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(AFTERNOON SESSION, 2:02 P.M., THURSDAY, MARCH 7, 1991) The subcommittee met at 2:02 p.m., in room SD-192, Dirksen Senate Office Building, Hon. Tom Harkin (chairman) presiding. Present: Senators Harkin, Bumpers, Reid, Specter, and Gorton.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

HEALTH CARE FINANCING ADMINISTRATION STATEMENT OF GAIL R. WILENSKY, ADMINISTRATOR

OPENING REMARKS OF SENATOR TOM HARKIN Senator HARKIN. The Subcommittee on Labor, Health and Human Services, Education, and Related Agencies will come to order.

This afternoon we are going to hear from two Government agencies, the Health Care Financing Administration and the Social Security Administration.

These agencies are particularly important to our ever-increasing numbers of elderly citizens because of the programs they administer: Medicare and Social Security. They are important, too, for the less well-off in our society, no matter what their age, because of their responsibilities in the areas of Medicaid and disability benefits and SSI.

This subcommittee has jurisdiction over the administrative costs necessary for proper implementation of these entitlement programs.

The Health Care Financing Administration (HCFA) administers the Medicaid and Medicare programs.

The Federal benefits projected to be paid out to these two programs total $187 billion in fiscal year 1992; $126.7 billion is for Medicare bertefits, and $59.8 billion is for the Federal share of Medicaid.

To administer these two enormous programs, the administration has requested $1.89 billion in fiscal year 1992 or 9 percent less than fiscal year 1991.

The Social Security Administration will disburse an estimated $307 billion in benefits in fiscal year 1992. To administer the program, the administration has requested $4.5 billion or 9 percent more than fiscal year 1991. I am going to repeat that for emphasis.

The administration has requested 9 percent less this year for these two programs, but to administer the programs they require 9 percent more. Interesting.

In the case of both the Health Care Financing Administration and Social Security Administration, workloads are projected to grow far in excess of the rate of growth of the funds requested to administer these programs. I am concerned the administration's request may not be able to meet that.

The Secretary echoed this concern by stating, "The means of providing benefits are seriously threatened by the level of resources” for their administration which OMB has suggested. Funding for these two major agencies may well be $500 million short of the true needs.

Total spending for HCFA and the Social Security Administration will be $494 billion or 34 percent of the Government's total spending. Needless to say, situations of fraud, waste, abuse occur in agencies of this size and we intend to talk about several cases this afternoon.

At this point, I will leave the record open for any opening statement that Senator Specter may wish to make.

Our first witness this afternoon will be Dr. Gail Wilensky, Administrator of the Health Care Financing Administration.

Welcome again to the subcommittee, Dr. Wilensky. If you could give us a brief summary of your budget request, I would appreciate that. And that will leave us a little bit more time for questions. Of course, your entire statement will be made a part of the record in its entirety. Please proceed as you so desire.

Dr. WILENSKY. Thank you.

SUMMARY STATEMENT Mr. Chairman, I am pleased to be here today to discuss the fiscal year 1992 HCFA budget request. I was sworn in as HCFA Administrator only 2 days before my appearance here last year. But even then, HCFA's central task for the foreseeable future was clear: To control the growth in program expenditures while remaining responsive to the needs of the Medicaid and Medicare populations that we serve.

Only by working together can the administration and the Congress hope to achieve this objective and to maintain our progress in today's changing health care environment.

Our 1992 budget attempts to strike a workable balance among the competing demands that we face: The rapid escalation of health care costs, the steady stream of program changes mandated each year in Medicare and Medicaid legislation, the growing number of program participants, and the fiscal constraints imposed by the Federal deficit and embodied in the Budget Enforcement Act.

In developing the HCFA budget, it was not easy to reconcile these demands. We were faced with choices that were difficult, but necessary. With you, we share the dilemma of managing huge and growing entitlement programs in an era of spending caps on discretionary programs.

We at HČFA are satisfied, however, that in each successive stage of the formulation of our budget, a wide range of alternatives was explored. Our budget represents the administration's best judgment of the most appropriate balance among competing priorities. It will not be easy, but we will work creatively to live within the budget that we have requested.

At this time, I would like to briefly highlight each of the accounts under the jurisdiction of this subcommittee: Grants to States for Medicaid, payments to the health care trust funds, program management, and the proposed survey and certification revolving fund.

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Medicaid is the largest source of funding for the health care needs of low-income Americans. It will serve nearly 29 million citizens in 1992. Of these, approximately 13 percent are elderly, 15 percent are blind and disabled, 24 percent are other adults, and nearly one-half are children.

The 1992 Medicaid budget request is $60 billion, $57 billion for benefit payments and $3 billion for State administration. This is an increase of 16 percent over 1991.

Although this rate of growth is very high, it is considerably lower than the 1991 increase, which is now projected at nearly 27 percent.

The payments to the health care trust funds appropriation incorporates Federal contributions to the Medicare trust funds. By far the largest of these is the general revenue subsidiary of part B, which finances 75 percent of part B expenditures.

Because of the substantial savings that would be realized through enactment of the administration's legislative proposals, our proposed law request of $39 billion is nearly $1 billion less than the current law projection.

The 1992 program management request encompasses three key agency activities: Research and demonstrations, Medicare contractors, and administrative costs. It anticipates that all State certification and clinical laboratory improvement amendments [CLIA) activities will be financed through the proposed revolving fund. Our program management request is $1.9 billion. This is $57 million less than the comparable 1991 appropriation.

I would now like to discuss the highlights of the individual program management activities.

With regard to research, our request for ongoing research activities is $36 million, the same level of funding provided in the 1991 appropriation. More than 60 percent of our research request is slated for congressional mandates. All of the $6 million proposed for new projects would be devoted exclusively to OBRA 90 mandates.

No funds are requested for rural transition grants or for the essential access community hospital and rural primary care hospital (EACH RPCH) programs. We are presently evaluating the impact of the transition grant program, which in the past 2 years has received appropriations totaling $43 million.

Our 1992 Medicare contractor request is $1.56 billion, an increase of $5 million over the 1991 appropriation. This request includes $100 million contingency reserve. In the formulation of the contractor budget, we placed primary emphasis on claims processing needs. Our request will support the processing of Medicare claims within the statutory timeliness standard of 17 to 24 days.

The decision to give funding priority to claims processing involves some unavoidable tradeoffs. In contractor hearing and reconsideration workloads, we project delays in 1992 of more than 250 days. During the current fiscal year, the contractors are able to process hearings within 30 days. It should be noted that the vast majority of Medicare hearings result from provider appeals, rather than from beneficiary appeals.

In 1992, the contractors will also have limited resources to address inquiries from beneficiaries and providers. During the fiscal year, the contractors will be able to answer less than one-third of new inquiries. In order to maximize efficiency and to minimize inconvenience, we plan to increase the use of computerized audio response units to answer telephone inquiries. Our request includes an increase of 14 percent for Medicare secondary payer activities, which have a greater return on investment than the other payment safeguards. We strongly support the targeting of scarce appropriated funding toward those activities with the highest yields.

Our 1992 administrative cost request is $298 million, an increase of $28 million over the comparable 1991 appropriation. Approximately three-quarters of this increase is driven by factors beyond our control, such as: Inflation, postage, rental payments, and mandatory increases in personnel compensation. Our request also includes $7.5 million for the current beneficiaries survey. This undertaking will improve our ability to assess and to project the impact of programmatic changes accurately, both on beneficiaries and on the budget. It will prove extremely useful to policymakers, including the Congress.

We have resubmitted our 1991 proposal to establish a user fee financed survey and certification revolving fund. The new account would bring together HFCA's three health facility inspection programs: Medicaid State certification, Medicare State certification, and CLIA inspections. If the Congress does not enact our user fee proposal, HCFA will require an appropriation of $286 million beyond our current request, $195 million in program management, and $91 million in Medicaid.

Our revolving fund projections assume that CLIA implementation will begin in early 1992, and that approximately one-half of the Nation's laboratories will be surveyed during the year. If, for any reason, the necessary CLIA regulations do not become final until later in the year, our funding and user fee collection projections will be adjusted downward.

HCFA and the Department remain committed to responsible and timely implementation of CLIA. We are working hard to implement this complex and massive program as quickly as possible.

In conclusion, I would like to underline the fact that our budget request is the product of many long and sometimes heated discussions within HCFA, the Department, and the administration.

PREPARED STATEMENT

There are no easy answers to the looming question of HCFA budgeting, which is: How can we best administer two of the largest and fastest growing Federal entitlement programs within the confines of the strictly limited discretionary budget?

I look forward to providing you with as much help as I can as you begin your deliberations on our 1992 request.

[The statement follows:)

STATEMENT OF GAIL R. WILENSKY

Mr. Chairman and Members of the Subcommittee:
I am pleased to present to you today the fiscal year 1992 budget request of the Health
Care Financing Administration.

I was sworn in as HCFA Administrator only two days prior to my appearance before you last year. But even as I began my appointment, the agency's central task for the foreseeable future was quite clear: to control the growth in program expenditures, while remaining responsive to the needs of the Medicaid and Medicare populations that we serve. Only by working together can the Administration and the Congress hope to achieve this objective, and to maintain our progress in a health care environment that is in constant flux.

The FY 1992 HCFA budget is an attempt to strike a workable balance among the often-competing demands that we face:

the rapid escalation of health care costs in the United States;
the steady stream of programmatic change mandated each year in Medicare

and Medicaid legislation;
• the growing number of program participants, both beneficiaries and

providers; and • the necessary fiscal constraints imposed by the Federal deficit, and embodied

in the Budget Enforcement Act of 1990.

In developing the FY 1992 HCFA budget, it was not easy to reconcile these demands. We were faced with choices that were difficult, but necessary. With you, we share the concern that accompanies the responsibility of managing huge and growing entitlement programs in an era of statutory spending caps on discretionary programs.

We at HCFA are satisfied, however, that at each successive stage in the formulation of our budget, a wide range of alternatives was explored. The relative advantages and disadvantages of each budgetary and policy option were presented, argued, and carefully considered. Our budget represents the Administration's best judgment of the most appropriate balance between competing priorities. It won't be easy, but we will work creatively to live within the budget that we have requested.

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