you that i will take a strong look at it and would love to follow- up with you on ways tha could fit into the new system. >> it was a rule, essentially, 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 sums of money, $30 billion to $40 billion and get to where i believe you want to be, which is the bundling, the payment reform, the perspective approach and a fee for service. can you all get back to any about that? >> absolutely. >> okay. second question i want to ask you is a philosophical one. as you know, i've been very interested in this 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. what the states are now saying is, why can't we do this in 2014 because we're going to have to do one thing for 2014 and then we'd really like to do something else for 2017. why are we spending all this time in bureaucracy and, you know, red tape? what philosophically, let's set aside all the legislation and the like. what philosophically 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 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 with governors who would like an opportunity to look at a whole state approach. including your new governor who is eager to get going.

so we are very much engaged in that conversation and i think that defending on what the future look -- flexibility is clearly something states would v very much like to have and may be a piece of the puzzle. >> 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. >> you bet. >> what i'm struck by is when i listen to governors they say, why in the world we have to do it twice? i mean, this is not about this bill, my bill, somebody else's bill, but philosophically if you're going to get to do something you really want to do in 2017, why can't we all work together on a bipartisan way, let them jump-start it in 2014 so they don't have to spend all the time and money? so let's talk about that some

more. thank you. >> senator coburn? >> thank you. and welcome. i was interested in your comments on the strategies that states can use in terms of their medicaid problems. medical homes, decrease readmissi readmissions. take people out of chronic long-term care. give them back their lives. of decreasing hospital readmissions. decreasing utilitilizations. do you all have a strategy within this budget to encourage that? >> yes, sir. >> and what is it? >> well, there are a whole series of delivery system reforms that for the first time i think are part of the directive to cms, and so woe have everything from resources in the innovation center which will encourage modeling of

various kind of care strategies that we know are more effective and less expense i because they're happening in various parts of the country. the accountable care organization structures that are coming together in what we very much anticipate both through the new office of eligibles but also with very close coordination with states is using the medicare strategies for the first time also and encouraging states to pick up those same strategies in their medicaid budgets. >> 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. and the theory behind that goes is that all these hospitals are buying all the practices. and in fact, you're 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 an entity that spends more money. at a minimum, you have to spend the same money and increase quality. 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 dom n t dominated model being the only strat zw strategy that can work. there is a monopoly pricing system is just, as you say, the opposite of what is beneficial. >> that's what is out there right now. let me go back to medicaid for a minute. you outlined a strategy where you're actually putting resources into your budget to enhance the 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.?