business because it seems that so much that we have done here in the Congress in recent years has had the unintended consequence of driving small business out of existence through rules, regulations, red tape and other things that hit harder on small business than on large or giant corporations.

So I appreciate very much your comment on that.

I want to ask you, sir, I have seen estimates as high as 45 to 50 percent of the medical dollar today being spent on administrative bureaucratic paperwork costs. When you count the amount of time that doctors' offices have to spend on this, and that insurance companies have to spend on this and that the government has to spend on this, is there any effort being made in your department to try to simplify this process or cut down on the enormous amount of paperwork and bureaucracy and trying to get more of the medical dollars going to medical care?

I am told that many senior citizens have trouble sometimes figuring out the forms or understanding what they are really entitled to and I would appreciate it if you have a comment on that.

Secretary SULLIVAN. Yes, Mr. Duncan.

Let me say that I share with you the concern about the tremendous administrative burden that we have, both that we imposed upon the providers, physicians, hospitals and others as well as what we have within my department.

I have asked for a study of this by my HCFA individuals to see if there aren't ways that we can reduce that administrative burden so that we can have more of the dollars going into programs rather than to overhead and administration.

Again, one of the reasons that I have been so strong in my opposition to separating out the Social Security Administration into another agency is this would directly counter what we have been trying to do with our one-stop shopping initiative.

Our Social Security offices provide information and help, not only on Social Security and its various programs administered by that agency, but also on Medicare and Medicaid programs, information concerning eligibility, help in filling out forms, referral to appropriate agencies.

So this is one of those specific instances where we are trying to be administratively efficient, save dollars and provide better constituency service, whereas if we have Social Security as a separate, independent agency, that would be disruptive, and that would be one example where an action by the Congress would really add to the very problem that you have pointed out.

But we are concerned about that problem. I have heard from a number of providers-from physicians, from hospitals-and I know that in many instances clerks have to be hired simply to manage the paperwork burden, and we want to reduce that.

Mr. DUNCAN. You commented earlier on the recommendations of the Pepper Commission and the some $60 billion cost estimate. Of course, governmental costs have a way of exploding and it seems that we always underestimate on the front end or become overly optimistic about the cost.

You have already said you think the initial cost estimates or you have heard, that they may be extremely low; is that correct?

Secretary SULLIVAN. That is correct. Our estimates are that this could go easily as high as $100 billion when you add in the costs in terms of Federal dollars as well as the costs of mandates on the private sector.

Mr. DUNCAN. Of course, anything that we require of businesses, big or small, simply has to be passed on to the consumer in the form of higher prices; is that correct?

Secretary SULLIVAN. Yes, we are concerned about that because, as you know, one of the problems that we are facing as a country is our international competitiveness, particularly with the European Community coming together in 1992 with the breaking down of barriers there.

We need to be in a position to compete with that large economic body with goods and services that are of high quality and at a cost that is competitive. The same with Japan and other nations in the Far East.

So, clearly, as we add on tremendous costs for health care to our businesses, those added costs work against that competitiveness goal that we have.

Mr. DUNCAN. I was interested also in your statistic that you quoted about the percentage of college graduates who smoke as opposed to those who have a high school education or less.

One thought I had is that for many years we have emphasized the health aspect of smoking as we should, and certainly I have no objection to that.

But has any thought been given to pointing out in ad campaigns or speeches the economic impact in that apparently the great majority of those who smoke are the ones who can least afford it, and maybe some ads saying that the $1,000 or $1,500 you spend each year on cigarettes could be spent to buy better clothes or better food for your children and a campaign, or at least some attention given to that aspect of it?

Secretary SULLIVAN. I agree with you.

In the record that I released to the Congress recently when I testified before Senator Kennedy's committee on the Senate side, we pointed out that smoking costs our country-in terms of health care costs and insurance costs as well as time lost from work by smokers-$52 billion, a billion dollars a week, and that is a low figure because that does not include the cost from illness in those individuals who inhale smoke passively, that is, who work in areas where there is heavy smoking.

We pointed out that $52 billion is a significant sum of money that could be invested in a number of other activities productively. Mr. DUNCAN. I think we need to bring that home, though, to the individual smoker; down on the level of the individual consumer, also.

Secretary SULLIVAN. Yes. Our study showed that if you parlayed the costs over the entire citizenry, it costs each of us $221 a year, whether we smoke or not, for those costs added by the use of tobac

Co.

The point of that observation was the fact that all of us pay whether we smoke or not and, therefore, it is not an individual choice as the tobacco companies have tried to promote.

Mr. DUNCAN. That is a good point. You have said that the U.S. spends over $2,200 per year per person on health care, more than other nations in the world and that Canada is second, spending about $1,400 per capita.

Did I understand you correctly to say that no other nation in the world spends as much as $1,000 per year; is that correct?

Secretary SULLIVAN. No. I think there are several countries that are in the range of between $1,000 and $1,400 as Canada is. I believe Britain and New Zealand are among countries that spend less than $1,000.

Mr. DUNCAN. Thank you very much.

Chairman RoYBAL. Mr. Wyden?

Mr. WYDEN. Thank you very much, Mr. Chairman. Dr. Sullivan, welcome.

The first thing I would say is that I have been on this committee for 10 years, and on the health subcommittee as well, and you have been the most accessible Secretary during that time. This Member wants you to know it is very much appreciated.

The first question that I wanted to ask deals with a very fine report that was issued by our Chairman last week, Chairman Roybal dealing with this new phenomenon of outpatient clinics, essentially what are known as the "docs in the box" that have emerged around the country, free standing centers, surgery centers, cancer treatment centers, heart catheterization centers.

What the Chairman's report showed is that in many of these clinics virtually anything goes-many of the facilities are unlicensed and many don't take Medicare patients.

Given the fact that outpatient programs are going to be more important in the years ahead, what are your thoughts on what ought to be done to make sure that we beef up the quality of those socalled docs in the box and free standing centers and also to make sure that they give access to low income patients?

Secretary SULLIVAN. Thank you for your comments. I appreciate them.

I haven't yet seen Congressman Roybal's report so I look forward to the opportunity of examining it so that I can make an informed comment about that study.

But having said that, let me say this concerning the phenomenon of free standing facilities. First of all, we want to assure that those facilities do give good quality care. That is a responsibility that is primarily a State licensing responsibility, but we also, through our Medicare and Medicaid programs, work to be sure that facilities which we pay for services do meet standards of quality care.

So I am very interested in that report and look forward to looking at it.

The other comment about such a program is that if unlicensed health professionals are providing services, that represents a danger to the public that I want to do everything I can through the office of our inspector general, and through communications with State health licensing bodies, to be sure that we don't allow that. We are also very proud of the fact that we have instituted finally, after several years of development, a data bank on disciplinary actions taken against physicians.

Until now if a disciplinary action were taken, let's say, by a hospital or by one State licensing agency, we haven't had the ability to transfer that information to another State. So physicians in the past could then move to another locality and begin practice.

With a data bank and with a requirement that a hospital considering a physician for staff purposes has to consult with the data bank, the hospital would be aware of disciplinary actions before privileges are granted.

If free standing facilities are operating with unlicensed individuals, that would go directly counter to what we are trying to do. We are strongly committed to the concept of comprehensive care. One of the things we have in our budget program before the Congress now is to increase our budget for managed care for HMOs and PPOs and to simplify arrangements. The reason for that is both to provide better quality care as well as comprehensive care given by an institution over time. Episodic care, which is what you described to me, really does not provide the best care.

So I look forward to getting that report, examining it, and working to rid our communities of that kind of activity.

Mr. WYDEN. What the report showed is that only two States, I believe they are New York and Montana, licensed all the providers that work in these various centers. It is really a dramatic finding because I think most Americans go into one of these clinics thinking that someone is watching.

Do you feel that the Federal Government given that kind of situation ought to put some pressure on the States or require certain minimum standards to make sure these providers are licensed?

Secretary SULLIVAN. Certainly I do see our responsibility as working with the State agencies. The States have the legal responsibility for the licensure, but we exercise our oversight by our reimbursement policies through Medicare and Medicaid.

If a facility does not meet State standards, then we do not pay for services provided by the facility. Certainly, I would do everything that I can in working with the responsible State to try to see that licensure standards are promulgated so that we protect the public, both in terms of their health as well as their dollars for services that are perhaps not only not needed, but may not be effective.

Mr. WYDEN. Let me move to another area dealing with medigap insurance.

Many of these policies are going up 30 and 40 percent as a result of the repeal of catastrophic care. There is great confusion among the senior citizens with respect to what is being covered and what isn't. It is my view that the current medigap statute is really more loophole than law.

There has never been a prosecution, for example, for the sale of duplicate coverage. The Federal Government takes no steps to deal with some kind of approval process for rate hikes of medigap policies.

Do you think it is time now, given the fact that there are huge rate hikes and many seniors still with three and four policies, do you think it is time for the Federal Government to toughen the medigap statute and put one on the books that really protects the elderly?

Secretary SULLIVAN. In our budget for expanding managed care programs is one proposal that we call Medicare Plus. That is a program in which we would encourage the development of medigap insurance plans that have arrangements with managed care plans. The purpose being both to provide comprehensive care and to control costs.

Among other things, we feel this will do is put pressure on the escalating premiums for medigap insurance. It would require some changes in State laws for us to implement that program and, of course, we would be working with the States.

Mr. WYDEN. I think the department's policy with respect to this new program is a good one but why not apply that across the board so we say that all the medigap coverage that is sold in this country has to meet certain minimum standards?

Secretary SULLIVAN. We certainly would work with the States to try and achieve that objective. What we want to do is try and work cooperatively with the States rather than preempt their licensing authority.

But certainly, the objective that you cite is one that we share with you.

Mr. WYDEN. One last question, if I may.

As you know, Medicare does not cover out-of-pocket prescription drugs and almost 20 percent of the senior citizens in this country spend $1,000 a year on their prescription medicine.

One of the few ways that they can save money on their bills is by purchasing a generic prescription. Often it costs something like 50 percent of the brand name drug.

Today in the newspaper we saw yet another story about the scandals in the generic drug agency. Gift TV's, cash-stuffed envelopes, peddling of confidential documents-what will be done to really turn this around? My concern is that if we have day after day after day these kinds of revelations, we are going to see generic drugs sufficiently discredited in this country that it will do great financial harm to the elderly and I would like to hear your assessment and how we are going to turn this around, because literally this seems almost on a daily basis now to be discrediting generic drugs. Secretary SULLIVAN. That story describes the actions of employees in the FDA of refusing to accept bribes. I think one described the TV that was delivered to the home of one of our workers who returned it, as well as another worker who had an envelope stuffed with thousand dollar bills given to him by a representative of one of these generic drug companies, and he returned that and reported it to his supervisor.

We are outraged by those efforts to undermine our employees as well as the credibility of the generic drug process, which is one that has to be fair. It has to be efficient, and it has to provide good information.

Our inspector general has worked very diligently with our FDA employees to root out those instances of corruption and, although we did have the unfortunate instance, I believe, of three of our employees who were convicted of taking such gratuities, a much larger number have resisted those efforts and have reported those efforts to the proper authorities.