December 20,2005

Grassley Floor Statement on the Conference Report to Accompany S.1932, the Deficit Reduction of 2005

Floor Statement of U.S. Senator Chuck Grassley of Iowa,
Chairman of the Committee on Finance,
and Description of Components of
the Conference Report to Accompany S.1932, the Deficit Reduction Act of 2005
Tuesday, December 20, 2005

Mr. President, I want to begin by commending Senator Gregg for his tremendous effort ingetting us to where we are today on this conference agreement. It's been almost a decade sinceCongress approved a budget reconciliation bill. I think that's a pretty clear indication of howchallenging this process can be. So again, I want to recognize Senator Gregg and all Chairmen ofthe Committees involved for their commitment over the past several months to achieve this goal.And this goal is such an important one.

Why is it so important? Because by all accounts, the growth in entitlement spending hasmonumental implications for our nation's economic and financial strength. Take a look at thischart. It shows Congressional Budget Office projections of mandatory spending, includingSocial Security, Medicare and Medicaid. By 2050, mandatory spending will approach 30 percentof the nation's Gross Domestic Product by 2050. This would push federal spending well abovethe level that is has been throughout much of the post-World War II period. This is the worstcase scenario, but it's a plausible scenario if nothing is done.

The agreement before us begins to get at this situation by achieving nearly $40 billion insavings over the next five years. Given the challenges facing Congress with growing entitlementspending, that’s the equivalent of an elephant giving birth to a mouse. In fact, we really ought tobe doing more. The savings under consideration includes $6.4 billion in net Medicare savingsand $4.7 billion in net Medicaid savings. Some say any reduction is a bad reduction. But thepolicy behind the reductions is sound, just as the policy behind the numerous spending provisionsin the agreement is sound.

Throughout this process, I have sought to reduce wasteful spending, eliminate loopholes,and pay providers more accurately. I sought to advance policies that will ensure the availabilityof important health care and social services, to update these programs to reflect our nation'schanging needs, and to promote the delivery of high quality health care services.

The agreement makes some important improvements in the Medicare program, not theleast of which is addressing a scheduled reduction in payments to physicians, which could haveled to access problems for beneficiaries. The agreement builds on progress made three years agothat linked increases in Medicare payments to hospitals to the reporting of quality data.I actually would have preferred to do more in this area, and I will continue to push for furtherchanges. We just can't sit back on this issue. Medicare is the single largest payer of health care inthe nation. Taxpayers and beneficiaries deserve to get the highest value for every Medicaredollar spent.

Unfortunately, there's no question that today, we just aren't getting the most value.The bill also takes steps to ensure access to quality care in rural communities. It does this byreinstating special payment programs, such as a five percent add-on to rural home healthproviders, the Medicare dependent hospital program and the hold-harmless payments for smallrural hospitals. The conference agreement also includes coverage of valuable preventive benefitsnot covered by Medicare. These preventative benefits are important to preventing illness andkeeping beneficiaries healthy. This bill also saves beneficiaries and Medicare money bychanging the payment structure for durable medical equipment. Now Medicare will only pay forDME services that are needed.

In our efforts to reform the Medicaid program, we take some very important steps, manyof them recommended with bipartisan support of our nation's governors. Take long-term care,for example. In the very near future, a lot of folks are going to need long-term care. Right now,Medicaid is the primary payer for long-term care services. The Deficit Reduction Act expandsthe Long-Term Care Partnership Program and will help promote awareness about long-term careinsurance. We combine that with a policy to tighten restrictions on seniors' ability to transfer orhide assets with the intention of qualifying for Medicaid. These policies protect the integrity ofMedicaid and create an incentive for seniors to explore new long term care options. Theagreement will ensure accurate payments to pharmacies for the cost of drugs and it has littleeffect on the market. We give states the ability to offer Medicaid beneficiaries coverage moreconsistent with coverage typically offered by employers, while guaranteeing that children do notlose any benefits currently provided under Medicaid. We included protections for preventiveservices and treatment for children. This bill continues to require states to cover EPSDT, whichis Early, Periodic, Screening, Diagnosis and Treatment services. The language of the bill is clearon this point. At this point, I ask unanimous consent to insert a statement by Mark McClellan,Administrator of CMS, supporting our interpretation of the provision. We also include policiesthat give states the option of asking for a limited set of Medicaid beneficiaries to share in the costof their care. The cost-sharing policy excludes anyone under the federal poverty level, mandatorychildren, adoption or foster care children, preventive care and immunizations for all children,pregnancy-related services, hospice residents, and women who qualify for Medicaid under thebreast and cervical cancer eligibility group. It is reasonable, responsible policy that I encouragemy colleagues to support.

These are important, measured first steps that our governors have asked for on abipartisan basis to reform the Medicaid program. This bill also dramatically increases funding toprotect Medicaid from fraud and abuse. It does this by creating a Medicaid Integrity Programthat mirrors a similar program already in place for Medicare.

The agreement incorporates the Family Opportunity Act, which Senator Kennedy and Ihave worked on for quite some time. These provisions will help families meet the needs of theirchildren with disabilities. Right now, parents of a child with disabilities face difficult decisions.Time and time again, many parents of disabled children tell me of their struggles getting healthcare for their child. Many parents have been effectively forced to quit their job or take a lowpaying job so their child can qualify for Medicaid. Why? Because the services their child needsare not available with private health insurance. So they need the assistance from Medicaid. Thispolicy is totally backwards. The agreement allows states to give parents in this situation theoption to buy into Medicaid while continuing to work. These are people who want to work andcan work.

The agreement also fills shortfalls in funding for their State Children's Health InsurancePrograms that states would have experienced in 2006. It also includes $2 billion to assistLouisiana, Alabama, and Mississippi, as well as other states in meeting the health care needs ofpeople whose lives were devastated by Katrina. It extends TANF programs with a few minorimprovements. It closes several loop holes in TANF and in child support, while providingfunding for child care, child welfare and allowing more child support money to go directly tofamilies. For nearly four years, I have tried to reauthorize TANF in regular order.

Without any help from Democratic members, I reported a bill out of committee in the 108thCongress on a partisan basis. That year, Majority Leader Frist devoted a week for theconsideration of welfare. The first floor amendment, offered on behalf of Senator Snowe wouldhave increased child care spending by $6 billion, bringing the total child care spending to $7billion. It passed with 78 votes. Unfortunately, Democrats blocked the bill. This year I workedon a bipartisan bill that the Committee reported out by voice. But again, efforts to reauthorizewelfare in regular order have stalled. If we don't pass the Deficit Reduction Act, we will have toextend TANF for the 12th time. That's absurd. States cannot continue operating their welfareprograms unsure of what the next reauthorization will bring. Advocates complain that $1 billionis not enough child care money, but I say to them, where were you for the past year when therewas $6 billion on the table? There has never been enough child care money to satisfy those onthe far left. $5.5 billion wasn't enough. $7 billion wasn't enough. I don't know if even $20billion would have been enough. The fact remains that there hasn't been an increase in child carein four years, and if we persist in passing extension after extension, there won't be any new childcare funding at all.

Like I said at the beginning of this statement, it's difficult for many to get beyond thenumbers. But as I laid out here, this agreement includes many provisions to provide services thatbetter meet people's needs and it does so by getting rid of waste and abuse in the programs.These are dollars that right now we are simply throwing away. They get taxpayers andbeneficiaries nothing. Without some changes, these important programs, Medicare, Medicaid,TANF, will be driven into the ground. That some don't support these changes, well, to me, itseems they can't see the forest for the trees. The agreement before us includes sound policies.

It achieves savings by reducing wasteful spending, closing loopholes, and taking steps to payproviders more accurately. It improves oversight of Medicaid to crack down on fraud andwasteful spending. It establishes policies to help families and beneficiaries and to ensure thelong-term viability of these programs. I urge my colleagues to support the agreement.Description of Components of the Conference Report to Accompany S.1932,The Deficit Reduction Act of 2005

Screening for Abdominal Aortic Aneurysms (AAA)

This provision provides coverage for ultrasound screening for Abdominal AorticAneurysms (AAA) under the Welcome to Medicare initial physical. These provisions along withother provisions in the bill support the need for prevention. Individuals eligible for the screeningare those who are at high risk or have a family history of AAA. The Part B deductible would notapply. Making these screening tests more accessible and affordable is a key factor in influencingseniors to get screened. Excluding this screenings from the Part B deductible is consistent withthe policy for other screening tests currently covered under the Medicare physical. The U.S.Preventative Services Task Force (UPSTF) reports that abdominal ultrasounds for AAA are 95percent sensitive and nearly 100 percent specific. This provision ensures that those Medicarebeneficiaries at high risk will receive this important screening.

Aligning Payments in Ambulatory Surgical Centers (ASC)

This provision ensures that payment rates for services delivered in an ambulatory surgicalcenter do not exceed payment rates for the same service provided in a hospital outpatientdepartment. Payments for the same procedure should be paid at the same price, even if they areprovided in different settings. MedPAC has said that differences in payment may result infinancial incentives that shift the site of service to the most profitable setting. This leads toincreased costs to the Medicare program and its beneficiaries. In its March 2004 report MedPACstudied ambulatory surgical centers (ASCs). They found that in 2004, payments in ASCsexceeded the hospital outpatient payment rate for 13 percent of procedures. However, there doesnot appear to be any evidence that suggests ASC costs are higher than outpatient departmentcosts. MedPAC has recommended that the Secretary revise the ASC payment system so thatpayments are aligned with the hospital outpatient prospective payment system. MedPACrecommends that Congress ensure that payment rates for ASC procedures do not exceed hospitaloutpatient payment rates for the same procedure. There should be no difference across sites ofservice for the exact same procedure.

Asset Transfers

Our current asset transfer policy is flawed. The policy not only allows for exploitation, itencourages it. The current statute has loopholes that allow seniors with significant wealth toqualify for Medicaid. An entire industry has developed to assist seniors in crafty estate planning.This industry helps wealthy seniors qualify for Medicaid by using schemes to shield their assets.

Medicaid is not an inheritance protection program. Medicaid exists to protect the mostvulnerable people. We need a fair, equitable policy. We need to protect the Medicaid programfor those who need it most. This bill fixes the problem by closing the loopholes in currentMedicaid law. First, the new policy prevents seniors from intentionally shielding their assets inannuities and special accounting gimmicks. Seniors should not be able to hide their money toqualify for the Medicaid program. Second, the new policy changes the look-back period as wellas the penalty period clock. Right now, a senior can shelter half their assets the day before theyapply for Medicaid. The new policy starts the penalty period when the senior applies forMedicaid, and the look-back period is lengthened from three years to five years. Now, a seniorwill face a penalty if they transfer assets for the purposes of qualifying for Medicaid within fiveyears of applying for Medicaid. This puts teeth in the asset transfer policy. The new policydoesn't allow an individual with more than $500,000 in home equity to be able to qualify forMedicaid. It does provide state flexibility to increase the cap to $750,000. This is sound policy.

Those with home equity over $500,000 should not take Medicaid money from those whom theMedicaid program was designed for: low-income children, pregnant women and individuals withdisabilities. Also, the policy only applies to individuals. It does not apply to applicants whohave a spouse or a dependent child at home. In theory, the state is supposed to be able to put alien on that home anyway. Finally, seniors who have a hardship can apply for a waiver. Thepolicy strengthens protections for seniors seeking an undue hardship waiver beyond current lawor the Senate passed version. This provision doesn’t make it harder for those people who reallyneed the government's help. It does attempt to prevent intentional attempts to take advantage ofthe system and protect Medicaid for those who need it most.

Beneficiary Ownership of Certain Durable Medical Equipment

This provision transfers ownership of DME, such as walkers, wheelchairs and hospitalbeds to the beneficiary after the 13th month. By allowing beneficiaries to own DME it saves theMedicare program and its beneficiaries a significant amount of money. The Medicare programcurrently pays 120 percent of the purchase price over 15 months. This provision makespayments more appropriate. By changing the transfer date to the 13th month, it lowers theamount Medicare pays to 105 percent of the purchase price. Medicare also provides maintenanceand servicing fees every six months, whether servicing is provided or not. A six-month studydone by the OIG in 2000 found that only nine percent of DME actually received any maintenanceand servicing. Under current law, beneficiaries pay 20 percent of the six-month maintenance fee.

This provision reduces a beneficiary's out-of-pocket costs by holding them responsible for 20percent of repairs and servicing only when servicing and repairs are provided. For repairsrequested, Medicare will pay hourly for labor and separately for parts, as well as pay for loanerequipment until the item is repaired. Beneficiaries will still have the option to purchase a powerwheelchair in the first month. It is time Congress questioned the appropriateness of the currentDME payment structure. The federal government has a fiscal responsibility to both Medicarebeneficiaries and its taxpayers. For these reasons I urge my colleagues to support this provision.

Beneficiary Ownership of Oxygen Equipment

This provision transfers ownership of oxygen equipment to the beneficiary after 36months. Beneficiaries will now have more control over their oxygen needs, by allowing them topurchase after 36 months. However, this provision also ensures that all beneficiaries who rely onoxygen are covered. Medicare currently pays around $200 a month for renting oxygenequipment. On average Medicare beneficiaries use oxygen for 30 months, which meansMedicare pays $6,000 for a beneficiary. If a beneficiary needs oxygen for longer than 30 monthsthis provision allows the beneficiary to rent for another six months. After 36 months, thebeneficiary still receives monthly payments if they use a portable system that requires thedelivery of oxygen. And if maintenance and servicing are required, then Medicare will coverrepairs and servicing as needed. However, the beneficiary is given more control to determinewhen servicing is necessary. Congress needs to move towards a better payment system thatprotects our beneficiaries and the integrity of our Medicare program. This is a good first step.

Citizenship ID Provision

Under current law, states are required to verify that people are legally eligible to receiveMedicaid benefits. One of those requirements is that you be a citizen or a qualified alien. AnInspector General's report this summer showed that 47 states allow applicants to self-attest theircitizenship. An applicant needs to only answer the question by saying, "Yes, I am a citizen."The report further showed that 27 states do not follow up in any way to confirm that statement.The policy requires states to get specific documents from applicants to establish their citizenship.It's the law and we simply are asking states to do a better job of following it.

Colorectal Cancer Screening

This provision exempts colorectal cancer screening tests from the Part B deductible.This is an important step in providing needed preventative benefits for beneficiaries. Colorectalcancer is the second leading killer in the US, yet the majority of high risk individuals have notbeen screened as recommended by the national guidelines. Making these screening tests moreaccessible and affordable is a key factor in influencing seniors to get screened. Excluding thisscreening from the Part B deductible, is one step towards this goal. According to the Centers forDisease Control, screening for colorectal cancer lags far behind screening for breast and cervicalcancers, which are also exempt from the Part B deductible. This provision puts screening forcolorectal cancer on the same level as other preventative screenings. By making prevention moreaffordable, Medicare beneficiaries will be encouraged to utilize this important life-savingscreening.

Cost-Sharing Enforceability

Some argue that by allowing providers to enforce cost-sharing we are hurtingbeneficiaries. That characterization is incorrect. Under current law states can requirecost-sharing but it is not enforceable. Simply put, providers have a Hobson's choice. If abeneficiary refuses to pay, the provider is forced to absorb the co-pay. The provider's only optionto avoid this problem is to not participate in Medicaid. And we know that many providerssimply choose not to participate in Medicaid. This all or nothing approach hurts beneficiaries bydriving providers from the program. This provision gives providers a third choice. They cancome back to the Medicaid program and provide access to beneficiaries. The provision givesthem the ability to make case-by-case decisions on enforceability. This will likely increaseprovider availability to beneficiaries rather than decrease it. This is reasonable responsible policysupported by the Governors.


The conference report includes reasonable policy that allows states to ask beneficiariesover the poverty line to participate in the cost of their own care. The House bill allowed states torequire cost-sharing for beneficiaries with no income. That is wrong policy, and the Senatedemanded that be struck in conference. A beneficiary who is above the poverty line can be askedto pay up to five percent of their monthly income to the cost of their care, and that is only if thestate chooses to impose additional cost-sharing. No state is required to do this. Some may arguethat Medicaid should never require beneficiaries to pay for anything. The National GovernorsAssociation does not support that position. They support reasonable responsible cost-sharing.We’ve created such a policy in this conference report.

End Stage Renal Disease

This provision provides a 1.6 percent update to the composite rate for End Stage RenalDisease (ESRD) services in 2006. An update that's needed to cover the growing number ofESRD patients in the U.S. Currently, ESRD facilities do not have a permanent update to thecomposite rate. In 2005, the Medicare Modernization Act (MMA) provided a composite rateupdate of 1.6 percent. A drug add-on to the composite rate was also provided. Between 1993and 2002, the number of ESRD patients grew by about 6.3 percent per year. This growth islinked to the aging of the population as well as an increase in the number of people who sufferfrom diabetes. Due to this increase in growth, total Medicare spending for ESRD servicesincreased by 10 percent each year between 1996 and 2003. An extension of the composite rateupdate for another year is important as we continue working towards implementing provisions ofthe MMA. This update will ensure that payments will be sufficient to provide high qualitydialysis services to those in need. For the future, updates should be provided based on the qualityof care ESRD facilities provide.

Federally Qualified Health Centers

This provision expands Medicare reimbursement for services at federally qualified healthcenters (FQHC). This provision is needed to ensure that these health centers can provide carewhere care is needed but scarce. Under current law, FQHCs are reimbursed for services throughan all-inclusive rate under Part B of Medicare. This provision allows FQHCs to provide diabetesself-management training services and medical nutrition therapy services which are currently notincluded under the all-inclusive rate. Additionally, the provision allows FQHCs to receivepayments for services provided through a health care professional who contracts with the center.

This allows additional providers to participate in providing care in the areas that desperately needassistance. Finally, this provision removes restrictions on receipt of homeless grants. All theseprovisions expand access to care in community health centers.

Gainsharing Demonstration

This bill includes a three-year voluntary demonstration that evaluates gainsharingarrangements between hospitals and physicians. This demonstration will help the Medicareprogram move toward a more coordinated health care delivery system that improves quality ofcare and saves money. In my opinion, the term gainsharing should actually be referred to asquality sharing because quality is the primary factor that will drive efficiency and cost savings.

Instead of allowing current law to stifle innovation, this demonstration will allow us to take acloser look at what these quality sharing programs have to offer. This demonstration is criticalfor two reasons. First, physicians are the ones who can actually control costs because they knowwhere waste is occurring. Second, the whole purpose of quality sharing is that it targets thewaste of resources in order to improve quality. The demonstration will have a total of six siteswith two sites located in rural areas. This demonstration is one small step toward rewardingproviders for working together to improve care. Participants of the demonstration will berequired to maintain or improve quality while achieving cost savings. Currently, the Medicareprogram pays each provider group under a different payment system. Each provider group isbroken up into different silos and each has a different payment system. Even when hospitalswanted to work with physicians they were unable to provide any incentives. This demonstrationwill help the Medicare program move toward a more coordinated health care delivery system thatimproves quality of care and saves money.

Hold Harmless Payments for Small Rural Hospitals

This provision provides a three-year transition for hold harmless payments as Congresslooks for a more permanent solution. These payments are critical for rural hospitals so that thetransition to a new payment system does not hurt them. Payments will continue to be providedso that small rural hospitals that are dependent on these additional payments can still receivethem. However, rural sole community hospitals do not need these transitional payments. CMShas already included a 7.1 percent increase in their payments for 2006. For that reason, thisprovision does not include rural sole community hospitals. Small rural hospitals have a hardtime because they provide more basic services that require fewer resource, making theirpayments lower than those of urban hospitals. MedPAC has recommended a low-volumeadjuster, however in order to get this right we need more time. Several years of data is needed toavoid problems of variation in volume. For these reasons we provide 95 percent of the differencebetween the prior payment system and the hospital outpatient payment system in 2006. In 2007we provide 90 percent of the difference and in 2008 we provide 85 percent of the difference.This will allow Congress more time to come up with a solution that works.

Payment for Home Health Services

This bill makes needed reforms to home health payments. These reforms will reducedisparities in provider payment, improve quality and transparency, and save the taxpayers'money. First, the bill calls for a one-year 5 percent add-on payment for home health agenciesthat serve rural beneficiaries. This is good policy. Medicare margins for rural home healthagencies are consistently lower than those of urban home health agencies. This reconciliationbill will take steps to lessen that difference. Second, the bill calls for home health agencies toreport quality data in 2007. Currently, home health payments do not distinguish betweenhigh-quality and low- quality providers. Including a financial incentive for home health agenciesto improve care will reward those that are committed to quality improvement. This informationwill be made available to the public so that individuals can make informed decisions about theirhealth care. This policy was recommended by the Medicare Payment Advisory Commission(MedPAC) in March. And, is similar to the hospital quality initiative that Congress adopted forhospitals in 2003. Third, the bill calls for a freeze in the home health payment rate for 2006.

Medicare is currently paying home health agencies approximately 17 percent more than it costsagencies to provide home health services. This freeze was also recommended by MedPAC in itsMarch report to Congress.

Aligning Payments for Imaging Services

This provision addresses the increase in physician office imaging by aligning physicianpayments with hospital outpatient department payments. This does not decrease payments tohospital outpatient departments. As a response to proposed payment cuts physicians haveincreased the number of services they perform. By making payment for imaging services moreappropriate, Congress can use the savings to help alleviate the physician payment problem.

MedPAC found that Medicare spending for imaging services paid to physicians increased byover 60 percent from 1999 to 2003. During the same time, imaging services grew at a rate twiceas high as other physician services. Research suggests that additional services do not alwaysequate to better quality. Because Medicare uses different payment methods for imaging servicesin different settings, many services are often paid more when performed in a physician's office.

This bill ensures that payment rates for imaging services delivered in a physician's office are nothigher than the same service provided in a hospital outpatient department. For example, for anMRI of the brain, a hospital outpatient department receives $506 and for the same procedure aphysician's office receives $902. Large differences in payments create an un-level playing field,which provides an incentive to furnish an imaging service in one setting over another. Thisadditionally provides an incentive to over-utilize services, which increases beneficiarycost-sharing amounts and the Part B premium. The government should move towards paymentneutrality across sites of service. MedPAC also recommended in its March 2005 report thatMedicare pay more accurately for multiple imaging services performed during the same visit.CMS is working to implement a policy that pays a discounted rate for multiple imaging tests.

This bill achieves savings from these reductions in 2006 and 2007. These savings are returned tothe Medicare program rather than put back into the pool for physician payments. Physicians havea flawed formula that leads to cuts in payments. Physicians responded by increasing the numberof services. This has increased Part B expenses, making the problem more expensive to fix. Inorder to address this problem Congress did two things. The first is a freeze in 2006 and thesecond is paying appropriately for the services provided.

Medicaid in Brief

The Medicaid policy in the conference report is reasonable, responsible policy. Itreplaces the obviously broken AWP system with a new payment formula for pharmacists thatminimizes disruption and allows states to set payment rates based on full information. It closesloopholes that allow seniors to intentionally transfer assets to get on Medicaid while expandingopportunities for seniors get coverage through Long Term Care Partnerships. It allows states torequire beneficiaries to share in the cost of their care but places responsible limits on how muchcan be asked of a beneficiary. It allows states to enroll healthy Medicaid beneficiaries in abenchmark coverage plan, like a state employee plan but guarantees that no child loses anyMedicaid benefits. These are all provisions suggested by and supported by our nations'governors as critical to strengthening and protecting the Medicaid program.

Medicare Disproportionate Share Hospital Calculation

This provision codifies current administration policy on disproportionate share hospitalpayments. The legislation does not change the current formula used to calculate DSH payments.It expressly ratifies the administration's policy to include 1115 waiver days in the DSH formula.Simply put, the Centers for Medicare and Medicaid Services (CMS) established a DSH policyback in 2000 and said the policy would be applied prospectively. It allowed for certain patientsreceiving medical assistance under Section 1115 expansion waiver demonstration programs tocount toward the calculation of DSH payments. In 2003, CMS reiterated and clarified thispolicy. The problem is that two district court decisions are claiming that CMS' 2000 policy canbe applied retroactively as well as prospectively. The language used in these cases questions thevalidity of CMS's second, clarifying, policy. Congress agrees with the administration's 2000policy and with its prospective application. This bill codifies in statute the administration'spolicy on the calculation of disproportionate share hospital payments. In fact, it prohibits theadministration from making changes or revoking its 2000 policy which includes thesepopulations in the DSH calculation. This is in the best interest for both hospitals and thepopulations serviced under Section 1115 expansion waiver demonstration programs.

Part B Income Related Premium

This provision accelerates the phase in of the increased premium for higher incomeMedicare beneficiaries. The Medicare Modernization Act (MMA) increased the Part B premiumfor higher income enrollees starting in 2007. The conference report does not changing theamount, just the time line. This provision accelerates the phase-in from five years to three years.Under the MMA, individuals with incomes over $80,000 and couples with incomes over$160,000 are subject to higher premiums. When fully phased in, the higher income individualswould pay total premiums ranging from 35 percent to 80 percent of total Part B costs. Based onthe MMA language, the Congressional Budget Office (CBO) estimates that three percent ofbeneficiaries will pay higher premiums in 2007 and six percent of beneficiaries will pay higherpremiums in 2013. This provision does not change the percentage of Part B costs paid bybeneficiaries. It only accelerates the time line.

Part B Penalty Waiver for International Volunteers

This provision will allow overseas volunteers of 501(c) (3) organizations to waive theirPart B premiums. International volunteers should not have to pay double for health insurancecoverage. There are several older Americans that volunteer overseas and dedicate their time andresources towards various causes. During this time, these volunteers pay 100 percent of theirexpenses except for transportation to and from their country of service. The Medicare programdoes not cover volunteers while they are outside the United States. If beneficiaries want healthcare while abroad, they are required to purchase other insurance that provides international healthbenefits. These volunteers are still required to pay Medicare Part B premiums in order to avoidfuture penalties when they return to the States. These volunteers end up paying for two medicalplans even though they are not receiving any benefits from Medicare. This is unfair. I haveincluded a provision to allow volunteers of 501(c)(3) organizations to waive their Part B penalty,if they show proof of insurance while abroad. Having to pay Medicare premiums as well as otherhealth care premiums while volunteering should not discourage individuals from volunteeringabroad. We should encourage overseas volunteerism as much as possible. This provisionsupports those seniors who give so much of themselves to help others. I encourage mycolleagues to support this provision and this bill.

New Pharmacy Policy

Medicaid pays more for drugs than any other purchaser. CBO has shown this. GAO hasshown this. This is bad policy. The Medicaid program should use its resources wisely; after all,we are taking care of the most vulnerable people. It is time for a change. Our main concern isthat we have appropriate pharmacy payment. The Medicaid program currently overpayspharmacists by billions of dollars. Right now, the amount that pharmacists are paid by Medicaidis not an accurate reflection of what drugs cost. In fact, a recent OIG study showed thatpharmacists make a 70 percent markup when they dispense a generic drug to a Medicaidbeneficiary. This is not right. It is not right for the Medicaid program, and it is not right for thetaxpayer. The new pharmacy payment policy changes this. The policy ensures that states knowthe actual price the pharmacist pays for the drug. Then states can pay pharmacists fairly. Forbrand name drugs, we leave current law as is. States can use the new information we providethem to determine what price they think is right. For generic drugs, the policy establishes a newfederal upper limit. Pharmacists will now be reimbursed at 250 percent of the lowest price of thegeneric drug. Not 15 percent or 20 percent more than some price, but 250 percent. By using theAverage Manufacturer Price, or AMP, we are now using a more accurate method of determiningthe cost of pharmaceuticals through a price that is reported and auditable. This is a good policy.

It protects small purchasers who pay more than the average price for drugs and also drivesgeneric utilization. Because the price of the brand drug is typically greater than the generics, thiscreates an incentive to dispense the cheaper generic drug. You may have heard that pharmacistsare being hit too hard, BUT, this policy is paying 250 percent above the lowest price in themarket. Most importantly, states will have access to A-M-P pricing data for drugs. The AMPdata will be updated monthly and be publicly available on a website. This pricing transparencywill ensure that states are paying appropriately for drugs by affecting market competition. Inaddition, the Secretary may contract with a vendor to determine retail survey prices (RSP) forprescription drugs. This will further ensure that pharmacies are being reimbursed fairly. Thisbill also requires states to annually report their pharmacy payment rates, dispensing fees, andutilization data on generic drugs to the Secretary. This will also enhance competition and ensurethat pharmacies are being paid fairly. This is an appropriate and responsible policy that is in thebest interest of the Medicaid program and the taxpayer and I encourage my colleagues to supportit.

Update Payments for Physician Services

This provision prevents physician payment cuts in 2006 by providing a freeze in paymentrates for physician services. Physicians are scheduled to receive a negative 4.4 percent cut onJanuary 1, 2006. Physicians are estimated to continue to receive negative cuts of approximatelyfive percent from 2006 to 2011. These cuts are due to a flawed SGR formula. A flawed formulathat has resulted in a steady increase in the number of physician services provided. A concernthat the formula has tried to address. Congress needs a long term solution. However in the shortterm it is important to prevent cuts in order to maintain access. Congress and the Administrationalso need to continue working towards replacing the SGR formula. This bill includes a MedPACstudy that will recommend alternatives to replace this flawed formula. It will also be importantto move physicians towards a value-based payment system. A value-based purchasing systemwill achieve better health outcomes through higher quality and more efficient care. Until thischange occurs, it is important to prevent the cut until physicians start working on developing avalue-based purchasing system. In 2006, the voluntary reporting of quality measures willprovide valuable insight as to how to develop a long term mechanism to control utilization yetreward high quality care and better health outcomes.