 
steps toward building a health care 
information infrastructure include HCFA's 
software development initiative, Clinical 
Data Abstraction Center (CDAC) 
performance, and National Provider 
Identifier/National Provider File. The 
software development initiative provides 
software development resources to support 
a wide range of HCFA functions, program 
requirements, and strategic initiatives. 
Examples of areas supported include 
enrollment, national claims history, 
program operations, and administrative 
systems. CDAC performance is a contract 



25 



476 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



Data Bank 

The Committee directs the Health Care 
Financing Administration to spend no 
funds for imposing or collecting fines 
associated with the Medicare/Medicaid 
data bank and forbids the use of 
appropriated funds for collecting 
information for the data bank. The 
Department of Health and Human 
Services has proposed an 18-month delay 
in the implementation of the data bank. 



which will be monitored to ensure receipt 
of deliverables, reliable, timely, and 
standard clinical tlata abstraction, and 
efficient and effective CD AC performance. 
The National Provider Identifier/National 
Provider File project will develop a 
national numbering scheme and 
enumeration system that will be used by 
HCFA and other Federal agencies (and 
possibly by private organizations) for 
enumerating health care providers. In 
addition, HCFA is currently considering 
other projects designed to enhance and 
improve health care information 
infrastructure, such as HCFA On-Line, 
which will enable HCFA to develop its 
capacity to communicate more effectively 
with customers. HCFA On-Line is a 
communications strategy designed to 
provide HCFA and HCFA's partners and 
customers with the tools and resources 
necessary for effective interaction. 



HCFA concurs with the Committee's 
directive not to collect information and 
impose or collect fines associated with the 
Medicare/Medicaid data bank. 



26 



477 



Significant Items in House and Senate 
Appropriations Committee Reports 



Item 



Action Taken or To Be Taken 



Amounts of Bonuses for Employees 
This is intended to limit agencies, such as 
the Social Security Administration, which 
currently are paying bonuses of 
1.4 percent of salary costs to more than 
70 percent of all employees, to no more 
than 1 percent of salary costs and not to 
exceed the Government-wide average of 
37 percent of employees. 



HCFA has limited bonuses to a level that 
conforms to the stated restrictions. 



478 



PROGRAM MANAGEMENT 



Authorizing Legisladon 

1995 Amount 1995 1996 Amount 1996 Budget 

Authorized A ppropriation 1/ Authorized Estimate 1/ 

Program Management: 

1. Research: 

a) Social Security 
Act, Title XI, 

- Section 1110 Indefinite — Indefinite — 

- Section 1115 2/... $2,200,000 $2,200,000 $2,200,000 — 

b) P.L. 92-603, 

Section 222 Indefinite — Indefinite — 

2. Medicare Contractors: 
Social Security Act, 

Sections 1816 & 1842.. Indefinite — Indefinite — 

3. State Certification: 
Social Security Act, 
Title XVIII, Section 

1864 Indefinite _ _ _ 

4. CLIA88: 
Section 353, Public 

Heri'.t*: Service Act Indefinite — — — 

5. Administrative Costs: 
Reorganization Act 

of 1953 Indefinite — Indefinite — 

Total appropriation $2,200,000 — — 

Total appropriation 
against definite authority. $2,200,000 — — 

1/ Federal Fund appropriations are not requested in FY 1996. Appropriations requests of $129.8 million for FY 1995, and 
$145.0 million for FY 1996 in the Payments to the Health Care Trust Funds account will reimburse the HI Trust fund for 
the estimated Federal funds allocation of HCFA's Program Management costs. 

2/ The total authorization for Section 1 1 15 is $4.0 million. HCFA's portion of this amount is $2.2 million. 



28 



Year 



479 



PROGRAM MANAGEMENT 
A ppropriations History Table 



Budget 

Estimate 

to Congress 



House 
Allowance 



Senate 
Allowance 



Appropriation 



1987 

Trust Fund Transfer 
Supplemental 

1988 

Trust Fund Transfer 

1989 

Trust Fund Transfer 

Reduction 

1990 

Trust Fund Transfer 

Sequester 

1991 

Trust Fund Transfer 

1992 2/ 

Trust Fund Transfer 

1993 

Trust Fund Transfer 

Reduction 

Transfer 

1994 

Trust Fund Transfer 

Reduction 

1995 

Trust Fund Transfer 

Reduction 

Proposed Supplemental 

1996 

Trust Fund Transfer 



$84,533,000 

1,128,477,000 
10,000,000 



105,750,000 
1,397,580,000 

95,246,000 
1,775,556,000 

102,908,000 
1,901,172,000 

90,079,000 
1,813.971,000 

1,891,027,000 

2,006,389,000 



2,254,783,000 



2,191,800,000 



$2,253,794,000 



$84,533,000 
1,306,494,000 

102,580,000 
1,446,578,000 

93,817,000 
1,769,919,000 

101,908,000 
1,992,159,000 

104,966,000 
2,026,638,000 

2,282,055,000 

1,985,497,000 



2,172,598,000 



2,183,985,000 



$85,396,000 
1,276,170,000 

102,580,000 
1,396,628,000 

94,417,000 

1,835,519,000 

(1,133) 

102,908,000 
1,921,172,000 

91,053,000 
1,901,888,000 



1,982,901,000 
2,165,062,000 

2,192,414,000 
2,207,237,000 



$85,396,000 
1,273,520,000 1/ 

98,211,000 
1,368,825,000 1/ 

93,284,000 
1,803,317,000 

101,722,000 

1,870,172,000 

(26,197,000) 

102,919,000 
1,980,237,000 

2,274,055,000 

2.179,900,000 
(28,272,872) 
(1,000,000) 3/ 

2,189,960,000 
(2,643,000) 

2,207,135,000 
(8,391,000) 
(20,000,000) 4/ 



1/ Includes SIOS.O million provided through PX. 99-272 for payment safeguard activities, of which $4.5 million was deferred 

by the FY 1988 Continuing Resolution. 
V Funds requested for FY 1992's appropriation in the Payments to the Health Care Trust Funds account, will reimburse the 

HI Trust Fund for the estimated Federal Funds allocation of HCFA's Program Management costs. 
3/ Transfer provided funds to the Food and Drug Administration to implement the Mammography Quality Screening Act, 

P.L. 102-539. 
4/ The FY 1995 appropriatioa level was S20.4 million above the Administrolioa's request. The current eatiniate reflects a 

negative supplemental request of S20.0 million that reduces the difference between the request for FY 1995 and the 

^ipropnation . 



29 



480 



JUSTIFICATION 
PROGRAM MANAGEMENT 



Account Suminaiy 



1995 1995 Current 
Appropriation 1/ Estimate 3/ 



1996 
Estimate 



Increase or 
Decrease 



Research — — — — 

(Obligations) ($89,003,000) ($89,003,000) ($64,500,000) ($24,503,000) 

Medicare Contractors. . — — — — 

(Obligations) (1.615,700.000) (1.609,671,000) (1.631.100.000) 21,429.000 

State Certification — — — — 

(Obligations) (145,800.000) (145,800,000) (162,100,000) 16,300,000 

CLIA _ _ _ _ 

(Obligations) (45,060.000) (45.800.000) (45.400.000) (400.000) 

Administrative Costs... — — — — 

(Obligations) 2/ (356,756.000) (354,394,000) (396,222,000) 41,828,000 

Proposed Supplemental. — — — — 

(ObUgations) 3/ ^^^^ (-20.000.00^ ' ^ 20.000.000 

Total Budget Authority. _ _ _ _ 

(Total Obligations) ($2,252,319,000) ($2,224,668,000) ($2,299,322,000) $74,654,000 



1/ Federal Fundi appropriationf are not rcqueited for FY 1995 and FY 1996. AppropriatkMU requeated in the PaymenU to Health Care Tnia 
fundi account will reimburae the HI truit fund for the ««fim.t««i Federal fundi allocated for HCFA'i Program Managemeot coati. 

2/ Oblig«iaaiindiideHMOuaerfeecoUectk>ae«iinaleaofS124,000iaFY 199S aad SI2S,000 in FY 1996. 

3/ The FY 1995 appropriation level for Reiearch activity wai S20.4 million more than the Adminiitratioa'i requeit. The curreot eaHmitB refle 
negative suppleroenlal of S20.0 million that reducei the difTereoce b u m cui the requeit for FY 1995 and the a p propr i arion. 



30 



481 



GENERAL STATEMENT 



The Health Care Financing Administration (HCFA) was established in 1977 to bring 
together, under the auspices of one agency, the management of two major Federal 
programs: Medicare and Medicaid. The mission of HCFA is to assure health care security 
for beneficiaries. 

For FY 1996, the HCFA Program Management appropriation estimate includes the 
following activities, which are integral to the accomplishment of the agency mission: 

• Research. Demonstrations, and Evaluation projects which are designed to 
improve the organization, delivery, quality, and financing of health care services. 

• Medicare Contractors, which process Medicare claims, conduct payment 
safeguard activities, and provide information to beneficiaries and providers on 
reimbursement, coverage, eligibility, and other program requirements. 

• State Certification which ensures that institutions and agencies providing health 
care services to Medicare and Medicaid beneficiaries meet Federal health, safety, 
and program standards. 

• Laboratory Inspections , which ensures all laboratories that test human specimens 
for health purposes, including physicians' offices, meet Federal health, safety, and 
quality standards. 

• Administrative Costs, which include personnel and other operating costs of the 
agency. 

The President's appropriation request of $2.3 billion for this account represents current law 
requirements. No proposed law amounts are included. The Administration will propose for 
later transmittal the following legislative proposals: 

► Create a new program to provide discretionary grants that will help offset the costs 
of Medicaid emergency medical services for undocumented immigrants, on the 
budgets of State and local governments. 

► Allow Medicare recertification surveys of home health agencies on a statewide 
average interval of 24 months. 



31 



482 



1. RESEARCH. DEMONSTRATIONS. AND EVALUATION 

Authorizing Legislation - Social Security Act, Sections 1110, 1115, 1875 and 1881(a); Social 
Security Amendments of 1967, Section 402; Social Security Amendments of 1972, 
Section 222. 

FY 1995 Increase 

FY 1994 Current FY 19% or 

Actual Estimate Estimate Decrease 



Rural Health Care- 
Transition grants 

State Rural Health 
Network Reform 

EACH/RFCH 

Information Counseling 
and Assistance (ICA) grants 

Medicare Current Beneficiary 
Survey (MCBS) 

Basic research 

Proposed supplemental' 

Total obligations 



$21,065,000 $17,584,000 $ -- ($17,584,000) 

1,617,000 1,737,000 2,000,000 263,000 

4,608,000 3,500,000 -- (3,500,000) 

9,874,000 10,036,000 4,500,000 (5,536,000) 



9,920,000 10,000,000 



80,000 



43.397.000 46,226,000 48.000.000 1,774,000 

($20.000.000) $20.000.000 

$80,561,000 $69,003,000 $64,500,000 ($4,503,000) 



PURPOSE AND METHOD OF OPERATIONS 

The budget reflects the primary research, demonstrations, and evaluation goals of HCFA 
and the Administration, which are to: 

► ensure that Medicare and Medicaid beneficiaries, including vulnerable populations, have 
access to high-quality health care; 

► increase health service delivery options for consumers; 



'The FY 1995 appropriation level v^as S20.4 million more than the Administration's request. The 
current estimate reflects a proposed negative supplemental of S20.0 million that reduces the difference 
between the request for FY 1995 and the appropriation. For additional information, see the Supplemental 
Chapter. 

33 



483 



► ensure existing Medicare payment systems for hospitals, physicians, and outpatient 
services provide appropriate levels of payments to providers; 

► increase understanding of the performance of the Medicare and Medicaid programs to 
determine the necessity for further policy reforms; 

► better understand how health care services should be delivered to assure that all 
Americans have access to affordable quality health care while containing health care 
spending and growth; and 

► better understand the trends and factors affecting the cost, accessibility, and quality of 
subacute and long-term care services under Medicare and Medicaid. 

This research agenda supports HCFA's goals to: (1) continue to provide leadership in the 
continuing evolution of the health care system; (2) ensure that its programs respond to 
health care needs of all beneficiaries; (3) promote improved health status for beneficiaries; 
and (4) promote more cost-effective health care. 

Funding levels for the last Ave fiscal years: 







Rural 






Rural 






Heahh 






Health 






Care 






Network 


Fiscal 


Basic 


Trans. 


EACH/ 


ICA 


Reform 


Year 


Research 


Grants 


RPCH 


Grants 


Grants 


1991 


$36,957,000 


$24,052,000 


$9,759,000 


$ 


$ 


1992 


36,244,299 


22,813,467 


7,322,234 


10,000,000 


~ 


1993 


35,711,000 


22,679,000 


~ 


9,920,000 


- 


1994 


43,397,000 


21,065,000 


4,608,000 


9,874,000 


1,617,000 


1995 


56,146,000' 


17,584,000 


3,500,000 


10,036,000 


1,737,000 



'includes S9.9 million funding for Medicare Current Beneficiary Survey (MCBS). 

34 



484 



Research Budget by Program Areas 
Fiscal Years 1994-1996 

(Dollars) 



PROGRAM AREAS 


FY 1994 


FY 1995 


FY 1996 


Rural Health Care Transition Grants 

State Rural Health Network Reform 

EACH/RPCH 

Information Counseling and Assistance (ICA) 

Medicare Current Beneficiary Survey (MCBS) 


$21,065,000 
1,617,000 
4,608,000 
9,874,000 


$17,584,000 

1,737,000 

3300,000 

10,036,000 

9,920,000 


$ 

2,000,000 

4300,000 
10,000,000 


Subtotal 


$37,164,000 


$42,777,000 


$16300,000 


Basic Research Activity: 

1. Monitoring and Evaluating H.S. Performance 

a. New 

b. Continuations 


$7,838,000 
3,393,000 
4,445,000 


$5322,000 
1,400,000 
3,922,000 


$11,152,000 
5,050,000 
6,102,000 


2. Improving H.C. Financing and E>cliveiy Mech. 
a. New 
lb. Continuations 


17,724,000 
9,411,000 
8313,000 


14308,000 
6,000,000 
8308,000 


11,867,000 
1300,000 
10367,000 1 


3. The Future of Medicare 

a. New 

b. Continuations 


1,003,000 
828,000 
175,000 


3,843,000 
2,100,000 
1,743,000 


5,419,000 
2,000,000 
3,419,000 


4. Meeting the Needs of Vulnerable Populations 

a. New 

b. Continuations 


15,014,000 
9,433,000 
5,581,000 


21,499,000 
15,000,000 
6,499,000 


16,412,000 
3300,000 
12,912,000 


5. Info, to Imp. Consumer Choice & Health Status 

a. New 

b. Continuations 


1,818,000 

1380,000 

438,000 


1,054,000 
500,000 
554,000 


3,150,000 

2300,000 

650,000 


Basic Research Activity 
1 a. New 
b. Continuations 


24,445,000 
18,952,000 


25,000,000 
21,226,000 


14350,000 
33,450,000 


Subtoul. Basic Research Activitv 


$43397.000 


$46,226,000 


$48,000,000 


Total, Research, Demonstrations, and Evaluation 


$80,561,000 


$89,003,000 


$64300,000 



35 



I 



485 



RATIONALE FOR BUDGET ESTIMATE 

The FY 19% estimate for funding HCFA's Research, Demonstrations, and Evaluation 
(RD<iE) activities is $64.5 million. This includes $2 million for Rural Health Network 
Reform, $4.5 million for the Health Insurance Information, Counseling and Assistance 
Grants, $10 million for the Medicare Current Beneficiary Survey, and $48 million for the 
basic RD&E activities. 

HCFA estimates spending $48 million for RD&E activities that provide information to the 
Administrator, the Secretary, the Office of Management and Budget, the Congress, and 
other interested parties to enable them to make informed and rational decisions regarding 
HCFA program, policy, and budget matters affecting the Medicare and Medicaid programs. 
This amount includes $33.5 milhon for continuation of RD&E activities and $14.6 million 
for start-up of new projects that support Congressional mandates and HCFA's and the 
Department's priority initiatives. Current estimates for FY 1996 are that HCFA will spend 
$13.2 million for Congressionally mandated projects. 



State Rural Health Network Reform Initiative 



The State Rural Health Network Reform Initiative is a grant program to provide funds to 
States to encourage innovations in rural health flnancing and delivery systems. The initiative 
is designed to enable States to address rural health issues within the context of 
comprehensive statewide health reform. HCFA awarded funds in FY 1994 to the States of 
Florida, Minnesota, Mississippi, Nebraska, North Carolina, and Washington to support the 
planning, development and implementation of new financing and delivery arrangements that 
enhance access to health care services and maintain a viable delivery system for rural 
residents. The six awardees proposed projects that address HCFA's primary policy interests 
for this program, including: a clear understanding of the characteristics of the State's rural 
communities and their health care needs; development of the necessary infrastructure to 
support viable long-term solutions for rural communities; integration of the rural reform 
project with broader comprehensive health reform initiatives within the State; an explanation 
of the financing of the plan and how it addresses care and coverage for the iminsured; an 
emphasis on public health and primary care, and the integration of these activities with other 
services; and a description of the steps toward program implementation. These projects are 
in the early developmental stages. 



Health Insurance Information. Counseling, and Assistance (ICA) Grants 

The ICA program strengthens the capability of States to provide Medicare beneficiaries with 
information, counseling, and assistance on adequate and appropriate health insurance 
coverage. Funding will support ICA activities related to Medicare, Medicaid, Medicare 
supplemental policies, long-term care insurance, and other health insurance benefits. 

36 



486 



Medicare Current Beneficiary Survey (MCBS) 

MCBS is a continuous, multipurpose survey of a representative sample of the Medicare 
population intended to aid HCFA in monitoring and evaluating the Medicare program. The 
survey is designed to provide comprehensive and timely information on the Medicare 
population's use of health care services and total reimbursements for those services 
distributed by sources of payment. Data from the MCBS enable HCFA to monitor the 
financial effects of changes in the Medicare program, to develop reliable and current 
information on the use and cost of services not covered by Medicare (such as prescription 
drugs and long-term care), and to obtain information on the sources of payment for costs 
of services not assumed by Medicare. 



Basic Research Activity 

1. Monitoring and Evaluating Health System Performance 

There is a need for the development, design, and testing of systems to monitor and 
evaluate the performance of the health care system. Special emphasis will be placed 
on a comprehensive monitoring and evaluation plan for HCFA programs and the 
development of model systems for use by Federal and/or State entities. A number 
of critical dimensions need to be included in the monitoring and evaluation system 
to understand, on an ongoing basis, how well the nation is faring in terms of access 
to care, qualit}', efficiency, and costs. Techniques also need to be developed to 
address the large volumes of data associated with monitoring and evaluation efforts. 

2. Improving Health Care Financing and Delivery Mechanisms 

Substantial research is needed to improve current health financing systems and to 
develop new payment and cost containment systems. Growing costs in both the 
Medicare and Medicaid programs require that efforts continue to develop the next 
generation of financing and delivery systems to improve efficiency and cost 
effectiveness of health care. 



37 



487 



The Future of Medicare 

Over the past decade, many of Medicare's research and demonstration projects that 
were aimed at reforming the program have concentrated on payment reform. The 
most notable examples were the development of prospective payment for hospitals 
and the physician payment reform efforts. However, the basic Medicare program 
both in terms of the delivery system and the benefit package has remained 
unchanged for 25 years. During that time, State Medicaid programs and major 
insurers concentrated on such activities as the design of new delivery systems, the use 
of their market power to set prices, the establishment of more efficient provider 
networks, and the use of alternative benefit packages and greater use of managed 
care products. 

While HCFA will continue to work on basic program refinements, HCFA must 
continue to develop the Medicare program and modernize it to parallel changes in 
the health insurance market, to better meet the diverse and changing needs of the 
growing elderly and disabled populations. 



4. Meeting the Needs of Vulnerable Populations 

HCFA's research and demonstration projects continue to focus on ways of meeting 
the health care needs of vulnerable f>opulations, focusing these efforts on issues of 
access, delivery systems, and financing. Vulnerable populations include minorities, 
the frail elderly, low income persons, high-risk pregnant women and their infants and 
children, underserved individuals (including urban inner city, rural, migrant workers, 
refugees, and frontier residents), as well as individuals who require long-term care. 
This research agenda will focus on three topic areas: the assessment of access to 
health care; the building of service systems that are responsive to special 
populations; and the financing of services provided to vulnerable populations. 



5. Information to Improve Q)nsumer Choice and Health Status 

The use of information and HCFA data to improve the ability of consumers to make 
more informed health care choices, either in the health plans they select or in the 
services they use, is part of a long-term commitment by HCFA to change and 
improve communication of information to HCFA beneficijiries. Development of an 
information system to support consumer choice could also be applied to provide 
health plans and health care providers with more information on consumer 
preferences and needs. In addition, information systems could be instrumental in 
meeting HCFA's goals to better understanding beneficiaries health and information 
needs and improving their health status. 



38 



488 



Congressional Mandates 

HCFA estimates that during FY 1996, $13.2 million will be spent on projects and studies 
mandated by Congress. A breakout by priority area of the Congressionally mandated 
activities follows: 

Monitoring and Evaluating Health System Performance $4.7 million 

Improving Health Care Financing and Delivery Mechanisms $6.5 million 

The Future of Medicare ~ 

Meeting the Needs of Vulnerable Populations $2.0 million 

Information to Improve Consumer Choice and Health Status ~ 

Total $13.2 milUon 



39 



489 



2. MEDICARE CONTRACTORS 

Authorizing Legislation - Social Security Act, Title XVIII, Sections 1816 and 1842, 
42 U.S.C. 1395. 

FY 1995 Increase 

FY 1994 Current FY 1996 or 

Actual Estimate Estimate Decrease 

Total 

Obligations $1,589,620,000 $1,609,671,000 $1,631,100,000 $21,429,000 

PURPOSE AND METHOD OF OPERATIONS 

In FY 19%, Medicare will cover 37.5 million beneficiaries, who will generate an estimated 
822.0 million claims. Medicare contractors discharge the government's responsibility for 
paying Medicare beneficiaries and providers in a timely, accurate, and fiscally responsible 
manner. In general, fiscal intermediaries are responsible for payment to providers of 
services under Part A of the Medicare program. Both fiscal intermediaries and carriers are 
responsible for adjudicating claims and making payments to beneficiaries and providers 
under Pari B of the Medicare program. In addition to paying submitted claims, fiscal 
intermediaries and carriers act as a link to HCFA programs by responding to provider and 
beneficiary inquiries and appeals. Fiscal intermediaries and carriers also take actions to 
safeguard the fiscal integrity of the trust funds. 

HCFA will continue to implement policies designed to control costs through changes in 
payment methodology and to control over-utilization and detect fraud. HCFA is responsible 
for monitoring all Medicare contractor activities, reviewing contractor performance in paying 
claims, serving Medicare beneficiaries, and assuring the fiscal integrity of the Medicare Tnist 
Funds. 

The cost for the Medicare contractors' portion of administering the Medicare program is 
estimated to be $1,631.1 million in FY 1996. 

Medicare Contractor funding levels for the past five fiscal years were: 

Year Funding Level Conmient 

(Includes $83,000,000 release of contingency.) 
(Includes $76,180,000 release of contingency.) 
(Contingency funds not available.) 
(Contingency funds not available.) 
(Contingency funds not available.) 



41 



1991 


$1,494,721,000 


1992 


$1,524,426,000 


1993 


$1,555,554,000 


1994 


$1,589,620,000 


1995 


$1,609,671,000 



490 



MEDICARE CONTTRACTOR BUDGET 

FY 19% 

(Dollars in millions) 



FY 1995 

Current 

Estimate 



FY 1996 
Estimate 



Increase 

or 

Decrease 



Payment Safeguards 








Medical Review 


$ 114.9 


$ 115.0 


$ 0.1 


Benefit Integrity 


39.1 


34.9 


(4.2) 


Audit and Provider Settlement 


147.3 


148.0 


0.7 


Medicare Secondary Payer 


113.3 


98.4 • 


am 


Total Payment Safeguards 


414.6 


396.3 


(18.3) 


Productivity Investments 


47.4 


71.6 


24.2 


Claims Processing 








Bill/Claims Payment 


829.6 


854.1 


24.5 


Reimbursement 


44.6 


35.5 


(9.1) 


Printing 


2.0 


1.8 


(0.2) 


Total Claims Processing 1/ 


876.2 


891.4 


15.2 


Beneficiary & Provider Services 








Hearings 


86.8 


84.0 


(2.8) 


Beneficiary Communications 


126.1 


137.2 


11.1 


Provider Education 


31.4 


23.5 


(7.9) 


Total Beneficiary 








& Provider Services 


244.3 


244.7 


0.4 


Participating Physicians 


25.1 


25.0 


(0.1) 


Contractor Contract Support 


2.1 


2.1 


0.0 


TOTAL OPERATING BUDGET 


$1,609.7 


iL631.1 


$21.4 



1/ In the FY 1995, Congress appropriated S396.3 million for payment safeguard activities. 



42 



491 



Major Program Initiatives 

Over the past several years, HCFA has implemented an incremental strategy designed to 
standardize and consolidate Medicare claims processing and also reduce administrative costs. 
As part of this ongoing effort, HCFA instituted a series of initiatives which have successfuUy 
reduced costs and promoted greater consistency in claims processing. However, in an 
atmosphere of increasing demands and changing legislative and regulatory initiatives, the 
Medicare program is becoming more complex and changes are more commonplace. 
Coupled with administrative budget reductions, HCFA must continue to make improvements 
to better meet these demands. 

In FY 1996, HCFA will continue to work with the design contractor on the analysis, design, 
development, validation, transition, and maintenance of a Medicare Transaction System 
(MTS). The MTS will integrate, standardize, and generally improve the efficiency with 
which Medicare claims are processed. The new system will shorten the implementation time 
for legislative and administrative changes related to claims processing, improve HCFA's 
program evaluation capabilities, and create a claims processing environment where 
administrative costs are maintained at the lowest prassible level, claims are processed in a 
consistent manner, and contractor conformity is assured. 

The MTS will be a fully automated, consolidated Part A and Part B claims processing system 
designed, ultimately, to replace the varied claims processing systems currently used by the 
Medicare contractors. HCFA will own and control the MTS, but the system will be 
contractor maintained and operated. MTS will take advantage of and foster uniform claims 
submission requirements, including standardization of electronic submission formats, coding 
conventions, and claims documentation. MTS will allow national medical review edits to be 
applied consistently, while allowing fiscal intermediaries and carriers to maintain control over 
local medical review and other activities. The MTS will also greatly enhance HCFA's ability 
to control and monitor benefit expenditures. 

Many of the efforts included in this budget estimate will facilitate a smooth transition to the 
MTS environment. We are strongly emphasizing standardization (especially within the area 
of Productivity Investments) so that the claims processing function will easily transfer to the 
MTS. This budget submission contains the funding levels that will allow us to proceed with 
the MTS initiative. 

Other Major Initiatives 

The FY 19% budget estimate includes funding associated with HCFA's ambitious goals to 
standardize and automate claims processing. HCFA continues to promote the submission 
of electronic media claims (EMC) since use of EMC is the largest contributor to contractor 
unit cost efficiencies. No savings are included in this budget since the level of EMC 
activities is not expected to expand significantly beyond that projected in the FY 1995 
budget. Use of American National Standards Institute standards wiU enable EMC billers 

43 



492 



to use standard formats for billing and communicating with Medicare and non-Medicare 
health payers in the United States. We plan to standardize the communications systems for 
electronic billers to accommodate billers that communicate with more than one contractor. 
In addition, we plan to consolidate costly shared claims processing arrangements to achieve 
maximum productivity and operational savings. The FY 1996 estimates include savings of 
$13.5 million which are derived from incremental workload savings and productivity savings. 

In addition, HCFA is also continuing focused medical reviews (FMR) as a means of 
streamlining and improving the medical review process. FMR involves an analysis of 
national data furnished by HCFA as well as review of internal billing utilization and payment 
data. Through FMR, contractors (both intermediaries and carriers) will identify aberrancies 
from national or contractor data, review medical records, and initiate appropriate corrective 
actions. These actions will include prepayment and postpayment review of bills, conducting 
educational contacts, developing and revising local medical review policies, identifying and 
recouping overpayments, and referring cases to the Benefit Integrity staff. 

Contractors will evaluate quarterly the results of FMR to determine its effectiveness. 
Factors in gauging effectiveness include: 

number of claims reviewed, 

dollars derived versus review costs, 

volume of claims/charges denied in proportion to claims suspended, 

specificity of criteria in relation to identified problem(s), 

demonstrated change in behavior, 

impact of education as a deterrent in relation to review costs, and 

the presence of more costly problems identified in data analysis that need 
higher priority than existing criteria. 

HCFA will also use this database of results to define acceptable contractor medical review 
performance and to measure the relationship between contractor educational programs and 
changes in provider practice patterns. 

Based on FMR activities and claims experience, intermediaries and carriers will develop 
local medical review policies. They will utilize input from Peer Review Organizations/carrier 
policy exchanges, carrier advisory committees, national carrier medical director meetings and 
workgroups, and the national medical review policy clearinghouse. 



44 



493 



In FY 1995, HCFA implemented new procedures for reviewing provider cost reports, which 
expanded onsite examination of provider records where it is likely that improper cost were 
claimed. The new procedures include a "limited desk review" program and a "focused 
review" initiative. These procedures will continue throughout FY 1996. The limited desk 
review program enables intermediaries to identify claims on provider cost reports. These 
claims pose limited risk to the program, using a minimal amount of resources. In effect, 
limited desk reviews allow a significant number of provider cost reports to be reviewed and 
settled at an o- frail reduced cost. 

Focused reviews direct intermediaries to review certain provider records pertaining to a 
limited number of pre-selected/high risk reimbursement issues. In most instances, focused 
reviews enable HCFA to reduce the risk of improper payments at a large number of 
providers that would not otherwise be audited. Focused reviews are expected to generate 
a significant amount of program savings at a relatively low cost, which will allow HCFA to 
maintain approximately the same level of savings return with a constant level of funding. 

Legislative Proposals 

The Administration will propose legislation that will improve HCFA's contracting flexibility. 
By allowing HCFA increased flexibility, we can improve the cost effectiveness of the 
Medicare Contractor budget. 



494 

RATIONALE FOR THE BUDGET REQUEST 

I. Payment Safeguards -- $396.3 million 

Payment Safeguard functions include conducting medical review of claims to determine 
whether services are medically necessary and constitute an appropriate level of care, 
deterring and detecting Medicare fraud, auditing provider cost reports, and assuring that 
Medicare acts as a secondary payer when a beneficiary has primary coverage through other 
insurance. 

► Medical Review/Utilization Review TMR/UR) - $115.0 million 

These activities serve to guard against inappropriate benefit payments by ensuring 
that the medical care provided is covered by Medicare, and is necessary and 
appropriate. Specifically, our contractors are required to work with the medical 
community to develop clear medical review policy and communicate that policy to the 
providers. Moreover, we also emphasize the need for systematic and ongoing analysis 
of claims data to focus prepayment and postpayment medical review. To meet this 
requirement, intermediaries and carriers currently analyze local and national data to 
identify practice patterns, trends, and aberrancies which may reflect areas of potential 
abuse, inappropriate care, and over-utilization. This data-driven approach allows us 
to target and direct our efforts to our greatest risk of inappropriate program 
payment. Medical review activities are expected to yield a return on investment 
(ROI) of 10:1. HCFA expects about $1,117 billion in savings from our medical 
review expenditures. 

• Fiscal Intermediary Medical Review - $33.1 million 

Fiscal intermediary medical review v.i" focuc ^t. preventing inappropriate 
billing through provider education and on targeting reviews on providers who 
fail to change inappropriate behavior. Funding is requested to identify areas 
of abuse and over-utilization, and to prevent payment for services which are 
not covered under the Medicare program. This will be accomplished through 
analysis of national and local data. Reviews will be targeted where they will 
be most effective in protecting the program. 

Intermediaries will continue to improve efficiency through increased 
acceptance of electronically submitted medical documentation, increased use 
of technologically advanced software, and refinement of screens for data 
analysis and identification of noncovered services. Intermediaries will continue 
to analyze local and national data for practice patterns and trends to identify 
and target review where there are aberrancies and areas of potential abuse or 
over-utilization. This targeting principle will assist in developing local medical 
review policies which will address problem areas or trends in new 

46 



495 



technologies. The local medical review policies will be developed in 
coordination with health professionals in the community, carriers, and Peer 
Review Organizations. These jointly developed policies will be disseminated 
to providers. Education will be furnished to providers when problems are 
identified. 

In addition to educating aberrant providers who need to change inappropriate 
behavior, intermediaries need to provide ongoing education through training 
sessions, participate in consumer and provider organization meetings, and 
make presentations to consumer groups. 

The data analysis that will drive prepayment medical review will also drive the 
selection of providers for postpayment audit. Through data analysis and/or 
prepayment review, a provider may be identified as billing the program for 
noncovered services. When there are a large number of claims involved which 
would make it impractical to review 100 percent of the claims in question, or 
where there is evidence of possible fraud or abuse, the provider will be 
selected for postpayment audit (Comprehensive Medical Review -- CMR). 
The CMR involves selection of a statistically valid sample of claims 
representing the universe in question. Overpayments resulting from the 
sample review will be projected to the universe of claims represented by the 
sample. This process is an administratively and cost-effective means of 
recovering inappropriate Medicare payments from providers. 

Data system enhancements necessary to increase medical review effectiveness 
include increased automated review systems, increased electronic submission 
of Medicare documentation, and improvements in data analysis software. The 
purpose of system enhancements will be to increase the effectix ness of 
medical review. 

The terms of legal settlements dictate that all beneficiary billings for services 
not requiring Medicare payment (demand bills) in skilled nursing facilities be 
reviewed. A percentage of all other beneficiary demand bills will also be 
reviewed. It is anticipated that the volume of demand bills will increase as 
State Medicaid agencies intensify efforts to obtain Medicare payment for 
dually-eligible beneficiaries. Coordination with Medicaid agencies and 
provider education will be needed to ensure that Medicare is accurately billed. 
In total, HCFA expects to save $297.9 million m program dollars as a result 
of intermediary medical review activities, with an ROI of 9:1. 



47 



496 



• Carrier Medical Review - $81.9 million 

A total of $81.9 million is requested to fund Carrier Medical Review activities 
in FY 1996. The projected savings of $819.0 million will provide an overall 
ROI of 10:1. 

Carrier Medical Review identifies areas of abuse and over-utilization and 
prevents Medicare payment for medically unnecessary or noncovered services. 
Carriers will utilize computerized methods of analyzing utilization, 
epidemiologic, and demographic data to detect trends in provider activities 
and the deUvery of health care. This will be accomplished through 
prepayment and postpayment analysis of Medicare Part B claims. In FY 1996, 
carriers will perform prepayment review on 4.6 percent of all claims. 
Postpayment review will consist of CMRs on 2.7 per 1,000 providers. 

In FY 19%, HCFA will continue to support the medical review activities of 
the four Durable Medical Equipment Regional Carriers (DMERCs). The 
DMERC prepayment review level will be 9 percent and postpayment reviews 
will be done through CMRs at a rate of 5 providers per 1,000. The DMERCs 
will conduct prepayment and postpayment review of Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) claims to identify 
areas of potential abuse and over-utilization and to prevent payment for 
noncovered services. Utilizing statistical data provided by the Statistical 
Analysis DMERC (SADMERC), the DMERCs will conduct CMRs on 5 
suppliers per 1,000 in their region. The SADMERC will conduct CMRs on 
S suppUers per 1,000 nationally. 

The DMERCs will identify aberrancies from an analysis of national and local 
databases. The DMERCs will initiate corrective action for overpayment 
recoupment, target supplier claims for services most frequently billed, and 
continue to revise regional medical review policies and screens for the Office 
of Inspector General (OIG) referral. This targeting principle will assist in 
developing regional medical review policies to address identified problem 
areas or trends in new technologies. In addition to educating suppliers, 
DMERCs need to educate the referring/ordering physicians responsible for 
prescribing DMEPOS items and include them in the medical policy 
development process. 

Benefit Integrity - $34.9 million 

HCFA will continue to detect and deter Medicare fraud activities through concerted 
efforts with OIG, the Federal Bureau of Investigation, Medicaid Fraud Control Units, 
the Department of Justice, and other HCFA partners. With the development of 
Medicare fi'aud units at each contractor and our expanded focused reviews, we are 

48 



497 



strengthening our ability to identify areas of abu-.e and over-utilization. HCFA 
continues to improve and expand fraud detection through the use of statistical 
analysis on billing practices. 

HCFA will continue programs to safeguard Medicare trust funds through the early 
detection of fraud and through other initiatives aimed at preventing fraud. Emphasis 
will continue on identifying and correcting existing aberrant behavior, identifying 
potential future occurrences, and identifying program weaknesses that seem to make 
it easy to defraud Medicare. 

As in FY 1995, HCFA will continue to improve the quality of referrals to OIG by 
increasing its fraud detection capabilities through expanded data analysis and 
improvements in fraud detection by the carriers and intermediaries. To aid this 
effort, HCFA will have in place a fraud detection investigation database which will 
contain information on currently active investigations of emerging fraud. 

In addition, the National Claims History Database continues to be available to focus 
postpayment review on practitioneio and suppliers who appear to be billing 
fraudulently or who are misrepresenting to Medicare the services or items they are 
furnishing. 

HCFA continues to improve the efficiency of the Medicare fraud units with the 
processing of all regioni.! Durable Medical Equipment (DME) claims in separately 
funded DME regional fraud units. The DME Medicare fraud units will concentrate 
on their broad payment safeguard functions and on working together as a single force 
to deal with suppliers that bill nationally. HCFA will also begin to expand the 
Medicare fraud focus at fiscal intermediaries to include a concentration on Home 
Health Agencies -nd Skilled Nursing Facilities. 

In FY 1996, Medicare carriers will focus their activities on medical laboratory, 
radiology, anesthesia, physician services, and ambulance claims. The carriers will 
upgrade their fraud detection capabilities by making better use of available databases 
and expanded relationships with other fraud detection organizations. 

To make beneficiaries more informed consumers, HCFA will continue its beneficiary 
outreach program through close cooperation with beneficiary groups and national 
publications. HCFA will continue to work with its contractors to refine data analysis 
capabilities and to evaluate the effectiveness of contractors and methodologies for 
detecting fraud. HCFA will evaluate contractor staff training needs and provide or 
make arrangements for the necessary training. 



49 



498 



Audit and Provider Settlement - $148.0 million 

The audit of provider cost reports represents HCFA's primary instrument to help 
assure the integrity of Part A Medicare payments. Funding priorities are directed 
towards the use of limited desk reviews where low cost/low utilization providers are 
involved, and the application of a greater number of onsite focused reviews to expand 
the overall examination of high cost/high reimbursement issues. HCFA expects to 
realize $1.6 billion in program savings, while the FY 1996 funding level increases by 
$700,000. The expected ROI is 11:1. 

In FY 1996, budget estimates allow for a relatively constant level of reviews and 
audits for all types of providers even though an ever-increasing number of providers 
require both desk review and settlement. Full desk reviews and field audits are 
directed towards high cost/high utilization providers and past poor performers. 
Contractors will retain a knowledgeable audit staff and provide training in accordance 
with Government Auditing Standards. 

Contractors will also respond to provider appeals by conducting Intermediary 
Hearings and by filing position papers and attending hearings at the Provider 
Reimbursement Review Board (PRRB); reopen and revise prior period settlements 
based upon provider requests, as well as PRRB and HCFA directives; and, resolve 
problems identified on provider cost reports. 

The following table illustrates recent intermediary savings and current projections of 
savings resulting fi-om audit activities. 







Number 




Audit 






of 


Focused 


Savings 


Years 


Providers 


Audits 


Reviews 


rmillions') 


1991 


30,364 


5,229 


. 


$1,700 


1992 


29,490 


2,736 


- 


$974 


1993 


29,900 


2,907 


- 


$1,711 


1994 


29,950 


2,574 


- 


$1,117 


1995 


30,950 


2,866 


2,592 


$1,788 


1996 


31,493 


2,501 


2,407 


$1,628 



SO 



499 



Medicare Secondary Paver (MSP) - $98.4 million 

Our continuing MSP program is designed to identify situations where other insurers 
are the primary payer, to pay all claims correctly the first time, and to recover 
Medicare dollars in instances where overpayments have occurred. HCFA aggressively 
pursues the identification of secondary payer situations through the collection and 
matching of beneficiary-specific health care data through the Internal Revenue 
Service, Social Security Administration, and HCFA (IRS/SSA/HCFA) data match. 
In addition, our use of the Initial Enrollment Questionnaire is an important part of 
our commitment to capturing vital health care coverage data on beneficiaries and 
their spouses at the time of Medicare enrollment and before any claims are filed. In 
FY 1996, the MSP efforts will be funded at a level of $98.4 million. This level of 
MSP activity will yield savings of approximately $2.5 billion in Part A and $950,300 
in Part B, for a total of approximately $3.4 bilUon in program savings in FY 19%. 
The ROI will be 58:1 for Part A, 17:1 for Part B, and 35:1 overall. 

HCFA will continue to support litigation to recover funds from organizations not 
complying with the MSP provisions. HCFA's priorities will be: 

• Data Matches - $22.8 million 

IRS/SSA/HCFA Data Match - $21.2 million 

In FY 1996, HCFA plans to enhance the IRS/SSA/HCFA data match. The 
IRS/SSA/HCFA data match for calendar years 1993 and 1994 will occur in FY 
1996. This data match will achieve approximately $400.0 million of the 
projected $3.4 billion in MSP savings. 

Information derived from the data match will be entered on the Common 
Working File (CWF) system through the Recovery Tracking System. Once 
this information is entered on the CWF, contractors will be able to identify 
MSP situations prior to paying claims, thereby improving contractor efficiency 
and performance. Contractors will require $21.2 million to seek recoveries 
including funding for the designated contractor who will contact employers in 
order to identify working aged individuals based on IRS records matched by 
SSA. 

Other Data Matches - $1.6 million 

In addition to the IRS/SSA/HCFA data match, data matches with other 
Federal and State agencies (beyond the current IRS/SSA match mandated by 
OBRA 89) will be executed so that potential mistaken paymentsituations can 



51 



500 



be avoided and prior mistaken payments recovered and tracked. HCFA 
anticipates some insurers, third party administrators and employers will begin 
a voluntary data match with HCFA. This should reduce their administrative 
costs as well as HCFA's. 

Initial Enrollment Questionnaire CIEQ') - $3.6 million 

HCFA is sending all potential beneficiaries a questionnaire three months prior 
to their entitlement to Medicare. This questionnaire requests information on 
any other health insurance the individual may be entitled to after becoming 
eligible to Medicare. The lEQ contractor will load the information on the 
CWF. Medicare contractors should then have information on other coverage 
before any claims are filed. 

Ongoing MSP Activities - $70.0 million 

TTie cost of ingoing MSP activities will increase as claims volume increases. 
More reliable information on the CWF, as a result of data matches, the lEQ, 
and past litigation activity saves program dollars but increases administrative 
expenditures for inquiries and processing more appeals. The $70.0 million 
includes $7.2 million for MSP inquiries. 

Litigation - $2.0 million 

HCFA will litigate additional cases of noncompliance with MSP provisions in 
FY 19%. 



52 



501 



PAYMENT SAFEGUARD 

ADMINISTRATIVE COSTS AND BENEFIT SAVINGS 

(Dollars in Millions) 







FY 1995 






FY 19% 






Cost 


Savings 


ROT 


Cbst 


Savings 


ROI 


MRAJR 














Part A 


$ 36.9 


$ 297.9 


8:1 


$ 33.1 


S 297.9 


9:1 


Part B 


78.0 


819.0 


11:1 


81.9 


819.0 


10:1 


Subtotal 


114.9 


1,116.9 


10:1 


115.0 


LI 16.9 


10:1 


Benefits 














Integrity 1/ 


39.1 






29.5 






Audit 


147.3 


1,787.7 


12:1 


148.0 


1,628.0 


11:1 


MSP 














Part A 


47.4 


2,465.0 


52:1 


42.5 


2,465.0 


58:1 


Part B 


65.9 


950.3 


14:1 


55.9 


950.3 


17:1 


Subtotal 


113.3 


3,415.3 


30:1 


98.4 


3,415.3 


35:1 



Ibtal 



$414.6 



$6^19.9 15:1 



$390.9 



$6,160.2 16:1 



y The implications of the changes in scope and nature of activities make it diCBcult to quantify 
savings for benefit integrity. 



53 



502 



II. Productivity Investments - $71.6 million 

As we move into the next era of heSlth care which emphsisizes constant assessment of our 
programs, greater importance will be placed on the exchange of information with our 
customers and partners. Without improvements, HCFA will not be able to capture the large 
volume system demands necessary to serve the increase in customers. With the challenge 
of setting the national standard comes the responsibility of responding to the needs of the 
customers we serve. Therefore, HCFA is taking aggressive steps to implement investment 
strategies which are designed to improve the administration of the Medicare program. The 
projects we are requesting funding for in FY 19% are as follows: 

► Contractor Transitions - $28.5 million 

Based on historical trends, we anticipate the number of contractor transitions will 
increase substantially. An increase in the number of contractor transitions began in 
FY 1994, and HCFA believes this trend will continue through FY 1996. HCFA must 
assist these contractors and the relocation of their Medicare claims workloads so that 
their separation from the program will not cause disruption. The total funding level 
for FY 1996 is $28.5 million, an increase of $23.5 million over the FY 1995 level. 

► Medicare Transaction System - $20.2 milUon 

The MTS will be a major advancement in the processing of claims and collecting of 
related information. Although HCFA will own and control the MTS, it will be 
contractor operated. The system is being designed to integrate, standardize, and 
significantly improve the efficiency of processing Medicare claims. This restructuring 
and consolidation of the Medicare claims process is a HCFA initiative that has been 
endorsed by the Secretary, the Office of Management and Budget, the General 
Services Administration, the General Accounting Office (GAO), and has received 
Congressional support. Today's systems are fragmented, old, non-responsive, and 
costly. MTS is being designed to re-engineer these systems and will result in one 
modem, more responsive, less costly, flexible state-of-the-art platform that will carry 
HCFA into the 21st century. 

HCFA began design of the MTS in FY 1994. The FY 1996 request reflects an 
increase of $8.4 million. The total level of $20.2 million includes funding for CWF 
host conversions and local contractor conversions to MTS, preparatory activities for 
MTS operating sites, the MTS Provider File, MTS operating site startup and 
telecommunications startup, and MTS local contractor system termination. 



54 



503 



Administrative Simplification - $17.5 million 

Simplification involves standardization of the contractor systems for the processing of 
claims and related provider and beneficiary activities. Contractor systems for 
interfacing with the MTS will be standardized and made more efficient with the state- 
of-the-art telecommunications and information systems technologies. In addition, the 
numerous payment transactions between providers and MTS will be standardized. 
HCFA will continue to promote the adoption of national standards for all payment 
transactions, replace certain other routine processes with electronic transactions and 
provide technical support to providers converting to electronic processing. 

The Electronic Data Interchange (EDI) initiative will transfer all Medicare 
telecommunications formats to American National Standards Institute (ANSI) 
formats. The standardized Medicare formats will provide a foundation for 
implementation of the MTS. Additional standards are still under development by 
ANSI and will be implemented by the Medicare contractors when completed. These 
include standards for: National Provider Identifier, CWF Task Directives, and the 
Elimination of Local EMC Formats. 

HCE\s EDI initiatives are a key component of the Agency's strategy to reduce 
administrative costs and standardize contractor operations through the migration to 
a totally electronic claims processing and payment environment. The substitution of 
electronic transactions for paper transactions facilitates the transition to the MTS by 
standardizing system inputs and outputs and reduces total Medicare expenditures by 
decreasing the burden on physicians and providers. HCR\ will continue its aggressive 
efforts to use EMC since EMC results in lower claims processing unit costs. HCE\ 
will further promote shared claims processing arrangements, in which several 
contractors use identical claims processing software that is maintained by a single 
entity. 

In order to promote efficiency among contractors, HCE\ continues to encourage the 
enhancement and use of identical software for claims processing. The request for 
administrative simplification is $17.5 million in FY 1996. 

Improve Beneficiary and Provider Services - $3.2 million 

HCFA is dedicated to serving its customers and working with its partners. The 
following initiatives are important components of an overall plan to achieve HCFA's 
service goals. 



55 



504 



• Beneficiary/Provider Survey - $1.2 million 

Information gathered through the Beneficiary and Provider Survey allows 
HCFA to develop customer satisfaction indices and ensure high quaUty carrier 
and intermediary performance. 

• A ppeals Process Simplification - $1.0 million 

HCFA will focus its efforts on streamlining the Medicare appeals process 
through pilot testing of new approaches to optimize the process. 

• Combined Part A and Part B Explanation of Medicare Benefits - $1.0 million 

HCFA is committed to making the Medicare program easier to understand 
and use. We plan to combine the necessary claims information that is 
currently furnished to beneficiaries on three separate notices on an all-inclusive 
benefit statement. 

National Provider Identification - $2.2 million 

In preparation of MTS, we will assign a National Provider Identifier to all health care 
providers. This initiative will allow HCFA to standardize Medicare and Medicaid 
provider enumeration data and provide our health care industry partners with 
standard enumeration capabilities. 



56 



505 



FY 1996 FISCAL INTERMEDIARIES AND CARRIERS 
PRODUCTIVITY INVESTMENTS 



Fiscal Intermediaries Amount Requested 

Contractor Transitions $9,100,000 

Medicare Transaction System 6,400,000 

Administrative Simplification 5,600,000 

Improve Beneficiary and Provider Services 1,000,000 

National Provider Identification . 700.000 

Total Fiscal Intermediaries $22,800,000 

Carriers 

Contractor Transitions $19,400,000 

Medicare Transaction System 13,800,000 

Administrative Simplification 11,900,000 

Improve Beneficiary and Provider Services 2,200,000 

National Provider Identification 1.500.000 

Ibtal Carriers $48,800,000 

TOTAL ALL CONTRACTORS $71,600,000 



57 



506 



III. Claims Processing -- $891.4 million 

Claims processing functions include the cost associated with paying Part A and Part B 
claims, including: electronic data processing, contractor personnel cost, postage, printing, 
etc. Claims processing funding accounts for approximately 55 percent of the money 
requested in Medicare contractors. 

► Claims Payment - $854.1 million 

Contractors must accurately determine beneficiary eligibility, coverage, and payment 
amounts for every Medicare claim received, and pay claims in a timely manner. 

HCFA calculates unit costs for claims processing using the following factors: 
inflation, claims volume, postage rates, and operating efficiencies. Savings generated 
during processing are also incorporated into the unit cost calculations for claims 
processing. 

Claims payment includes $37.0 million for other ongoii.g costs such as: CWF (host 
and maintenance). Data Communications (including FTS-2000), DME regionalization 
support activities, Unique Physician Identification Number initiatives, administrative 
support of HCFA projects and GAO special studies, administrative support of OIG 
audits and other activities, funding for Blue Cross and Blue Shield association, and 
administrative cost settlements. 

Calculations of Workload and Unit Cost 

A statistical forecasting analysis of the latest available actual workload data was used 
to develop projections. For FY 19%, HCFA projects an average workload growth 
of 4.7 percent - 8.8 percent for Part A and 3.9 percent for Part B. The inflation rate 
assumed is 3.2 percent. 

For the Medicare contractors, the bottom line unit cost is derived as follows: 

Numerator: Ongoing costs for bills/claims payment, appeals, inquiry (carrier), 
MR, MSP (except Datamatch), Benefits Integrity (except Networking), 
Provider Education and Training (carrier). Participating Physician (carrier), 
Reimbursement (intermediary). 

Denominator: Carrier claims or intermediary bills. 

The following graph illustrates that in FY 19%, Medicare contractors will process an 
estimated 822.0 million claims, 140.6 million Part A and 681.4 Part B claims. This 
represents a 4.7 percent increase over the number of claims processed in FY 1995. 



58 



507 



CLAIMS PROCESSING 



WofWoad in Milliom 



wni 








655.6 


681.4 








615.1 


1 


" 


600 




574.9 ^ 








5J62 










400 






















200 














101.1 


109.6 


120.6 


129.2 


140.6 




1 


1 


1 


1 


' 



FY 1992 



FY 1993 



FY 1994 FY 1995 



FY 1996 



PartA PartB 



The following table shows the bottom line unit cost, the line 1 unit cost, and workload data 
for contractors. Historical data is provided for FY 1992 through FY 1994, as well as 
projections for FY 1995 and FY 19%. 



59 



508 



Bottom line Unit Costs, for Cost Contracts 

IN CURRENT DOLLARS 



FY 1992 


FY 1993 


FY 1994 


FY 1995 


FY 1996 


Part A $2.78 
Part B $1.71 


$2.61 
$1.60 


$2.45 
$1.52 


$2.45 
$l.t8 


$2.29 
$1.47 


IN CONSTANT 1988 DOLLARS 








Part A $2.33 
Part B $1.43 


$2.12 
$1.30 


$1.95 
$1.21 


$1.91 
$1.15 


$1.74 
$1.12 



Line 1 Unit Costs 
Oaims Processing Only 



IN CURRENT DOLLARS 








Part A 
PartB 


$1.60 $1.50 
$1.05 $0.96 


$1.40 $1.40 
$0.89 $0.87 


$1.45 
$0.90 




IN CONSTANT 1988 DOLLARS 








Part A 
PartB 


$1.34 $1.22 
$0.88 $0.78 


$1.11 $1.09 
$0.71 $0.68 


$1.10 
$0.68 






Wnrklnad In MiUions 








FY 1992 


FY 1993 


FY 1994 


Receipts 
Processed 


Part A Part B 
101.2 546.1 
101.1 546.8 

FY 1995 


Part A Part B 
110.3 573.2 
109.6 574.9 

FY 19% 


Part A 
121.1 
120.6 


PartB 
612.7 
615.1 


Receipts 
Processed 


Part A Part B 
129.2 655.6 
129.2 655.6 


Part A Part B 
140.6 681.4 
140.6 681.4 







60 



509 



► Reimbursement - $35.5 million 

The funding level for Medicare provider reimbursement will decrease by $9.1 million 
in FY 1996, to $35.5 million. Provider reimbursement services include establishing 
and adjusting interim rates, collecting provider overpayments, and providing 
consultative services to providers for maintaining their accounting systems. 

► Printiiig <:i.8 million 

In the interest of maintaining standard formats and high quality in entitlement and 
report forms, HCFA supplies beneficiary enrollment and provider cost reporting 
forms. The use of these forms is essential to beneficiary notification and efficient 
contractor operations. In FY 1996, HCFA will print 50 million of the