same person are coming from the same batch? can you talk about how they can be different? what account for the difference is? and does this mean that it had to come from different sources? >> the differences indicate to main things. one is that there were separate batches. they have enough physical and chemical differences between the two letters that they must have come from two different batches. also the differences between the letters and the flasks are 1029 and they indicate that there had to be an additional growth step in order to create letters with the characteristics that we found. ..

>> president harry truman once said, quote, the health of all its citizens deserves the help of all the nation. end quote. today we welcome secretary kathleen sebelius to the finance committee to discuss the president's budget in the health of our citizens. last year, madame secretary, you appeared before this committee to discuss the president's budget under much different circumstances. today our 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 descriptions unaffordable. this year seniors in this coverage gap receive a 50% discount on their prescription drugs. last year small businesses struggleded to afford health benefits for their employees. this year, 4 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 tough new laws keep criminals out of federal health care programs. this morning we turn our attention to the president's budget proposal for the department of health and human services. we're all concerned about our country's deficit and its 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 slolution to these runaway costs, we won't bring in our deficits. why do health care costs continue to grow to quickly? based on the quantity of care they deliver rather than the quality of care patients se. this imbalance is particularly problematic 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 is all too rare. what are the consequences of this lack of coordination? duply kative tests and

procedures, medicines that counteract each other, frustrated patients. in the end, care is still too expenseive expensive, but patients are not necessarily any healthier. health reform changes all 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. medicare 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'll improve the government's bottom line. the independent nonpartisan office has said the affordable care act reduces the deficit by $230 billion in the first 10 years and by more than $1 trillion in the ten years that follow. despite this progress, some oppose health care reform and want to move backward, but repealing health reform will strip away critical protections

from people in need and will add to the deficit. protections for people like david hutchins and his son, elijah, from missoula, montana, are persons who would be affected by repealing health care law. elijah suffers from leukemia and was born with down syndrome. because of the new health care law, insurance companies are now prohibited from denying elijah coverage because he's sick. repealing health reform would bring us back to the days and insurance company bureaucrats would be allowed to turn elijah away. beyond health care, congress must reauthorize the temporary assi assistance to needy families. that must be otherwise eauthori year. must do a better job of responding during economic downturns. reauthorization is an opportunity to address the potential to train american workers for professions

currently experiencing a short ajs of workers. i hear professions like nursing, trucking, data processing, for example, would benefit from a trending of a skilled workforce. we also have more work to do to improve our child welfare system, in particular, safe and stable families program these to be reauthorized. we look forward to working with senator hatch and the many child welfare champions on this committee to build on the groundbreaking work when we last reauthorize ed this program. let's remember the need to encourage fathers more effe effectively in our strategies to prevent poverty. look forward to improving these programs with compassion, common sense. there's much more i would like to have said, but time is short. madame secretary, thank you for being here. we look forward to your testimony, as you comment on the president's budget. senator hatch? >> thank you, mr. chairman.

thank you, madame secretary. we appreciate you being here. thank you for joining us today. we have a lot to talk about. the president released his fiscal year 2012 budget yesterday and as you may have also heard, it has not received the warmest of receptions. it's one thing to have republicans criticizing you for failing to outline meaningful deficit reduction, but you know you have a problem when the mainstream media outlets voice skepticism about this budget's ability to right our fiscal ship. en before the president released his budget, members of this committee were eager to hear from you. this is your first appearance before the committee since enactment of the patient, protection and affordable care act, i guess it's called ppaca. no one would call it that. we released it last month. to be frank, that is a long time. i'm sure you would agree with me on that. congress is a co-equal branch of government.

in this committee, in particular, has oversight of your department's application of the laws we pass. yet, since you were here last year, almost a year ago, your agentgy has been responsible for thousands of pages of regulat n regulations implementing the 2,700-page health care law, with next to no opportunity of public oversight by this committee. the implementation process would have benefited from some careful oversight. the process of implementing the health care bill has at times been chaotic, due enough to the decision to delegate so much rule-making authority to a federal bureaucracy and the fast tracking of implement take timelines. the result has not been a rush to promulgate rules but a need to issue sub regulatory guidance in the form of releases, notices, frequently asked questions on model notice language samples that clarify and revise previously issued

rules. i know many on this committee have questions about both the process and the substance of this implementation process. this committee's questions for you have increased exd po anyone shl exponentially. last fall it was clear the people in my state of utah and every state in the union voiced a desire for smaller government and less spending. the citizens of this nation spoke but were not given a voice in this particular budget. the president sent us a budget that promises $1.1 trillion deficit reduction in ten years. over ten years. that might sound like a lot of money until you consider that this year's deficit, alone, is over $1.6 trillion. judging from the reaction of the mainstream media this morning, i don't think there's any way that you can, that these numbers can be spinned into a good story. i look forward to a forthright conversation with you today. here are 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 ever growing crisis of medicaid financing. while the budget acknowledges the $111 billion collect i shortfall that states are facing in 201 11,20111, alone, it fail help the states manage one quarter of their budgets which is being spent on medicaid. it fails to respond to requests from governors, relief of the health laws, medicaid, maintenance restrictions. second, this budget increases the size of the department of health and human services by more than 4,700 bureaucrats just in the next two years, largely to implement this partisan $2. 6 trillion health care law. it is important to note last week the cbo, congressional budget office, said this new health law will be responsible for the loss of as many as 800,000 jobs at a time when our unemployment rate continues to stagnate 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 is some real smoke and mirrors in this budget. take a look at the position payment fix or doc fix. by your own estimates, the ten-year cost of a doc fix simply with a z0% update stands at astonishing $370 billion. although the health care law cut more than $529 billion out of an insolt vent medicare program, it did not attempt to address this fundamental flaw in the program itself. and at the end of this year, alone, physicians will face a 28% cut in their payments. seriously threatening access for millions of seniors. the sgr, in my opinion, should

have been permanently fixed inr care reform. i suspects the desire to spin that legislation of saving money had something to do with leaving out a fix that everybody knows would cost hundreds of billions of dollars. although this budget attempts to prepare a two-year doc fix, the largest 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 this new law. the budget also calls for nearly $13 billion in savings by reducing the exclusivity periods for follow-on biologics and, quote, to pay for delay, unquote, arrangements. these proposals not only fly in the face of those made in congress. the problem with this budget is

not just the failure to make meaningful cuts. it is al investments in new medicines cost billions of dollars and years of effort. if businesses are going to invest in these 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 exclusivity unnecessary that undermines this crucial industry in order to generate revenue that will go toward finances wasteful government spending. we all knowologics is a hope for the future as well as a lot of other matters including stem cell research and personalized medicine, just to name three of the top ones. i have more to say on this issue with your colleague, secretary geithner, tomorrow. the assumption the tax rates will expire in 2012 will have far reaching consequences for

small businessowners who account for half of all small business flow-through income. these small business owners would see their marginal tax rates hiked by 47%, or excuse me, by 17% to 24% under this budget. i find it hard to believe this revenue will not adversely impact the ability of small businesses to hire more workers and provide meaningful health benefits to their employees. i'm curious what analysis has been done by the office of management and 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 if 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 remissed 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 our entitlements. to borrow from a blogger's analysis of this budget, it's almost like the fiscal commission never happened. the president has the responsibility and charge to lead on entitlement reform. there is no bypassing this responsibility. this budget unfortunately shows the real lack of leadership on this critical matter. here's what the "washington post" had to say. quote, having been given the chance to cover and push by the fiscal commission he created to take bold steps to raise revenue and curb entitlement spending, president obama in his fiscal 2012 budget proposal chose instead to duck. to duck and mass ducking with budgetary gimmicks he once derided. unquote. secretary, thanks for coming here today. under the best of circumstances,

testifying before the congress can be like going into the lions den. in this case since it has been so long since you have testified, it is like you're going into a den where the lions have not 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. 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. we look forward to talking with you today and continuing this conversation on a more regular basis in the future. thank you. >> mr. hatch. i might say i think the president's budget is a good start. much more needs to be done. i don't think there's much to disagree with about that. i think there is disagreement that it's also a start. we have days and weeks and months ahead of us.

i hope we make significant progress. secretary sebelius, thank you very much for coming. custom, and you know it, your prepared statement will be included in the record. feel free to speak for however long you want. let discretion be your guide. proceed. >> thank you. members of the committee, 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, outbuilding and out-innovating the world sod we can give every family and business the chance to thrive. blueprint for putting that into action and grow the economy and create jobs. our budget also recognizes that we can't build lasting

prosperity on a mountain of debt. years of deficits have put us in a position where we need to make tough choices. we can't invest for the future unless we also live within our means. so in developing the budget, we look closely at every program in our department. when we found waste, we cut it. when programs weren't working well enough, we redesigned them to put a new focus on results. and in some cases, we had to cut programs that we wouldn't have cut if we were in better fiscal times. so i look forward to answering your questions and first i just want to share a few of the highlights. over the last 10 1/2 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 builds 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 workforce 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 proposals that will strengthen program integrity and medicare, promote lower pharmaceutical costs, 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 beneficiaries 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 also increases funding for the national institutes of health. new frontiers of rej like cell-based therapies have the

promise to unlock revolutionary treatments and cures from diseases ranging from alzheimer's to cancer to autism. and our budget will allow the world's leading scientists to pursue these discoveries 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 childcare 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 childcare programs. supporting key reforms to transform the nation's childcare 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 the quality efforts already under way 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 a 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. funds more states to improve outcomes for children in foster care such as reducing long-term foster care stays and the rate of child maltreatment reoccurrence. these children deserve to be part of a better future.

our budget also recognizes that at a 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. an effort that more than pays for itself. returning a record $4 billion to taxpayers in 2010, alone. in addition, the budget provides a robust package of administrative improvements that will deliver $32.3 billion over the next ten years in medicare and medicaid savings. the proposals expanded auditing, increasing penalties for improper actions 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 far 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're 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 is cdc funding to help states reduce chronic disease. previously the funding was split between different diseases. one grant for heart disease, another grant for diabetes. it didn't make sense since those conditions often have the same risk factors like smoking 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 makes 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 and that's what we're determined to do. again, thank you, mr. chairman. i look forward to answering your questions. >> thank you, madame secretary. one cbo estimates that the health care law will reduce the labor used by about a half a percent to 1%. some have interpreted this to mean that the law, itself, requires reduction in the workforce, 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 employer. they're not locked into their employer 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? clarify what it really means?

>> well, i think, mr. chairman -- >> i don't know if your microphone is on, madame secretary. pull it up closer. >> oh. >> thank you. >> there it is. magic. mr. chairman, i think we've seen what's happened in 10 1/2 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 workforce trained to the health i.t. personnel we're going to need. the statistic i think you're referring to with cbo deals exactly with the ability, the freedom, for americans who might choose to retire to retire because they'll no longer be tied to their employment, so-called job lock for insurance.

once there are competitive marketplaces set up, a vulnerable pop plaulation is th to 65 years old that have very few choices that are affordable and sometimes none at all with the pre-existing -- before they are medicare eligible. >> i appreciate that. >> that's retirement. >> can you address sgr? 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're going to not let it lapse. we waste a lot of time reinventing the wheel. i did not come here to be a maintenance senator or a extending senator. i came here to do things. and so one way to accomplish that objective is to reduce, eliminate a lot of the extenders. and one's the sgr. i know in your budget you talk

about 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 that we need a permanent fix. we need a permanent solution. we need an honest permanent solution. and your thoughts, please. >> well, mr. chairman, i would not agree more. i assure you the president agrees. as you know, the sgr predates by a lot the debate by any kind of comprehensive health reform. it dates back to the late '90s and has been fixed add 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 prosed 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, very deeply, we have

a chance here, we have an opportunity, and be honest, some people have said this. i heard senator carper say this, i've heard many people say this, that one reason why unemploymenunemployment is not coming down as fast as it should when we come out of this recession is because of 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 this sgr provision. you know, it's unpredictable. doctors don't know. congress doesn't know. people don't know. that's just one of many, many, many examples, and so i really urge you to very, very seriously -- i know you're not going to do this, just toss it off. i know it's really serious. i'm trying to emphasize how serious this really is. and we have an opportunity here with each of these extenders, one by one, figure out a solution. either they're permanent or we

repeal them. let's find a solution here because we are spending too much of our time here in the congress just trying to extend something. reinvent the wheel. we know what the outcome is going to be anyway. it's how we get there. one final point. the most important part of health care reform which i don't think enough attention is given to, that's delivery assisted 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, and that 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 understand this stuff think it should be scored. and so i just -- i have time here. my time's expiring. but i would like you and i think i speak for most, light a fire

under all those working on delivery system reform and give yourself benchmarks. give yourself data sets and points and so forth. and accomplishment. what do you accomplish by a certain period of time, et cetera. because this, i'm just giving you advanced notice this is something i'm going to be focused on very heavily because i want this to work. i think most people want this to work. 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 costs overrun with that. so i urge -- time's up. i urge you -- i will be asking 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, make it permanent. i think we should have fixed it

with all the medicare cuts 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 500 and some odd billion dollars taken out to be used for another unsustainable entitlement program, when we could have paid for it then. but i think we have to do that. and i hope that you'll work with us to find a way to do it. now, secretary sebelius, the president's budget acknowledges that the states are facing a collective budget shortfall of $111 billion in 2011, alone. as you know, medicaid spending consumes nearly a quarter of the state budgets on average and the new health care laws maintenance of effort restrictions limit state flexibility in lowering medicaid spending. and while i realize that the president's budget proposes a few minor program integrity provisions, the budget also says

that 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 the president's budget fails to contain the flexibility necessary for states to balance their budgets. and i know you're secretary of health and human services, but if you were still the governor of kansas, when would you be asking the secretary of hhs for now? do you agree with the request from senators? >> 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 working with governors around the country it's a commitment i take seriously. these are my former colleagues. i know exactly what they're

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 an 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, looking at ways that medicaid can certainly serve more people at a lower cost and there are lots of strategies that i think we look forward to working with states. we granted waivers in a very 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. >> both democrat and republican governors were up in arms about it. you know, you sent out a letter on february 3rd and i'm pretty sure that doesn't even come close in solving the problem. and to quote governor haley barbour, he says, quote, secretary sebelius' letter fails

to provide solutions that immediately address the state budget problems posed by the medicaid program. so i'm very concerned about it. as are they. >> senator, one of the features of the new affordable care act is for the first time we have an office dedicated to the citizens who are over 65 and eligible for medicare but also because of their income, eligible for medicaid. it's the biggest cost driver in any state budget. i looked at the numbers the other day. it's about is15% in terms of enrollment in medicaid responsible for about 40% of the costs. 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 and 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 a medical home strategy or follow-up care, that would take care of the cost of three nondisabled medicaid clients for an entire year. so there's some strategies which we think can have big payoffs for states and we're eager to work with them. >> you do have the authority to waive the m.o.e. under section 1115. >> we do 1115 waivers and doing those on a regular basis, senator. >> okay. i think my time is up. >> thank you. next, senator grassley. >> fortunate, thank you. >> you bet. senator grassley, you're next. >> okay. madame secretary, i oppose -- >> senator, i have to leave, but like senator binghamton, the chair hearing and he'll

recognize you. >> okay. thank you. >> you bet. senator binghamton. i mean, senator grassley. >> madame secretary, i oppose placing a 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 a mistake for the federal government to pick and choose which tools states have available to deal with trying budget times. that said, i'm concerned about what actions states might take if maintenance of effort is removed. i'm particularly concerned about what actions might be taken toward developmentally disabled. in the family opportunity act, we promoted medicaid expansion for the disabled to alleviate

the perverse incentives families had no 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 this issue. your efforts to protect eligibility for higher income medicaid recipients threatens the care provided with people with 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 the savings for the federal government. in the budget proposal yesterday, the administration proposed cutting back on

medicaid provider taxes. that money that comes straight out of medicaid providers. if a 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 and people that you're 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, the

will cease to exist at the end of june of this year. so we are aggressively working with sntates around a variety o strategies. i recently in conversation with governor brewer of arizona, the letter you referred to, governor brewer actually has a waiver that has put in place some coverage options that actually expire at this fall, and 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're trying a state at a time. each state is in a slightly different situation. states 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, 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're trying to do in protecting people of higher income? >> well, senator, i'm not quite sure what we're talking 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. and optional populations are ones, as you know, senators, 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 websites, 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 and 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 this by way of sending it? >> by way of sending it. >> thank cryou. 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. madame secretary, thank you for being here. let me ask about this issue of state flexibility under the law and particularly in relation to health insurance exchanges. i know one of 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 its own ospasis. that's their suggestion. my understanding when we were doing health care reform was

that we built a lot of flexibility into the law so that states could design these 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're doing in getting states on track to set up these health insurance exchanges, what advantages there are to them doing that. what disadvantages there might be to you step in and taking over that responsibility. so that's the question. >> well, senator, you're absolutely right. the way the law is designed is that in 2014 there will be a new state-based exchange marketplace, primarily for small

businessowners and individuals who are currently purchasing coverage without any leverage of large numbers. and often with lots of rules and restrictions on pre-existing conditions. they pay about 25% more than their colleagues in a large firm, and the opportunity to pool people in a state-based exchange with private insurers offering competitive programs is one that is a 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, but virtually everything he raises as a possible problem in terms of state flexibility is, 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 planning grants around building an exchange. we're providing a lot of technical assistance, and i think that states are looking, in my experience, very much forward 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 multistate level because we know some states have small enough marketplaces that they can't provide that coverage and competition within their own boundaries. 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 -- 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're beginning the conversations and the buildout. we have some states that want to move ahead pretty aggressively in design, roman systems, i.t. systems that could be used as models for others. conversations are going on among a number of northeast states, i know their going on in the midwest about ways that there could be a larger pooling arrangement or having another state run your exchange for you. so those conversations are very much under way. >> thank you. senator wyden? >> thank you, mr. chairman. and welcome to you, secretary sebeli sebelius. as you know, one area where there is significant bipartisan support is basement 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's it's movmoving, in effec to prop up fee for service. and aye heai've heard providers people that they're up in arms about it, their estimates that this could cost $30 billion to $40 billion. and their argument is essentially that it's like using world war ii military hardware for today's threat. now, there are 150,000 of these codes. it's something called icd-10. i don't want to get into all root canal-type discussion you're going to have to have for billing codes. but my question to you is, why not junk this process that has generated so much hostility,

save the money, and i gather from experts could bd, like, $30 billion to $40 billion, and move on to payment reform which you're for and there's strong bipartisan support for it. now, my understanding is 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 it would have bipartisan support. i think it would save a lot of money. and i wonder what your thoughts are on it. >> senator, as you know, and you've already referred to, i share your passion and interest in payment reform. and there are an enormous number of features in the affordable care act that move us in a very new direction, much to the, i think, delight of not only the private sector employers who have been trying to move aggressively in this direction for a while but also health providers who see real opportunities for innovation. i'm not totally familiar