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Office of the Press Secretary

For Immediate Release June 29, 1999
                           PRESS BRIEFING BY

                           The Briefing Room

4:30 P.M. EDT

MR. LOCKHART: The plan for the next few minutes is, we're joined here by Secretary Shalala, Gene Sperling, Chris Jennings, who will take your questions on the President's Medicare announcement today. When they're done I will come down and take your questions on any other subjects that might be on your mind today.

Secretary Shalala.

SECRETARY SHALALA: Just to recapitulate three principles of the President's proposal, first we extend the solvency of the trust fund to the year 2027. Second, we introduce competition in managed care and in fee for service, to get the best prices, but price combined with quality. And third, we introduce modernization of the benefits for Medicare -- we bring them up to date by making the prevention benefits free and by introducing a pharmaceutical benefit that is both voluntary and universal and affordable and quite prudent.


Q Provider groups have shied away from the competitive bidding demonstration project you tried to do in the past. What makes you think they'd be interested in this on the fee for service side now?

SECRETARY SHALALA: Well, let me say that we've tried to do this as a demonstration and have struggled in communities because the provider groups felt that they were being unfairly singled out around the country for competition. So now that we move it to a universal program -- and that is in every community we will have a competition by price and quality, whatever provider group wants to meet that price and quality will be able to participate -- we believe that while they will always see this as an attempt by us to get better prices, there will be participation because it will be a requirement.

Q Why wasn't fee for service included in the competitive bidding?

SECRETARY SHALALA: It is included for competition, but we haven't merged the two. When you saw the two merge, what happened was the price for fee for service went way up, which meant that we were unfairly shoving people into managed care. We believe in a level playing field and we don't want to create problems for rural areas.

In North Dakota, for example, there are no HMOs for Medicare recipients. There's no reason to raise their fee for service. What we do want to do is to make sure fee for service goes through reforms, too, and we get efficiency in fee for service, but that people continue to have choices.

Gene, do you want to go ahead and get into that?

MR. SPERLING: I'd just emphasize on that something Secretary Shalala said before that we wanted to have a carrot, not a stick approach, to the choice of managed care. In other words, we want people to choose managed care because there was real price competition and quality competition and they found for their needs that that was a better financial and health care situation. Where the traditional program was included, it was going to drive up the premium in the traditional program. That meant many people would feel they had to go into managed care not out of their choice or not because it was found more attractive, but because they felt financially they were being coerced to.

There are many, many people -- I know when I met with many of the people who speak for the disability groups -- who still have a lot of concern about whether managed care works for them. We want that to be a true choice. This gives now people the more choice to go into a program that they feel is better for them, perhaps can save them money, perhaps can save them money that they can apply to supplementary benefits that are more targeted to their needs.

So I think that we think this is true choice, not financial coercion, and I think this is the right way to go. And if the managed care options prove attractive, more people will go into them. But we'll be letting the market determine that and we'll be letting the market determine it in the sense that consumers, Medicare beneficiaries will have a free choice and good information to make the best quality and price choice for them.

Q Gene, two questions. One for you on when you can enter the program. Is it a one-shot deal, or could a Medicare recipient choose any year to join for the prescription drugs?

SECRETARY SHALALA: Actually, at the beginning of your enrollment in Medicare you get a chance to enroll. But if you're like my aunt in Cleveland who is 86 and whose provider of a drug benefit, her employer, assumed she wasn't going to live beyond 85, drops her from the plan, then she'll have an opportunity to enroll at that point, too. But there is one enrollment period.

Our actuary is assuming that everyone will go into the program, either through their employer's retiree benefits, either through the HMO or through the fee for service. Obviously, when someone moves from the HMO to fee for service they will be able to continue their drug benefit.

Q When do you expect to have a bill?

SECRETARY SHALALA: Well, I don't have a date on the bill, but most of this that we're doing now, we'll probably end up doing some joint drafting with the Hill on many of these recommendations, and some of these pieces are things that we've proposed before or we've incorporated. For instance, we continue the President's buy-in for people between 55 and 65. So we don't actually have a date on the drafting of the bill; we're going to be talking to the leadership and talking to the Hill about what we need to do to make sure that this gets properly considered.

Q -- extensions that you proposed in here?

SECRETARY SHALALA: What we've done in a number of the balanced budget extensions is we fine-tune them. And we haven't just stretched them all across the board, we've done some fine-tuning. In addition to that, we've included $7.5 billion. As you know, the providers are very concerned about what they perceive as unintended consequences of the Balanced Budget Act. We put $7 billion aside to start a process with the Congress to talk about where we need to make some corrections and do some fine-tuning, where the balanced budget produced some unintended consequences.

An example of that is at the last minute the Congress threw in for scoring purposes caps on therapeutic services. In our judgment, that was unfortunate and we need to make some corrections there. Whether we decide we're going to take them off or simply make them broader, we haven't decided.

Q -- extending the savings beyond 2002, what are you specifically thinking of?

MR. JENNINGS: In essence, what we've done with the extenders is, as you know, there was a whole series of 1997 extenders -- what we did first was review them to eliminate some of those that we thought would impose undue harm on the providers. Some examples of that include we have no hospital dish extension. We have no hospital out-patient department extension. We have no home health care cuts extension. We don't have any nursing home.

Where we do have some extensions is in other areas of the hospital, in clinical lab, in ambulance, in a whole host of different prosthetics related issues. But certainly there is going to be savings in the out years -- $39 billion over the 10-year period from these extensions. And as the Secretary mentioned, those are somewhat offset by the $7.5 billion in early years set aside for those providers who we believe can illustrate significant and legitimate concerns related to their ability to provide quality access to services.

Q Can you be more specific on what incentives you'll give employers to maintain their drug programs?

SECRETARY SHALALA: Money. What we have to do is to actually figure out how much it will cost us. It will not be the entire amount that we would spend on an individual if they entered an HMO or went into a fee for service plan. What we're going to do is give them some economic incentive to keep their drug benefit as part of their retiree's plan. We'd like to keep everybody where they are -- if they're in an HMO, we want to keep them there and let the HMO administer the drug benefit. If they're in fee for service, we'll have a private sector manager there. If they get their drug benefit through their employer, a little bit of economic incentive of some money given directly will help to keep that benefit there. The amount we'll have to obviously be talking about.

Q -- score the cost of the drug benefit yet?>


Q How much was that?

SECRETARY SHALALA: It was $118 billion over a 10-year period, beginning in 2002.

Q What is the current co-pay on the preventative tests that will now not have a co-pay?

SECRETARY SHALALA: There are different fees and co-pays. We're just eliminating them all. It's about $3 billion worth of co-pays and fees. We'll give you a sheet that has them.

Q Do you have a profile of the average beneficiary's drug use? In other words, how many drugs do they take; what's their average out-of-pocket cost per year? And where did the cap come from?

SECRETARY SHALALA: I think that -- where did the cap come from? Actually, it's with some assumption -- we wanted to cover a very high percentage of the spending now. The current spending is about $600 per year on average. So what you wanted to do is get a little beyond the average because there are people who have chronic illnesses and you're trying to -- and in addition to that, we're not starting until 2002, so you have to take the $600 and project it forward. So we think that we're somewhere in the mainstream of the spending on the prescription drug benefit.

This is a start, it doesn't solve the entire problem. And we want to do this very carefully. There is too much experience in the history of Medicare on new benefits being introduced and not very carefully and spinning out of control. Home health care is a perfect example of that. So we're going to do this very carefully and it is going to be phased in very carefully so that we can watch it to make sure it doesn't spin out of control.

Q Could you discuss the fee for service sectors which might employ competitive bidding?

SECRETARY SHALALA: We did, and we are introducing lots of competitive bidding in fee for service, including an effort to get those who use that part of the health care system to go to centers of excellence, to places where there is better price and quality, where we can save some money and where they can get better health care, as well as the whole range of purchasing. We believe that fee for service needs reform. We believe that fee for service is paying too many sticker prices for too many products that it pays for.

Q -- for the different types of providers --

SECRETARY SHALALA: For all of the purchasing the fee for service does, we want to be able to go into the marketplace and do competitive bidding for all the things that are purchased on behalf of clients for fee for service. In addition to that, we want to provide economic incentives for fee for service beneficiaries to use the highest quality and most economical services in fee for service. And -- what else do we have in fee for service?

One of the new innovations -- many of our costs -- as you know, in fee for service we have a large number of people who have chronic illnesses for whom managed care has not had a lot of experience. And so there will be economic incentives in fee for service for the primary care physician to manage the variety of different specialists that the individuals use and create a team concept as a way of trying to get some control over chronic illness costs and quality.

We have taken everything that people have recommended over the years to improve both the quality and the cost of fee for service and introduced that as part of our competitive reforms.

Q What competitive tools -- you talk about competitive market-oriented purchasing and quality improvement tools to improve care and constrain costs. Do you have any details about the tools that would affect physician's services?

SECRETARY SHALALA: Well, one that I've already indicated is an economic incentive to pay the primary care physician for managing those with a chronic illness. And that's a specific example in terms of fee for services. The second one is the wider use of centers of excellence. If you have to have an operation you want to go to a place that has done it lots of times and gotten very good health outcomes.

We have been running large-scale demonstrations to see whether we could reduce fee for service costs by identifying in a community places where people would go that were of the highest quality and in which we got the best prices. The range of prices for the same procedure within a community can be very wide, and the outcomes could be very different. So we're introducing here the concept of centers of excellence as a way to get fee for service costs down.

Plus everything that we purchase, from wheelchairs -- we are paying too many sticker prices. Medicare was originally designed because they thought no one would come and participate. Lots of people participate. The number of doctors coming into Medicare is going up. We need to get the best prices.

Q The President goes to Chicago tomorrow for a health care event. What's that all about?

SECRETARY SHALALA: It's Medicare and he's going to talk about what he talked about today, as well as about prevention.

Q Is there some idea that we need to start selling this out in the public, the real people?

SECRETARY SHALALA: Well, we always don't just do an announcement, we do follow-up. And I will be on the road next week extensively on the West Coast doing the same thing, as will a number of my colleagues. We will be explaining the program; we'll be doing town meetings' we'll be moving around the country to explain the President's proposal.

MR. SPERLING: I have heard some people say today, why are we providing this additional benefit; people really don't need it; average Medicare beneficiaries don't need that. Our recommendation to members of Congress who are saying that is to go back to their districts and their states and talk to their constituents who are part of the 15 million who have no prescription drug coverage at all, or the millions who are paying expensive fees in Medigap for inadequate benefits. So, certainly, this is an aspect of Medicare policy in which there is easily put on -- a human face on this. And this is something that, as the President said, if anybody was redesigning or inventing the Medicare program right now, no one would dream of having a Medicare plan that didn't include prescription drugs.

So I think the President goes out -- there are a lot of numbers, but I think when you listen to what Secretary Shalala is saying, what is behind everything we're doing is basic health policy. The example she used in giving incentives to a primary care physician to coordinate care is a great example of something that saves us money, but also just makes common sense. Anybody who has had a relative in that situation knows that if you're going to five different doctors you're missing something that happens when there is one primary care coordinator who is watching over everything. That's better health care policy and it saves money.

On the prescription drugs we have tried to show that there is a real need and that we're willing to pay for it in a reasonable way, with nearly 60 percent paid with internal Medicare savings.

Q Secretary Shalala, can you explain why it wouldn't have been better to have an unlimited drug benefit for poor people and to have lessened the benefit or maybe eliminated it for very wealthy people? That's actually what Congressman Thomas was talking about outside. It sounds more progressive than you do.

SECRETARY SHALALA: We have never in the history of the Medicare program income-tested a benefit. We don't income-test the flu shots. We don't income-test surgeries that people do. This program was designed in a way, with the assumption that as we get older we get poorer. And therefore, we see the drug benefit not as an add-on in which we can just cover the poorest of the poor -- and we do that in this benefit because with pay whatever the fee is for people up to 135 percent of poverty.

But more importantly, we believe that this benefit is an integral part of good health care, that it is, in fact, modern health care to include a drug benefit. Why then would we limit it? If you live in a rural area in the United States, you can't get it through managed care. If you think that this benefit is so key to good health care it has to be part of the benefit package.

And as Gene has pointed out, we believe if we were starting from scratch and designing a benefit package, drugs would be part of it. Drugs are now substitutes for hospital stays, for out-patient, for all sorts of procedures. They are -- therapeutic medicine is where health care has gone, and therefore, this benefit is absolutely critical to keeping people healthy.

Q The other part of the -- argument on the drug benefit is that you shouldn't subsidize the first dollars the patient is spending, but rather the later ones. Subsidize above a threshold once a person has spent $1,000 to cover everything. Have you evaluated that?

SECRETARY SHALALA: We have, and we think that if you look at modern medicine, it's the early investment in the drug as part of the prevention and treatment strategy, as opposed to having people wait until they're very sick. We're not opposed to a catastrophic benefit, we didn't sort that out here and we clearly are going to study it. But the whole point of modern health care is to get people into screenings early, into treatments early, into a preventive attitude early. So the last thing you want to do is to keep our focus on acute care as opposed to paying earlier on and making it more than convenient, but an integral part of people's treatment plans.

Q Can you explain where the $30 billion in the savings comes farther down the road, why providers shouldn't be worried that that money is really going to hurt?

SECRETARY SHALALA: Well, first of all, the providers I'm sure are going to say that the money is going to hurt. And anything that we do to slow down growth or to reorganize the way in which we pay we're going to get concerns from providers. What we have said all along is that we need evidence if they want us to make some corrections or to stop some of the proposals that we have, that it actually is going to hurt beneficiaries, or that the government ought to overpay in certain areas to maintain institutions.

Q Can you describe in layman's terms where the $30 billion in savings farther down the road comes?

SECRETARY SHALALA: It's the same list that we did during the balanced budget. And we've left some off and continued some others.

Q Is there going to be a formulary in the Medicare drug benefit?

SECRETARY SHALALA: There may, but that decision will be made by the private sector manager. And here's the rule. The rule is that Medicare's law covers all drug benefits that have been recommended by the FDA, they have FDA approval. If a doctor wants to use a specific drug that's not on the formulary, that doctor has a right to do that and the drug plan will pay for it.

Q Have you budgeted for a slower growth in managed care, because a drug benefit would be a disincentive to join the plan?

SECRETARY SHALALA: Well, we don't think so, first of all. We don't accept that assumption. The fact is that the movement of Medicare recipients to managed care has slowed down, but not because of the benefit structure, but rather because the industry, by pulling out of certain parts of the country, has made recipients very nervous. And so where we used to have 80,000 people a month moving into managed care, that has slowed down considerably.

We believe that the reforms that we're introducing, that the fact that people will continue to have choice, that managed care will not be cutting back on the drug benefit, they'll know that they'll get the drug benefit if they go into managed care, and they'll be able to shape the rest of the additional benefit they want because they will purchase them out of pocket, so it will fit better with their own needs -- that this will continue the movement to organized care. Organized care still is very attractive.

We also think that the way in which we're paying here and the way in which the bidding process is going to be designed will be better for managed care. I think that the managed care people are now looking at what we're doing, but I really think that this is a good deal for managed care and it certainly puts managed care and fee for service on a more even playing field. They've been concerned about the fact that fee for service has gotten away with murder here, and we actually even out the playing field here.

Q Have you figured out how a successful tobacco lawsuit would factor into this, and when does the administration plan to launch the --

SECRETARY SHALALA: I think that's a separate question, actually, about the tobacco lawsuit. We obviously are working on a tobacco lawsuit and we don't have a particular time line on it. We have believed for a very long time that if we could reduce tobacco use and, in fact, there is a smoking cessation plan as part of the prevention benefits that we have in our plan, that that would do more to affect the public health. If we could get seniors, for instance, who are smoking now to reduce their smoking, that would help. But the link between a tobacco settlement and this is not strongly drawn.

Q But money from a settlement would go to the Medicare program?

SECRETARY SHALALA: I don't think we've made that. Let's get the money first.

Q -- contract with pharmacy benefit managers to manage the drug benefit by region?

SECRETARY SHALALA: Yes -- well, yes, it may be region, it may be smaller than regions. That's one of the things that we're in the process of designing. The most important thing is that the private sector is going to manage it. We'll simply contract. We will not have direct negotiations with the pharmaceuticals. They'll do it with people they have normally done it with.

Q The fact that you're willing to talk about putting money back into the provider payment side is pretty far from where you were back in January when you released your Fiscal 2000 budget, when you were proposing pretty extensive cuts. Does that mean down the road, maybe October when the budget is nearing its final days, you might be willing to put even more back in there?

SECRETARY SHALALA: No, our position has not changed. Where there is evidence that the decisions that were made have produced inaccurate payment schedules or unintended consequences -- the therapy caps are a good example of that -- we should make corrections. Much of this was done, and some of it was done at the last minute to get some scoring. Some of it was done without us knowing what the consequences were going to be.

We need to be very concerned about the impact on beneficiaries, whether they continue to have access to good quality health care. But at the same time, we ought to be sensitive to the need to maintain a health care infrastructure out there that is both healthy and lean and of the highest quality. So we need to find a balance. We will have a process with the Congress for reviewing the evidence, as well as strategically making some decisions about where resources might be readjusted.

MR. SPERLING: I just wanted to comment on again on the income issue. There are a couple of points that are important to understand. First of all, we do pay for, as you know, all of the premium and all of the co-pay for people up to 135 percent of poverty. There is some notion that if you're above this, prescription drug would not be a burden on you. A person -- a single elderly person at 135 percent of the poverty rate is making $11,000. They have $11,000 of income. And they have a very small amount of disposable income after they've dealt with their basic necessities of rent and food. So when you're talking about people who often have anywhere from maybe the average of $600-$700, but many people at times will have costs of $1,000-$2,000 or $3,000 -- you're talking about a substantial amount of the person's disposable income, even for someone who might be thought of as a middle-income Medicare beneficiary.

And so it is very much the case that even somebody in middle income who might make $20,000 a year, when they consider what they have to pay for rent and food, if they have a year where they are paying a couple or $2,000-$3,000 of prescription drugs, that very much can squeeze their basic necessities. And so it makes, we think, very good sense to have a prescription drug policy that is universal and does provide that protection for middle income beneficiary when those years happen where their costs are very high.

And I think, as the President said, nearly half -- 40 percent of the 15 million people have no prescription drug benefit coverage at all are over 200 percent of the poverty level.

The second point is that -- people say, well, why did you have to subsidize 50 percent; couldn't you just have given a smaller subsidy. You want to have an attractive enough subsidy so that virtually every Medicare beneficiary feels it's attractive for them to come into the program. If you only have a small subsidy, the only people that would come in would be those who felt that they were going to be sick and have serious problems. And so you have a self-selection problem. And so a smaller subsidy could lead to a program that is -- where the costs are not spread and it's expensive.

So the goal is to have enough of a subsidy so it's attractive enough so all Medicare beneficiaries want to come in. There's not selection or adverse selection issues, but not so expensive that it's fiscally irresponsible and we can't afford it. And I think what we did was try to have what we thought was a proper balance by being attractive enough of a subsidy to draw all Medicare beneficiaries in, but not so fiscally attractive that it hurt our fiscal situation.

Q While some of the add-on benefits that Medicare managed care offers, like health club memberships, are kind of trivial. Some of them aren't -- there's like dental coverage, catastrophic drug coverage provided by some of these plans. Is there -- as I understand it, your plan would not allow them to offer that for free anymore. Why is that, and do you think that will hurt?

MR. SPERLING: First of all, the reason we mention things like health club benefits, not to say it's trivial, but that those are the types of benefits that can be used to attract a healthier population. If there's one thing that is consistent it is that you want health care providers focusing on competing, on price and quality, not who is best at excluding sicker people or attracting healthier people. You want to have a focus on competition, on price and quality. When people can add in benefits that could include a health club membership or things involving foreign travel, or prevention, routine checkups, all of those things are targeted to be more attractive to healthier people.

What happens here is you can offer those, but you have a defined benefit package. If you can provide that at 80 percent of the cost, or 90 percent of the cost, you can basically refund that money to the person. They get to keep the premium. That allows them to buy supplemental benefits that are more targeted to them. So anything somebody offers they can offer now, only instead of just mixing it in the package where it's difficult for people to compare, or it's designed to exclude sicker people, it will be very transparent. There will be a particular cost for a particular benefit.

So everything is available. What you're doing is creating a market where people can make apples to apples comparisons and have a more effective price and quality competition.

Q Madam Secretary, what are you doing to the years approaching 2027? Will they be cursing you for establishing a new and expensive new entitlement?

SECRETARY SHALALA: No, they will be thanking me because their health will be better as a result of having their drug benefit. And that's exactly what they need to improve the quality of their health. So if we didn't think this was critical we would not be putting it in, we would not be insisting it be there for everyone.

MR. SPERLING: And if someone criticizes Donna in 2027, she'll take them on on the tennis court then. (Laughter.)

SECRETARY SHALALA: I will be getting the benefit in 2027.

THE PRESS: Thank you.

END 5:00 P.M. EDT