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Office of the Press Secretary

For Immediate Release June 20, 2000
                             PRESS BRIEFING
                              ON MEDICARE

                 The James S. Brady Press Briefing Room

2:53 P.M. EDT

MR. SIEWERT: Here to provide some background on the President's announcement today are two administration officials who are thoroughly knowledgeable about the intricacies of the President's proposal and his entire health care agenda. I will not name them, since this briefing is ON BACKGROUND. Thank you very much.

SENIOR ADMINISTRATION OFFICIAL: Good afternoon. I am senior and she is more senior, and we just wanted to give you a little bit of background on the announcement the President released today, unveiled today. There are really, I think, two major components to it. Today, for the first time, the President is explicitly endorsing the Vice President's proposal to take the Medicare trust fund off budget. He indicated that just a few moments ago. As many of you know, this is actually, I think, either being debated or has been debated, or is suspected to be debated on the House Floor today, or a provision very similar to it.

He is also, within that context, unveiling a new, $21-billion over five years, $40 billion over 10 years, provider restoration initiative aimed at Medicare and Medicaid providers, specifically hospitals, teaching facilities, academic health centers, home health agencies, nursing homes, and other providers, including a rural health care component.

I'm going to go through the specifics, but I want to lay out a few generalities, and we will be happy to take questions as we go through these. First, we believe that this initiative is consistent with, and supportive of, the President's overall fiscal management of both the Medicare programs and the federal government as a whole, first by taking the Medicare Part A program off budget.

The Medicare program is protected from changes in the program that have nothing to do with the program, and moreover, makes a significant contribution towards buying down the debt. In addition, in the aftermath of the trustees' report earlier this year -- it was, I believe, April -- we found that through the stewardship of the Medicare program, as well as a significant improvement in the economy, the insolvency in the Medicare program had been extended from, or the projected insolvency date had been projected and enhanced to, increased to 2025 from 2015.

As a consequence, we can proceed with the President's proposals, including the restoration provisions and the prescription drug benefit, and still extend the life of the Medicare Trust Fund beyond 2030. This is very important to the President. He believes that as we move forward to deal with provider payment rates, and the long-overdue prescription drug benefit, that we are also strengthening the Medicare program and dealing with the solvency issue.

Now, as for the Medicare restoration provisions, there are a series of them, as I mentioned. It is $21 billion over five; $40 billion over 10, but there are specific breakouts that I think are useful as well. There are a set of policies that are primarily one-year policy -- they have multiple-year effects, but they are one-year policy changes that are specified in the proposal being unveiled today for hospitals, home health agencies, nursing homes, ESRD -- end-stage renal disease -- providers, as well as an indirect effect on managed care. Those specific proposals aggregate to $9 billion over five years, and $19 billion over 10 years.

In addition to that, we have an unspecified provider restoration pool of $11 billion over five years, and $21 billion over 10 years. There are some rounding issues, but you add those two components up -- the specified, the unspecified, you get to the $21 billion -- $40 billion I've mentioned previously.

Now, within those categories that I've mentioned, we have specific proposals. I think they've been laid out in the press paper that I hope has now been made available to you -- I'm hoping. And if it hasn't, we have copies for you up front here. So, you don't have to get all the specifics down, but I don't know if -- do you want to go through the specifics? Would you all be interested in the specific policies within the broader headings? Okay, then why don't I --

SENIOR ADMINISTRATION OFFICIAL: We're passing out the paper that gives you the line-by-line detail. As the Senior Administration Official said, we believe that these proposals are very consistent with the President's commitment, both to strengthen Medicare, extend its solvency, provide a prescription drug benefit, and also ensure that beneficiaries continue to have access to high-quality care. As you all know, the Balanced Budget Act contained 335 provisions that affected virtually every health care provider in the country.

Some of those provisions were very positive. There are a number of things that we are doing, through those provisions, to really change the incentives to make Medicare more efficient and a more effective purchaser of health care, such as the prospective payment systems that we're in the process of implementing right now.

There are some policies, though, that you've heard us talk about many times that we have thought needed to be moderated, and that's essentially what we're talking about today. But I want to emphasize that we're not undoing the reforms that we put forward and worked with the Congress to enact several years ago. The new payment methodologies that we developed are still going into effect. What we're trying to do is to essentially soften the blow, create a smoother glide path or a better transition to the new Medicare payment methodologies.

Just to walk through them -- and some of you have heard us talk about these specific policies over the last year or so, as we've monitored the effects of the Balanced Budget Act, and the other things that are going on in the health care marketplace, including our unprecedented, and I think, very important efforts to curb waste fraud and abuse in Medicare.

For hospitals, we are proposing the full in-patient hospital market basket for 2001. And just to put this in context, hospitals were scheduled to -- the market basket update would be 3.1 percent -- that's the full market basket for 2001. Under the Balanced Budget Act, they were scheduled to get 3.1 percent minus 1.1 percent, so what we've done is just say, their update will be 3.1 percent for that one year, which is closer to where CPI is, and we think is a justified change, given where margins are, and some of those issues.

We're also proposing to increase indirect medical education percentages to 6.5 percent for '01. That was a -- there were some changes made in the Balanced Budget Refinement Act, and we're proposing to refine those further. We're proposing to repeal the Medicare DSH reduction for 2001 -- disproportionate share payments for Medicare hospitals.

We are proposing to freeze the Medicaid disproportionate share hospital allotments for 2001, and that is something that, in our discussions around the country with public hospitals and with beneficiary advocacy groups, we believe is important to ensure that infrastructure and quality is maintained.

And we're also proposing to do some things to help rural hospitals, and on those policies, we want to work with the Congress to get to some specifics, but we have allocated some dollars, as you'll see from the paper, to work with the Congress to target those dollars toward rural hospitals.

And finally, in the hospital area, to adjust Puerto Rico hospital payments to a 75/25 blend that will help the Puerto Rico hospitals to be compensated more fairly. And there have been some severe problems in Puerto Rico, some of you may be aware of, with the hospital system.

In home health, we are proposing to delay the 15 percent cut that was scheduled to go into effect in '02. Many of you have heard us talk about that. That was something -- that is a policy I'm referring to when I say there were some policies that perhaps weren't justified, and I've said that. It was put into the law because there was a concern about whether the Balanced Budget Act would in fact achieve the savings from the prospective payment system for home health. And I think that we have achieved the savings there, and so we believe that it's appropriate to delay that cut.

We are also proposing to give home health agencies the full market basket update for 2001. And again, to put that into perspective, the full market basket is projected to be 3.4 percent of an update. But under the BBA, home health agencies were scheduled to get 3.4 percent minus 1.1 percent. So this would give them the benefit of a market basket that is closer to the CPI, and closer to what we think they need.

With respect to nursing homes, again, we would propose to give them the full market basket update for '01. Nursing homes were scheduled, under the law, to receive a 2.8 percent market basket minus one. So that would have been a 1.8 percent increase. So instead of that, we are proposing a 2.8 percent increase.

We are also proposing -- and this is another one you've heard us talk about, and you've heard the Congress talk about -- to delay the therapy cap changes for an additional year. You may recall that this is another policy that was added in at the last minute to achieve certain scoring numbers from CBO, frankly, and it was to cap therapy cost for beneficiaries at $1,500. And with some very severely ill beneficiaries, people who have strokes and that sort of thing, it is not practical or feasible or good medicine to do that. Last year in the BBRA, Congress proposed that we would come back in a year with other policies to achieve the same result, and we are proposing to delay that for an additional year.

Managed care will get the indirect effect of these specified policies, and you can see there that over five years, that's about $1 billion to managed care; over 10 years, it's $3 billion. But remember, also, that we believe the most important thing that needs to be done in managed care is that we need to start reimbursing managed care plans for providing prescription drugs, and that is part of our prescription drug policy, under which they would receive, I think, more than $50 billion of the $160 billion that is in the President's prescription drug policy.

And also, remember that managed care plans, unlike the other fee-for-service providers, get a guaranteed 2 percent minimum 2 percent increase. Other fee-for-service providers do not have the benefit of that policy.

And, finally, we are proposing to increase the ESRD composite rate for 2001. The end-stage renal disease population is one that Medicare treats really exclusively; virtually everyone who has ESRD is a Medicare beneficiary. We have not updated this composite rate in a number of years. MEDPAC has recommended that we do so, and we agree that it needs to be updated, and so that's one of the President's policies here that are specified.

As my colleague said, there is also an unspecified provider restoration pool, and I think he probably wants to talk about that.

SENIOR ADMINISTRATION OFFICIAL: I'll -- and obviously those dollars, those additional dollars are dedicated for unspecified policies, will be done in conjunction with policy analysts and experts around town -- MEDPAC, CBO, GAO, HCFA, OMB, the Congress, the groups, organizations who can provide data. We want to work very carefully, construct what we think will likely be some additional valid investments in this area.

They can be either targeted, they can be extensions of the policies that we've talked about, or they can be permanent changes. We have not ruled any of those things out. There are some valid arguments for a number of those policies. As you've seen or many of you know, there have been bipartisan initiatives produced by the Congress in all of these areas that go well beyond in aggregate the dollars that we're talking about here.

I think we want to find the right balance to achieve policy-justifiable investments in this area to insure adequate reimbursement and access to quality health care.

The last point that I think is worth making before we answer any and all of your questions is as follows: I think the most important point about these investments are, not only are we doing this in the context of what we think is a fiscally prudent management of the overall program and the government management as a whole, but that we can do this in the context of not pitting needed investments for a prescription drug benefit to be in conflict with investments for needed reimbursement increases for providers serving Medicare beneficiaries.

It is not our position, nor has it ever been, that investments in Medicare should be confined to $40 billion over five years, as is suggested by the House budget resolution. Our budget, indeed, our budget itself, even before these enhancements, have dedicated far in excess of that for health care improvements for Medicare, for coverage expansions, for long-term care, for solvency enhancements, et cetera.

I think one of the great, or the most fundamental points about this, as the President pointed out, is that you don't have to compete with a good prescription drug benefit and have adequate reimbursement, and we hope and expect that Congress will move to agree to that opinion as we move ahead in the weeks and months to come.

With that, I'll close and open it up for any questions.

Q You say this financial distress of the provider community -- MEDPAC and the Inspector General's Office and GAO have cast at least some degree of doubt on some of the claims of the provider community that the BBA has impacted them in a devastating way. Can you cite any studies or reports or anything like that, that would -- not produced by the provider community -- of course, that wouldn't --


Q -- to illustrate this?

SENIOR ADMINISTRATION OFFICIAL: Well, as you know, MEDPAC has done analysis with a series of recommendations, both raising concerns about access and margins -- rural hospitals, specifically, home health concerns, hospitals in general. As you know, MEDPAC even recommended a market basket plus one percent increase for the next two years.

MEDPAC is the independent organization making recommendations to the Congress. We have yet to be convinced that it justifies that much of an increase, but certainly, MEDPAC has provided a lot of information -- a recent IG report on nursing homes that interview discharge planners raise concerns about placement of patients in nursing homes.

There's been access concerns raised by MEDPAC on home health care. They've documented a significant decline in home health agencies. There's been a lot of closures in home health agencies. It does not mean that that's wrong, but there's certainly, if you look at the numbers, and home health care in particular, we are actually spending less on home health care in 2000 than we spent at the time of the enactment of the Medicare program.

Now, we did want to trim back growth in home health care. We certainly think that it was justifiable. There was waste, there was abuse, there were excesses. So that is an not justifiable in and of itself, but it certainly raises concerns when you actually have less dollars dedicated for home health than you did previous to the enactment of home health care.

So I think all these reasons -- and, frankly, other information that we've collected, both from the industry and other independent sources have led us to conclude that the investment that the President has outlined today is actually quite moderate. Some will say it's excessive; some will say it's not sufficient. We've already heard from providers saying that they wish it was more. That's the way it was.

We carefully analyzed our options; we carefully analyzed the dollars available; we carefully analyzed the impact on the trust fund and our ability to have appropriate stewardship of the program, and most importantly, we took into account what we thought was necessary to ensure access to quality health care services for the short-and long-term, and we think that this proposal makes a significant contribution to that end.

Q Is this something you need Congress's approval to do? I mean, does this ultimately -- does this go through legislation and this is a legislative proposal you're making, or is it also a regulatory proposal you're making?

SENIOR ADMINISTRATION OFFICIAL: We have made a number of regulatory proposals. In fact, yesterday we put out a final regulation on the managed care program. And we're doing everything we can administratively to make sure that we ensure quality access to care. But these proposals would have to be enacted by the Congress, and we look forward to working with them to get it done soon.

Q Is there any chance that this will also include looking at some of the market baskets that are already out there? I know that there's been some cries from the different provider communities saying that they should be looking at the market basket --

SENIOR ADMINISTRATION OFFICIAL: Well, this doesn't include that. And we have talked to the various provider groups about different ways of looking at the market basket. It isn't clear that we, number one, have the authority to do the things that they're proposing, or number two, that they are appropriate from an economic and health policy perspective. But we're looking at those things.

Q What's the logic of retaining the 15 percent cut for home health when you told us that the savings already have been achieved? You're only postponing it for one more year, it hangs over the industry.

SENIOR ADMINISTRATION OFFICIAL: What I was trying to say -- maybe I didn't say it right -- was that the 15 percent additional cut, as I understand it, was added in because the Congressional Budget Office did not believe that the interim payment system, the perspective payment system, would achieve the slowing down of the growth in home health that we had been experiencing, which as you know, we believed was unsustainable -- 30 percent a year, that sort of neighborhood.

The interim payment system, by itself, combined with what we're doing I think to combat waste, fraud and abuse, and frankly, the industry's serious attention to some of those issues I think has resulted in a very different looking and operating home health system in Medicare today than we had a number of years ago.

I think, though, that we are concerned that we maintain the critical infrastructure that's out there. I've been traveling around the country, and I was mulling over the question that my colleague got earlier about independent reports. As I travel around I meet with providers, I go out with them and see what they're experiencing; I talk to beneficiary groups. I've been to some areas of the country, both in New England and, frankly, in the West where I've been concerned that there are home health agencies that may be serving a very broad population, a big area, and the payment rates are just barely adequate. And if they get a high acuity patient, then they can run into trouble.

Now, having said that, our actuaries project that home health spending will probably rise up slightly again and begin on an upward trajectory again in the out-years. And that's why we're proposing to delay it in 2002, but not to totally repeal it. And it would cost, I think -- what -- $15 billion-$20 billion to repeal it.

SENIOR ADMINISTRATION OFFICIAL: But I would say one more thing to supplement -- we aren't ruling out dealing with the 15 percent issue altogether, but we want to work with the industry, with policy analysts, we want to make sure that we have an appropriate stewardship and a cost-effective stewardship over the program. If that clearly is a problem, as I think my colleague's travels attest, it's something that we may contemplate.

Right now we're announcing the specific proposals. We certainly have resources on the table to address that issue; but, of course, it would be done probably at the expense of other investment categories that other providers might like to see as well. And we're going to be balancing these things out as we go forward.

Q Could you repeat what you said a few minutes ago -- we are spending less on home care in 2000 than we spent at the time of enactment of --

SENIOR ADMINISTRATION OFFICIAL: Let me give you the CBO projected baseline was -- and for home health care was to be -- well, in 1996, the actual baseline was $16.7 billion. In 1999, we're about $10 billion -- projected $10 billion. In 2000 -- it might -- we're going to see, but it's not going to increase much. So there actually has been a decline --

SENIOR ADMINISTRATION OFFICIAL: The $10 billion is actual.

SENIOR ADMINISTRATION OFFICIAL: The $10 billion is actual, and '96 is actual.

SENIOR ADMINISTRATION OFFICIAL: So the actual spending in '99 was only around $10 billion.

SENIOR ADMINISTRATION OFFICIAL: Yes. So it was actually below where we were in '96. Now, that does not mean -- I mean, you have to recognize that, as my colleague had pointed out, in the early '90s, we saw such growth in home health care, that it was completely untenable to continue. And, in fact, in the early '90s, we probably were about $1 billion or $2 billion, and we saw huge increases in the out-years.

So, where the exact right number is, we're not sure. And certainly, reducing the growth was very important. Because it was unsustainable and was going to undermine the solvency of the trust fund, or make significant contributions to that end.

But, we need to make sure that none of these changes occur at the expense of access to quality care for beneficiaries who need it. And there have been legitimate questions raised, and we are addressing that, at least specifically, in the near term, through two proposals that we've outlined previously.

Q Can you explain a little further the President's decision to endorse the Vice President's proposal to take Medicare off budget, including why now?

SENIOR ADMINISTRATION OFFICIAL: Well, I think the first reason is because it's a good concept, a good idea. The President feels very strongly that the Medicare payroll taxes dedicated to the Medicare program should be given to the Medicare program and not be exposed to potential other uses.

As currently structured, those surplus -- the surplus dollars coming into the Medicare program today -- and it's hundreds of billions of dollars -- are exposed in the on-budget surplus. And if don't have a lock box, if we don't have an off-budget that protects it, we fear that those dollars will be used for other purposes. That's undermining the program, that's undermining its financing, and frankly, the public support for it over the long haul.

It also has an extraordinarily positive certainty of making a significant financial contribution to buying down the debt, which has been and continues to be a high priority for this administration, and I think for many in Congress on both sides of the aisle.

For those two reasons, he felt, in particular, that we should move ahead to protect the program and ensure that we at least walled off those dollars from being misused into the future and do it as soon as we can. And then, I think, today in the House, we're seeing the House at least attempting to move in that direction, and taking steps to endorse the Vice President's proposal as well.

Q You mentioned at the end of your presentation just now that spending on prescription drugs need not compete with some of these restorations. I'm wondering if you could say how large the scope of the program could be, in your estimate?


Q The prescription drug benefit.

SENIOR ADMINISTRATION OFFICIAL: Well, we have totaled at $195 billion over 10 years for the prescription drug benefit as currently constructed. We may look at other provisions as we go forward. I'm not in a position to comment on that or give any specifics. If we did, it would probably be in the context of our final work on the mid-session review, which has yet to have been completed.

Q Can you explain in a little bit more detail on the market basket concept, how that's used in determining increases?

SENIOR ADMINISTRATION OFFICIAL: It's supposed to reflect the inputs into prices for components for each of the different providers. And it's an update that's supposed to reflect the increase in what it costs them to pay for employees and that kind of thing.

Q And in terms of the baseline changes that make it possible to fund some of these changes being announced today, what kind of overall numbers are you looking at? How much is being saved or --

SENIOR ADMINISTRATION OFFICIAL: I'm sorry, can you repeat that question? I'm sorry.

Q How much is being saved on the baseline that makes it possible to fund these proposals being announced today?

SENIOR ADMINISTRATION OFFICIAL: Well, actually, we're not talking about baseline changes, obviously. We certainly are well aware that there is going to be a very positive infusion of finances as a consequence of the economy, improvements in the economy.

But I think that the underlying validation for us to move here is that, as you know, we have dedicated significant resources to the Medicare trust fund, to extend the life of the trust fund, in the President's budget. We can continue to dedicate significant resources and still allocate a portion of those resources to provider restorations -- in this case $40 billion over 10 years.

So it's covered under many different areas, both in terms of our trust fund support, and the enhanced financial well-being of the program, as well as new dollars that inevitably will be coming into the Med system review. The funds available for this is not in doubt; they certainly are available, as I pointed out -- and as the President did earlier, more importantly, that it does make it possible to do both.

Q Have you had any conversations with Bill Thomas or Senator Roth on how this fits into their plans?

SENIOR ADMINISTRATION OFFICIAL: Well, I understand Mr. Thomas is very busy, working towards a mark-up, maybe as early as tomorrow. I know they had a meeting today on this issue. Mr. Thomas, we talk -- my colleague has talked to Mr. Thomas probably more than I have in recent weeks. But we're always available to each other. We almost always work together at the end of the year, and we anticipate -- I think we anticipate we'll do it again.

Q We're a couple of weeks away from announcements of Medicare-HMO pull-outs for next year that could affect hundreds of thousands of beneficiaries. Would any of this money in this restoration fund go possibly for the Medicare plus choice plan?


SENIOR ADMINISTRATION OFFICIAL: Yes, because these policies -- just like last year, John, when the BBRA was enacted, the increases to fee-for-service have an impact on managed care rates as well, because they're based on what's paid for fee-for-service in a particular county. So you'll see there that there is a $1-billion effect over five years on the managed care plans, an increase just from the change that we're making to fee-for-service.

Q Right. But I mean in addition to that, in that fund that you have for unspecified restorations, yes.

SENIOR ADMINISTRATION OFFICIAL: Oh, I see what you're saying. He's asking whether any of that -- that's for discussion, I think.


Q But you're not ruling that out?

SENIOR ADMINISTRATION OFFICIAL: No, we're not ruling out anything at this point in time. If there is good data to show that we should be moving in this area, then it's something we might contemplate.

I would say, to reiterate something that my colleague said, that under any scenario. If we work in a bipartisan spirit and collaboratively to actually produce a prescription drug benefit this year, that over the next five years there will be an infusion of dollars for the Medicare managed care program for over $25 billion -- well over $25 billion -- over the next five years, and well over $50 billion over the next 10 years.

So it would be for the first time in the program's history we would provide direct compensation for managed care choice plans to provide a drug benefit that in many cases they're already providing, which we think will significantly stabilize the market and enhance the likelihood that they'll want to participate.

Q What was the 10-year figure?


Q Right, in the managed care plans. You just mentioned --

SENIOR ADMINISTRATION OFFICIAL: More than $54 billion. That's $54 billion of the $160 billion, and of course, the catastrophic is on top of that. And we haven't allocated that yet.

SENIOR ADMINISTRATION OFFICIAL: I just want to clarify one point. There has been a reduction in home health spending. I think it's '97 rather than '96 -- okay --

SENIOR ADMINISTRATION OFFICIAL: He said from the beginning of the program, and I think Robert may have thought you meant 1965.

SENIOR ADMINISTRATION OFFICIAL: Oh, I thought I said 1996. But anyway, I apologize if I did.

Thank you very much.

END 3:25 p.m.