Press Briefing by Secretary of H.H.S. Donna Shalala, Chair of Economic Council Laura Tyson, H.C.F.A. Administrator Bruce Vladek, and Inspector General June Gibbs Brown

The Briefing Room

1:25 P.M. EDT

DR. TYSON: The President is a hard act to follow. The President this morning talked about health care reform, and he talked about the need for additional deficit reduction. But he emphasized that there is a right way and a wrong way to addressing these two major challenges we face. And they are two major challenges. They are how to reform the health care system in order to keep it affordable for Americans and in order to reverse the trend we see towards increasing number of Americans without coverage, in order to maintain and safeguard choice, and in order to maintain and safeguard quality. They are real challenges we face in the American health care system.

We also face real challenges with additional deficit reduction. But we need to think about these things as serious, real challenges that require the appropriate response the right way. The right way, of course, is, in the health care reform area, to begin with the system and with the people, and to ask the question of what is achievable savings that -- what are achievable savings that are consistent with meeting the test of expanding coverage, of dealing with the crisis we have in the country of increasing numbers of people without coverage, of maintaining affordability, of maintaining quality and of maintaining choice. So that's the way to approach the health care system problem -- beginning with the system, the people, and look to proposals that will meet those tests.

The wrong way to approach it is to say -- to set an arbitrary number, as many of the Republican proposals we have seen do -- an arbitrary number of the amount of savings that have to come out of federal health care spending to meet ill-advised campaign promises of huge tax cuts for the wealthy, combined with achieving an arbitrary bottom line on the budget by an arbitrary date, regardless of the effects of those cuts, those massive cuts in health care spending -- those unprecedented cuts in health care spending -- on the health care system and those people who are served by it.

So we believe that the approaches we have seen -- and basically, they've been nothing more than huge proposed cuts; that's the approach. It hasn't been supported by any policies, it's just numbers needed to fill in the blanks to achieve a set of campaign promises -- that that is the wrong way.

And what we have also seen is that that way, those amounts of cuts that are being proposed -- a $300 billion proposal of cuts in Medicare for example; $160 billion to $190 billion of cuts in Medicaid -- given what we know about how fast costs per person cover, are growing in Medicare and Medicaid -- and incidentally, those costs per person favor -- compare favorably with what's going on in the private insurance system -- we can conclude that cuts of this magnitude will inevitably result in major reductions in coverage.

We have a fact sheet, for example, on Medicaid. And our estimates are, even if you don't put all of the cuts on coverage -- you put some on number covered, some of the cuts on what coverage implies and some of the cuts on providers -- you're going to end up with substantial reductions in coverage. By our estimates, if the Republicans cut $160 billion to $190 billion between 1996 and 2002, and those cuts were divided evenly between eliminating eligibility for the elderly and disabled beneficiaries, eliminating eligibility for children, cutting services, and cutting providers -- 5 to 7 million children would lose coverage -- 800,000 to 1 million elderly and disabled beneficiaries would lose coverage.

Let's look at the Medicare side of it for a minute -- $300 billion looks like it might be proposed coming out of the House. That would mean for the Medicare beneficiaries, $3,100 to $3,700 more in out-of-pocket expenses over a seven-year period. Essentially, the typical Medicare beneficiary would see 40 to 50 percent of his or her cost of living adjustment in Social Security eaten up by the increase in the cost of Medicare, cost-sharing and premiums.

So these are just examples of the kinds of slashing of benefits and the kinds of slashing of coverage that would be required to meet these arbitrary numbers that are motivate by nothing else than a need to find the funds to finance those promises. And our proposal, again, and our challenge to the Republicans is to reform -- to begin the right way, to begin by saying, how can we reform the system to maintain affordability, maintain coverage, maintain quality and maintain choice for Americans. Thank you.

And I'm going to now be followed by Secretary Shalala, who is going to talk about some of our initiatives to achieve those health care reform objective.

SECRETARY SHALALA: Thank you very much, Laura. One of the -- let me put this in another context, and that is, the administration has been working hard to contain health care costs. We have agreed with all the health economists in the country that health care costs are too high. As Laura pointed out, the most important number is the per capita growth in health care in the public sector is growing at about the same rate as it is in the private sector, but it's still too high and there still are things that we can do.

And without going into all of the things the Department is doing, the President announced today as part of our REGO II proposal Operation Restore Trust, which is a waste fraud and abuse effort by the Department, built upon the most successful year in the history of the United States in settlements of claims and of fraud cases led by our Inspector General, June Brown and the Justice Department. I want to thank Janet Reno, who is part of our team.

Let me tell you what we're going to do, though. We're about to ratchet up in areas where we have very strong and very fast growth. In this effort, we're going to target our program in five states. Forty percent of all the Medicare and Medicaid recipients in the country are in these five states. In these states, we're going to go after waste, fraud and abuse in home health care, in nursing care and in durable medical equipment which is related to the home health care activities.

These are the fastest-growing areas of health care, and unfortunately, the fastest-growing areas of health care fraud and abuse. In this effort, we're going to create interdisciplinary teams that will include experts from state government, from the federal government, from private health insurance carriers and their intermediaries.

We're going to take these teams that know about program management, about auditing, about advocacy for seniors in law enforcement, and put these strike teams together in a way that will work to really go after waste, fraud and abuse in these states in these areas.

The critical point is that we've picked five states where we know we have a lot of activity going on. And for the first time, rather than in a scatter-shot way, but in an intensive way, we're going to work with state and local law enforcement agencies, and with the public. There will be an 800 number for them to use. There will be opportunities for people to come in and talk to us about abuse that they've seen in the system. And there will be follow-ups. And we're putting considerable additional resources into this effort.

This is a precursor at the beginning of a national effort by the Department. We're using our demonstration authority to pay for this. What we hope to do is to change the way in which we integrate integrity activities in the major health programs in the country. Because what we intend to do in legislation that will be sent to the Hill is to use the settlements as a way to pay for future investment in the Department's integrity activities.

There will be almost a revolving fund that we'll be able to tap into that will change the way in which we build in our integrity activities right into these programs. And I know you don't want to hear a lot of detail about that. The important thing is, we're actually going to change the culture of the Departmental and Justice Department's activities by building it into both of these huge federal health care programs.

As I indicated last year, we had some of the largest settlements in our history. What was the total number? But the total amount was about $800 bill, I think, in final. But we had a huge settlement, a $300 million settlement. We expect out of this to have a series of announcements of major successes as a result of this. But it's a fundamental change in the way the Department does business and the way in which the federal government has built in its integrity activities right into the programs.

Bruce, do you want to say anything? Okay. Bruce Vladeck from HCFA is here. June Gibbs Brown, the Inspector General, is here.

Q: What are some of the typical abuses in each of those areas that you mentioned?

SECRETARY SHALALA: Let me have June come up and -- Bruce, do you want to come up, too? Go ahead and answer the question.

MS. BROWN: Okay, some of the abuses -- for instance, in nursing homes, or with Medicare, things that should be paid for under Part A, which would be the normal things used in the nursing homes -- bandages, bedding, all of those kinds of things. A lot of times now they're billing Part B in order to have certain pieces of equipment or supplies paid for under Part B. And we're getting double-billing. That's a simple example.

SECRETARY SHALALA: It's basically double-billing. Bruce, what else?

MR. VLADECK: I'm Bruce Vladeck, Administrator of the Health Care Financing Administration, which operates Medicare and Medicaid. Some of the work we've done with the Inspector General and the Department of Justice in Florida in the area of home care, for example, consists -- includes a number of instances for billing for home care visits that were never actually provided, forging of physicians' signatures, on orders for home care, which are the triggers to generate the justification for the service, billing for equipment and supplies provided in the home that were never provided. Some degree of trafficking in stolen Medicare beneficiary identification numbers; and trafficking in false or stolen provider identification numbers.

Q: Are there criminal charges against these people?

MR. VLADECK: Many of these involve criminal cases. Many of the other are civil fraud.

Q: How many people have been arrested?

MR. VLADECK: In Florida since October, I believe we've initiated or in the progress of perhaps half a dozen criminal prosecutions. But the investigations that will lead to prosecutions in a number of those instances are still underway.

Q: Are they mainly doctors?

MR. VLADECK: No, they are primarily other providers of service to the Medicare program -- home care companies, durable medical equipment companies.

Q: Can you describe some of the fraud for us so we know how it occurs, because I think it's occurred on some of my --

MR. VLADECK: I believe we just did. We've had a particular problem of home care agencies billing for services that were never provided, forging physicians' signatures on orders for those services, billing for medical equipment or medical supplies that were not in fact provided or not needed, trafficking stolen Medicare identification numbers, and trafficking in phony provider identification numbers. Those categories have been particularly related to these industries and in some of our pilot work in Florida have been the first kinds of large-scale things we've run into.

Q: how much money is being siphoned off by waste, fraud and abuse in Medicare and Medicaid?

MR. VLADECK: The General Accounting Office, a number of years ago, used an estimate of 10 percent of all expenditures for waste, fraud and abuse. Our position has been that if we could document a precise number, we wouldn't be adequately doing our job in prosecution. If we knew of all the fraud and abuse in the program, then we should be prosecuting all that fraud and abuse. So we're reluctant to put too false or precise -- it's too much a false precise number on it. But we're talking about billions of dollars a year. And once this demonstration project is underway, we will be able to provide everyone with much more reasonable and much more soundly-based estimates of the magnitude of these problems.

SECRETARY SHALALA: We have never before in the history of the government been able to put anything this intense together in a whole state that would, in fact, not only identify people that we can prosecute, but more importantly, change the culture of the industry in terms of whether people think they can get away with things. And the intensity and the fact that we intend to build it into the programs I think is the major contribution here.

Q: Secretary Shalala , you said you're planning to put considerable resources into this project. How much money, where is it coming from, what's being spent on it?

SECRETARY SHALALA: We're using the demonstration authority of the Department, which means that we can tap into the entitlement side of the budget. Waste, fraud and abuse in the government is on the discretionary side. We'll initially, for this year, take about $8 million, but add another 100 people. We'll probably have 100 people of existing people already involved. We're adding staff, and then that's just the federal government's part. The states and the local government's, as well as Bruce's staff, inside.

So we have not put a total number on because we've got to build it up in these states over time. My hope is that we will have legislation passed by the end of this year which will allow us to do this across the country. But again, the important point is to build it in, not to add it on on top, not to have someone suddenly report and to have an investigation, but to actually build it in.

Q: What are these 100 extra people? What do they do? Are they investigators of some sort?

SECRETARY SHALALA: They're investigators, auditors, evaluators, people that are going to answer -- we're going to have hot lines, we're going to contract out for an 800 number so the people will be able to call the 800 number, which we've had some luck with.

MS. BROWN: One of the unique things is combining the efforts. This care is paid for by both state and the federal government. So we have the Medicaid fraud control units in the states that will be working with us. We'll have the people at the carriers that work under contract with HCFA who are going to put forth a major effort. So we're all going to combine our efforts and have task forces throughout these states in order to put a stop to the kind of fraud that's going on.

SECRETARY SHALALA: Janet Reno's health care fraud -- what's your title? Czar? Do you want to add anything to this?

MR. STERN: There's an extra portion to this program. We're going to have a voluntary disclosure program, which will encourage self-policing by those in these nursing home and home health care industries to come forward now, as we have in the Defense Department -- to come forward to us early. This will be a way in which we can try and help them self-police, to try and resolve these problems early to get the monetary benefits that we need for our own programs, to get the prosecutions which are necessary as well.

We have had great success in the Defense Department with this. We're now going to try and replicate it in the health care fraud area as well.

Q: Can we ask Laura Tyson a question? Could you explain how you came up with a $3,500 figure over seven years that elderly people would have to --

DR. TYSON: Actually, I'm going to bring Bruce back up here, I think, because we worked -- this was a joint effort with the OMB and HHS working with the numbers. But I was not involved in the calculation procedures, and Bruce was. So let me turn it over to Bruce.

MR. VLADECK: Talk about need to know, wow. (Laughter.) What we did was we basically took the $300 billion number that was being talked about, assumed that half of that would be allocated to beneficiaries, as I think Dr. Tyson said in her statement and as in the fact sheet you distributed, half would be allocated to beneficiaries, half would be taken in reduction in provider payments. And then we simply divided in each of the seven years and added them back up. And that's where the -- that's a cumulative seven-year number. The number -- the one-year number in the year 2002 is somewhere between $800 and $1,000, depending on some of the assumptions you make about how the dollars are allocated over the years.

SECRETARY SHALALA: Would that assume a Part B premium increase?

MR. VLADECK: Some of that would be -- now that can come in one of two ways. It can come in increased copayments and deductibles or in increased Part B premiums. As the Secretary likes to point out, a Part B premium increase comes directly out of an individual's monthly Social Security check, whereas increased out-of- pockets are a more indirect tap into Social Security benefits.

SECRETARY SHALALA: That's a very important point for someone that thinks they're going to take Social Security off the table and just look at Medicare. And that is that people who get their Social Security checks have deducted from those checks directly something called their Part B premium, which is the part they pay for outpatient services and other kinds of medical services, which means that if you increase the premium -- increase what people have to pay, they will actually see it in less Social Security money. So you're, in fact, putting Social Security back on the table.

Q: Another question for Laura Tyson. If you weren't meeting what you call the arbitrary goals of balancing the budget, and you were merely trying to get the savings you needed to keep the Medicare trust fund solvent, how much would you need? Some people have $160 billion is what you'd have to get. And just -- my second question is, if you did that, can you say you can get whatever savings you'd need to keep the trust fund solvent without touching premiums or copayments or any of the other --

DR. TYSON: Well, once again, my role here is more or less as the master of ceremonies, because I think Bruce is probably better able to give you an estimate of the amount of money that would be involved.

MR. VLADECK: It's hard to put a single number on it. And let me tell you why. About 80 percent of the outlays from the Part A hospital insurance trust fund are for in-patient hospital costs. Your assumptions about the future state of the trust fund when it becomes depleted, what it's status is and so forth, are thus critically tied as is gone into excruciating detail in the trustees reports, to the rate of growth you presume in how much you're paying hospitals from year to year.

Our belief is -- and again, it's consistent with where the President's been since the presidential campaign -- that you can't talk about how much Medicare pays hospitals in isolation from what's going on in health care costs in general and what's going on in health care coverage in general. To illustrate that point, Medicare pays about $5 billion a year to hospitals for expenses of taking care of non-Medicare uninsured patients as part of subsidies to keep institutions alive that bear the burden of covering for the uninsured.

If we could get more people covered we could reduce those payments very substantially without any damage to the health care system, or to access to care in those kinds of communities. So the future numbers about the trust fund really hinge critically on the future rate of growth in hospital costs. And so it's very hard to talk about them as a Medicare-only issue, since they're so connected to the rest of the health care system.

Q: Last year when you proposed $118 billion in savings, is that the kind of number that you still expect if it was done in the context of health care reform?

MR. VLADECK: Well, let me just make a couple comments, if I could, about that number from last year. First of all, as you know, although we haven't probably advertised it enough, the Medicare and Medicaid baselines are down very, very substantially over the last several years. That's one of the reasons why the trust fund, in fact, is in much better shape at the moment than it's been for a number of years, because our future projections about growth in Medicare and Medicaid costs are much lower than they were in the past.

Therefore, if you took exactly the same policy proposals that were contained in the President's health reform proposal last year and apply them to the current baseline numbers, they would produce significantly smaller savings because you're working off a smaller base going forward.

And that's back, I think, to the point Dr. Tyson was making about how we want to start talking -- and the President's expressed his willingness since December -- about specific policies. And then you can see what kind of numbers they produce, rather than starting with a plug number in a budget and trying to back into policies from there.

Q: Secretary Shalala, the Republicans now are talking about a bipartisan commission to try to reform Medicare. And, obviously, this is in the context of the budget debate. Under what circumstances would you agree to either this -- or the administration would agree -- to either this kind of commission or a summit or some sitting down with the Republicans to reform Medicare?

SECRETARY SHALALA: We laid that out pretty clearly yesterday, and the President laid it out again today in his speech. He laid out a series of criteria. But number one is they've got to put their budget on the table. We've got to know whether they're cutting Medicare simply to finance their tax cuts for very wealthy individuals. So the first criteria that we've insisted upon is get your budget out there, let us see your detailed budget.

And then we have indicated that it is not simply a discussion about Medicare, because, as Bruce has just demonstrated, the linkage between Medicare and Medicaid and the rest of the private health care system in this country is direct and dramatic. And what the President has consistently said is we need to talk about health care reform. We still have a health care crisis. It is the deterioration of the private insurance market that's causing some of our costs to go up, whether it's people who don't have insurance that are being paid for with Medicare, that Bruce just described, or the increase in Medicaid costs because more and more people are losing their insurance, particularly low-income workers.

So we see the connection. And simply -- we asked, for example, the trustees for the restoration of the commission, the advisory commission that always served both Medicare and Social Security because it was put in the Social Security legislation when we created the new agency, it wasn't put in the Medicare.

We don't need a special narrow commission just for Medicare. We need to do what the President says repeatedly. He has said that we need to take some incremental steps and it would be inappropriate just to look at Medicare as opposed to looking at some steps that we have to take to get some reforms in the entire health care system.

I don't know whether you want to add anything to that.

Q: How does it serve the basic problem of protecting the solvency of the Medicare system to scare senior citizens with all sorts of projections about what the Republicans might do when you concede you have no idea what the Republicans are going to do?

DR. TYSON: Well, we do have an idea of the magnitude of the numbers that are being suggested. And we do know that the numbers are being suggested in the absence of any policy proposals, supportive policy proposals in the context of a rush to present a budget which achieves balance and has huge tax cuts. So we do know those things.

And I think that we do know, as I said before, that the federal health care spending programs on a per person basis do not suggest that they compare favorably with the private health insurance per person growth rates. These numbers do not suggest that you can achieve anything like a $250 billion to $305 billion cut over seven years without having serious effects on the Medicare system that will take the form of cuts in providers or cuts to beneficiaries.

If you say -- if the proposal is, well, let's put them all on providers, that really is going to mean that they're shifted onto beneficiaries in any event. So I don't think -- given what we know, I think that danger signals we are raising, that this is not about health care reform, it's not about improving choice, it's not about improving quality, it's not about affordability, it's not about coverage. All those things have to be put at risk by cuts of this magnitude. And why are they being proposed right now? They're being proposed right now because there is an attempt to put before the Congress a budget which achieves the promises made last fall. That is, to balance the budget by 2002, and to fund huge and exploding tax cuts that go primarily for the wealthiest in our society.

Q: But you keep using the word "suggests." When you do that --

DR. TYSON: They've been throwing ideas. Numbers --

Q: But when you do that and you build your arguments about the possibility of Social Security being cut, et cetera, based on what various suggestions are, don't you run the risk of setting up Medicare now like Social Security as a program that no matter what it's faults or what needs to be corrected, everybody is afraid to touch because the political lobby against it has been riled up.

SECRETARY SHALALA: Well, first of all, we're already touching it. We already have reforms going on in the Medicare system. But they're scaring me. Look at the idea to take 37 million Americans, all of whom have preexisting conditions, if aging is a preexisting condition, give them each a voucher and throw them into the individual insurance market in this country. We'd suggest that that would be a disaster. I mean, they couldn't get insurance in 1965 when the Medicare program was put in place. The ideas they've put forward as ways of reducing the budget are either totally off the wall in terms of what any health economist would tell you, or things that won't save money -- like putting more people into HMOs, which is already taking place and which June O'Neill, the Director of the CBO, has already said that there's not a lot of evidence that we're going to save a lot of big money.

So they've put this number out there. They've thrown out some ideas for the kinds of things they would do. And we have yet to see some systematic laid-out proposal, which you would normally do as part of a budget process.

DR. TYSON: Can I just say one other thing -- and this is short. Of course, we did put out last year -- there were -- we did propose significant savings in the Medicare system in the context of the health security act. So I don't think that -- we have proposed various reforms in the past that do achieve significant saving and do work towards the goals of reform as we think they should.

And I don't think -- to say that the magnitude of what is being proposed threatens, is a threat, holds serious dangers to beneficiaries and providers is the same thing as saying there are not savings that can be achieved in the existing programs. We have already demonstrated a commitment to put on the table ways to achieve savings in existing programs. And as Secretary Shalala said, there is already ongoing work that has achieved savings in the existing programs. It's a totally different approach, though -- starting with the programs and working through reforms that achieve savings, and then seeing what the achievable savings are without endangering the other goals we have here, which is to reform the health care system.

Q: proposals from last year here?

SECRETARY SHALALA: No, we are not. The President made a break in --

Q: What is your current plan?

SECRETARY SHALALA: The President made a break in his State of the Union speech, in which he said, we have put -- we had put our detailed proposals on the table. And they were not acceptable. So what he wanted to do after that was to sit down in a bipartisan manner and take incremental steps that would achieve the same goals but would be shorter steps to get there.

In terms of cost containment, this is cost containment. In terms of cost containment, we have moved more people into managed care than in the entire history of the United States in the last two years. In terms of cost containment, we have consolidated our computer systems. We are in the process of giving people more choices in their Medicare program. We have a series of reforms going on. And there can be more reforms, including some of the things that we talked about last year. But I think our commitment is that we will sit down, we will be having conversations with the Republicans. But we need to see their budgets, because they're talking --

Q: When will you -- to deal with the solvency problem?

SECRETARY SHALALA: We've laid out what the criteria are for getting there. And that criteria is, number one, we want to see the budget. We want to see the budget proposal from the Republicans. We have already added years to making the system more solvent. Remember that -- in '93 did precisely that, it added three more years. The system is in better shape today than it was when we inherited the system. And there is more to do. If the health care reform plan had been accepted, we would have added a number of more years to it. So it's not like we don't have a good track record in making the HI trust fund solvent.

Q: Secretary Shalala, there is an HMO component in Medicare as it is --

SECRETARY SHALALA: Yes, 75 percent of all the recipients are covered by HMOs. The ones that aren't live in rural areas where there are not HMOs.

Q: Is there any way to push more beneficiaries into this to meet your tests?

SECRETARY SHALALA: Yes.

Q: Could you change the reimbursement rate --

SECRETARY SHALALA: That's exactly what we're doing. We're expanding the number of HMO options, including a point-of- service option, PPOs. And we're working on changing the reimbursement formula. Yesterday I was asked, and I think June O'Neill in the CBO has a report on moving to competition as opposed to giving HMOs 95 percent of the fee for service costs in the area. We do need a better pricing system.

People seem to be moving into HMOs at about the rate that they would because of the penetration in their areas. If you have a lot of HMOs in your area, elderly people tend to move into HMOs. If there are no HMOs, all the incentives in the world -- you go to Florida with us, and there are a lot of incentives. They're offering free drugs and all of that. But the elderly are more wary than they are in Portland, Oregon, where there's a lot of experience with HMOs. We may be a generation away, but we're doing things to encourage people. And we'd like to do even more things. And all of those things we've both announced that are in progress over the course of this year.

MR. VLADECK: Only Mike McCurry could require me to correct my boss, but the precise number is 75 percent of Medicare beneficiaries now live in communities in which they may choose to enroll in an HMO. About 9 percent have chosen. That number is growing about 1.5 percent per month. And I would just circle back in conclusion to the original question -- we're not going to push any beneficiary into any kind of plan. The question is to offer choices and to offer incentives. And we're working very aggressively. And as soon as Congress gets past talking about this entirely in terms of budgets, we're prepared to talked about further ways of providing incentives for beneficiaries.

END1:59 P.M. EDT