constitution works the president proposes congress has to legislate. you will share with us the privilege of how to make decisions about these long-term costs. what i think it is important for us to do, and this is a better way for us to do a, locked in multi year savings. if you try to do it in one year you will kill the economy to meet the need to give the business community and families a chance to look ahead and adjust. definitely we will have to. we can't do that on our own. >> i yield back. ..

this is due to the administration policy. it's not because of the economies or some foreign event. it's due to policy made in the white house. now, we've gone back and forth through letters on the energy policy, and in a letter to said to me a while back but there was one line in there that really bothered me and i will read it back to you. is this to the extent of the credits encourage overproduction of oil they are detrimental to long term energy security, and this is referring to the i believe it is eight different provisions in the budget cut will be repealed.

these are tax preferences that have been in existence for quite a long time. my question is it is a very simple starting question. is there an overproduction of oil in the united states today? >> congressman, i would come at that question this way. when you allow individual industries of the united states to pay lower tax rates than other businesses pay that means all other businesses pay higher taxes and that makes the country of nicole less competitive. >> but do we really have an overproduction of oil in the united states today? >> it's really kind of a yes or no question. >> i don't from the energy policy or really got to address that question but what i would say is it makes sense at a time when we have the unsustainable deficits and we are worried about our long term energy security issues that we have to figure out ways to frankly clean

up the tax code out of special benefits to go to a limited number of industries that mean the rest of americans pay higher taxes. >> if they compete and grow, stimulate the economy and to grow the economy, do you believe that oil is a very necessary part of our energy security and energy economy? >> i'm sure it will be part of the energy security for a long time to come, but again, we think it's good policy for the country to not provide generous incentives and encourage the production dependence on very carbon intensive forms of energy. >> when using a very generous incentives, and if you compare the actual equivalent energy metrics with wind and solar, the subsidies for those are much higher on the per unit basis of energy than they are for the oil and gas. >> i think we would argue that the overall return on those investments for the economies

are higher. >> that's not proven yet. >> for the country as a whole i know this is going to be painful for parts of the energy industry but overall -- >> this is going to be painful for every american >> overall we agree with that. >> if we tax our current energy production and prices are going to go up but its electricity or fuel at the pump. >> the problem with which the tax benefits and the verge of changing them is that they will not affect the price of energy for the american people. what they do -- >> i don't agree with that and that is not in getting 40 economists that i have consulted with. >> your note that economists can disagree on almost anything but we have to make these judgments, and again, when you look at these industry specific tax benefits i think it's important to recognize that they only

exist because other businesses pay high taxes so if you care about overall competitiveness to the american industry you should care about skilling goes back over time. >> is also a provision with regard to the dual capacity companies and this is going to affect u.s. companies that do drilling overseas making them less competitive than american companies. now, i have to question why should u.s. tax law fever state-owned enterprises, chinese state-owned enterprises over and above u.s. companies? >> i definitely would not support that and of these proposals have that risk. but we are not going to agree -- i would be happy to talk to you about this family understand the concerns you began with about the impact of a lot of the changes on specific companies, and i would be happy to have my colleagues work with you on how we can best limit those effects. >> mr. neal is recognized. >> thank you. secretary, i know i will able to comment on boustany's comments with bermuda and switzerland as

they compete on the insurance market with the country on domestic companies hope. i'm going to give you a chance to speak, mr. secretary. could you give us an idea where we were with t.a.r.p., where we are with tar would and delighted with your modified proposal on the reinsurance and we can already sense that the bermuda and the swiss company's receiving a subsidy to compete with american companies are taking note of what he proposed, and the last issue is the department of labour is proposing some new rules on fiduciaries with the public hearing next month and the same time the sec is proposing new rules under dodd-frank to create a uniform fiduciary standards. i'm hoping the treasury will be involved in the rulemakings so that you have some enforcement responsibility as the ira are in your purview that i carried the last two sessions, but i asking i guess in the three instances with the treasury will will be

in these instances. >> let me start with the end. we will follow the debate very closely, and of course we share your interest to make sure this, with a reasonable balance. you understand we are posing on the reinsurance i don't need to go into that again what we are trying to make sure is there is a level playing field for american companies to bid on the t.a.r.p. but me just say a few things where we are on the t.a.r.p.. when i came into office the cbo estimated the program would cost about $350 billion. we now believe outside of housing, these programs will show a positive return to the american taxpayer very substantial amounts, and that's because we ran the strategy that had private capital not the taxpayer money they're the largest version the the covered of recapitalizing the banking system etc. and we have been very successful managing those investments to generate if you look of the bank investments for example, billions and billions of dollars in the positive return that we can use to meet

our long-term challenge is read these programs were incredibly successful in structuring the automobile industry and profitability, and we have a stronger private financial system today than we had going into the crisis because the success of the present strategy. we've not just saved hundreds and hundreds of billions of dollars of taxpayers' resources but we are going to show a positive turn on the housing. i think will prove to be the most successful financial rescue in the modern history even recognizing we still face a lot of challenges ahead in digging out of this crisis preparing the damage caused by it. >> i wanted to support that initiative i would point out i think it's an important anthology that at legislation took place in october of 2008, so we are grateful for your efforts to make sure the initiative work and understanding that even though it was proposed by the previous administration it is one of those instances in the house of representatives where the moderate democrats and moderate

republicans are past the correct vote. >> the house put a decisive role in helping make that happen and there were a lot of courageous votes in this body in support of of the unpopular legislative but a was a courageous and necessary act. when we had to finish the job and get the money back, but it was absolutely essential to help break the back of the financial crisis. >> thank you mr. secretary. >> thank you. mr. heller is recognized. >> thank you. secretary, thanks for being here. when you keep exempting housing every time you talk about the economy turning around, and i'd like to hone in on that for just a minute. you're probably aware of it from nevada, so we have some housing problems in nevada. for the last four years straight, actually 49 straight months, the nevada has continued to have the highest foreclosure rate in the united states. one in every 79 housing units in

nevada has received a foreclosure notice. we have one county. i believe one of in 49 homes has received a foreclosure notice. we have over 400,000 households that own more on their mortgage than they are worth. to put it in perspective, three-quarters of the people in their homes zero more now than their homes are worth. a couple of examples, we have a housing unit in northwest of las vegas that were priced at 735,000 built in 2006. one of them went for 62,500 of auction last year. there's also a condo unit in las vegas selling in 2006 for 625,000 now selling for 106,000 so just trying to put this in perspective to help you understand when i talk to my constituents, of course they

blame the banking industry saying they are not willing to negotiate. when you talk to the banking industry they blame the fdic. talk to the fdic they blame you. i'm not asking you blame i am just trying to set the picture in a manner that perhaps you can respond. i want to give you to quotes, two of your quotes, and i don't disagree with these, but i think you could help shed some light on it. use of lead personally believe that there is going to be a good case for the government preserving some kind of scared guarantee to make sure that people have the ability to borrow and finance a house even in a very damaging recession. i think it's when to be a good case for that. he also said i think we are not going to preserve fannie and freddie and everything like the current form. some people say those to conflict one another and i think it makes more sense. for my sake and for my

constituency, could you shed some light perhaps on where we are going in the housing industry and so that we are not exempting housing every time we talk about the economy and proving that perhaps there is a direction that we are moving or this administration is moving that we can fully understand? >> excellent question, and i'm glad that you emphasized this basic reality which is again the score of the crisis are very deep and broad in the present across the country, but the housing crisis in the series of cities across the country, and it's still very, very hard, and to be realistic it's going to take several more years to hear the damage caused by the crisis. we are trying to do two things. one is we are trying to make sure we can reach as many americans as we can to give them a chance to stay in their home if they can afford it. with programs we felt put in place have helped roughly 2.5 million americans have a chance to take it into a modified mortgage that lowers their monthly payment and stay

in their home. we can't help everybody because a lot of people got themselves we overextended and we don't think we can justify using the money to help them stay and who can't afford what we will try to reach as many people as we can read those programs are still in place now are making a huge difference for millions of americans and we want to make sure that again, the do as much as they can. longer-term we have a housing system that is a mess and did not work. overwhelming dependent on the government still and what we the out last week was a plan to gradually wind down fannie and freddie, gradually restored the market to the market where private capital provides most of the mortgages in the country but still has the government play a limited role in helping provide affordable housing alternatives low-income americans coming and we propose a variety of other models for trying to make sure that the government is providing some kind of protection against

the risk of a very severe recession in the future. we don't think they can be part of that solution, and we want to begin a debate in congress with a relevant committee about how best to craft legislation the would achieve those objectives, wind down fannie and freddie, restore the private market to the dominant place in the housing finance but with better protection for consumers, more capital against risk, homeowners holding equity in their homes and some protection in the future increases against the risk you have a mild recession turn into depression. that is a very difficult challenge to do, and of course for the reasons you begin with, we want to make sure these reforms are phased in gradually because we are not going to take any risks if we slow the market will damage the economy. >> mr. orloff is recognized. >> mr. secretary, thank you for testifying today. one of the statements the president made in the state of the union, which i thought was very positive was his desire to

address the corporate tax situation, and while he did not express necessarily where he felt the rate should be lowered to, it was a very positive statement that that is an issue he wants to work on. do you have a sense of where the president wants to go from the 35% corporate rate to what level? >> my own view is for it to be worth it, you've got to move it substantially lower. the average rate -- >> in the 30's are below 30 is into the 20s? >> the average rate of the trading partners right now is in the 20's. and if you're to make a meaningful difference, you want to get it down substantially towards that level. >> okay. are you of the belief that by doing that, you are incentivizing more domestic activity, economic activity, try to encourage more investment here domestically rather than abroad? >> absolutely. there are very important national for doing this. again, you on the market outlook investment, and the market choosing which companies grow,

which companies succeed. you don't want tax system making this judgment, getting in the way of those judgments, and so if you can clean up the tax system and lower the rate and broaden the base, you probably improve overall growth and efficiency, but as important of that, you want the tax code working with and not against the objective of encouraging investment here in this country. >> with the same goals apply to the individual taxpayer? >> i think generally we are going to have to do comprehensive and will -- individual tax reform. as to propose the past the best way to make it fair is to lower their rates and broaden the base. >> okay. as we understand the president's 2012 proposal, he actually wants to raise the two top marginal rates from 33 to 36, and from 35 to 39.6, both of which would be over the corporate rate that we are talking about reducing.

if the same goals applied to the corporation as the individual taxpayers, why would the of penetration want to see an increase in those rates? >> why would do is compare -- if you think about the rates in the context they prevailed in the 90's, and we were doing fine as a country then. actually it is a record that was the envy of the world and we would be thrilled to recreate today. so those rates are something that completely consistent with a strategy of making sure we are more competitive and growing, and it recognizes again as many colleagues recognize, we have on sustainable fiscal deficits and if we are going to save money together in reducing spending, we want to make sure the deficits could to the deficit reduction and improving the incentives for investment in the country. >> okay. we don't have the same economy in 2011 as we did in the 90's, and i would hope we but all work together to reconstruct the tax code that works both domestically and in the world rather and going back to the 90's to try to reconfigure the same kind of tax structure that may not be applicable to what we

need to do today. and i can't understand if we are on the one hand agree we need to lower the corporate tax rate to stimulate investment, why all of a sudden and we also want to increase taxes on individuals if we want the same taxpayers to take their hard-earned money and invest in the economy, create economic activity to do the things we all want to see happen to reza from these vote. it seems to be incongruities that we would want to decrease to or lower the corporate tax rate and the same time still in the economy with 9% unemployment want to increase taxes on people we want to see investing in this economy. >> congressman, again, you raise an important question on the choices we face, but my sense is if you gave businesses the choice, they would choose that next. they would say we are comfortable living in an economy where we see a modest increase in the marginal tax rates for only 2% of americans and we see more competitive tax system.

they prefer to play in that in the way we have today. >> thank you, mr. secretary. >> thank you. mr. becerra is recognized. >> thank you mr. chairman pete thank you for being here. i am going to detour from asking about the president's budget for next year for a moment, because the plan the house republicans released on friday pertained to this current year's budget could create an immediate crisis for millions of americans who depend on social security. the republican proposal cuts the social security and ministration's operating budget for the rest of this current year by $1.7 billion below with the social security administration needs for the current year, 2011. that is over $500 million below what the administration spent to serve the public last year with a smaller population to beneficiaries. as the trustee of social security i'm wondering if you can give your comment as to whether you think that is the way that we should be starting

the most important program that the federal government has for americans especially those of retirement age. >> again, congressman, as you would suspect i wouldn't support those for the reason you said. >> my understanding is from what we are being told that if the cut is made as the republicans propose in the current year budget proposal, it would be in a loss of 3,500 jobs. it would shut down the social security of penetration offices for one month which means each and every one of us whose surface is seniors and our offices, disabled americans in our offices, through the constituent services would have to explain to the members in our community that for a period of about a month there would be no one is answering the phone, no one responding to inquiries, no checks going out to beneficiaries, no social security numbers issued to newborn babies. over half a million retirees, widows and severely disabled workers would face these delays starting with the creation of a budget like this.

is that something that you think is a trustee for social security that we could at this stage and all? >> again i would not support the cuts that would have that impact for just the reason you said. i want to be carefully haven't looked at those -- we don't know what house is actually going to pass and we would take a close look at anything the house passes and try to make sure people understand the implications, but the most important thing again as as we find a way to restore the gravity to the fiscal position we are not cutting into the basic services and critical investments the will hurt the economy long term. not just short-term but long-term as well paid >> on the related note republican colleagues are threatening to shut down the government unless certain cuts are made and the would come through a debt and some of the members of the republican side said they would against increasing the limit for keeping the operating unless there were

cuts to social security there are some i would call it the proposal to pay china first before you pay any money for any program with it is a social security beneficiary medicare beneficiaries you have to first pay a were other creditors including china and others who have lent us money. that's why some of fiscal the pay china first proposal. do you believe that we should be holding the government and all of those who depend on the services the government provide hostage in order to make certain cuts that could ultimately have a devastating impact on americans? >> adel, congressman. america has to meet its obligations that we are a country that pays its bills and we need of work commitments and we cannot afford to do anything that would create a risk of jeopardize in this recovery, slowing the pace of expansion, slowing the pace of employment growth and to create any uncertainty in the mind of the

american people in the broader investment community america will not meet its obligation and would be damaging to the recovery command again i wanted to get more confident side of this. of course, i am completely confident congress will act as it always does to raise the debt limit and i very much welcome the comments made by the republican leadership both in the house and the senate that recognizes america's obligation to to meet them. we have to have a very important debate about how to restore fiscal responsibility, and we are looking for to the debate again because it is unnecessary debate to have that we have to work that out and still make sure they understand we are a country that needs of our commitments. we will have a further discussion later on not just through the budget, but coming up with tax reform policies. what we do with all of these tax loopholes the president's fiscal commission that i was privileged to serve as a member of called the tax loopholes tax year marks because we are earmarking money to the certain segments of the american economy, whether it is businesses or individuals, and

they get the game while the rest of the population doesn't. you touch on them some. in fact you had a conversation with my colleague mr. boustany of the tax loopholes that go for the oil industry. are those types of things you will continue to seek out consensus and make reform to the tax code? >> if you could answer briefly time is expired. >> dr. price is recognized. >> thank you mr. chairman. mr. secretary, thank you for joining us today on what i think is really one of the most important issues for the constituents. they understand that our fiscal house is not in order, and they are demanding that they be put in order. by way of clarification it's also important to appreciate the president is the one who holds the key as to whether or not the government gets shut down. he has said that he won't sign something, fill in the blank, whether or not the government

gets shut down is squarely in the president's lap. you said just a moment ago you thought it was appropriate for the market to decide which companies grow and succeed. many of us on our side of the law and many americans believe that this administration has grossly distorted the market and made it much more difficult for companies to be able to succeed in the way that normal business process these work for the government isn't coming to bail out their competitor or change the playing field so it is incredibly important that we recognize the kind of things being said here don't necessarily square with what the reality is or the perception of folks out there. but i want to talk about your -- what you have said and the president said. this is a ten year path. you said today we need to take the lead and the initiative, and so for so many of us, we are

just dumbfounded, astounded by the fact the administration hasn't taken this opportunity to address entitlements. clearly the automatic spending that's in the budget, in the federal government just continues and continues and continues, and if there is no change, obviously that is what will make us greece with no pejorative opinion on increase, but certainly the financial situation. why didn't you all address the entitlement situation? >> well, congressman, at the risk of repeating myself with the president's budget does is reduce deficits to roughly 3% of gdp over a five-year time frame which is the necessary level that is acceptable for us. >> in five years are we any more capable of addressing the challenges of medicare and medicaid than we are right now? >> you are right to point out as

we do that that is the first step and salting the tenure deficit which is essential and important does not by itself solve the long-term deficits. but again, this president and this body has already passed and put in place the most sweeping internet for four to reduce the cost to consider as a country and just contrast with for example but this body passed in the previous decade, which is a large expansion of medicare to cover pharmaceuticals without paying for it, adding to the deficit. >> i would suggest what was passed in the area of health care will increase the cost of the federal government and increase our deficit and debt as opposed to decrease, it just really is remarkable for again when you say we take the lead and the initiative, but there is

no evidence of this administration taking the lead and the initiative on the entitlement reform. you've taken the lead about expanding the entitlements and expanding the automatic spending. i want to address a particular erie and in health care of sustainable growth rate and health of physicians are compensated for the remarkably high quality care that they deliver. my reading of the budget, and it's just recent, but it's that over the ten year window i think it's about 341 billion to allow to continue. where are you getting that 341? i haven't been able to identify the. >> cui identify ways to cover that i believe the first two years but not the remaining eight and we are assuming and it's an assumption or prediction or hope that congress will as they done the last two years to give out a way to make sure that they can sustain those rates at

the levels in a way that they pay ford, but we only identify how to do it in the first two years. >> so the assumptions are the congress will take care of that and that that money will be there. >> not all on your own. we probably have to join you but we don't identify how to do it over the full ten years. >> let me just register my final concern about what i believe is a remarkable lack of leadership on the part of this administration and not addressing the issue of medicare and medicaid reform. islamic mr. doggett is recognized. >> of the budget that the president has presented seeks to add some improvements in our fiscal operations both through revenue and spending changes and as important as the spending cuts are, some of them even painful cuts in spending, the revenues are also important. in fact it is the principal job of this committee you don't

believe that we can achieve a balanced budget without some additional revenues, do you? >> no witold. i don't you can achieve the necessary reductions that are critical to the long term growth without looking at the sensible, carefully designed tax reforms as well. >> right. with reference to those tax reforms, one that you have been involved in a fleet is corporate tax reform. we recently as you know have a hearing in this committee on this. according to a bush administration treasury report, taxes on the u.s. corporations represent a smaller percentage of their profits in fact the and other developed countries across the oecd. i believe that last year there was a report that the corporate tax receipts represent a little over 7% of the federal tax revenues. 50 years ago it was about three times that amount that we got. president ronald reagan, which i think provides us some guidance

here, when he approved the 1986 tax reform act, he actually raise the corporate tax revenue for the federal treasury by about $122 billion. you have said that the guiding principle here in the president said in the state of the union is that at a minimum we should not borrow money or ship more of the tax burden to the individuals in order to have the corporate tax reform, and i want to a sure that is a firm and unyielding position of the administration that will not be borrowed from the chinese to finance such reform and we will not be shifting more of the burden to individuals. >> that's right. when we say revenue neutral, we mean that we wouldn't support the tax reform that reduce the revenue from the corporate sector, but it also means we don't think it's realistic or achievable or desirable to try to raise revenue from higher taxes on businesses because we live in a much more competitive

world, and though as you said is right, the average effective tax rate on the business today is the average of the competitors, but the rates are much higher, their rates are much lower, and that creates a plea infield works to our disadvantage and we don't think realistically that we can shift more of the burden of the business community than they already there because the competitive world so when we say revenue neutral we mean revenue neutral. >> you have included in this budget proposal again international tax loophole closures that have in the past and one of those i've been particularly interested in is the one that deals with corporations the default intellectual property patents, various other forms of intellectual property for meals and the like here in the united states perhaps even using our research credits and then just before they are to be marketed

the shift the ownership or joint venture it offshore. we have testimony on this last year at the hearing from assistant secretary chez who said the of administration would support moving forward to deal with this narrow but costly problem that i believe your budget that you just submitted says cost about $20 billion over ten, and my question is does the administration continue to support dealing with this serious problem of shifting intellectual property over broad, overseas as a separate independent matter from the broad reform we hope to eventually achieve this been a quickened into different ways by reforming the current system as we propose to reduce the opportunity of the tax code provides to the shift income outside of the united states, income from intangibles like you suggested, or we can do it through the comprehensive reform, but again, the overriding objective should be

to make sure that we are reducing both the incentives and the opportunities in the tax system to shift income and investment outside of the united states. >> and i believe there are proposals not unlike the one that mr. becerra talked about for social security in this continuing resolution to make significant cuts to the internal revenue service tax enforcement. i know some people would like to see that amount cut to zero, but we've had testimony in the past that for every dollar that we cut in the tax enforcement we are reducing revenues by three to $14. does that remain true that significant cuts to the enforcement will actually worsen our budget deficit problems? >> absolutely. the independent analysis looks at this for every dollar that you put in the iris resources, customer enforcement you raise at least $4. every dollar has the same cost. >> mr. smith is recognized.

>> thank you mr. secretary for your time and service. we heard earlier the commentary on the social security and what could be accomplished or what could not perhaps speculatively be accomplished. a furlough has apparently was suggested, would that not be an administrative prerogatives? >> i don't have the privilege and responsibility of managing the social security administration. i haven't had a chance to look at these cuts, careful when responding to that but if the had the impact, then i think it would be improved on why it's on necessary but i haven't had a chance to look at them and i don't know how we would meet with the for the congress would propose. >> i appreciate that, and i guess i would like to certainly do my part for not participating in the hyperbole ramping up rhetorical statements for the various reasons, but certainly i can agree we are facing some significant challenges.

we have touched a bit on the taxes here today. you know, the estate tax on hear a lot of input from that from back home in nebraska. they say it's double taxation. do you agree with that? >> i don't know what i would describe or how i would describe it, but what i would say is the rates and exemptions that we propose would make sure that tax only affected we think less than one-half of 1% of the states in a given year. and again, we are not proposing it because we like doing it. we are only proposing it because as you are saying over and over again, we have on sustainable obligations, unsustainable deficits and they will hurt future growth if you don't fix them and we have to do a bunch of things to spread the burden of that, but again, our proposals would only affect less than one-half of 1% of all the states in a given year. >> i can appreciate that.

the political pushback. i would hope that you would share the concern, many of my constituents not just about the estate tax or death tax, but the narrowing of the tax rate that fewer and fewer people are paying taxes with its federal income tax that fewer and fewer people are paying. how do you think we could address that? >> if you look at our tax system today, there is a lot of fun fairness across the system and you refer to one piece of it which some people think is unfair which is lower income americans pay payroll taxes but many don't have to pay the income tax as a whole. >> a vast majority of the use to pay a payroll tax but i will take the other side. it's also true that as many of our most successful executives said, you can be a -- you can be a very successful businessman today and pay lower tax rate than people who work for you and

that doesn't seem fair either. we were trying to propose some initial reforms to help lead us with a simple and fair system. >> and i can appreciate that as well. on the capitol gains tax rate was there any concern that letting that go back or even pushing it back up could actually result in fewer dollars, capital gains tax being recovered? spec not at 20%. we are proposing to make sure that, you know, congress has to make this choice that we would only see it go up for the highest income americans up to 20% and we think that is a modest rate on capital income. >> but still increasing the penalty of the transaction there would be no risks or very little risk of actually having the future transactions? >> a very small effect. as i said we are proposing to eliminate the the capitol gains, the would be a very modest

change on the economy or investment decisions. >> okay. thank you. mr. secretary, i yield back. >> ms. jenkins is recognized. >> thank you mr. chair and mr. secretary. >> the gentleman would suspend cause of the short time the ranking member and i have discussed we are going to go to three minutes to accommodate every single member. >> i'm happy to respond to any questions in writing. i'm sorry i have to leave at 3:30. >> thanks, mr. chair and mr. secretary for joining us. as a result of an agreement last december the estate tax for the next two years will be imposed to the top rate of 35% with a $5 million exemption. and effective for 2013 president obama has proposed to make permanent the estate tax parameters in effect of the mind the top rate 45%, 3.5 million exemptions which would not be indexed for inflation.

on may 6th generation kansan raised on the family's dairy farm, and my kids are the seventh generation to grow up in eastern kansas. mr. secretary, as you probably know, kansas is an agricultural state, and i hope you have an importance or appreciation for the importance of the family farm to this nation. do you happen to lower the price of the new, is. >> i've never been a farmer, do not know but i would say one thing which is the agricultural community of the united states today is one of the strongest parts of the economy today, and you are seeing in exports of agriculture in the basic growth in agriculture a lot of encouraging signs of how strong this country is and if we want to do everything we can to make sure we are reinforcing that. >> and we feel like we are under attack here. a new, why in costs over $300,000 a new tractor, over

$225,000. that's with nothing attached to it. if you want to attach a high price implemented is 170,000 on top of that. so as you can see, the cost of the necessary equipment to manage a farm can be quite high and it can top 1.5 in just equipment several years back the usda did a study there were nearly 11,000 family farmers that had the will building's value over to millions of the cost of employment and land values went when added together it's not hard to get to the 3.5 million, the president's budget is proposing and in addition i want to know the average net income on the family farm is approximately 45,000 a year. i heard the present state everyone needs to pay their fair share of taxes but under the president's proposal it's not unreasonable to expect a significant percent of kansas family farms could be placed at

risk when a jogging to comply with federal tax law than most likely couldn't meet the capitol requirement to maintain ownership between the generations. so i would just like to see if you realize how this proposal negatively treats the family farms and would ask you how do you advise family farms address the challenging issue and perhaps as a follow-up it's been promising it wouldn't be raised on those below tutored $50,000 with the net income of the family farm and $45,000 a year in kansas, again, how do you explain hitting them with a tax increase that could cost many of them their livelihood? >> just very briefly, mr. secretary -- >> but i just say one thing? they will only affect less than one-half of 1% of the state's - including the families that you're concerned about. we share those concerns. one very important point.

in the tax package passed by the end of the year the president proposal included was a provision for one year. any business in the country can fully expand capital investment write off against attacks of the new, and tractor and that's one reason or seeking capital invested expenditure exarate to the end of the year. they will substantially improve the capacity and the competitiveness of american businesses and american companies. >> thank you. mr. thompson is recognized. >> mr. secretary, thank you for being here. the gentleman from kansas is interested in saving family farms i have a bill for you. see me after the hearing. i think it's important that we discussed this bill today, this budget today on the same day that we are beginning the the date on the cr. a couple of my pa colleagues have juxtaposed. one of the major ones speaks to

the issue that i think was mr. herger raised interest in a budget that gets people back to work, and that is the kind of the antithesis of what the cr does give in their early analysis that that would cost about 800,000 jobs. so if you juxtapose what is happening today in the cr and the president's budget, specifically things such as the bill america bond which were so successful. i know the sacramento airport used those, they generated will hundred 50 jobs and probably every district across the country can see something similar. i would like to hear how you deal with that because that is certainly a job creator, the job killer in the cr. also on energy issues, i noticed the president's budget extends the 1603 treasury grant program which is so important for the

renewable energy and the section 48 c proficient, the manufacturing of tax credits which is important to keeping those jobs here in america, and i'd like to hear about that and what you see as an opportunity through encouraging and retesting in a renewable energy how we can use that to create more jobs, and i should also mention because of was brought up today by someone on the other side about the potential loss in the traditional energy jobs that the cr makes kutz the would make it impossible to get permits renewed and issued for those traditional jobs which again puts us at an energy disadvantage. >> you highlighted a range of what we think are the most

important things to help the economy recover as you look at how to make these choices across the deficit as a whole, be careful not to cut investments that will hurt jobs and to cut investments will hurt our competitiveness in the future. when you think about the broad fiscal challenges, make sure that you bring a long-term perspective and that you're putting in please restrict we can live with overtime that balances the need to make sure that we are strengthening of the recovery as a whole and also bring some gravity to the fiscal position. >> thank you. mr. buchanan is recognized. >> thank you mr. geithner for being here and mr. chairman for this hearing. the biggest concern i've got is about the taxation, but i want to get in terms of the president's budget i want to touch on a couple of things. one, we are all interested in jobs because it cuts the deficit so we've got to do that.

i think you agree with that. let me tell you the reality. i've had 1,000 employees four years ago, as we understand the middle market pretty well. mr. chairman i've dealt in these companies. let me give you my observations from there was a lack of credit for the small and medium-size business. i've seen you acknowledge that numerous times. so it is really compared to what it was four years ago you can get the credit, today they can talk about credit but unless you are going to put up half a million dollars cd for not going to get that line of credit. the second thing is health care. to me it is a big entitlement program for 32 million or 50 million people, but it doesn't do anything to bend the curve for small and medium-size business and i had one of our largest employers the other day in sarasota getting ready ideally to hire 300 people. they could hire more. the health care will wind up $1.5 million, but that goes across the board even with small

companies. everybody is some effort. i just got my health care bill it went up 20%. it's killing jobs. lack of credit is killing jobs. the third thing comes to the budget is increasing taxes. i want to go back to a point that you made. you said it only affects by raising the taxes to to 3% within your opening comment. that might be true of the percentage of the businesses that make up over 35%, but how many jobs do they create? there is a lot of people and most of them that might make a million dollars today but to have 700 employees, the need for capital, and if we raise the taxes along with the lack of credit, health care costs going up and then you start raising the taxes and a lot of these as you know our past entities so how do you respond to the tax aspect of the president's budget? >> again very briefly, you are right about the credit problem and it is important to it after a period where it was too easy

it is too tight now and the pockets of the country particularly for business is lucky in their choice of bank because the bank overextended and they were the victim having to reduce leverage and strengthen the capitol. but we are hoping that is going to start to improve. the numbers are starting to improve. the price is much slower than it was any time the last two years or so and the small business program is now working its way through the system and help a little bit in the government, help the states provide a little more financial power and to their credit programs and we have to make sure the examiners and supervisors in the bank supervisors are not -- >> getting to that tax peace and to make a comment on that. >> it's important to understand this and i'm glad you asked again and i am just telling you the numbers that the independent tax people tell the congress or inform the congress of, it is two to 3% of companies -- demint >> the employee how many? >> substantial numbers of people but the vast number of the

people did buy that our companies that make substantial amounts of earnings. you're right the taxes will -- >> those are not all firms and investment firms overwhelmingly still earning substantial amounts of money. and again, these are the rates that prevailed at the time when the small business community in this country -- >> the circumstances we've got today is my concern. >> mr. secretary, i know that we agree on a hard stop at 3:30. we do have members on each side have had an opportunity to question. >> i will listen to the questions put by the time i will respond in writing. >> why don't we have them at least present the questions i appreciate your generosity in staying. mr. blumenauer is recognized and wants to complete your question we will go to the next person and if you want to try to summarize the end, i appreciate that. >> first wife but just identify with my friend mr. thompson of the energy.

my specific question that i would pose to you with my friend from louisianan talked about the potential downside impact of the president's proposal to eliminate outdated fossil fuel subsidies for the oil companies that invest in energy for the future. by the way, some of us i have introduced legislation that would do exactly that. have a number of co-sponsors. i would hope that you could analyze for us in a world oil market where a barrel of oil is fungible and prices determined

internationally that is an hour range of two to $3 trillion or more if it keeps going up, what impact $8 billion would have on the two to 3 trillion-dollar extent to which it has any benefit would that mirror to the europeans or chinese if it made any difference at all that would be useful for us to have as proper context. >> thank you. mr. berg? >> my question comes from north dakota. back in the 80's we had a real financial problem, and we increased taxes and the problem just continued to lead a decade ago we had the same problem on the other states after the dot com burst and we took the opposite approach. we tightened the belt, we didn't raise taxes, we encourage the private sector growth, and today

we are below 4% unemployment. we encourage oil and the energy industry to grow and those kind of jobs are positive. so my question to you really relates to the importance of small business, and my own experience is when you tax small business that's negative for them. it creates uncertainty, and so in this budget i see the taxes coming up on small business. most small business, a lot of small business it is passed through and so they are paying the income. 50% of the small business is paying their taxes ordinary income, so my question to you just relates to how can we increase the taxes on the small business and how can that be good for our economy? >> i'm sorry, i wouldn't respond but i will come back at the end. >> thank you mr. chairman and thank you mr. secretary for being here. i have a follow-up question about the definition that's being worked on by the labor but i will submit in writing and hopefully get a response from

you. i don't know if you are or are not aware of the economic policy institute, a nonpartisan had a chance to analyze the continuing resolution that is before us this week and the determined if enacted as proposed it would result in over 800,000 jobs being lost in the private and public sector is in the policy implications behind their continuing resolution. i find that there are fascinating because the day the president obama was sworn in, you may recall, we were losing 800,000 jobs a day per month. since then we had 11 months of private-sector job growth. the day he was sworn in, $17 trillion had already been destroyed in the stock market. since then over 13.5 trillion has been restored. the day he was sworn in, he inherited from the previous administration $1.5 trillion budget deficit. now the first year which he had control of the budget does provide downwards by 150 billion it's coming up again next year but that is primarily due to the

continuation of the bush tax cuts that all of them supported on the other side. and, i think that we just have a very stark contrast between the different visions for the country right now. one is often a eric holder and doherty assessment about the future of the nation and the possibility of the economic growth and one is more hopeful and optimistic on see that in the budget that this administration has proposed especially in the area of innovation and competitiveness. i think most people would agree with the president's state of the union when he says we have to out of reach, helped build come out compete the rest of the nations of the world and they are smart investments in doing it and that spending that we have to get control of in order to bring balance to all of this and i would be interested again if you want to submit a written response to highlight the more important investments you feel we have to move forward on it to create a sustainable long-term economic growth we face in the nation. >> thank you mr. chairman.

mr. geithner, i want to read from your written testimony here. you said our deficits are too high and unsustainable if left unaddressed the deficits will hurt economic growth and because a weak nation and we must go back to living within our means which i couldn't agree with you more. but this budget predicts over the next ten years we are going to lower the deficit to 3%. and i just thinking about my 14 year old grandson and ten years from now what i can say to him is audience sorry we could only lowered this to 3%, and by the way, you are going to have stuck least 15 trillion-dollar deficit that you and your family, now that you start out, are going to have to pay back and i am sorry that i couldn't get it quite done for you. why is that our goal to be in a deficit, not a balanced budget and not growing our economy to the point where we can start paying down the debt? that doesn't seem like a very difficult.

>> i agree it's a place to start but it's not enough. >> mr. pascrell was recognized. >> thank you mr. chairman. mr. geithner, let's put to bed once and for all, you need to address this directly, that we did not -- maybe the president cannot address it for other reasons of the entitlement, but it's not true that the federal health care reform adopted -- the did adopt many of the recommendations from the congress's independent advisory commission. i hope he reads it. the medicare payment advisory commission, very specific recommendations. by having the medicare center for innovation medicare can now pass a new payment model to improve patient care and bring the cost down. i've never heard anything about that from fox, and my second

area i think you should address is we are cavalierly talking about the employees like they are cattle. that is what we do with copps and farmers and teachers and they are not. they've given their lives. if the had some bad ones in the midst, get them out of there but you can't paid one to the cockpit with a wide brush. we are having a situation of increasing private jobs and the public jobs going down and if you don't think that isn't going to cost money you are wrong. >> mr. schock is recognized. -- before mr. chairman and mr. geithner for being here. two questions i want to highlight. one, dealing with what some are calling the t.a.r.p. tax, the tax being levied on institutions over 50 billion. i am specifically interested in a couple things. one, ye in one step with a broad brush we say all institutions of both 50 billion, but it took to

heart or not come into the same time we exempt some entities that actually took t.a.r.p., and then i think the question that is big is when the administration's as we are making money on tarbes why would we need the tax to begin with? >> the other question deals with the budget really seeks to penalize the companies that utilize the deferral for those that have companies in the state that are large multinational, i guess my question would be how does that help create jobs, and more important, how does it help us become competitive in the world climate when for a company that they only have ten or 12% overseas we may be able to get the skin but 70 or 80% of what they sell as many factors and sold in other countries, i would suggest that perhaps they are just going to leave if we continue to make it more and more uncompetitive for them to

remain in america. .. >> whether small businesses -- that small businesses would never use the tax credits they have been afforded under the new law. i would like to have a conversation about a lot of falsehoods, even though small businesses are using tax credits, even though we are not killing small businesses in this

country, nor are we killing job creation and growth. we have consistently in the last 11 months considered to see growth in the private job market. and that there's not going to be an increase because of that bill on taxes in the middle class. i would have like to had an opportunity to talk to you about that. i wasn't able to. i think i answered the questions for you. thank you for being here. >> right. mr. secretary, thank you for your time. very generous. i'll give the opportunity to respond to touch on those things or respond in writing about your discretion if you'd like to comment now, you may. >> can i say a few final things? >> yes. >> let me make a few points. if you care about long term, the most important thing congress can do to make sure the reforms were put in place to reduce the rate of health care cost growth remain in place and enacted. second observation, a lot of

discussion about the state of the economy and what's going to be good for future growth. i want to emphasize by any measure, you can look at the fact the stock market is up 100%, or look at the level was profitability. the american private sector, you look at productivity growth, dynamics, innovations, what's having export growth. the american business sector is in dramatically stronger position today because of the actions taken by congress and the president and the fed over this period of time. our job is to help make sure we reinforce that. we get a lot of challenges ahead. on the t.a.r.p. tax, just a quick response. the law that authorized the t.a.r.p. requires the administration to propose a fee to cover any losses so that we don't -- we hold them harmless. they have come down. outside of housing, we are lucky to earn a positive return. because the independent estimates still estimate we have some risk of loss, we felt

obligated to put in the budget how would we propose to recoup so the taxpayers aren't exposed. we impose the modest fee on those that are eligible, the largest firms eligible. one final thing, as you think about deferral, think about it this way, the current tax system at the margin makes it more likely that a company in your state is going to build a plant in -- outside the united states rather than inside the united states. and what it means is that if you have two companies competing together, the current tax system will favor with lower tax burden the company that builds that next plant outside the united states. it's the complicated thing to fix. we are committing to fix it. that's why we are proposing comprehensive tax reform. as we look at changes, join with us to make sure the tax system is working with our broad objective of trying to strengthen investment here in the united states.

again, any time you give any particular industry a tax benefit, tax credit, it means all other businesses on average pay higher taxes. it's not fair. it makes us less competitive. that's worth changing. nice to be here. excellent yeses. good discussion. i look forward to continuing them. let's see if we can do corporate tax reform. >> thank you. thank you for being so generous with your time. if members have question, they will submit them to you in writing. i hope that we could receive a response. thank you again, mr. secretary. this hearing is now adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> treasury secretary tim geithner will return to capitol hill tomorrow. this time to the house budget committee to talk about the president's budget request and treasury department spending. you can watch it live at 2 p.m. on c-span3 and c-span.org. >> coming up on c-span2, health and human services secretary kathleen sebeilus --

>> it's a three-day presidential weekend on american history tv on c-span3 live from the truman little white house in key west. what it's like to be related to an american president. we hear candid conversations with deuces sents of four u.s. presidents. live monday historians, friends, and associates on president kennedy on the place in history, the lessons, and their application today. we'll visit the smithsonian to learn the art and politics of presidential portaits. experience it every weekend, all weekend. for the complete holiday schedule go to

c-span.org/history. and to have it e-mailed to you click the alert button. >> kathleen sebeilus testified before the senate finance about the 2012 budget for her department. it requested $79.9 billion for discretionary hhs spending. a slight drop from fiscal 2010. senators asked questions about implementing the new health care law as well as the rising cost to states of medicaid. this is an hour and a half. >> we will come to order. president harry truman once said, quote, the health of all its citizens deserves the help of all of the nation. end quote. today we welcome secretary kathleen sebeilus to the finance committee to discuss the president's budget and the health of our citizens. last year, madame secretary, you appeared before the committee to discuss the president's budget

under much different circumstances. today our are circumstances are much improved because the new health care law. and we consider what other areas of your department, particularly human services need to be addressed this year. last year, seniors with medicare drug benefits had a gap in coverage that made their prescriptions unaffordable. this year, seniors in this coverage gap will receive a 50% discount on their prescription drugs. last year, small businesses struggled to afford health benefits for their employees. this year, four million small businesses could be eligible for a tax credit to help curb the cost of coverage. last year, billions of taxpayer dollars were lost to fraud. and law enforcement officials were stuck with antiquated tools to fight scams. this year, tougher new laws keep

criminals out of federal health care programs. this morning we turn our attention to the president's budget prosewal for the department of health and human services. we are all concerned about our country's deficit. and it's impact on future generations. we know that the main driver of our long-term deficit is the rapid growth of health care costs. that's the main driver. i think it's important that people think about that for a while because it is that more than it is any other single other item. without a solution to these runaway costs, we will not reign in the deficits. so why do health care costs continue to grow so quickly? our system pays health care providers based on the quantity of care they deliver, rather than the quality of care patients receive. this imbalance is particularly propmatic because one in four americans has at least two chronic conditions. these patients are often treated by multiple doctors. each provides care in his or her

own specialty. and coordination among these doctors are all too rare. what are the consequence of this lack of coordination? duly cootive test and procedures, medicines that counteract, frustrated patients, and in the end care is still too expensive, but patients are not necessarily any healthier. health reform changes all of this. medicare payments to hospitals will now be based in part on the health of their patients rather than on the number of tests performed. medicaid providers who work together and coordinate care will be rewarded by sharing in program savings. these changes will not only improve the lives of patients, they will improve the government's bottom line. the independent, nonpartisans experts at the budget office

reduces the deficit by $210 billion in the first ten years and more than a trillion in the ten years that follow. despite the progress, some oppose and want to go backwards. appealing will strip away protects and will add to the deficit. protections for people like david hutchins and his long elijah from missoula, montana would be affected. elijah suffers from leukemia and was born with down syndrome. because of the new law, they are now prohibited from denying him coverage because he's sick. repeal will take us back to the days where he could be denied. it also helps with system, otherwise known as tanf, our

economy is moving in the right direction, but tanf must do a better job of responding during economic downturns. reauthorization is an opportunity to address tanf's potential to train workers for a profession experiencing a shortage of workers. i hear from business owners in montana that professionals like nursing, trucking, data processing, for example, would benefit from the training of a skilled work force. we also have more work to do to improve our child welfare system. in particular, the safe and stable families program needs to be reauthorized. we look forward to working with senator hatch and the many child welfare champions on this committee to build on the ground breaking work that we did last when we last authorized the program. let's remember, the neither to edge courage fathers in our strategies to prevent poverty. i look toward to improving these programs with compassion and

common sense. there's many -- there's much more i would have like to have said. time is short. madame secretary, thank you for being here. i look forward to your testimony, especially about the president's budget. >> thank you. we appreciate you being here and thank you for going us today. we have a lot to talk about. as you may have heard the president released the fiscal year 2012 budget. as you have heard, it has not received the warmest of receptions. it's one thing to have them criticizing you to outline meaningful reduction, you know you have a problem when the mainstream media about this budget's ability to right our fiscal ship. even before the president released the budget, members of this committee were eager to hear from you. this is your first appearance since the enact of the patient afford care act, called ppaca.

nobody would call it that. we released it last march. to be frank, that is a long time. and i'm sure you would agree with me on that. o'clock is a co-equal branch of government endowed by the constitution with the legislative power. this committee in particular has oversight of your department's operations and laws that we pass. since you are here a year ago, your agency has been responsible for thousands of pages implementing the 2700 page health care law with next to no opportunity for public oversight by this committee. we can all agree that the complementation process would have benefited from some careful oversight. the process of implementing the health care bill has been chaotic. due to rulemaking authority to the sprawling federal bureaucracy and the fast tracking of implementation timelines. the result has not been only a

rush to promulgate rules, but a need to issue subsequent subregulatory guidance in form of releases, notices, frequently asked questions on the samples that clarify and revise previously issued rules. i know that many on this committee has questions about both the process and the substance of this implementation process. this -- this committee's questions for you have been increased expotentially with the release of the president's budget. last fall it was clear that the people in my state and think every state in the union voiced a desire for smaller government and less spending. the citizens of this nation spoke, but they were not given a voice in this particular budget. the president sent us a budget that promises $1.1 trillion in ten years, over ten years. that might sound like a lot of money, until you consider this year's deficit alone is over $1.6 trillion. judges from the reaction of the even the mainstream media this

morning, i don't think there's any way that you can -- that these numbers can be spined into a good story. i look forward to a forthright conversation with you today. here just a few of the items that need to be addressed. first there's almost no effort in this budget to deal with the existing and every growing crisis of medicaid financing. while the budget acknowledges the $111 billion collective shortfall that states are facing in to 11, it fails to give flexibility in the managing 1/4 of their budget which is being spent on medicaid. specifically, it fails to respond to request from governors to relief for the health laws onerous medicaid maintenance of effort restrictions. second, this budget increase is the size of the department of health and human services by more than 4700 bureaucrats just in the next two years. largely to implement the partisan $2.6 trillion health

care law. it is important to note that just last week the cbo and congressional budget office said the new health law will be responsible for the loss of as many of 800,000 ons at a time when the unemployment continues to stagnant north of 9%. americans have said over and over again they want smaller government and more private sector jobs, not the other way around. third, there are some real slow mirrors in this budget. look at the physician payment fix or doc fix. by your own estimates, the ten year cost of a doc fix simply with a zero percent update stands at an astonishing $370 billion. although the health care law cut more than $529 billion out of an insolvent medicare program to fund new spending, it did not attempt to address the

fundamental flaw in the program itself. at the end of this year alone, physicians are face a 28% cut in their payments. seriously threatening access for millions of seniors. the scr in my opinion should have been permanently fixed in so-called -- in so-called comprehensive health care reform. i suspect that the desire to spend that legislation of saving money had something to do with leaving out a fix that everyone knows will cost hundreds of billions of dollars. although this budget attempts to provide a two-year doc fix, the largest single piece of savings outlined in the budget to pay for it is $18 billion from a reduction in medicaid provider taxes placing a further strain on state budgets who are already struggling under the burdensome unfunded mandates of the law. the budget also calls for nearly $13 billion in savings by reducing the period for biologics and challenges to

so-called, quote, pay for delay, unquote, arrangements. these proposals not only fly in the face of bipartisan arrangements made in congress, but will harm incentive for innovations of life-saving medical treatments. the problem with this budget is not just the failure to make meaningful cut, it's also that the failure to reduce government expenditures requires damaging revenue razers, investment in new medicines cost billions of dollars and years of effort. if businesses are going to invest in the life-changing, and life-saving medicines, they need to have some expectation that they will recoup those investments. yet the proposal to reduce the period of data exclusiontivety undermines the industry in order to generate revenue towards financing spending. we all know that biologics is one of our real hopes for the future, along with a number of other matters, including stem

cell research and personalized medicine just to give -- just to name three of the top ones. i'll have more to say on this issue with your colleagues, secretary geithner tomorrow. but the assumption that the tax rates will expire in 2012 will have far reaching consequences for small business owners who account for half of all small business flow through income. they could see their marginal tax rated hiked by 47% -- excuse me by 27% to 24% under this budget. now i find it hard to believe this revenue razer will not adversely impact the ability of small businesses to hire more workers and provide meaningful health benefits to their employees. and i'm curious what analysis will be done by the budget or the department of health and human services about the impact of these tax hikes on the cost of the new entitlements in the health law. if we are making it harder for businesses to provide health benefits to their employees,

more employees are going to get their health coverage from the federal government. maybe that's the plan here. finally, i would be remised if i failed to address the growing red elephant in the room. that fact that our broken entitlements are pushing our country closer to bankruptcy with every passing day. the president's fiscal committee -- commission recommended serious reforms to the entitlements. to borrow from one liberal bloggers analysis of this budget, it's almost like the fiscal commission never happened. the president has the responsibility and the charge to lead on entitlement reform. there's no bypassing this responsibility. this budget, unfortunately, shows a real lack of leadership on this critical matter. here's what the "washington post" had to said. quote, having been given the chance to cover in the push by the fiscal commission, he created to take bold steps to take bold steps and curve entitlement spending, president

obama chose instead it duck. to duck and mask the ducking with the budgetary gimmicks he derided. unquote. thank you for coming. testifying before the congress can be like going into the lion's den. in this case, since it's been so long since you have testify, it's like you are going into the den where the lions haven't been fed for a few weeks. i don't think it's going to be that bad personally, but it's not going to be good, i don't think. [laughter] >> but if we promise -- let me just say this, i promise we will be kind. we look forward -- we know you have an overwhelming job. we know it's very difficult agency to run. we know that you have the capacity to run it. and we look toward to talking with you today and continuing on the conversation on a more regular basis in the future. thank you. >> thank you, mr. hatch.

i would say i think the president's budget is a good start. much more needs to be done. i don't think there's much no disagree with about that. but i think there is agreement that's also a start. we have days and weeks and months ahead of us. i hope we make significant progress. secretary sebeilus, thank you very much for coming. as is our custom, your prepared statement will be included in the record. feel free to speak for, you know, however long you want. let discretion be your guide. proceed. >> thank you, chairman and senator hatch, it's good to be here with the finance committee to discuss the 2012 budget for the department of health and human services. in the president's state of the union address, he outlined his vision of how the united states can win the future. by out educating, out building, and out innovating the world. so we can give every family and

business the chance to thrive. our 2012 budget is a blueprint for putting that vision into action. for making the investments that will grow the economy and create jobs. our budget also recognizes that we can't build lasting property on a mountain of debt. years have put us into a position where we need to make tough choices. we can't invest for the future unless we live within our means. we look closely at every program. we when found waste, we cut it. if the programs weren't working well enough, we redesigned them to put focus on results. in some cases, we cut programs we wouldn't have cut in better fiscal time. i look forward to answering your questions. first i want to share a few of the highlights. over the last ten and a half months we have worked around the clock with our partners in congress and in states throughout the country to deliver the promise of the affordable care act to the

american people. the budget building on that progress by supporting innovative new models of care that will improve patient safety and quality, while reducing the burden of rising health costs on families, businesses, cities, and states. and it makes new investments in our health care work force and community health centers to make quality affordable care available to millions more americans and create hundreds of thousands of new jobs across the country. at the same time, the budget includes proposal that is will strengthen program integrity and medicare, promote lower pharmaceutical cost, improve medicare program operations, and reform the quality improvement organizations program which helped providers improve care. it includes saving proposals to strengthen medicaid, and funding for the transitional medical assistance program and medicare part b premium assistance for low income beneficiary program which keep down health costs for low-income individuals and help

them keep their coverage. to make sure america continues to lead the world in innovation, our budget increases funding for the national institute of health. new frontiers of research like cell. based therapies have the promise to unlock revolutionary treatments and cures from alzheimer's to cancer to autism. and our budget will allow the world's leading scientists to pursue the discover res while keeping america at the forefront of biomedical research. we know there's nothing more important to our future than the healthy development of all of our children. so the hhs budget includes significant increases in funding for child care and head start. science shows that success in school is significantly enhanced by high quality early learning opportunities. which makes these investments some of the wisest we can make. but our budget does more than provide additional resources, it aims to raise the bar on quality

child care programs. supporting key reforms to transform the nation's child care system into one that fosters both healthy development and gets children ready for school. the budget proposes a new early learning challenge fund, a partnership with the department of education that promotes state innovation in early education. and these initiatives combined with quality efforts underway in head start are an important part of the president's education agenda designed to help every child reach his or her academic potential and make the country more competitive. the budget also supports the child support and fatherhood initiative that will promote strong family relationships by encouraging fathers to take responsibility for their children. changing policies so that more of that support reaches the children and maintains a commitment to vigorous enforcement and promoting relationships between fathers and their children.

their funds for new performance-driven incentives for states to improve outcomes for children in foster care, such as reducing long-term foster care and the rate of child maltreatment recurrence. these children deserve to be part of a better future. our budget also recognizes that it is time when so many americans are making every dollar count we need to do the same. and that's why this budget provides new support for president obama's unprecedented push to stamp out waste, fraud, and abuse in the health care system. it more than pays for itself, returning $4 billion to taxpayers in 2010 alone. in addition, the budget provides a robust package of administrative improvements that will deliver $33.3 million in the next ten years in medicare and medicaid savings. the proposals enhance prepayment scrutiny, expanded audits, increasing penalties, and strengthening the cms ability to

implement corrective actions. in closing, mr. chairman, we've made eliminating waste, fraud, and abuse a priority across our entire department. but we know that isn't enough. so over the last few months, we've also gone through our department's budget program by program to find additional savings and opportunities where we can make our resources go further. for example, in 2009, congress created a grant program to expand health coverage in 13 states. the work we are doing right now under the health law to expand the affordable care act allows this program to be cut so we don't duplicate our efforts. another example of cdc funding to help states reduce chronic disease. previously, the funding was split between different diseases, one grant for heart disease, another for diabetes, it didn't make sense, since those conditions often have the same risk factors like smokes and obesity. now states will get one comprehensive grant that allows

them the flexibility to address chronic disease more effectively. so the 2012 budget we're releasing make tough choices and smart targeted investments today so we can have a stronger, healthier, more competitive america tomorrow. that's what it will take to win the future. that's what we are determined to do. again, thank you, mr. chairman, and i look forward to answering your questions. >> thank you, madame secretary. one cbo estimate that health care law will reduce the labor used in the economy by about a half to a percent to one percent, some have interpreted this to mean the law itself requires the reduction in the work force. where, in fact, the point of that cbo analysis is that people will no longer have to keep their job in order to have health insurance. and some people might voluntarily retire early, might seek some other employment some place because they don't have to

stay with the employee. they are not locked into their employee because of health insurance. could you address that point? that is the assertion that some people make that cbo statistic really is a bit misleading and clarify what it really means? >> well, i think, mr. chairman. >> thank you if your microphone is on. or pull it up closer. >> i think -- >> thank you. >> there it is. magic. mr. chairman, i think we have seen what's happened in the ten and a half months since the affordable care act was signed into law. which is about a million private sector jobs growing. there are also estimates of about 250,000 additional jobs created over the future with everything from building health care centers to more work force training to the health i.t. personnel we're going to need. the statistic, i think, you are referring to with cbo, deals exactly with at the ability,

finally, the freedom for americans who might choose to retire to retire because they will no longer be tied to their employment. the so-called job lock for insurance. once there are competitive, available marketplaces set up, we know a particularly vulnerable population is the 55-65 year olds who know often have very few choices that are affordable. sometimes not at all with the preexisting health condition before they are medicare eligible. >> i appreciate that. >> that's retirement. >> could you address sdr? i think we need a permanent solution. makes no sense for congress every year to address, you know, the sgr. comes up. we know we are going to not let it lapse. try to find a way to pay for it. we waste a lot of time trying to reinvent the wheel. i didn't come here to be a

maintenance senator, or continuing senator, or extending senator, i came here to do things. one way to accomplish that objective is to reduce, eliminate a lot of the extenders. one is sgr. i know in your budget, you talk about a two-year provision paid for with various measures. i'd like a strong commitment from you, i'm sure most members of the committee would agree we need a permanent fix. we need a permanent solution. we need an honest permanent solution. and that's -- your thoughts please. >> well, mr. chairman, i could not agree more. and i assure you the president agrees. as you know the sgr predates the debate any kind of comprehensive health reform. it dates back to the late '90s, and has been fixed a year at a time by congress and, in fact, twice was not fixed in time. so doctors actually saw a cut. the president's budget has a

proposed two plus years of offsets. he looks forward to working with congress for the ten year proposal that he has put forward every year since he became president. i look forward to that discussion. >> i urge you to take very seriously were very deeply. we have an chance here. we have an opportunity. and to be honest, some people have said this, i have heard senator carper, and many people say this, one reason why why --e reason why unemployment is not coming down as fast as it should as we come out of the recession is uncertainty. it's unpredictability of people, business, consumers just don't know what the future holds for them. and there are many examples of this. one is sgr provision. you know, it's unpredictable. doctors don't know, congress doesn't know, people don't know. it's one of many, many examples. i urge you to very, very

seriously -- i know you are not going to do this, as just toss it off. i know it's really serious. but i'm trying to emphasize how serious this really is. we have an opportunity here with each of the extenders one by one to figure out a solution. either they are permanent or we repeal them. let's find a solution. we are spending too much our time here in the congress just trying to extend something that the law, the wheel, gnashing of teeth, we know the outcome is probably going to be. it's how we get there. one final point here. i think the most important part of health care which i don't think enough attention, delivery-assistance reform. that's the real key. that's the stealth sleeper in this legislation which over time is going to start cutting down -- unnecessary health care costs. and we have a problem, as you know, this is both cbo and omb don't score it the way i think it should be scored. and the way most of us really

presumptuously think. i don't have time here. my time is expiring. i would like you and most of us really to light a fire under the work care reform and give yourself benchmarks and data sets and points and accomplishments and what did they accomplish by a certain period of time, et cetera? i'm just giving you advance notice. this is something that i can be focused on very heavily. because i want this to work, i think most people want this to work and it's delivery assistance reform. after a while it's going to pay huge dividends and that's a basic way over time to address the medicare trust fund cost over run with that. so i urge -- and time's up. i urge you -- i will be asking you a lot about that in the future. >> thank you. >> senator hatch. >> thank you, mr. chairman.

madame secretary, i think we need to find a responsible way to pay the sgr and make it permanent. i think we should have fixed it with all of the medicare cuts that we have in the bill. and, you know, it's -- i don't think it's too late to do it. what i see is the $500 some odd billion taken out to be used for another unsustainable entitlement program when we could have paid for it then. but i didn't know how to do that. and i hope that you'll work with us to find a way to do it. now secretary sebeilus, the president's budget acknowledges that the states are facing a collective budget shortfall of $111 in 2011 alone. medicaid spending consumes nearly 1/4 of the state's budget on average and the new health

care law maintenance of effort restrictions limit state flexibility in lowering medicaid spending. while i realize the president's budget proposes a few minor program integrity provisions, the budget also says there will be no more than $155 billion when the states need help. given the $111 billion fiscal crisis states are facing, i'm concerned that the president's budget fails to contain the flexibility necessary for states to balance their budgets. and i know you are the secretary of health and human services. but if you were still the governor of kansas, what would you be asking the secretary of hhs for now? do you agree with the request made by both democratic and republican governors regarding flexibility from the maintenance of effort restrictions? do you agree with that? >> well, senator, we don't have the authority to blanket waive

what is a congressional law and signed into law by the president. we are diligently work, governors around the country. it's a commitment that i take very seriously. these are my former colleagues. i know exactly what they are facing. as you know, there was an enormous influx of revenue from the federal government to states that is about to expire at the end of june dealing with the enhanced fmap. they also have a lot of flexibility, frankly, that a number of states are not taking advantage of. we are sending teams around the country, helping to analyze the budget, we are looking at ways that medicaid can serve more people at a lower cost. and there are lots of strategies that we look forward to working with states. we have granted waives in a timely fashion and trying to be very hands on with states, trying to analyze where their problem areas are and what the future looks like. >> well, both democrat and republican governors are up in

arms about it. you know, you sent out a letter on february 3, and i'm pretty sure that doesn't even come close in solving the problem. and to quote governor haley barbour, secretary sebeilus fails to provide solutions in the problems caused by the medicaid program. i'm very concerned about it. as are they. >> senator, one the future -- features of the new affordable care act, for the first time we have a office for the dual eligible. those citizens over 65 and eligible for medicare, but also because of income eligible for medicaid. it's the big cost driver in any state budget. i looked at the numbers the other day, it's 15% in terms of enrollment in medicaid responsible for about 40% of the cost. so for the first time we really have a chance to work with

states around chronically ill, disabled, serious illnesses that frankly right now navigate two very complicated and cumbersome systems. i think that just, for example, the reduction of readmissions, if you can keep one disabled medicaid patient from being readmitted inadvertently to the hospital through the medical home strategy or follow up care, that would take care of the cost of three nondisabled medicaid clients for an entire year. there are some strategies which we think can have big payoffs for states. we are eager to work with them. >> you do have the authority to waive the moe under section 11 1115. >> we do 1115 waivers on a regular basis, senator. >> okay. my time is up. senator grassley. >> okay. i get -- fortunate, thank you.

>> no, senator grassley, you are next. >> okay. madame secretary, i oppose -- >> before. i have to leave, i'd like senator bingaman to the chair hearing. and recognize you. >> okay. thank you. senator bingaman. >> senator grassley. >> madame secretary, i oppose the maintenance of eligibility requirement on states for medicaid. i proposed amendment during the 2009 stimulus bill debate to strike the provision. and the only exception to maintenance of effort requirement in the affordable care act was an amendment that i authored. it's an mistake for the federal government to pick and choose which tools states have ability available to deal with in trying budget times. that said, i'm concerned about what actions states might take if maintenance -- maintenance of

effort is removed. i'm particularly concerned about what actions might be taken towards the developmentally disabled and the family opportunity act we promote the medicaid expansion for the disabled to alleviate the preverse incentives families had to not make more money less they lose benefits. states should be mindful of the impact cutting disabled could have on recipients. still, madame secretary, i'm baffled by how much the administration has dug into the issue. the effort to protect eligibility for higher income medicaid regyp cents threatens the care provided with people in far less income. in your letter to the state of arizona, you discussed optional benefits, noting that much of medicaid's long-term care benefits are optional. are you really suggesting that states cut long-term care? before you answer, let me go on. your letter talks about states

better managing prescription drugs. this after the affordable care act increased medicaid drug rebates and kept all of the savings for the federal government. in the budget proposal, the administration proposed cutting back on medicaid providing taxes. that money that comes straight out of medicaid providers. if the state cuts providers to agree that they no longer participate, access is threatened for people with no income. so have you -- my question to you, have you considered that your efforts to protect eligibility for higher income optional medicaid recipients is causing damage to the quality of care and access available to mandatory medicaid recipients, people with far lower incomes that you are trying to protect. >> well, senator, as i was explaining to senator hatch, we are very concerned about the

state fiscal situation and the medicaid issues that they are facing as a portion of the budget crisis. and particularly as the enhanced federal match, the fmap will cease to exist at the end of june of this year. we are aggressively working with states around a variety of strategies. i recently, in conversation with governor brewer of arizona, the letter that you referred to, governor brewer actually has waiver that has put in place some coverage options that actually expire at at -- this f. so part of her request to me is really not even necessary because there is no mandatory effort to keep that waiver in place. so we are trying as stated, each stated in a slightly different

situation, they have ensured optional populations or raised eligibility criteria, or done a variety of things. we are aggressively working to try to figure out how you can cover, particularly the most vulnerable population, at -- with the maximum resources available and figure out what flexibility we can make available to governors. and there is extensive flexibility. >> do you have agreement with me, though, that this can work against lower income people? what you are trying to do in protecting people of higher health care? >> well, senator, i'm not quite sure what we are talking about about protecting people with higher income. but certainly the most vulnerable populations are ones that i think have the greatest attention. some of them are the so-called optional populations though, by law. that's the way congress set up the medicaid program. optional populations are ones, as you know, senator, that

states either choose to pick up or not pick up. >> let me finish with another point. on a different issue. this is really just asking you for information not for an answer right now. and this would be in the interest of transparency and accountability. i ask that your department direct the center for consumer information and insurance oversight to post the following information on its web site, one the criteria each entity met to obtain a waiver, two a list of entities that applied but were denied a waiver, and three and last, the reason for each denial. would you agree to do that? >> senator, i know that information is being compiled right now. we will certainly get you the information as fast as possible. i can tell you about 97% of the waivers have been granted. that have applied. but i can -- i will follow up on that request. i assume that request has been

sent in or is -- is this by way of sending it. >> this is the way of sending. >> okay. thank you. >> thank you, mr. chairman. >> thank you. according to the list i was given here, i'm next, and then senator wyden, senator coburn, and senator menendez in that order. then a long list after that. madame secretary, thank you for being here. let me ask about the issue of state flexibility under the law and familiarly in relation to health insurance exchanges. i know one the issues that governors have been writing to you about, i have a letter here signed by, i think, 21 republican governors complaining about various aspects of the law. urging you to waive provisions in the law which you don't have authority to waive, at least as i understand the law. and then saying that if you don't agree to do this, hhs

should begin making plans to run exchanges under it's own auspices. that's their suggestion. my understanding, when we were doing health care reform, was that we built a lot of flexibility into the laws so that states would design the health insurance exchanges to meet their own requirements. and to accommodate the concerns that they had. it seems to me very short sided for a state to be urging you to take that responsibility. i don't know if you have any comments about how you are doing in getting states on track to set up these health insurance exchanges. what advances there are to them doing that. what disadvances there might be to you stepping in and taking over that responsibility. so that's the question.

>> well, senator, you are absolutely right. the way the law is designed is that in 2014, there will be a new state-base the exchange marketplace, primarily for small business owners and individuals who are currently purchasing coverage without any leverage of large numbers. and often with lots of rules and restrictions on preexisting conditions. they pay about 25% more than their colleagues in a large firm. and the opportunity to pool people in a state-base the exchange with private insurers, including competitive programs is one that is feature of the new law. virtually every issue that i think this is the letter that governor daniels signed if i'm correct. dealing with the state-based exchange issues. and we are in the process of

giving governor daniels and his colleagues an answer. virtually everything that he raises as a possible problem in terms of state flexibility indeed built into the law. states will choose which programs, which carriers offer coverage. they will choose benefit packages. they will have the flexibility of designing an exchange at the state level. we have 48 states right now who have plans grants around building an exchange. we are providing a lot of technical assistance. and i think that states are looking in my experience very much toward to having the opportunity to put together a marketplace which many of them don't have available currently. they also have the option, senator, of doing this on a regional level or a multistate level. because we know some states have small enough marketplaces that they really can't provide that coverage and competitive within their own boundaries. so there is an enormous amount of state-based flexibility

around the new exchanges. >> let me ask on this regional issue, i know we did have that option in the law. are there states that are seriously looking at that? that might actually join together in setting up these exchanges? >> yes. i think right now there are a number of states beginning to explore, as you know, the exchanges are not designed to be up and running until 2014. so we are beginning the conversations and the build that we have some states who want to move ahead pretty aggressively and design enrollment systems and i.t. systems that could be used as models for others. but i know conversations are going on among a number of the northeast states, i know they are going on in the midwest about ways that there could be a larger pooling arrangement, or having another state run your exchain for you. those conversations are very much underway. >> thank you.

senator wyden. >> thank you, mr. chairman, and welcome to you, secretary sebeilus. as you know, one area where there is significant bipartisan support is payment reform. and what i'm concerned about is the department seems to be moving ahead now with a rule for coding. the billing process which looks to me like it's moving in exactly the opposite direction that it's moving in effect to prop up fee for service. and i've heard from providers and a whole host of people that they are up in arms about it. their estimates, that this could cost 30 to $40 billion, and their argument is essentially that's it's like using world war ii military hardware for today's threat. now there are 150,000 of these codes that something called

icd10, and i don't want to get in the all of the root-canal type discussions you are going to have to have. my question to you is why not junk this process that has generated so much hostility, save the money, and i gather from experts, it could be like 30 to $40 billion and move on to payment reform. which you are for and there are strong bipartisan support for. now my understanding is that there's been some discussion about this in the past. this could be done by rule. so you wouldn't have to come to the congress. i think i'd have bipartisan support. i think i'd save a lot of money. i wonder what your thoughts are on it. >> smart, -- senator, as you know, you are referred to, i share your passion in payment reform. there are a enormous number of features in the affordable care act that move us in a new direction, much to the, i think

delight of not only the private sector employees, who have been trying to move aggressively in this transaction for a while, but health providers that see real opportunities for innovation. i'm not totally familiar with the coding process. but i assure you i will take a strong look and will follow up. >> would you? >> fit into the new system. >> it was a rule that began during the bush administration throughout the last few years people have sensed that this would be locking in exactly the kind of philosophy that both political parties are trying to move away from. and here's a chance to save huge sums of money. 30 to $40 billion and get to where i believe you want to be. which is the bundling, the payment reform, the perspective approach in a way for fee for service. can y'all get back to me about that? >> absolutely. >> okay. second question i want to ask is philosophical one. as you know, i've been

interested in the waiver issue. we were able to get into the bill section 1332 which in effect says that states could get a waiver in 2017, as long as they met the major provisions of the bill. the provisions on coverage, and affordability. but the states are now saying is why can't we do this in 2014? we're going to have to do one thing for 2014, and we'd like to do something else for 2017. why are we spending all of the time in bureaucracy? what is wrong with the idea of just moving up from 2017 to 2014. this waiver process so that states don't have to go out and spend all of this time and money and hassle doing it twice? >> well, senator, i know that you have a piece of legislation that would do just that.

and that there are lots of conversations going on that not only in our office, but that i've had in governors who would like an opportunity to look at a whole state approach, including your new governor, who is eager to get going. we are very much engaged in that conversation, and i think that depending on what the future look -- flexibility is clearly something states would very much like to have. and it may well be one the pieces of the puzzle. >> well, i hope we can talk more about it. i think the point really is to make this work most effectively now is to take the core provisions that are in the bill and see what we can do to improve on them in a bipartisan way. >> yes. >> what i'm struck by is when i listen to governors, they say why in the world would we have to do it twice? it's not about this bill, my bill, somebody else's bill. if you are going to get to do something that you want to do in

2017, why can't we all work together on a bipartisan way and let them jump start it in 2014 so they don't have to spend all of the time and money. let's talk about that some more. thank you. >> senator coburn. >> thank you. and welcome. i was interested in your comments on the tracks that states can use. in terms of their medicaid problems. medical homes, decrease, readmissions, take people out of chronic long-term care and give them back their lives. decreasing hospital readmissions, decreasing utilizations. do you know the strategy within the budget to encourage that? >> yes, sir. >> and what is it? >> well, there are a whole series of deliver system reforms that for the first time i think are part of the directive to

cms. and so we have everything from resources in the innovation center which will encourage modeling of various kinds of care strategies that we know are more effective and less expensive because they are happening in various parts of the country to the accountable care organization structures that are coming together and what we very much anticipate both through the new office of dual eligibles, but also with very close coordination with states is using the medicare strategies for the first time also in encouraging states to pick up those same strategies in their medicaid budget. >> with the accountable care organizations, there's a thought out there that it's going to accomplish the opposite of what you had hoped. in other words get efficiency, lower the cost, and lower the utilization. the theory behind that goes, all of the hospitals are buying all of the practices.

in fact, you are going to have less competition, not more. do you have any concerns about that? >> yeah, i do think that's a concern, senator, and one that i think is shared by some of the providers in communities across this country. there is a feature in the accountable care organization that is a determinant that it cannot be entity that spends more money at a minimum. you have to spend the same money and increase quality. but i deally, you spend less money in increased quality. but we see what i've been really encouraged by is provider groups who very much are eager to become an accountable care organization, provider groups combined with community health centers. we don't see a hospital-dominated model being the only strategy that can work. and i think there is a concern that anti-competitive moves that drive a monopoly pricing system

are just as you say the opposite of what is beneficial. >> that's out there right now. let me go back to medicaid for a minute. you outlined a strategies where it actually -- you are actually putting resources into your budget to enhance the strategies. : strategies. and 2009, rhode island was given a waiver. and they were given a five-year waiver and a block grant. and the strategies you just outlined put in resources behind, they already achieved a 16% savings, increased their coverage. they have 100% medical homes, decreased er utilization by 30% and are saving a significant amount over what was block granted which was actually going to be less than what we would have spent. so does the administration have a position? you know, we're trying to do this from washington and rhode

island is already proven they can -- we'll let the states do it, they'll do it. we said here's the minimum you have to do. and they've done it. what is the administration's position on the success of rhode island? >> well, senator, as you know, rhode island was able to get engaged in that strategy and several other states have similar strategies. there's a north carolina program -- >> none of them have a complete block grant like rhode island. there is no other state that has that, correct? >> i -- i can't answer that question. but i'm saying we are eager to work with states. they were given that authority under the medicaid system. they came in with it. we're doing that all over the country. >> well, my question for you is if rhode island can save 15.8%, why don't we just block grant every state and let -- and take the rules off and let them do the strategies that you're outlining rather than spending money in washington telling them what to do. rhode island, obviously, figured

it out y would we not do that? >> i think the block grant also has features that can be very damaging to the population that senator grassley just identified. in this latest recession airy period if, states had had block granted funds, i think what we would have seen is millions of people losing coverage, being dropped out of the program. >> there's a minimum retirement. rhode island cannot drop coverage. >> i don't know what -- i mean i'd be happy to follow up on that and see what rhode island is doing. >> i'd love to have that discussion with you. because we're creating an environment here to do what rhode island's already proved the states will do on their own if we'll untangle. and we're going to spend $155 million to get minimal savings through this on what the states have already proven -- my time is gone. i yield back. >> senator menendez is not here. then senator carper, carden and

then senator snow. >> thank you. it's very nice to see you. thank you for your good efforts and the efforts of the team that you're leading. a couple statements and then a question. the question i ask you is on defensive medicine, what are we doing? what will we do under the proposal? before we say that, somebody said -- in fact a couple people sat this table two years ago and we had chairman had an extensive series, as you know, extensive series of hearings where we focused on how do we get better outcomes for less money? and that continues through the focus of my efforts. not only crafting health care legislation, but as we try to implement it and go forward. it's all good and well we talk about extended coverage. we need to do that. unless we find ways to get better outcomes for less money, we're not going to be able to extend that coverage for long. but somebody sat at this table a year and a half, two years ago said we could make progress in four fronts. one, obesity, overweight, two,

tobacco, three, reducing high blood pressure, four, reduce cholesterol. if we can do those four things, we'll do more in terms of getting better outcomes for less money than anything else we can think of. i haven't talked to too many people that are opposed to that. i would just say my hope is that we'll look to the best you can in your job, your department for ways to get better outcomes by encouraging young people and old people, intsent vizing older an young people to losing weight. i just want -- and in terms of medicaid costs, finding ways, especially with young people and folks on medicaid, that's almost a captive population. that's a group that we really need to focus on. i lay that at your feet. the thing i want to talk about

is defensive merchandisive medi. how do we reduce the incidents of defensive medicine? we know doctors are doing -- nurses, hospitals are doing all kinds of things to try to cover their 6:00 so they won't get sued. cover your 6:00 so you won't get shot down. but a lot of stuff going none defensive medicine to reduce likelihood of people who get sued. it runs up our cost as we know. and we've -- we've been working on, in fact, we included in the health care bill the provision that says let's u $50 million with the demonstration projects. robustly demonstrate what is working. reduce the incidents of defensive medicine, reducing lawsuits and improve outcomes. those three goals. i don't think they're mutually exclusive. will you share with us what you president is calling for in his budget? i think it is $50 million. i think you're actually doing something with about $25 million in a bunch of states. will you just talk to us about it? >> sure.

senator, right now under way is -- we have grants out around the country to states and to health systems. seven three-year demonstration gran grants and 13 one-year planning grants to improve safety, reduce preventable injuries, insure patients are compensated, reduce philadelphiaous lawsuits and reduce liability premiums. those are the goals that you outlined. and examples under way are a judge directed new york state negotiation program which seems to be promising all these are up and running only about six months. so we're six months into the three years. there's in oregon and senator widen's state, a medical liability and patients guideline project that is looking at safe harbor, how to develop the kind of guidelines that would give docs actually safe harbor from

being sued. and those projects are under way with a very rigorous evaluation criteria. this year in the president's 2012 budget in the department of justice, he has suggested 250 million additional dollars administered by the bureau of justice to go into four areas, again around the same principles. health courts which are available in some areas and rapidly so. safe harbor, the oregon project that is under way. early disclosure and offer and then a series of other legal strategies and reforms. so i think the president is very serious about following up on this. he wants to actually use the authority that we've got right now to move these projects out. and as soon as we find ones that actually pay off and work, we can implement them. >> good. mr. chairman, at our caucus lunch today, i mentioned that there are pretty good reason to believe that there are $30 to $40 million in terms of fraud and medicare every year. and i think you and the

department of justice just announced a week or two ago $4 billion in fraud recovered. that is a high water mark. that's good. but we know the number. the number is $40 million, maybe more. let's use every tool we have in the toolbox to go out and get that money. and finally, we have this program called senior medicare control. we have probably fewer than 200 seniors in my state to signed up to actually be the folks out there helping us to watchdog this stuff, to watchdog the fraud. and one of the things we may want to do is really grow that, grow the awareness of that program and list a lot of the seniors. they see the fraud. they're the ones that see the fraud. i would just urge us to take that as -- as a charge. we're going to do it in my statement i hope we do it in all the states. >> we couldn't agree more. the charge that president gave us last year is part of this justice hhs fraud effort was to double the size of the senior medicare patrol. and we're actively recruiting seniors. the best boots on the ground

against fraudulent activity are the seniors themselves talking to their neighbors and friends, greeting their medicare billing and turning folks in. we used to not even take fraud calls at the 1-800 medicare line. that changed. everybody is sort of involved in the anti-fraud activities. and we're taking it very seriously. >> thank you for doing that. mr. chairman, maybe question offer them a discount memberships to gyms across the country. kill two birds with one stone. >> senator carden? >> thank you very much. i want to follow up on the chairman's point about how we can bring down cost in health care. as i've traveled through my state, a lot of the provision that's have been put into the affordable care act i think will bring down costs. i think more than cbo has scored. i think the wellness exam for the seniors will pay off dividends as they understand what they can do to lower their risk. i think filling in the prescription drug gap, coverage gap will also help.

we know that taking medicines can absolutely reduce cost. yesterday i was at the greater braiden health center which is about six or seven miles from here in prince george's county, maryland. and we were doing an event to -- where that center has expanded. expanded over grants that federal government had given under the recovery act and it also is now expanding into prenatal care. and the state of maryland ranks 39th. and infant mortality, a record that we're not proud of. and the numbers are much, much higher in the minority community, 260% higher. i have a couple questions as it relates to the qualified health centers. one is part of the bill we passed last year provides attention to minority health and disparities. and i am concerned as to how that's going to be implemented. if we can bring down the infant mortality rate and minority community, if we can bring better parody in this nation as

to those who suffer from diabetes or heart disease, we can bring down health care costs in america. and that's the reason why the congress, i think, adopted the amendments that put a spotlight on the minority health and disparity. i'm interested in the strategy in implementing that within hhs. >> senator, i couldn't agree more. i think the affordable care act has some huge pieces of that puzzle. one is for the first time having affordable health coverage for everyone. so people will have a health home and a way to get regular checkups before they show up in the emergency room with acute illness. that's a big step forward. and it's a particularly big step forward in minority communities where the level of uninsured is significantly higher than in white communities. the doubling of the number of community health centers is a second big piece of the puzzle so that not only will there be more accessible, available providers in underserved area

but there is a portion of the provider increase which is specifically aimed at getting culturally competent providers into neighborhoods, making sure that we are recruiting docs from communities where they will practice for a long period of time. third, we have a very significant effort under way on health disparities, looking at all of the programs we operate across hhs and seeing what do we need to do to put in place so by the time the 2014 comes along and we have expanded access to coverage that we actually have maximized the opportunities that people have to not only get appropriate health care but, as you said, deal with their chronic conditions. and i think finally the wellness efforts are again aimed often at strategies where -- which will have a huge impact in minority communities. often people are living in food deserts where they don't have access to fresh fruits and

vegetables. that hopefully will change over time with community projects. more attention paid to school breakfast and lunches where a lot of our kids eat their meals on a regular basis, not only more nutrition but making sure that we lower fats and salts and cholesterol out of those meals, more physical education. and so i think there's a range of strategies which get at the issues you've identified. good and i agree with all. that i want to emphasize the importance of the qualified health centers. question that last year by substantial increase and the resources. if we're going to get families use their community centers and not the emergency room, you need to have community centers. >> you bet. >> and part of the effort was to change the way in which communities are determined to be in need or underserved with the facilities and health care professionals which i think is going to be particularly important in my state where in prince george's county they've had a hard time qualifying and competing for the dollars because of the way it was

determined. even though there's clearly a shortage of professionals in that community. i believe you have rulemaking to deal with that. how is that coming along? >> senator, there is a kind of new mapping effort under way. we heard a lot of complaints from folks who said, you know, the old methodology was not accurately demonstrating where the needs were and matching the needs with -- so mary wakefield who leads the center for health resources and services is undertaking that. there also is a new workforce commission looking at strategies not only to recruit more folks to underserved areas but also the cultural competency of providers. i think we intend to move aggressively to get the right match between what areas really are underserved and where those resources go. >> i hope you work with us on that. i can tell you that old way was allocated did discriminate against the areas that clearly

were in desperate need. and i hope can you get this right. i hope we can work together on it. >> i look forward to it. >> next will be senator menendez and then senator snow. >> thank you, mr. chairman. madam secretary, thank you for your service. we appreciate what you're doing. i am concerned about the children's health insurance program. and the question of medicaid in general. in new jersey, medicaid and the children's insurance program which we call new jersey family care served over 800,000 children who would otherwise not have access to regular medical care. and we have seen that number grow by 8% since 2009. now i'm hearing a series of governors say that they want relief from the requirement for keeping medicaid enrollment eligibility as is.

and that would mean to me when i hear relief, that, to me, is translated into cutting eligibility means to cut children, pregnant women, sometimes seniors. none of which feels like a really great way to balance a budget in terms of choices. and it seems to me that people without coverage still get sick. without medicaid or lower medicaid eligibility levels that the cost of providing the necessary services shift to hospitals which is entirely opposite the focus that we tried to do in the affordable care act, get people out of the emergency room as their form of primary care, health and will shift it to hospital and clinics that are required to help people in need. en that cost shift doesn't stop there because hospitals and clinics will have to make up the difference somehow. and they'll charge higher rates to private insurers and that ultimately means people with

insurance will ultimately pay the cost of higher premiums. so i would love to hear from you as to what is your department and this administration's response to this request and the concerns that i have of what it means in terms of a cutting and cost shift to some of the most vulnerable in our society? >> well, senator, i think we share the concerns that cutting health care for potentially millions of americans is not a strategy that helps us win the future, if you want to use the president's terminology, that we need a healthy prosperous nation and healthy prosperous workforce and that we understand the budget struggles states are in particularly in this window between 2011 and 2014 when there's additional federal help.

so what we have done very aggressively is try to work a state at a time to look at the issues and the situations and we heard senator coburn talk about what rhode island is doing around a waiver that actually guaranteed that they would not drop eligible but use the flexibility to lower costs and enhance quality. that kind of strategy, i think, is available to states and ones that we look forward to working on. you know, the irony, i think, senator, as you well know in med dade budget is the largest cost driver of any state is often the duel eligible population who is in nursing homes. and quite frankly shifted on the states. and having some longer term strategies and conversations with governors, i think, is

appropriate. but children are often not only very vulnerable to not having health care, but also very inexpensive. so it's kind of a lose-lose situation if they're cut off the program, they can be damaged for a long period of time and yet a state basically doesn't save money. >> i appreciate that. what i am concerned with is that i hear all -- many of my colleagues talk about family values. i hear them talk about the safrpgt ti of life. when we have that life into the world that that value doesn't get diminished and has a greater societiable responsibility. i'm thrilled to see support and

enforcement. our bill requires a lot better tracking mechanisms through a centralized lien process to insure that information about child support in one state is available to other states which from everyone i've talked to from judges to welfare departments to others who administer this tell me this is one of the critical challenges they have. and i hope that both senator grassley and i can work with you in, as you're insent vizing states to look at how we incentivize this program and extend it to children who should be getting the support payments. >> i look forward to that. >> thank you, mr. chairman. >> senator snow? >> thank you, mr. chairman. and welcome secretary sebelius to the committee. i wanted to start with the health care reform law. i think as we look forward in terms of implementation which obviously can play a central role given the fact that you're in baltimore 1700 times in

2700-page bill which speaks to the ish u why we on this side of the aisle voted in support of repeal. there is this legislation that's become law that represents a massive government overreach, frankly. and the more that we proceed on the implementation of this law, the more it becomes, i think, abundantly clear that it's on a collision course with job creators. the job creators with small businesses who are struggling and to emerge from the worst recession since the great depression. and as senator hatch noted, 800,000 jobs will be lost. and that was based on the congressional budget office estimate between now and 2020. just looking at more immediately what is happening, first of all with the grandfather clause that, you know, i know the administration made a promise that if you like your current health insurance plan, can you keep it. well, not exactly after 121

pages of regulations just with respect to that particular provision in the law. in many, you know, of the changes that were included in that regulation, really drafts -- draws the grandfather clause very broadly so that many businesses are not going to be able to retain that health insurance plan for their employees. so it isn't exactly the way it's been described. if you just look at the numerous requirements based on grant father status, if you eliminate your benefits, increase co-insurance, increase detectivibles, increase he could payments, decrease ploir share of the premium by more than 5%, there is only one that was in statute. i was adding a limit of decreasing limits. so the list goes on in terms of what the impact is going to be on job creation. then you look at the employer mandate. that's been drafted to include

part time employees in the calculation of that mandate that will require and impose a penalty on businesses. so business of 50, i mean you know, if you include part time employees as those who work 30 hours a week, that ultimately can impose a severe penalty on that employer of $2,000. so you capture more and more small businesses. then it comes to waivers. i haven't figured out exactly what the fairness is involved and how you make determination on waivers. we know that for big companies like mcdonald's and unions and so on they're getting these waivers from, you know, minimal medical coverage plans, i gather. that's one thing. but our state, for example, has been trying to get one on the minimum medical ratio loss submitted by the state back in july. and we have yet to receive a response. and without that response, we're going to lose one of the two insurers in our state that, you

know, insures 14,000 people. so obviously this represents a significant and serious hardship and, in fact the main bureau of insurance says it is going to have a destabilizing force. we have yet to receive an answer from your department with respect to this issue. so i'd like to have you address that. overall, on the issue of jobs, i think that that is a reality. we can sit here and talk about, you know, all that's going to happen. but we're looking at a collision course in terms of the interintersection between the thousands and thousands of pages of regulations that are going to come out your department and the other agencies administering this plan and those on the ground that are going to have to live by those regulations and by the law itself. >> senator with, regard to the main application for a waiver of the medical loss ratio, part of the requirement of that application is to develop some

data. and we are working with the main department on that data, the requirement for data collection just started in january. the rule for the mlr didn't even come out until november. so we received a letter in july waiving and asking for a waiver of an application that wasn't even developed into a final recommendation by the national association of insurance commissioners. so part of that time delay was we didn't even know what she was asking to waive. but we are working with her and taking a very strong look at it. i understand what you're saying but on the other hand, why can't this be examined very quickly? >> because there's a data requirement as part of the application of the market destabilization and that data requirement was not even available to start until she

knew what the rule was. >> okay. and on the other waivers then of the more than 900 for all these other companies and organizations, you had the rule issued and all, you know, that was out there? and so that was able to make that many determinations? >> the 900 waivers deal with one provision of the act which is a $750,000 annual benefit limit. and they had to submit data. most plans have a january 1 start time. so we got the bulk of the applications in the october to december period. and looked at market disruption and rate increases. and those determinations, as i said, i think about 96% of the people who came in were granted a waiver. >> i bet it's pretty straight forward. we only have two insurers in maine for all practical purposes and 14,000 people depend. if you lose one of the insurers, we don't have it. i mean that's the bottom line in terms of the facts and what's going to affect maine. >> we're taking it very

seriously. the application was made well before there was even a determination of what the medical loss ratio would require. >> senator thune. >> thank you, mr. chairman. secretary sebelius, thank you for being with us to day. i want to focus a little bit on the -- something that was noted by the president's bipartisan fiscal commission having to do with the class act which was a part of one of the offsets of paid for the health care bill. and it was viewed as financially unsound by many experts and the commission recommends significant reforming or repealing the class program. i'm concerned that the budget did not propose changes and i guess my question is do you

agree with your a5:ctuary and tt it is near failure and need to repeal it? >> yes, senator. i do agree with the reform or repeal which is why we were pleased to have been given administrative flexibility in the law while the law outlined a framework for the class act, we determined pretty quickly that it would not meet the requirement that the act be self-sustaining and not rely on taxpayer investments. so we have made a series of program changes already in terms of eligibility requirements, the wage possibilities. we're modelling very carefully what will exist and starting with principle rule that program will not start unless we can absolutely be certain that it will be self-sustaining into the future. but we do have flexibility. i would be happy to provide you

with the details of at least what's being outlined so far which is significantly different than the framework that the law itself describes. >> it was debated to repeal that provision. does it show in the near term some revenues. almost everybody looked at it says in the outyears it becomes a major liability. >> and if you would take a snapshot of what was written as the criteria of how many years someone would have to work, what the wage would have to be to enter the prom, what -- if there would be any indexing and benefits, the snapshot in the bill i would absolutely agree is totally unsustainable. we do have administrative flexibility, though, and have a team together including the actuary who was with genworth who is probably the largest provider of any kind of

long-term services we are modelling things. this will not be a program that starts collecting until 2012 and our goal is both to try and deliver the benefits that i think a lot of americans feel are make a huge difference between their ability to live long term and their own homes or own communities or be forced into a nursing home. and making sure that this is not a program that is unsustainable. and that is a principle upon which we believe very strongly. that is currently part of our plan, yes, sir. >> how about there's been some discussion, in fact, there was a study done by center for retirement research at boston college that highlighted the need to broaden the solvency.

>> i can't tell you about the mandate. but i know that the modelling, if you're at the 2% o to 3% participation rate, you have a barely sustainable program. if you move closer to 5% or 6%, you have a more sustainable program. that is being very carefully looked at as far as the framework, can you have a flexible benefit package? what are the ways? i think increasing the work requirement to five full years, having anti-gaming provisions so people can opt in and out of the system which was possible under the original strategy, raising dramatically the threshold from a 1200 a year work requirement to a $12,000 a year work requirement. >> now as it's written today, the class act must provide an average benefit of $50 a day

which is about 1500 a month or 18,000 a year in a cash debt card. how will hhs insure tlat funds that are spent are spent on methods that provide care? >> i think there would be a very significant, you know, program integrity feature to the bill. and also probably some very specific design of benefits of what it is that actually could be purchased along the way. the program is set aside for people to draw out their own money with no taxpayer support. so the framework is not perhaps

designed to mandate cert. that only a few options could be available sings people are spending their own money. but defined benefit package will make sure that we are supported on into the future as part of the program design. >> is there a -- okay. there is a clock here. am i over my time, mr. chairman? sorry. >> we need to expand our clocks around this place. senator hatch, did you have additional questions? senator thune, why don't you just go ahead. >> just one more if it's okay. i want to explore this further. but the -- if the premiums have the support of 75-year balance, at what level are the premiums too high to be affordable? have you given thought to what happens when you run into an adverse selection problem and

you puch presh premiums where t no longer affordable? you have expensive population and a narrow takeup rate. the other is premiums are so hot that, you know, compared to other possibilities on the marketplace, no one takes it up. so it is a both premium issue and a selectivity issue that we're looking at. neither of which is impossible to solve. but both of which takes some real work. one of the challenges of the program is in the private sector right now there isn't such a product available. there are residential services

and there an deigned um long perm policy. service that's would allow people to stay and they're not really available in the private sector market right now. so we are tapping some of the best minds in the private sector looking at strategies to make sure this works long term. but certainly adverse selection, solvency, and, you know, making good on the commitment that people would have these flexible accounts in the future is strategy that we have moving forward. >> i appreciate your response, madam secretary. i would only secretary and i would suggest that my solution is still repeal of this program. thank you, mr. chairman. >> mr. chairman? >> senator hatch? >> madam secretary, a number of people will have questions they'll submit in writing and i

would hope you would send them back to us. >> certainly. >> we'll try to leave the record open here for a week for our members to file any additional questions they might have. and madam secretary, thank you very much for your time. you've been very generous with your time. we appreciate your service. >> sure. thank you. [inaudible conversations]

in its investigation of 2001 and protect such tax the fbi and microbiologist bruce - says the source of the letters. now a panel convened by the national academy of sciences has reviewed the investigation and has found fault with some of the fbi procedures. panelists discuss the report at this hour-long event. good morning and hello everyone. i'd like to welcome you all here come those here in the room and those joining us on the webcast. we are here to discuss the findings and recommendations of the new report review of the

scientific approaches used doherty the fbi investigation of the 2001 anthrax letters to read the report was produced by the national research council which is the operating arm of the national academy of sciences and the academy of engineering. for those of you not familiar with the national academy of sciences we are an independent institution separate from the government and it was formed in 1863 by president clinton under a congressional charter to provide science, technology and health policy at vice three for each requested study committee members are chosen for their expertise and experience and surf pronouced as volunteers to carry out the study statement attacks. the reports that results in the study represent the consensus view of the committee and must undergo external review before they are released. as did this report. i have with me today the chair and vice chair of the committee that wrote the report who will discuss the findings and recommendations and answer any questions you may have.

first i'd like to recognize the chair of the committee and i will select recognize dr. relman, vice chair of the committee and a professor of medicine and microbiology at stanford university and how well to california. i would also like to recognize in the audience the executive officer of the national academy of sciences and chief operating officer of the national research council. we also have next to him the study director for this report. please note this briefing is scheduled to last approximately one hour. we will start off with the doctor in some opening remarks. if time allows we can then open up to questions from the public. a reminder that the reporters in the public watching on the web can also submit questions with

filling on the web page. with that i will turn it over to the doctor >> good morning. after the tragic mailing of letters containing the traces in 2001, the fbi began an extensive investigation involving many experts and tremendous resources ultimately lasting more than eight years. this investigation represented a shift in the routine operations by the fbi as it reached out to the scientific community to assist in the development of the nation's field called microbial forensics. work in this field played a prominent role in this investigation. beginning in october, a 2001, the investigators collected biological evidence from a variety of sources and locations in florida, the dpc regions, new

jersey, new york, connecticut and overseas. four letters commonly referred to as "the new york post," leahy and daschle letters were analyzed in this investigation. no letter was recovered from the facility in florida and because the limited sample amount from the brokaw letter limited testing was performed on this material. the fbi and the contract scientists conducted a scientific analysis that focused on identifying the nature of the materials and environmental sample the similarities and differences in their biological, chemical and physical properties the tide of traces of the letters was identified as the stream not commonly found in the nature that what the source isolated in 1981 from a dead cow when texas.

the strain became widely distributed as a laboratory strain after its initial shipment to the united states army medical research institute for infectious disease. the fbi collected the stream of the traces from laboratories around the world and their investigations focus on determining the similarities between the the tissue the samples and the collections. the fbi collected the material to him reflect 1029 that was housed. in september of 2008, the fbi asked the national academy of sciences to convene the committee to conduct independent review of the scientific approaches used during the anthrax investigations. in july of 2009, we brought together a dedicated group of talented experts to begin work on the report you see today.

our committee members were experts in biology, medicine, physical chemistry, statistics, biochemistry, public health, environmental studies, forensic science and jurisprudence. in the course of the two-year study the fbi provided us with approximately 9600 pages of materials. with the least of the report, all of these materials are now available to the public. over the past 19 months the committee focused its efforts on the review and consideration of these materials along with presentation by the fbi and the doj and scientists whose work informed the investigations. despite the repeated request throughout the study for all relevant material, in november of 2010, the fbi identified

additional materials for the committee to review and requested the opportunity to brief the committee again. after serious consideration of the request, we agreed to see the materials and hold another meeting. this additional information included in the 9600 pages provided greater insight into the scientific organizations of the investigation and provided new information about overseas samples. it also resulted in the addition of the new section in the report and the new findings and recommendations. we would like to make it clear that our study focused on the application of the biological, physical and chemical sciences to this investigation by the fbi. we did not review or evaluate the more traditional forensic science is such as fingerprint, cyber or hair analysis and we consider any of the psychological or behavioral sciences such as linguistics as

used by the fbi in this investigation. additionally we were not asked and lack the gispert east to the law in force and investigative material. we also will not offer any view on the person's. an important part of the scientific investigation of doherty the fraction of the race itself in the letter sample showed unusual growth properties as a result of the produce distinctive so called colonies on the petrie dish as a listed on the recovery of the report. when the bacterial colony is worried distinctive appearance or type were examined more closely, scientists found the cells in the colonies had genetic mutations. they realize these have genetic

tests that could be applied to other samples collected during the course of this investigation. we refer to these genetic tests as molecular in the report. this work was central to the scientific investigations. while much of the committee ever was focused on reviewing the scientific investigation of the 2001 anthrax letters, and equally important aim has been to help ensure the future scientific investigations of the biological attacks are conducted in the most rigorous and effective manner possible. we believe the analysis in the report provide lessons in this case the will benefit the nation's and the event of a future attack. the key element of trust in the report are one, organization of the fbi scientific effort, too,

in fired schmidle sampling and analysis, three, physical and chemical analysis of the letter materials, for, microbial and genetic analysis of the letter materials, five, development and analysis of the fbi repository stream samples and six and a comparison of the letter materials with the samples in the fpi repository. the committee's finding is it is not possible to reach a definitive conclusion about the origins of the traces and the mailings based on the scientific evidence alone. in addition to the overarching finding, we would like to highlight some of our more specific findings.

was in the genetically engineered. two, silicone was present in the letter powders but there was no evidence of intentional addition of the silicon based disbursement. three, radiological experiment were properly conducted to evaluate samples for potential signatures connecting them to a source that proved to be of little forensic dalia. multiple distinct colony types of the names are present in the letters. molecular genetic sequences available with the types provided an approach to determining relationships among the evidence cherry samples.

five, the fbi created a repository of the samples and performed experiments to determine relationships among the the letter materials and repository samples. the scientific link between the material and the 1029 is not as conclusive as stated in the doj investigative summary. six, it is difficult to draw conclusions about the amount of time needed to prepare the material or the skill set required of the perpetrator. seven, there was inconsistent evidence of dna in environmental samples that were collected from the overseas site.

eight, there are other tools, methods and approaches available today for a scientific investigation like this one. nine, organizational structure and oversight are critical aspects of a scientific investigation. the fpi generated and organizational structure to accommodate the complexity of the case and receive the advice of the prominent experts. in addition to these findings, the committee has made two recommendations. recommendation one, the review should be conducted of the classified material that are relevant to the fbi investigation of the 2001 mailings and the data and material pertaining to the oversees environmental sample collections.

recommendation number two, the goal of the forensic science and the realistic expectations limitations regarding its use of the biological attacked must be communicated to the public and to the policymakers with as much clarity and detail as possible before, during and after the investigation. now we would like to open the floor to take your questions. >> thank you. i will open up to the credential reporters' questions. if you have a question i ask that you please raise your hand and have somebody with a microphone come over who can hear your questions. those here in the room and joining the via webcast and i ask that you identify yourself and your organization before asking a question. >> a couple questions.

one would be is your critique of the fpi department reports on this case seem to not really get at the fundamental issue of who committed the crime which is the great public interest in this case, and if i reading you correctly, you don't -- your criticisms don't undermine the conclusion. i realize you didn't reach your own conclusion, but an example would be that you say that while they overstated the link between the 1029 and the letters the evidence is consistent with that plank and supports that link, and another example you suggest the evidence that brazaitis falsified one of the samples he turned in but if i read it correctly doherty essentially saying there was a 1% chance

that it actually came from where he said came from, so that seems like fairly minor perhaps legitimate criticisms, but fairly minor in the overall context of the investigation. >> can you address that? >> i would like to address that. >> the detail in the valuation of the scientific evidence and they have to do also with the waiting of the evidence in the way the conclusions from the signs are stated in the the part of justice investigative summary. one of the challenges in the investigation such as this is a very complex interplay between scientific and investigative material and we know there is an interplay between what the

science shows and the law enforcement part of the investigation shows and we did not review the law enforcement materials. we want to avoid the situation that may arise in a scientifically based law enforcement investigation where the science is held up as an absolute. science is held as we know that that's right and it's certain and then the other parts of the investigation, the uncertainties are discussed. we believe we are hopeful here in pointing out the uncertainties, whether it is a possibility or other possibility of the types of mutation that were found in the materials and how they might arise in other circumstances, or the full in the repository collection of samples to compare to the

letters, but it's aimed at you suggest the relative weighting of those findings. -- before. next question. >> david hoffman from foreign policy magazine. your conclusion that the material from the undisclosed location positive but does that mean it could have been used in these events and could you may be explained whether there was any other explanation for why the result was positive but it wasn't grow? >> first of all, has i think you know, we were provided very little information about these efforts in this work so we are limited in what we know and can say. what we do know from the limited information that was provided is that there were several

collection missions to this overseas undisclosed site. multiple methods including the pcr molecular test as well as the cultivation efforts were both applied to the samples that were brought back to the united states. from at least one and perhaps to of those overseas collections missions, there were inconsistent but some positive results using of the molecular approach, but no positive results from the use of the cultivation. from the third collection mission, we are told that both molecular tests and cultivation efforts were . we consider the some of the information available to us as

providing inconsistent evidence for the presence of the traces of the dna. now you are correct in pointing out they had no evidence for the presence of life were viable organisms at the time the samples for broad backing to the united states, but i think it's important to recognize one ase limited in being able to infer what might have been back when the samples were actually created during the course of work that might have taken place and might have been the state at that time. >> next question. >> bald from cbs news. the report goes on to say how the letters to the post were different than the letters to leahy and daschle. with those differences in mind, and i know one of the difference wa the amount of silicon that