>> congressman kevin brady chairs the one our hearing. >> [inaudible conversations] >> the subcommittee will come to order. we are meeting today to hear from the two public members of the board of trustees of the federal hospital insurance and federal supplementary medical

insurance trust funds on their 2013 report's analysis regarding the current dire status of the medicare program. it's important to understand the financial health and viability of the medicare program if we are to ensure that the program is solvent and available to our immediate seniors as well as future generations of americans. author george r.r. martin wrote, most men would rather deny a hard truth than face it. i worry that when it comes to medicare, that's true for too many in washington today. if medicare is just fine as some claim, then why did the medicare trustees issue a medicare funding warning for the seventh straight year? if there's no problem that needs action now, then why have the assets in the trust fund shrunk by 15% from the projections made just five years ago? and if sincere concerns about medicare's financial condition are summarily dismissed as alarmist rhetoric by some

members of congress, then why can't medicare pay its medical bills for seniors in just 13 short years? today, no member of congress can honestly look a 52 year old american in the eye and assure them that medicare will be there for them when they retire because the trustees report has just confirmed it. that's not just fine. for those who continue to stick their head in the sand, where hope is the denial of reality, and who shirk from their responsibility to act to save medicare now, here is yet another wakeup call, the 2013 trustees report continues to make it abundantly clear that medicare's financial future is in trouble. americans all over the country and across generations are paying into a program that we as a congress cannot promise they will receive benefits for. but if we simply face reality and come together we can act now, this year, to take the

first real steps to make sure our citizens receive the medical care they deserve and have paid into when they most need it. if you somehow think a couple of years of reduced health care spending within a recession solves the problem, do the math. the number of people in medicare doubled over the last 35 years, and it's going to double in size again. and no one credible has proven that reduced health care spending will last, even the medicare trustees didn't attempt to make that claim. they are not alone. the independent actuaries at the centers for medicare and medicaid services again published an alternative scenario. in their full scenario they assume that congress will prevent scheduled cuts in physician and provider payments and repeal the heavy-handed independent payment advisory board causing medicare spending as a percentage of our economy to skyrocket.

the trustees report and the alternative scenario reinforce the need for prompt attention to medicare's severe financial problems. as we will hear from our witnesses, we should continue to push that now is the time to act, as the sooner we make changes to better the program's structure, the less drastic those changes will have to be. my hope is that this hearing will help my colleagues on both sides of the aisle continue to understand the extent of the financial problem that pushes us to work towards bipartisan, commonsense solutions. we cannot wish this problem away. medicare is going broke too quickly, and no amount of positioning for political gain is going to change that fact. the medicare board of trustees urge congress to take prompt legislative action and recognize that the projections in this year's report continue to demonstrate the need for timely and effective action to address medicare's remaining financial challenges. if the trustees don't view the

two added years of solvency as a significant reprieve, then why should congress or the white house? our witnesses here today will further explain to us the extent of medicare's financial difficulties as we work to deliver on this responsibility. medicare is important. it's in trouble. common sense dictates that we act now. before recognize ranking member mcdermott, for purposes of an opening statement, i ask unanimous consent all members written statements be include in the right. without objections order. i now recognize ranking member mcdermott for his opening statement. >> thank you very much, mr. chairman. i want to welcome dr. reischau dr. reischauer. it seems like even a permanent fixture around here doing something ever since i came 25 years ago, so it's good to see you here today. one of the public witnesses and dr. blahous, thank you for your service as being willing to sit

on the commission like this. i believe it's been a couple years since we've seen you before the committee and i look forward to hearing your thoughts today about what's going on. as in the past that you listen to my colleague, mr. brady, this hearing has usually been a hearing where there's been continual harping on medicare supposedly higher finances and scaring the public into believing that medicare is going bankrupt and it won't be there for you when you get to a certain age. every generation has been subjected to that since i've been in congress. it's not going to be here by the year ask. when i looked outside this morning as i got up, i could assure you this guy is not falling. the latest trustees report projects two additional years of solvency, 2026, and that's pretty healthy. the affordable care act is

improving conditions across the medicare program. projected medicare spending is down from where it was headed before the passage of a ca. before aza we were projected spending would reach 11.4% of gdp in 2082. i do a complete we know anything about 2082, but people said about and make those kind of projections. this year that number is down to 6.5% and 27. that's almost a 50% cut. the long-term 75 year deficit has also seen dropping in 2099, the 1.11% in 2013. that's a 72% decline. so you're seeing that things in fact in a long-term seem to be getting better. if you believe those predictions, the guys who want them, believe them i guess. i'm one of those a little dubious about who will know what would happen in 75 years. but the aca is also resulting in

historically low health care spending rates. per capita medicare spending rate was only .4% in 2012. that's less than one half of 1%. and national expenditures grew only 3.9% in 2011. the third straight year of slower growth. but these rates are expected to remain low, through the decade. it's not just a one time occurrence. they are a result of initiatives within the aca and initiatives that is catalyzed throughout the country. providers and insurers have gotten the message loud and clear, they need to transform into high-value efficient providers that they want to compete and health care system of tomorrow. while all of this good news won't keep my republican colleagues from playing chicken little, i'd like to remind them that repealing the aca, they

tried 37 times, their singular goal for the last three years would actually put the program on a wooden financial footing. the latest estimates of the actuaries say that repeal would shorten solvency by eight years. it would also increase beneficiary costs, eliminate benefit improvements such as free preventive care and closing the doughnut hole. so rather than using this year's trustees report to invoke panic and fear, rather, let's use it to justify shifting costs are justified costs on to beneficiaries and among the program in the name of solvency. i challenge my colleagues to think bigger. let's figure out how to ensure medicare is an efficient program that provides a quality benefit to those who rely on. walleye support this, no program designed in 1964 could possibly

be adequate for today. there's just no way you can do that. and i reject calls to slash the program to safely. it wasn't me too big at the beginning. let's give the aca and is reforms a chance to work. after all, the sky is wonderful anywhere tomorrow either. and i think that the committee has to look at what you present to us and decide how we actually implement the efficiency that's in the aca, because it will affect medicare as it affects everything. the delivery of health care and the way we pay for it is going to change over the next few years. it's changing in part by the fact that we've actually put aca in motion. that made people start to think about. i yield back the balance of my time spent today will hear from to witnesses, charles blahous and robert reischauer, both public trustees, social duty

medicare board of trustees. thank you both for being here today. i look forward to your testimony. you both a recognizer five minutes. for the purposes of providing your oral remarks, mr. bly house -- dr. blahous, we'll begin with you. >> thank you, mr. chairman, recommend, all the members, as always it's great honor to appear before you to discuss the funds of the medicare trustees report. by mutual agreement with my fellow public trustee, dr. reischauer, i'm going to present my oral remarks, primary financial project and leave it to his testimony to discusses some of the recent evolution of the longer-term outlook. the first point i would make in my oral remarks is some of that medicare finance is very complex program has two trust funds and their finance in different ways. each year there's naturally a high degree of public and press attention in her projections for the day the completion of hospital trust fund and that's very important data, and it's appropriate that there be that

but that is one piece of a larger mosaic of medicare program. medicare also has a supplemental medical insurance trust fund which actually is larger and that is construction so it can never go followed by design. it's basicall basically do whatr general revenue it needs out of the general fund in order to maintain benefit payments. so when you have strains on that side of medicare, they are not manifested in the trust fund but their manifested in the form of rising premiums and rising pressure on the general budget. and, in fact, were showing a rise in pressure. under our current projections, in 2013 we're expecting about $594 billion in total medicare expenditures. that's about 3.6% of our gross domestic product. we're projecting going forward that medicare possible rise substantially faster than the economic output to a point where in the 2030s, ma by 2035 we're expecting so broken cost to be about 5.6% of gdp.

there after we're expecting continued increases will do a tour economic output but moderated a little bit to get at the 6.5% of gdp by 27. the primary driver of this cause growth is the demographic. weblog baby boomers coming onto the benefit rolls. health care, cost inflation play a portable and israel to be more important factor later in evaluation period, although a new term demographics are the large one. under current projections, we are projecting that the hospital insurance trust fund will be deployed in 2026. that is two years later we projected in lashes report. my colleague will explain some of the reasons for recent changes in the outlook. here in my remarks i will just note that medicare finances are really very much on the edge over the next several years. we are starting this year with less than one years worth of benefit payments in the hospital insurance trust fund. and so are 2026 projection

depends to a great degree on whether annual taxes becomes outgoing benefit expansion will be almost exactly mouse over the next several years but ever projections are off a little bit, and our long-term projections are subject to great answer to, at 20 to 60 could move a few years and other direction. uplus but i will make, mr. chairman, is something that for various reasons total cost of likely higher practice someone were showing in the report. it was obvious it simply disassemble growth rate for the, physician payment. we are obliged to project what happens under literal for a law and it would be a 25% reduction in physician payments beginning next year. historically congress attended to override these. if we assume that pattern continues in costs will be higher than we're currently projecting. more than 10% higher over the long term. there are some who argue that costs will be higher than her current projections for other reasons and those are rooted in some the technicals of how we make our projections. i'll try to explain these

without getting too far into the weeds, but basically our projections for medicare cost growth are very highly dependent on our projections for health care cost growth in the broader economy, which is determined to be input costs that providers and reported medicare. what we do in our long-term projections them if we assume a certain level of deceleration and national health care cost growth, the reason we assume that has to do with the historical elasticity of medical cost growth as a function of price growth. i think the layman to understand is that as health care takes up a larger share of our economy, and absorbs more of each of our pocketbooks, the pressure introduction of further increases is lessened a bit. if that weren't the case we would get to the point where our economy serves nothing other than healthy. so we assume a certain level of acceleration going forward. so when you overlay on top of

that, the ambitious cost constraints of current law in some areas, we actually have projections that have per capita expenditures and medicare more rapid and gdp growth in the near-term but less than gdp growth in the long term. so there's some people look at our projections and say we don't think that's plausible, we don't think lawmakers would permit expenditures and medicare to be less than a per capita basis. we have to be agnostic about that. we can't projected future actions of lawmakers but what we do say is we should may projections of current law and would also provide alternative sinners which assume some of these provisions are overwritten. in conclusion, mr. chairman, i know i'm out of time, medicare is a complex program with financial strains, have consequences that include projected depletion of the trust fund and rising pressure on the general budget. we're showing cost rising in the next couple decades primarily did demographics.

in our report we said under our current projections legislation will be need to prevent a financial shortfall and the hospital insurance trust fund and to -- pursue such legislation is enacted, the more likely we can produce substantial long-term savings with less potential disruption for beneficiaries. thank you. >> thank you. dr. reischauer. >> chairman brady, ranking member mcdermott, and other members of the subcommittee, i appreciate the opportunity to appear before you today. my colleague, dr. blahous, has already covered the trustees latest projections and the basic operations of medicare, and i'm going to stray a bit. in part, in response to what was in last week's "washington post" about the credibility of medicare's long-term projections. what is going to talk about is the implications of the slow

down in overall health care spending will have or could have on medicare's programs, future financial situation. as you know, both of medicare for beneficiaries been an private sector per capita spending has slowed considerably over the last few years. the latest trustees report projects the year in which the age i trust fund will be depleted has been pushed out two years, 2024 to 2026. this is good news but doesn't suggest the cost curve is spent in a sustainable way and we can relax. even though i tell myself among those who think much of the spinning slow down in structural in nature, i believe that the fundamental financial challenge facing medicare and the need for further cost restraint and reform remain largely unchanged from where they were a year or two ago. slow down and per capita and national spending has been going on in 50 start for the better part of a decade.

probably the biggest single factor explains the slow dennis the economic weakness of the past five years. this week this has reduced the bill that many workers and families to afford health care. what's less recognize is that it also has had an effect on medicare. beneficiaries experience sharp declines in the value of their iras and 401(k)s and reduced interest income from their cds and bonds. in addition they went two years without social security cola. the fact that relatively few major the technologies and block drugs have been in this last figures is the second factor that is contribute to the slow down. policy changes, both of the federal and state level, also can take some spinning slow down. and a final factor is the sea change that has taken place in the attitudes and focus of leaders in the health care sector. in contrast to the past, there is now widespread appreciation among these leaders that health care cannot be provided without

concern for its costs and efficiency with which it is delivered. as a result, this shift, hospitals, physician groups, insurers and employers have initiated an innumerable projects to decide to moderate cost growth, and some of help dampen overall spending. whether the spinning slow down will continue is an open question. reasons to be cautiously optimistic there are also reasons for concern. prime among these reasons, of course, is the possibility of breakthroughs in genomics science, nanotechnology, stem cell research, and other cutting-edge technologies could lead to an explosion of new and extensive interventions. the increased market power that providers may gain when they consolidate provide integrated high quality care as it is envisioned under health reform is also a threat, potential threat to the continuation of a spending slow down. some might ask whether the

future pace of growth of over health care spending has much relevance for medicare because medicare has administered not market-based prices and does not negotiate with providers when it setsits of the cost related programs programmers. notwithstanding these differences, medicare cannot set its own course with respect to future growth, independent of what is happening and the rest of the health care marketplace. this has been demonstrated clearly by the appropriate reluctance lawmakers have shown towards adhering to this sustainable growth rate formula. as you know, the projections in our report assume that the physician fee schedule will be reduced like 24.7% at the start of 2014. report notes, however, that it is a virtual certainty that this reduction will be overridden. this objection is based on experience since 2003 and an appreciation of the disruptive consequences that a sudden, sharp reduction would have on

medicare payment rates leaving them far below those of other players. in short, what happened in the private marketplace does constrain what medicare can do to slow spending. for several years the trustees report have expressed caution with respect to the long-run sustainability of the major cost reduction measures required by the affordable care act. the most important of these are the productivity related reductions in annual payment rate updates for medicare providers, the ipad. while the trustees believe that these measures or alternative ones of similar impact can't be sustained over the long run, they judge that this will occur only if the overall health care sector transitions is admittedly more efficient models of care delivery. such a transition will not happen unless private payers as was medicare continue to pursue cost-saving innovations

progressively and providers respond to the incentives to moderate growth. in short medicare's ability to moderate growth over the long run depends critically on the private sector success and its efforts to slow spending and vice versa. thank you. >> thank you. dr. blahous, you and the six other trustees predicted in 13 years medicare won't be able to pay 87% of its benefits going forward. how cuts that severe or shortfall that city what impact does it have on medicare and its ability to provide medical assistance to senior? >> well, that shortfall is in a hospital insurance trust fund. and if it were allowed to simply point out without action of the amount of benefits you could pay would be 87% of what is currently scheduled. under law that type of medicare

cannot make payments in excess of the palace of the trust fund. so basically under most interpretations of the law, medicare would seem to have to wait until it was incoming revenue before it sent out payment. in many instances a denial or delay of care but certainly a reduction in aggregate amount of care that seniors receive of roughly 13% in that year. >> you say in your testimony that you project likely higher cost growth rates going forward. so the fact we are not count on the low growth rates of the last two years, and she make the point that our finances quote are on ice age. the seven trustees said we need, congress needs to take prompt time and legislative action. so is that prompt and timely meaning sometime in the next 10 years? sometimes in the next five years? do we need to act sooner than that to address these issues?

>> well, certainly the sooner there is action i think the more prudent it would be. for a number of reasons. one is the sooner you act the more people you can involved in the solution. you can have a gender impact it is going to be impact on inefficient. you can spread out over longer greater time. the other point i would make that you remember the main factors that are driving the cost, one of them is demographics. if are going to change anything about eligibility criteria, we want to face that in. >> i thought more people coming into the program, higher costs over the long term continue to drive the financial problems? of? >> that's right's. what is your recommendation? how should we -- you been there. in of the issues picking of the challenges. how much longer do we delay taking some meaningful steps? >> the difficulty of this of course is lawmakers always have to make a judgment as to what is right environment, the best time

to act from a number of perspective. i could just as took from a numerical impact is the earlier act is the benefit the more immediate action to better. >> now preferably from -- >> from a purely technical perspective, yes. >> thank you. dr. reischauer, your testimony sounds like everything is just fine in medicare. is your thinking, don't worry, be happy? it will all work out? >> well, i mean, i think i said early on in my oral remarks as was my written remarks that although i'm optimistic about the spinning slow down, i think that we still face of a significant problem. unlike my colleague i think the sooner we adopt measures to address the long-term situation, the better. i'm not one who spends sleepless

nights worrying about 2087, but, you know, looking out at the next two decades, you know, there is cause for concern. and like dr. blahous, i believe the sooner decisions are made the more gradually they can be implemented, and the more political viability they will have. >> is your thinking, rather than waiting five years and 10 years, would your recommendation as far as taking meaningful steps to congress the to do this this session to start the solutions come are laced the steps of them now rather than continuing to delay? >> we've adopted a lot of changes. we going to learn a lot from the demonstration and pilot programs, and from the

implementation of various cost reducing measures in the affordable care act. and i think in a few years we will be in a much better position to adopt innocents the next generation of changes. informed by what we learn about how well some of these demonstrations are doing. >> you spent a lot of time with your testimony talking about the benefits of the affordable care act. i didn't see that. what section of the trustees report was that in? >> it was an. i said i was going to stray a bit from the trustees report because -- >> so is your personal view just looking at on these issues? >> yes, ma and comes from the belief that the success of the efforts to hold on medicare

costs depends critically on what's happening in the rest of our health economy, that medicare can't go -- >> i heard testimony loud and clear. final point, is it accurate that the trust fund, hospital part a trust fund this year started out only having enough to cover 81% of liability? is that accurate? >> the trust fund's assets amounted to 81% of 2013 expected expenditures. so if there were no money coming into the trust fund, that -- >> is that expected to get better or to declan? >> it's expected to decline gradually over the next 13 years. >> thank you. mr. mcdermott.

>> since these hearings are basically educational for the public, let me try and get clear in people's minds, when you're talking about a deficit, you're talking about the deficit and part a. that's what you're talking about. and part b, that his doctors and other incidental, labrador and so forth, it will be paid in full, and part d will be paid in full. so those two programs are not what we're worrying about it. where worrying about the hospital is at 87% and i it's going to be 87% of the value in whatever, 20, whatever out there. if we do nothing, you're saying if we do nothing, but, in fact, we have done, we put in place the aca. so we now are putting in cost control mechanisms in the aca that are affecting this, or seem

to be affecting it. i look at the medicare advantage program and see it is dropping and there's really encouraging, it's encouraging news tha that s coming in lower on medicare advantage, which suggests to me that aca is already having an effect. is that a fair estimate? be the one of you, dr. reischauer or dr. blahous. >> the trustees report says that the initial estimates of the impact of the affordable care act on medicare advantage plans were probably a bit high, a bit low in the terms of reductions, and that behavior of these plans and the changes in the benchmarks that occurred over the last three years have led

the actuaries to believe that the savings will be larger in medicare advantage than they thought in 2010. and we've also seen an increase in the numbers of folks signing up for medicare advantage, higher than was predicted at the time the affordable care act was enacted. >> the initial medicare advantage introduction was a little bit rocky, as i remember it. >> well, let's start with recalling the medicare advantage in a sense cost the government more money than fee-for-service. >> because -- >> because we were overpaying these plans relative to the costs that the individuals who participated in the plants would have cost had they been in fee-for-service medicine. and so the affordable care act took a number of steps to try and reduce that situation, and

those have been quite successf successful. >> so to sum that up, what you just said is that the congress took action that have reduced costs already. and it looks like there's no reason to believe that that won't continued out into the future, if people, more people get into managed care and medicare advantage, and the bits keep coming down, we will save money in the future? >> well, but to take this to the next step, bids will have to come down well below what the cost would be in fee-for-service. which means that these plans have to become ever more efficient, which i think they're on the way to doing. but to go back to my original testimony, these are plans that by and large are run by companies that also run managed

care plans in the commercial market. and so this is all one big ball of wax, and we want to keep pushing on all aspects of it. >> it seems to me that what you're really saying is that some the things that are put in place and have been put in place, both in the aca and medicare advantage in the passcode is you can't expect them to go in and instantly have a major change. that is like trying to take a supertanker and turn it on a dime. it takes 20 miles depended for degrees in its direction, and that you direction, and that's what we're doing here with a big program. is that your view, that we are getting the benefits from the aca? >> we are i think, and i think, i hope we will get more. and i think you're right on the money when you say this is a big complex sector of our economy, and it needs time to evolve, to

change, to move in the right direction and that's why the chairman's suggestion that making decisions sooner rather than later, giving instructions on what direction to go is very timely. >> i would be glad to help with the cost control. thank you. yield back the balance. >> i'm going to recognize mr. jones because when they vote to sure i know members want to take a look at those before they begin. we will recess until five minutes after the vote series concludes. we will reconvene at that point. so, mr. johnson. >> dr. blahous, the trustees report estimates that medicare hospital insurance trust funds projected to spend more money, a in claim issue that will click on the payroll tax, is that correct? >> that's correct. >> how long has this been the case? >> 2008 was when expenditures began to exceed tax income.

>> okay. are you aware of any program that is financially sustainable if it spends more money than it adds, or is this a recipe for bankruptcy? >> well, obviously we can't continue on that path forever. in our current projection over the next decade, we are projecting almost an exact symmetry between income and outgo, and the actual is a brief blip later in the decade where we are projecting tax incomes for one year exceeded expenditures. but then after that the lines fall apart, expenditures exceed income on a permanent basis and that's the depletion of that -- >> i don't know how you come up with that decision. mr. blahous come in your testimony you say the current medicare cost growth projections show the would be increased pressure on the general federal budget. highlighting the increase in general revenues that will be needed to prop up the smi trust

fund. what does this mean for federal finances as a whole, and won't this further pressure the federal budget efforts to pay down our debt and? >> the answer is yes, it does mean much increased pressure on the general budget to deliver outcomes. one issue that have higher taxes, one is you have to have higher indebtedness, or you have to have reduced expenditures elsewhere in the federal budget. >> okay. and which of those do you favor? >> well, i mean, this is my personal view. i'm not excited about the idea of steadily rising taxes or generally rising debt, but i'm also not excited about seeing the rest of the budget squeeze either i think my to do something to get the rising cost of medicare under control. >> maybe you could pay for the holocaust out of your celtic and what do you think? >> i would not want to do that. [laughter] >> mr. reischauer, ma in your testimony is a policies include in the affordable care act,

obamacare, will reduce costs and create more efficiency than the system to do you specifically mention cost-conscious insurance policy products that will be offered within the exchange is but many states have also released numbers showing that premiums will be increasing 10%, some 20-50%, some as much as 150%. you're a something doesn't sound right to me. how does this help us control costs in medicare, which is facing the problems right now? >> will come first of all, those numbers that you suggested i don't think account for the differences in generosity between the plans that were being offered now and the plans that will be offered in exchange, because there are minimum benefit requirements for plans offered in exchange. but what i really am referring to is the situation that we will have once the exchange starts, which is the individual consumer

having a choice of which plan he or she decides to sign up for, and as you know there will be plans at different levels of generosity, and we might find that very significant fraction of the american public are quite comfortable with plans that are not as generous as those that we see offered in the usual employer employee situation. and that would change and start a competition that heretofore really hasn't existed, both because few employers offer a range of plans and those that do usually make their contributions to those different flavors of plans such that true market responses by their employees are

not exhibited. >> well, my impression is people don't want to spend more money on health care than they already are. that's what i'm afraid going to happen. thank you. >> i agree with that. >> would have votes come through the 15 votes. but each of our two minutes long so we will, this subcommittee will reconvene probably five minutes after the last vote series so grab a cup of coffee to be back you're ready to work. [inaudible conversations] >> thank you for being patient during the vote cities to grab another one coming up but i would like to recognize mr. pascrell for five minutes. >> thank the chairman. dr. reischauer, do you think

that medicare can hit the spending projections in the trustees report under current law? do you think that we will hit those spending projections that you mentioned? >> well, one aspect of current law is the assumption that the sgr will be implemented, and that physician payment rights will go down by almost 25%. and in that respect i don't think we hit the projections, and i think the impact that that

house on medicare's overall spending is about 2%. but extracting from that, you know, i think it is perfectly plausible that over the course of the next 10 and 20 years, that we will hit the projected numbers daughter in the report. but as i said in my testimony, this presumes that there will be a significant transformation of our delivery system, not just the delivery system from medicare's prospective but from the private sector as well. but i think that we are on our way to that in large measure because of the pressure that the congress has been exerting on

health care providers. >> correct me if i'm wrong on this, that the alternative scenario projects spending at 928% of gdp -- 9.8% of gdp. compared to projection of 11.4% prior to health care reform. is that accurate? >> yes, that is. if you look at -- >> that's pretty important, isn't? >> if you look at the 2009 report of the 75 year projections were considerably more pessimistic than either the current law projections in the 2013 report or the alternative scenario contained in that report. some of that is of course that

affordable care act, but that's taken out by the alternative scenario. and some of it is a different projections of the economy and inflation, and you know, some of it is a slow down we have expert a lot of factors going on, but your basic observation is correct. >> you would agree with me? >> yes. >> we slow down the rising cost of drugs, yes or no? >> we have -- >> prescription drugs. >> we have slowed down prescription drug costs in large measure because there has been a very substantial shift to generic drugs, much more than experts had predicted a few years ago. in part because of the pressures

that pdm's have exerted through the medicare part d program. now, the projects that we are into right now in terms of medicare and health care for that matter, are designed to moderate costs. so we don't touch that, we cannot catch a. we cannot raise enough money to do, so we continue to go on the past process, we're out of business. but let me add this. i do want to be morbid about it, but there is really, as i said, correct me, please, there is no real hope of a real reduction of the cost of health care and, indeed, medicare, unless folks take control of their health choices and learn to read their bills.

i've looked at the reports, both sides of the aisle. need of the sides of the aisle are stressing those choices. and i would say both sides of the aisle are going in the wrong direction. that the major emphasis, if i had a chance to finish the a question, mr. chairman and maybe just a short answer? >> i want to give you time, mr. pasteur i would probably ask the witnesses to respond. >> okay, but the point i was concluding the question is this, we can't raise enough money to do the things that we want to do, then we need to deal with the person who seeks care, whether he seeks control of himself, he can't pass a bill to say this is what you will do. but that's the side that we are not discussing. we are not -- i fear, mr. chairman, with all their good

intentions and great intentions of our ranking member, that we're not going to do with this and it was a lowering of that cost unless we deal with those two things. the bill that you get, and taking control of your own health. that is not in the books here. i do know why we're not discussing. thank you. >> dr. price? >> thank you, mr. chairman. i appreciate mr. pascrell's observation to our just call his attention to build h.r. 2300 that was introduced the actual response to those things. i would be glad to sit down and chat with you about it. i want to thank our witnesses, and expertise you bring and the contributions that you have made to try and move us in the right direction. dr. blahous, i'm stuck -- struck by your testimony in much of the graphics within your testimony. we here at some of our friends on the other side sound

relatively sanguine about the situation, that it's not a big deal, we don't have to worry about it too much. but you cite the demographics are driving challenge. we have 10,000 folks reaching retirement age every single day and we will do that until we get to 78 million folks of my generation, the boomers, through this process. that's a huge, huge economic challenge, and my sense is that, that things are not as rosy as some would like them, like us to believe they are. and effect a minute even be as rosy as the trustees report. would you care to comment speak with sure. i think with respect to the observation that cost ma mid-wee currently projecting, i would turn to dr. reischauer split. we are assuming her projection, almost 25% reduction in physician fee payments next year. historically there's very little basis for some that's going to happen. so if you assume that those payment reductions continue to be overwritten, costs will be at

least to that extent higher than we're currently projecting. beyond that, i think it's an important part of the message i would offer is that we still have work to do to sustain the finances of medicare. there has been an awful lot written and said about recent slow down and health care cost growth. and we are very hopeful that that will continue, and we are hopeful that it will render the aggressive cost containment mechanisms in current law more plausible over the long run. but i think it would go too far to assume that things are going to turn a significantly better than we're currently projecting. >> and likely not as good? >> possibly not as good, not as good because we're basically assuming that is going to work. assuming it will work's. and return to the issue of cost control that has been stated i the aca for medicare, which is through the independent payment advisory board, something that many of us oppose the militants we believe it removes those

choices for patients and families and doctors for the kind of do they desire. the projections right now are that the independent payment advisory board, ipab, will come into play when have to make a decision about reducing services, reducing compensation reimbursement to physicians in four or five years. but what's the interplay between that and the projection that the trustees have made already? >> it's a little tricky. basically the ipad comes into play whenever total medicare expenditures exceed itar critical to a sickly gdp plus 1%. now, that renders it difficult to run out some o of our austin alternate centers because for example, if you assume that the cost intimate provisions of the affordable care act are overwritten, then unless the ipab is also overwritten, ipab

with his have to come in and fill in the get. it would have to provide the savings that those cost and payment mechanisms do not provide. there's a strong interplay between the two. that's what in our alternatives are we sure the consequences of cost containment being overwritten and the assumption that ipads recommendations are overwritten it's not because will make impose recognition or prediction, just that you can't show the effects of one and that you assume the other is turned off because the ipab would basically coming to fill the gap if those cost intimate mechanism work of a written. >> if he has to reduction does occur, which all of us believe it ought not, and that congress will act, does the ipab come into play from decreasing members not to physicians soon or later in? >> i think the short answer is i'm not certain of but i wil wod say what i think the answer is but i think the answer is that the main interplay is with the

so-called productivity adjustment of the transcendent the reason i believe that is the sgr override that we are assuming, a basically, most of that effective in early 2014. we're assuming 25% higher physician payments in 2014, were as the years we're projecting ipab coming into play bass on the targets they have do it, those are more in the out years. it subsequent to 20 team spirit that could be so? >> it could be but i think a bigger factor is whether the other cost-containment payments of the ac overwritten but i'm looking at my co-trustee to see if i have that wrong but i think that is the case. >> mr. smith for final questio questions. >> thank you, mr. chairman come and thank you to witnesses for being here and sharing your insight and expertise. dr. reischauer, in your testimony is just spin on health care may actually decrease in the future in part because of the gratian of ipab. and what part of the ipab is it

that you think can lead to the? i know many folks are concerned that it's a form of rationing of care. >> first off, i don't believe that spending will decline. i think the rate of spending will continue at a relatively slow rate. increased. so i'm not here predicting nirvana, so to speak. >> okay. >> you know, the ipab effect is a relatively modest one in our projections. as dr. blahous mentioned, the significant impact comes from the productivity adjustment in the payment updates for most types of providers. you know, the ipab, if it is

created and if it is put into effect, as you know, will be charged with bringing up suggestions that don't necessarily have to be a cut in physician payments or other payments. it can be some other things as well. to bring spending down below a threshold, and if congress disagrees with those measures, they can enact a substitute way of tamping down the growth of cost. but some of the materials that we have suggest that looking out over the next 20 or 30 years, the ipab is really a relatively minor part of the story of holding down the cost growth. >> would you say it's minor but

important? >> i think it's important, its importance really comes, i mean if i were making a prediction, its importance would not come from its actions so much as its threat of actions. i mean, it focuses with the mind of policymakers that, hey, we have to do some more, you know. we done a modest amount so far but we have to do some more or else, you know, this could be viewed in a way as something like sequestration, you know, it's nobody's first or 10th, you know, idea of what a good solution for the problem is. so let's com, as legislators, ce up with an alternative. >> okay. so just to follow up, dr. blahous, is creating the ipab

perhaps is considered by many to be good policy, i have my concerns, why is its elimination and in the supplemental report? >> basically, it pertains to what we're trying to show, trying to a point of lawmakers with the potential expenditures that could arise if certain cost-containment mechanisms of current law are turned off. and ipab is a very important in that demonstration because if you left ipab continue to operate and if congress came in and overrode those cost-containment mechanisms in current law, then under other aspects of current will ipab would come in and have more savings to facilitate. so in order to show the magnitude of the official expenditures, if you assume certain element of current law are overwritten, you also have to assume the ipab is based in overwritten as well because otherwise the ipab what is

coming and fill in the gaps. is that clear? >> somewhat. but my fear is perhaps sgr would just be replaced by ipab, under a different acronym. is that conceivable? >> well, i would say, i think there's different levels of skepticism within the trustees process as to which elements of current law are likely to be sustained. i think the trustees as a body, based on history, very, very skeptical that anything approaching the sgr is going to happen because historical we have overwritten if it. i think with respect to something like ipab, other cost-containment in current law, a together greater diversity -- you certainly have some place in that process who think it's impossible that they could be sustained. you have others who are more skeptical. we had a technical panel look at this over the last couple of years, and they basically came

back with a recommendation that in our alternative scenario we assume that the cost mechanisms operate in full up to 2020 of them are partially phaseout in 2020-234. again, that's not a prediction but it's not a policy recommendation, but basically that reflects an alternative assumption that basically these cost-containment mechanisms will be overwritten to the extent that would be necessary on our methodology in which people can argue with, but under our methodology -- but there's a great diversity especially since we haven't seen whether these are going to be affected yet. >> thank you, mr. chairman. i want to thank both witnesses for test which they. today, i hope we heed your warnings to act sooner rather than later to take meaningful steps to extend the life of medicare. has reminded any member may submit questions for 14 days for the record. i would ask witnesses to respond in a tiny manner as i know you

will. with that, the subcommittee is adjourned. [inaudible conversations] [inaudible conversations] next on c-span2, the head of the federal railway administration testifies in front of a congressional panel on freight and passenger rail safety. the senate is back for more debate on the immigration bill.

they have been trying to work out an agreement on a border security agreement. live senate coverage at 10:30 a.m. eastern. >> senate minority leader mitch mcconnell will talk about free speech and the irs targeting of conservative political groups. the american enterprise institute hosted the event at 10 eastern. we will have live coverage on c-span. and later, the congressional internet caucus advisory committee host a conversation on the national security agencies data collection program. speakers include former homeland security chief privacy officer maryellen callahan. that's live at noon eastern also on c-span. >> when you talk about transparency to the american public there is, you're going to give up something. you're going to be giving signals to our adversaries as to what our capabilities are.

and the more specific you get about the program, the more specific you get about the oversight, the more specific you get about the capabilities and the successes, to that extent you have people sitting advancing okay, now understand what can be done with our numbers in yemen and in the united states, and consequently i'm going to find another way to communicate. i've got to keep it in my mind. ..

>> now, a hearing on freight and passenger rail safety. the head of the railway association, joseph szabo, testifies at this hearing. the acting committee chairman is senator richard blumenthal of connecticut. [inaudible conversations] >> good morning, everyone. i'm calling to order this hearing of the commerce, science and transportation committee which has the very important and profoundly significant task of hearing testimony from some really excellent witnesses on the issue of rail safety.

and i want to begin by thanking chairman rockefeller for the opportunity to have this hearing which is important not only to the northeast and to midwest missouri, but really the entire country. and i know chairman rockefeller has demonstrated his commitment to improving rail safety over many, many years, and i'm humbled and honored to have this opportunity. i also want to thank senator lautenberg for his tireless and relentless effort on this subject, and his loss is a personal loss to me because he was a mentor and model, but also a loss to the country as a leader in transportation safety and reliability. and i want to thank the staff of this committee for its excellent work in putting together this hearing in calling the really very, very well qualified witnesses that we have and also in preparing for it. let me begin by saying that

anybody who questions the need for this hearing has only to read today's headlines. the derailment yesterday of a long island railroad train carrying about a thousand passengers leaving penn station -- which, essentially, paralyzed rail traffic in much of the northeast corridor for a substantial period of time, inconveniencing many, many people and delaying freight and travel. during the month of may in a span of less than two weeks, our nation witnessed major railroad tragedy. the fist of them in -- the first of them in bridgeport, connecticut, where an eastbound train derailed and was struck by a westbound train seconds later. days later this line saw one of its own killed by a passing train while he was inspecting

track in that vicinity. and on may 25th, just about a week later, two freight trains collided in missouri. only a few days after that event, a railroad crossing accident and explosion occurred in white marsh, maryland. we know that rail safety is improving, but these incidents certainly challenge the public's trust and confidence in the system, and the credibility of claims that rail safety is, in fact, improving. i think that in many instances pictures speak louder than words. in fact, as the saying goes, a picture is worth a thousand words. and we're going to see two pictures in the course of this hearing. one of them is of a shunt system that chairman hersman will be presenting in the course of her

testimony. this very rudimentary appearing piece of equipment could have saved the life of that metro north worker who was killed in west haven. cost? about $200. and, thankfully, the ntsb has now recommended in an urgent recommendation that metro north use this equipment system weed. but for robert, it's too late. and for american railroads, it's too late for adoption and implementation of many of these literally life-saving technologies which are simple, feasible, inexpensive and cost effective. so this hearing is about new technology that may help save lives and dollars, but it's also about existing systems that can

and should be implemented. the other picture which we're going to see is of the inspection report that was done in the wake of, that was released in the wake of the collision in bridgeport, connecticut. this came to my office just yesterday, but it's the inspection report that was done on may 15th, just two days before the may 17th derailment and collision. what it shows, again as the ntsb has pointed out in its preliminary statement, is that the defect that very likely was responsible for the derailment was found by an inspector at track four, 734, and the finding was that there were hanging ties and pumping load at that point.

the ntsb has not reached any final conclusions, but i'm willing to say at this point that this deficiency very substantially contributed if it didn't actually cause that derailment. it was found two days before. whether it should have been corrected, in my view, is indisputable. it should have been. whether it's the only cause or the probable cause remains open for debate. but what is astonishing about this report is not only that finding, but all of the other defects found on that day at different points on that same track. any of them could have caused a similar derailment and collision. so the state of our railroads, literally, is in question, and that's the reason that we're here today. a couple of points before i go

to senator blunt, the ranking member. clearly, there's a need for infrastructure investment. it may be extremely costly. we haven't decided how to pay for it. i've proposed a national rail trust fund, and i will continue to support the creation of a national infrastructure bank. but the issues for today concern the very simple and cost effective options out there right now, and one of them actually concerns the technology that exists for better inspection, the sperry rail, which produces a better form of inspection based in the state of connecticut. another concern of mine is the amount of time it takes to do both investigations and rulemaking. investigations by the ntsb, we're going to learn more about

the amount of time it takes to complete those investigations. but in my view, 12-18 months is simply unacceptable as the amount of time to complete investigations. we need answers quicker so that we can solve problems sooner. and on rulemaking i am concerned about delays in the fra's rules. my understanding is that there were 17 rules that were due to be promulgated and finalized, many of them not completed yet, others delayed and, in fact, delayed in their effective dates and compliance manuals still due. so there is work to be done here. a lot has been done to make our rail lines safer, but we can and we should, we must do more, and passenger and rail freight growth is projected to continue

at the same time this industry is really at a cross road because it has to earn and keep the trust of the american public. again, my thanks to our witnesses for being here today. i look forward to your testimony, and i'm now going to turn to senator blunt. >> well, thank you, senator blumenthal, and thanks for chairing this hearing today. i know senator blumenthal and i and others on this subcommittee, particularly me as the new ranking member, have looked forward to the chance to work with senator lautenberg who knew so much and cared so much about railroads, and we miss his understanding of these issues and his leadership on these issues. but with senator blumenthal's efforts to have this hearing today, i appreciate. i'm also particularly glad michelle teel's here from the missouri department of transportation who will be on the second panel. we have two extraordinary panels today, and i look forward, as everybody does, to hearing from

them. as senator blumenthal has suggested, this is a very current issue. day before yesterday on the front page of "the wall street journal" there was a big article about conflicting pressures on the industry to do something very expensive and very new and to maintain a system that's challenging to maintain. i mean, the rail industry is extremely capital intensive, involves lots of investment on infrastructure that's needed to 20, sometimes 30 years or longer. knowing those cost considerations, it's good to hear from the dedication of all the people who are represented on these panels today to both supervise this and to make this important industry work. it's an industry that's growing as we use it in more aggressive ways both for rail and for

passenger. the amount of time, resources and money that the federal government and the private rail line operators have put into increasing safety is important at rail crossings, increasing awareness about the hazards of trespassing, basically increasing the overall safety of our actual rail infrastructure is a good thing to see this focus on. you didn't know any better, you'd think if you were an outside observer that not much was changing. but, of course, in the last few decades incredible amounts of change have occurred in the rail industry, and it's a dramatically different industry than it was just a few years ago. but the technological advancement, what i think has really been a nimble regulatory approach by the federal railroad administration and the dedication to improving service has been impressive, but we want to hear about how it can be better and what the government can do to both p courage it --

encourage it to be better and make it less complicated so that you can achieve those better results. i'm very interested to hear about the status of the system today. i'm specifically interested to hear about the progress being made on the implementation of positive train control which is almost everyone in -- as almost everyone in this room knows is supposed to be fully operable by the end of 2015. most things i see suggest that's a very hard goal to meet. this mandate, of course, requires possibly more than $10 billion and hours and hours of work to complete. we had the nominated chairman for the fcc in this very room yesterday, and i asked him about building all these towers, 22,000 towers. how does that happen in three years unless the fcc figures out ways to be much more aggressive in their view of this than they

are on the 2 or 3,000 towers that they generally maximize out and being able to permit every year. i'm also anxious to hear about the passenger and commuter rail networks that are managing, how they're managing this mandate, and so positive train control is something i hope to leave here knowing about more than i do today and to know where we should be headed. in the senate and the congress and on this committee. and, again, mr. blumenthal, he and i came to the senate together. we're proud to be in this hearing together, and this is a dynamic and important industry that we need to appreciate for what it is. and so, chairman, thank you for conducting this hearing today. >> thank you, senator blunt. let me introduce the witnesses and then ask each of you to begin with opening remarks. first, joseph szabo, who is

administrator of the federal railroad administration. he was nominated on march 20, 2009, and confirmed by the united states senate on april 29, 2009. he is the 12th administrator of the federal railroad administration and the first to come from the ranks of rail workers. he leads a staff of over 900 professionals located in washington, d.c. and field offices across the united states who develop and enforce safety regulations. they also manage financial assistance programs and oversee research and technology development programs. mr. szabo is a fifth generation railroader who between 2006 and 2009 was vice president of the illinois afl-cio, and he also has served as mayor of riverdale, illinois, and a member of the south suburban mayors' transportation committee. he has held various other public service positions, and we

welcome you, mr. szabo, to the hearing and particularly for your long expertise and your experience in this area. chairman deborah hersman of the national transportation safety board is recognized as one of the most passionate and visionary safety leaders for all modes of transportation. among her initiatives include the actions and attention focused on distracted driving, child passenger safety and helping accident victims and their families. she has been a board member on the scene for 19 major transportation accidents, and she has chaired dozens of ntsb hearings, forums, events, and she regularly testifies before congress. her leadership has made the ntsb

a better organization, and we're proud to welcome her today. susan fleming, who is director of physical infrastructure issues in the government accountability office, is with us as well, the third witness. she has been a member of the gao staff for some time. the gao to, as you know, is appointed by the comptroller general of the united states, the head of the gao is the comptroller general who's appointed for 15-year term by the president from a slate of candidates whom the congress proposes. and the united states general accounting office is an independent, nonpartisan agency that works for the congress. it's often called the congressional watchdog, and we welcome you, ms. flemingings

today. thank you for being here. so let's begin with mr. szabo. >> well, thank you, chairman blumenthal, ranking member blunt and members of the committee. i appreciate this opportunity to testify. rail is an extremely safe mode of transportation, but with i personally know firsthand the impact that train accidents can have on families and commitments. communities. i've been the mayor of a railroad town that's had its share of accidents and hazardous spills. i've been that railroader who was lucky enough to survive a close call and not fall victim to a fatality. as a conductor, i've experienced firsthand my share of crossing fatalities. and over the course of my railroad career, i've had five good friends killed on duty. the members of my fra staff, like me,ly and breathe -- live and breathe railroad safety. as unprecedented public and

private investments position rail for its growing role in moving both people and freight, fra has sharpened its focus on enhanced safety. 2012 was the safest year in railroading history. since the rail safety improvement act was passed in 2008, railroad accidents have declined for five straight years, part of a 43% drop over the past decade. and this hasn't occurred by mistake. it reflects our comprehensive approach to railroad safety. we've used good data to increase audits and spot inspections in strategic locations. we've taken steps to insure or the competency of locomotive engineers and conductors. we've issued requirements to have emergency notification systems at every highway-rail grade crossing. we've updated our track and passenger equipment safety standards to insure the safe introduction of high-speed rail service at speeds up to 220

miles per hour, embracing a performance-based safety approach that will allow proven high-speed train set designs to be used in the united states. but we must always do better. our goal always is for continuous safety improvement. so as we work with the industry to install positive train control, we've placed an increased emphasis on an analyzing human factors like the confidential close call reporting system and system safety programs for passenger operations. our most mature confidential close call reporting system pilot project so far has yielded remarkable results, a 70% reduction in accidents. looking ahead, the president's 2014fra budget request includes funding to expand close calls reporting nationally. furthering our understanding of root causes behind accidents

which will help railroads establish prevention measures in advance of an accident. the key here is we want to know what's going on before an accident occurs. with our two core authorizations set to expire, our budget also proposes a new five-year, $40 billion rail authorization including a national high performance rail system program to fund essential development products for both passenger and freight rail. and there's a fundamental link between a higher-performing rail network and higher levels of safety. achieving both a state of good repair and advancing new safety technologies. consider our investments in 110 mile-per-hour service in the midwest which will upgrade more than 200 grade crossings with what we're calling smart technology that will detect any intrusion into that grade crossing-protected area in advance of an accident occurring. our investments in north

carolina which in addition to improving speeds and reliability will close some 50 grade crossings and construct strategically-placed overpasses and underpasses, enhancing safety for trains, pedestrians and vehicles. under our budget proposal, projects would be eligible to compete for funding through a national high performance rail system program, and to fund these efforts we propose establishing a new rail account within the transportation trust fund, putting rail on par with other transportation modes that benefit from sustained funding sources. and we can provide the predictability and funding that will empower states, local governments and the private sector to invest in a rail network that is unquestionably safe. rail is an extremely safe mode of transportation, but like you i am not satisfied. with your support we can lay a deeper foundation for continuous

safety improvements. we can increase the use of advanced technology, capture and analyze data from programs like close calls and close dangerous grade crossings. together we can insure that rail remains safe, reliable and efficient. thank you. >> be thank you, administrator szabo with. chairman hersman. >> good morning. good morning, senator blumenthal, senator blunt and members of the committee. the n texas sb sent investigative teams to connecticut, missouri and maryland last month for four different accident investigations. in each of these accidents, there were problems that the ntsb has seen in our prior investigations. on may 17th during the evening rush home, a metro north eastbound train derailed in bridgeport about 20 seconds after that train came to rest,

it was struck by a westbound train. there were over 70 injuries. two days prior to the crash a metro north inspection found a lack of ballast support at an insulated rail joint near the point of derailment. while this problem did not violate fra track safety standards, the ntsb is evaluating the damaged section of track as well as the adequacy of existing inspection standards. a second metro north accident occurred on may 28th when a track foreman was struck and killed by a train that was on track that should have been out of service. the ntsb has issued previous recommendations to the fra to require redundant signal protection such as shunting to prevent this type of accident. on monday we reiterated this

recommendation to the fra and issued an urgent recommendation to metro north to require this redundant protection. a track shunt is a twice that crews can attach to the rails in work zones that alerts the controller and gives the approaching trains a stop signal. shunting tracks is simple, feasible, and the equipment is readily available for a few hundred dollars. workers' lives will be saved as a result of redundant protection. in baltimore county, maryland, on may 28th, a dump truck was struck at a highway rail grade crossing by a csx freight train. this was a passive crossing, meaning that it had no lights or crossing gates. the markings that were present were dilapidated and faded. the collision resulted in the release of hazardous materials and a subsequent fiemplet --

fire. the truck driver was seriously injured, and one responder and three nearby workers were also injured. on may 25th in chaffee, missouri, a bnsf freight train was occupying the tracks when it was struck by a union pacific freight train. the resulting derailment caused a fire, and the highway overpass above to collapse. two up crew members were injured, and five motorists were injured as a result of the bridge collapse. we belief that positive -- we believe that positive train control, or ptc, which the ntsb has called for since the 1970s could have prevented or mitigated this crash. just yesterday the ntsb held a board meeting on a head-on collision between two up freight trains that resulted in three

crew member fatalities near goodwell, oklahoma, that also could have been prevented by positive train control. ptc is a technology that serves as a backup for human error. when trains approach a red signal without slowing, ptc would stop the train. congress has imposed a deadline of 2015 for implementing ptc. some railroads will meet this deadline. for those railroads that have made the difficult decisions and invested millions of dollars, they have demonstrated leadership. for those railroads that will not meet the deadline, there should be a transparent accounting for actions taken and not taken to meet the 2015 deadline. so that regulators and policymakers can make informed decisions.

i appreciate the opportunity to appear before you today, and i look forward to answering your questions. >> thank you, chairman hersman. ms. fleming? >> good morning. mr. chairman, ranking member blunt, other members of the committee, thank you for the opportunity to discuss rail safety. as you heard, 2012 was the safest year in railroad history, and overall rail safety has improved significantly with the accident rate dropping by almost 50% between 2004 and 2012. however, as we heard, recent accidents in connecticut, missouri and maryland demonstrate the need for vigilance and further improvements in rail safety. my statement is based on work currently being performed at the request of this committee and other members of the senate and will cover fra's rail safety oversight including existing and emerging challenges as well as positive train control implementation. our reports will be issued later this fall.

fra is charged with regulatory oversight of the safety of u.s. railroads, both passenger and freight. combined the freight and commuter rail systems plus amtrak have about 230,000 employees, over one million cars and 200,000 miles of track in operation. fra primarily monitors railroads' compliance with federal safety regulations through routine inspections at specific sites on railroad systems. fra's relatively small safety staff, about 640 including state inspectors, makes the railroads with their own inspectors the principal guarantors of railroad safety. fra has developed two models that use past accident, incident and inspection data to help focus its oversight efforts. one targets inspections, and the other seeks to allocate fra's inspectors across its eight regions.

both models are updated at least annually and reviewed by officials. however, several fra regional officials told us that the staffing decisions based on model results do not necessarily align inspectors with their perspective of the needs of the region, nor does it take a region's geography into account. we will further assess how fra officials use these tools to accommodate changing safety risks and allocate inspectors. basedden our work to date, we have identified several existing and emerging challenges. first, rail safety stakeholders including fra face the continued challenge of trying to reduce highway-rail grade crossings and trespasser incidents. stakeholders told us this involves educating the public about the potential safety hazards and cooperating with other federal, state and local government agencies that have respondent -- respondent for finding road projects or closing those crossings.

additionally, changes to freight flows such as the recent increase in train and truck traffic due to gas and petroleum drilling in the midwest, can increase the risk of grade crossing accidents. second, in the next five years over 30% of fra inspectors in its current safety disciplines will be eligible to retire. fra does not have a specific plan to replace its aging inspector work force. in addition, it can take from one to four years to hire, train and certify an inspector depending on the inspector's level of experience. finally, fra officials told us that they do not yet have sufficient staff with the required expertise to provide safety oversight of ptc and other emerging safety technologies. moving on to ptc implementation, as you know, the rail safety improvement act of 2008 called for ptc implementation on rail lines carrying either inner city

or commuter passengers or cargo that carry toxic materials by december 31, 2015. however, we've heard that most railroads report that they will not meet this deadline. there are numerous interrelated challenges that are causing this delay including the development of ptc components and their installation, system integration and field testing and limited fra resources to review railroads' ptc implementation and safety plans and to certify those systems. commuter railroads face these same exact challenges and more including dependency on implementation by the freight railroads and amtrak whose tracks they use and obtaining sufficient radio frequency spectrum for radios. it appears unlikely that ptc will be implemented by more than a small number of railroads by the deadline. in its august 2000 report to congress, fra requested authorities such as grant withing provisional certification of ptc systems to

railroads which would provide flexibility to meeting the deadline. fra officials say these authorities could enable them to conduct oversight more realistically by acknowledging the current state of implementation and in turn could help better manage their and the railroad's limited resources. thank you, mr. chairman, this concludes my statement, and i'd be pleased to answer any questions you may have. >> thank you. thank you, ms. fleming, for calling attention to the array of potential dangers in terms of rail safety and, in particular, the succession problem which is a major challenge for this industry. a lot of people have observed on it, and administrator szabo, thank you for also highlighting the need to be concerned about the safety of the folks who work on our railroads. and with that in mind, let me begin by asking chairman hersman

if this shunt had been used at the time that robert lewden was working in west haven and a rail traffic controller in new york returned to service the track on which he was working, would his life have been saved? >> we believe if the shunt had been used properly, that both the controller in new york would have gotten a indication that that track block was occupied as well as any train that tried to enter that block would have received a stop signal. >> and the train, therefore, would have been stopped? >> we expect that those redundant safety measures could have saved that track worker's life, yes. >> and that's the reason that you've recommended in the past that this kind of system -- can which, by the way, i think costs about $200, am i right about that? >> yes, sir, that's correct. >> you recommended that it be adopted by metro knot north and

other railroads around the country. >> that's right. after an event in woeburn, massachusetts, involving the mbta, there was, there were multiple track worker fatalities when they did not use a shunt, and that track was inappropriately released, and a train entered that track, striking and killing them. mbta did have shunting procedure, but they didn't use them at the time. so we know that some railroads do use shunts, and they use these procedures. we'd like to see all of them do it. >> and you have with you, do you not, the inspection report that was done on may 15th, two days before the may 17th collision? >> yes, i do. >> i'd like to ask you to submit your copy for the record. you were very kind in providing me with a copy, and if there's no objection, i'll ask that it be made part of the record. chairman hersman, as you look at

this report calling your attention to the line that you pointed out to me yesterday when we discussed it that makes reference to track four, 734, could you read that so folks here can know what it says exactly? >> sure. there's a handwritten notation on this page that, under insulated joints, frogs and switches that says track 4, 734 insulated joint hanging ties, pumping underload. >> and if i understand correctly, i'm going to try to put it in layman's terms. essentially, the tie was insufficiently supported and, therefore, the track was unstable so that the joint linking the two tracks at their connection was weakened by repeated travel over the track, and very likely the cause of the

derailment was eventually the splitting of that rail when the joint failed to work properly, is that correct? >> the joint joins two separate sections of rail that are already separate. it is the joint bars that join those two sections of track. the hanging ties indicates that the rail and the ties were unsupported underneath with insufficient balance, and that concern when they saw loads going over that section of track, the pumping that they describe is that flexing that's occurring at the joint over and over again as the train wheels pass over that section of track. creating, certainly, a risk area, an unstable condition. and we did identify the point of derailment at that location. we are examining those fractured joint bars in the rail in our lab now.

>> so if i said to you my view is that this defect caused the derailment, you wouldn't disagree with me, would you? >> well, senator, i would say you are certainly entitled to your view, and i respect that. i would say for the ntsb, um, our process is conduct a very thorough investigation, and so we really want to make sure that we gather all of the facts before we reach any conclusions. and if i may provide the committee an example of that from our investigation yesterday, we investigated an accident that occurred in oklahoma about a year ago, and we issued our probable cause determination yesterday. and that investigation when we first went on scene, we knew a crew had run a red signal, but we didn't know why they had run that red signal. when we looked at their records, their medical records, they had passed the vision and hearing tests that are required, but we knew that there was something else that we needed to

understand about this. we issued requests for his medical records from his medical provider. we found that this engineer over in the 33 months prior to the accident had 12 procedures on his eyes and over 50 visits to eye care providers. we didn't get that from up in the beginning of the investigation. but about halfway through from his optometrist, ophthalmologist and physician were able to get this. we had a locomotive engineer who was color blind and whose visual acuity would not pass the test. he couldn't see the signals. two years before the crash, he had told his eye doctors he could not see train signals. in the end, our probable cause for that accident was the inability for him to see those signals, but we defined in our investigation that the standards that currently exist -- testing just vision and hearing every

few years -- are not adequate. they're not consistent with what we see from medical standards required for pilots, for mariners, for truck drivers. and we recommended changes that we would like to see the fra and the railroads make. so our investigations do take a long time before we reach probable cause, but we believe that the parties involved can take meet meet action. and so -- immediate action. and so metro north and fra can move immediately on the things that we're finding today, and we can issue urgent recommendation as we did in the west haven accident. >> don't you think that your report and final conclusions ought to be done more quickly than 18 months after the may 17th and may 27th accidents? >> senator, i absolutely believe that they, that we would like to have them done sooner. the reality is that due to our workload we simply cannot complete everything.

i know you have two sents, senator blunt, you have one that we're taking a look at. we have about 20 investigators in our rail pipeline and hazardous materials division, and they're handling 11 con concurrent accidents. some of those investigators traveled straight from one site to another. they're handling multiple investigations at the same time, and our work requires us to take a look at a lot of different factors and really develop comprehensive solutions. but we do make sure that people have that information to act on quickly. metro north is a part of our team. fra is a part of our team. we know, i met with metro north last week, they are working to address over 200 of those joints on their property during the summer to put them in a better state of safety. and so that's the kind of thing that needs to take place immediately, and we work to make sure that that happens. >> i'm going to turn to senator

be blunt. >> thank you, senator blumenthal. mr. szabo, ms. fleming said that on positive train control, if i heard her comments correctly -- i guess i could have checked the testimony, but i didn't. i think as i made notes here that ptc components were not available at this point, that field testing hadn't been done yet in an adequate way, that you had limited capacity to review what was happening, and the frequency to communicate hadn't been obtained yet. i guess i have a couple questions. one is what have i left out of that list? and, two is, do you think based on those factors it's workable to get their industry wide by 2015? >> if you go back and take a look at the report that we provided to congress last fall,

it really articulates the range of challenges that the industry has in meeting full ptc deployment by december 31 of 2015. and i think that's the keyword there is full deployment. we absolutely believe that partial deployment can and will be achieved, but between the availability of spectrum, the availability of radios, the ability to get the technology necessary to set up back offices, the fact that the entire industry as well as my agency sometimes are competing for a very limited pool offing per tease -- of expertise in implementing, there's no question that there are challenges that are going to be a roadblock to full deployment. i think chairwoman hersman said

it well that, you know, should congress consider an extension, what we recommended in our report was that fra be given limited flexibility to, in essence, extend on a case-by-case basis. it shouldn't be a blanket extension. we really have to find this appropriate balance between keeping feet to the fire for expeditious implementation while also making sure that we allow the appropriate amount of time to insure that it's done safely and reliably. and that's the challenge. and so we would like to have the ability to actually weigh that due diligence. i think those were the -- actually, the terms the chairwoman used was accountability for actions or the lack of actions on implementation. >> okay. >> and actually be able to

measure that as we determine what type of extension might be necessary on a case-by-case basis. >> but your view is the case-by-case extension made by your agency would be what you'd prefer to see happen? >> you know, again, it's part of insuring that balance between timely implementation while also making sure that it's done safely and reliably. >> do you have an estimate of cost of what this system is -- i -- some of the notes here say over 10 billion, some say 12 billion. what's your -- >> i can provide it to you for the record, but you're in the right range. it's a significant cost. and, of course, that's a challenge for the commuter agency. >> any discussions with the federal communications commission about this, the spectrum and the permitting and how would you characterize those discussions? >> yes. we've been having conversations with fcc on both of those, spectrum availability as well as the need to find a much better approach to siting these

antennas. i would call the conversation on spectrum availability considerably more of a challenge. fcc is conflicted in their mandate between the need to insure, you know, resources are used efficiently, government resources used efficiently and the need from their perspective to not give it away versus what we believe is a legitimate public safety issue in particular for the commuter agencies of public agencies. i think the conversations relative to siting the antennas are in a much better place, that there's a clearer recognition now of the urgency of finding an alternative means given the fact that there's some 22,000 antennas that need to be sited, and fcc's traditional process sites about 2,000 a year. >> right. >> and in particular given that the vast majority of these,

better than 95%, i believe, by one estimate are just stick antennas that have, you know, minimal obstruction, minimal, you know, environmental impact that perhaps we can find a way to be much more expeditious in siting those as we work through an alternative approach on the bigger antennas that may have some environmental issues. >> ms. hersman, this is just to clarify for me, you mentioned, i think, one head-on collision where a train derailed, and 20 seconds later another train hit it. is that, do i have that 20 seconds right? >> actually, in that one there was a train that derailed, and it was struck by another train that was on a different track. >> right. >> the train that derailed -- >> headed the opposite direction on a different track that they would have passed, right? >> that's right. if the train had been upright, they would have passed each

other, but the train was laying on its side, so it was fouling the track area where that train was passing through. >> i'm just assuming that no system can totally prevent that, that you're going to have trains that pass each other in opposite directions, and at some second interval, no system is going to stop a train from derailing that doesn't get hit by the train that's approaching it. i'm not sure how many seconds that would, but 20 -- no system prevents that. but train maintenance, track maintenance and other things go a long way toward anticipating and equipment maintenance, but not a system, am i right in thinking that? >> absolutely. preventing the first instance is that attention to track and maintenance issue. but in the second i instance, ts is not an accident that would have been prevented by positive train control, but i will tell you that that engineer in that oncoming train saved a lot of lives. he threw the train into an emergency and was able to get it

slowed down to 23 miles per hour when the collision occurred. i know senator blumenthal knows there was a lot of damage even at 23 miles per hour, but that, i'm sure, saved many lives, slowing that train down. so human beings are still very good at making decisions in unusual situations, and in that case he could see the threat ahead and stopped the train. >> right. but nothing in positive train control would stop -- no, sir, this was not -- >> pass each other on opposite tracks at the same time or, obviously, the system wouldn't work. >> that is true. >> you said in your testimony that some rail operators have already complied or will have complied by 2015? you want to tell me what you're saying there? >> sure. we held a forum in february about the status of positive train control implementation. we heard from a number of witnesses. we asked the fra who they thought would comply by the 2015

deadline. we were told that amtrak, metro link, alaska railroad and -- let's see, there's one more. there were four operators -- >> bnsf. >> bnsf freight line would most likely comply by 2015. >> so, ms. fleming, there'd be ways around all those obstacles for at least some people by 2015, the equipment availability, the testing, the fra capacity, the -- all, you think there's a way around that? >> i think that, um, metro link and bns are unique examples in the sense that because of the accident, they were able to hit the ground running. bnsf has been using and testing ptc for decades.

and so they've been on the forefront of that. metro link right after the accident really moved forward on that, and one or both of them basically is not waiting for the first generational back office server and is, in fact, using, you know, purchasing their own and doing things a little bit differently than some of the other railroads are. so they've made a conscientious effort to put the money into it. amtrak, it's our understanding that they will be in compliance with michigan and the northeast corridor but will not be able to, they don't have the financial resources to actually equip their locomotives. so, again, that's more of a partial 2015 implementation. >> thank you. i'll probably have more questions for the record and thank you, chairman. >> thank you. we can also do a brief second round of questions for this panel, because it is a very important panel. i'm going to call on senator johnson.

>> thank you, mr. chairman. mr. szabo, does the fra, do you do prayer analysis, prayer charts on the causation or maybe the ntsb? do you do that analysis on what is the primary causes of these accidents? >> we do very deep root cause analysis and, in fact, if you take a look at the 43% reduction we've had over the past decade, it's been by aggressively using the data, the accident data that is available to be much more strategic in coming up with our solutions. >> and can you just kind of rattle off the top five categories or causes of rail accidents? >> well, from a broader standpoint, the number one risk area would be human factors. >> okay. >> second would be track caused. and combine those two probably are the chief causation for about 72% of all railroad accidents.

so, you know, so much of our efforts over the last five years have been drilling down on human factors and track causation because we believe that gives us the biggest opportunity for continuous safety improvement. >> i've heard the word "resources" used a couple times, i think ms. fleming said limited resources, which is true. does anybody have the information in terms of how much capital expenditure per year is available to the industry? how much do they spend on capital improvements? >> we can get to that for the record. perhaps ed hamberger on the second panel would be able to address that for the class i railroads, and certainly we can get it for you from amtrak and the commuter railroads, but it's substantial. >> okay. there was an interesting article, column written by george will on may 31st, i'd like to enter it into the record. >> without objection. >> he's talking about positive train control. the numbers he's using is so far

the railroads have spent about $2.7 billion on it, they're estimating somewhere between $10-$14 billion, about a billion dollars per year in annual maintenance. he's listing that in 2010 the total capital investments of the railroad was about $11 billion. he's also in this article saying that cass sunstein, who was the former administrator of the office of information and regulatory affairs, before he was testifying before congress talked about positive train control in this way. he said that it is a statutory requirement the department of transportation had issued as a matter of law even though monetized benefits are lower than monetized costs. he said they are a lot like that. limited resources, i guess i just kind of want to get your evaluation as much as we all love the concept of that, are we devoting too many resources, and are we imposing that too quickly? i mean, earlier in the column he said this was really passed a

month after a train accident in california. very rapid response by congress. did we think that thing through well enough, and are we really demanding the railroads to put too much money toward this one, again, potentially life saving and very wonderful technology, but is that at the expense of other potentially more beneficial technologies or capital expenditures on other safety areas? >> there's no question that ptc is a game changer in safety for the industry. when i talk about human factors being the number one causation for roughly 40% of all railroad accidents, that's exactly what ptc is designed to prevent. and so we have to recognize the tremendous safety benefits that will without question drive down accident rates and lead to that continuous safety improvement. but we also have to be smart about how we implement it. and that's why we're looking to

see it implemented as expeditiously as possible while insuring that it is done safely and reliably. there's a balancing act here, senator, and we have to make sure that we achieve it, that if we force deployment without having the chance to work the kinks out, we do run the risk of actually making the industry on a short-term basis less safe as well as gumming up capacity. and so, you know, there's a lot that has to be balanced to make sure that it is done right while also being done expeditiously. >> do you disagree with cass sunstein's characterization that the monetized benefits are lower than the monetized costs? >> no, he's got the actual figures there, but again, this was a congressional mandate, and so our job was to implement what congress required of us and do it in the most cost effective way possible. >> but so, again, so you're not disputing the fact that this is going to cost more than the benefit which is not a real good

sign for federal regulation. and the problem with that is it is going to cost money, it's going to spend limited resources that may be spent better elsewhere, that's my question. >> you know, i don't dispute the numbers that are in the calculation there. they're our numbers. my economists came up with those numbers. but i will also say in regulations of this nature there are always benefits we believe that are not adequately measured, and let's not dismiss the game-changing impact the that ptc can have on railroads -- >> again, i'm always concerned about unintended consequences, and the consequence i'm concerned about here is money spent, the ptc not getting bang for the buck relatively, could that money be spent better in terms of directing those dollars spent in different areas? i'm just asking are there -- what other areas would we be spending that money in had you not been directed by congress to spend it in ptc?

do you understand the question? i'll open it up to anybody who'd like to respond to it. are there other areas that the industry would rather spend the money on to improve safety that might be more effective, that might actually have a better benefit than the cost? >> i think that question would be better answered by the industry, but certainly from our perspective driving down human factors has to be first and foremost in our minds from a safety regime. >> okay. ms. hersman, do you have anything to add to that? just -- >> well, i would certainly defer to the industry to kind of share what they would invest in otherwise, but i will say this is a technology that we've recommended since the 1970s. it's a technology that the federal government has been funding as far as pilot programs for decades, and we know that there will be more accidents that can be prevented. we're investigating accidents right now that could have been prevented by ptc. ptc prevents the most

catastrophic accidents, the ones where you have loss of life. and yes, you're right, i think it was the last straw that finally triggered congressional action was the metro link accident that killed 25 in california. a texting engineer ran a red signal, it was a preventable accident. but we also would like to see results in major hazmat releases and evacuations from communities and the things that are the most catastrophic. we think that ptc is the solutioning to that. it is expensive, but it's important. >> could you just name the one area that you might spend money on next then if this was the number one, what would be number two? >> i think i would agree with administrator szabo. when i look at the 11 investigations that we have ongoing right now, they basically break down into human factors and track. and so, you know, improving their infrastructure, that is also an issue that the ntsb has focused on. we have ten items on our most

wanted list of transportation safety improvements. ptc is one of them, but so is maintaining the integrity of our nation's infrastructure. >> thank you. >> may i add a comment? >> sure. >> i think one thing we're not talking about is reducing highway grade crossings and trespasser accidents. and, actually, if you look at that, it's obviously gone down as well, but it's actually a higher percentage of overall accidents and fatalities. and it's something that is difficult to address, but it really involves, you know, working with multiple stakeholders, but it is something that really has to be tackled. and so i think when you think of rail safety, you have to, you know, really address it on a number of fronts. you know, technology, i think ptc is very promising. our point is that it has to be installed in a way that insures that the system functions as intended and is reliable. ..