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Michael  Leavitt, Secretary


Washington, DC


Monday, February 04, 2008

Transcript as Delivered on the 2009 budget

CHARLIE JOHNSON:  Good afternoon and welcome.  My name is Charlie Johnson.  I am the Assistant Secretary for Resources and Technology and the Chief Financial Officer of HHS.  I will introduce the Secretary in a moment.  I would like you to meet.  Dr. Tevi Troy.  Tevi, if you would stand.  He’s our new Deputy, new since last year, so you should meet him.

I particularly welcome those from the press here with us today.  Today, I guess, is best described as that day that’s flanked by Super Bowl Sunday on one side and Super Duper Tuesday on the other side. And so we do welcome you on this, I guess, it would be an unnamed day, but we do welcome you that you would show up from the press.

Let me also thank the many budget people in our department. I am telling you, they have spent countless hours, nights, weekends, holidays, right up through this morning preparing for this budget and this budget release.  So, I personally, want to thank each and every one of them.

Last year, we pointed out that the budget that we presented the 2008 budget was the last budget that we would both formulate and also execute.  This year we would point that the 2009 budget we will formulate and present to you and you Congress today, but we don’t know how much we’ll execute.  That will depend on Congress, because this will be the last budget presented by the Bush Administration.

As you come to the close of an administration, there has been much debated, all ready.  We have sent over many policies, we requested funding, and for the most part, we have reached agreement between the administration, the President and Congress and most of those items have been adopted and funded.  Over time, however, there accumulates some proposals by the administration that Congress has not yet acted on.  Conversely, there are proposals for terminations and reductions that Congress has not acted on.  This all becomes cumulative over time.  And so, as you compare a budget against funding by Congress as opposed to funding recommendations from the President over time, you point out those areas of differences, and thus, we have many of those today.  We will, of course, continue to set forth new proposals.  You will also see terminations and reductions not yet acted on by Congress.

Let me talk a little bit about the logistics for today.  There will actually be two parts of the press conference, and then there will be an optional session after this session. The two parts of the press conference are as follows. The secretary will make his remarks, and he will take some questions.  He will then, leave this area.  Our operating division individuals are the front row.  We will have a microphone at the front.  We’ll take additional questions at that time, and that would be the two parts of this press conference.

The optional part of this is that after this, because we have learned over time that CMS will receive a lot of questions, they will hold a separate session as they usually have held one.  FDA is a source of considerable discussion more recently, and they too, will hold a separate session.  And so, as we move through the Secretary’s questions and move to the operating division questions you will also have additional opportunities during those optional sessions, immediately following this.

We will have microphones and we would ask you to not only identify yourself, your name, but also the media that you represent.

Now, let me introduce Secretary Leavitt.  I have worked off and on with and for Secretary Leavitt, at one time Governor Leavitt, for a number of years.  I’ve watched him formulate budgets.  I’ve watched him present budgets.  I can tell you this is a man with vision.  This is a man with negotiating skills.  And it’s been a privilege to watch him first hand.  He always gives his vision clear and concise, as those of us formulating the budget know what they are.  He continually asks the question, what new ideas do you have, what’s new, how are you going to change the way we do business, that is particularly true, when resources are less available than they are in the more robust times.

So, I introduce to you Secretary Leavitt, my friend and mentor.  Thank you.

MIKE LEAVITT:  Thank you.  Good afternoon.  Thank you for being here.  I want to also acknowledge my colleagues who are here as leaders of the various operating divisions of our department.  I want to recognize the work that you and your offices have done, and particularly Charlie, who’s so kind to me.  But, those of you who know our relationship know that I’ve relied on him for many years for what we are here today.

I want to begin with Medicare, for obvious reasons.  This is 56 percent of the $373 billion budget that is administered in this building.  The Medicare portion of the budget should be viewed as a stark warning; Medicare on its current course is 11 years from going broke.  This is a very serious matter.  Now, let’s acknowledge that American sensitivity to entitlement warnings has become numbed by, what I would refer to as, a kind of repeated cycle of alarms and inaction.  Dire warnings have become a seasonal occurrence.  It’s like the cherry blossoms blooming in April.  It’s just become part of life’s natural rhythm.  We hear the warnings, but we do nothing.

This budget is a warning in a different way.  It illuminates with specificity the hard decisions that policy makers, no matter what party they are in, nor which year it is into the future, that they will face every year into the future until we have changed the current course.  We can keep our national commitment, but to do so we’ve got to change how we manage Medicare.

It is an inefficient system that has contributed substantially to the dilemma that I describe today.  It needs to be changed.  If consumers were allowed to make the decisions that we’ll talk about today through an efficient market, through electronically connected records, through quality measures, through cost comparisons, through choices and incentives, their decisions would be far more precise and wise. It would produce better health and it would produce it at lower costs.

One need look no further than our experience with the Medicare prescription drug benefit where we organized, as a government, an efficient market, and we’ve let consumers decide.  Just last week, we announced that a total of $117 billion will be saved over the next 10 years, as a result of the competition in this organized market.

However, using the blunt instruments that we have available to us, we have to prepare a Medicare budget and we’ve done it today with three goals in mind.  The first is long term sustainability.  The second is affordable premiums for those who are beneficiaries.  And lastly, it’s to balance the budget between now and 2012.

Now, some are going to be unhappy with this budget.   While Medicare spending under this budget will increase an average of five percent annually over the next five years, they will see this attempt to try and bring the glide pattern of Medicare into a more sustainable rate as a cut.  Our proposed budget includes a group of legislative and administrative improvements that are aimed at extending Medicare’s viability. The slower growth rate they produce saves $183 billion over the next five years.  The proposals include encouraging provider competition and efficiency; promoting high quality care; making payment policies more rational; improving program integrity; and increasing high income beneficiaries’ responsibility for their healthcare costs.

Here’s an important point.  Slowing the growth rate in Medicare also reduces the premiums that beneficiaries pay.  It would reduce it by $6.2 billion over the next five years.  Let me emphasize that any change, any change that we make in the underlying government spending also gives beneficiaries a break.

I mentioned Medicare warnings earlier. In 2003, Congress created a law that requires Medicare trustees to issue a formal warning as the regular tax dollars that go into Medicare exceed 45 percent of the total budget two years in a row.  I’m a trustee of the Medicare system and of the trust fund.  Last year, we triggered the alarm, but there’s been no action.

The same law requires that the President propose legislation that would change the trajectory enough to be able to bring general revenues back under 45 percent, again.  I will formally respond to the trigger in the coming days.  But, real solutions are necessary for Medicare, and it will require more than simply dealing with Medicare as a budget matter.  Real solutions will require genuine change in the underlying healthcare system of our country.  Medicare is trapped in a spiral of price setting – it’s a price setting mentality and a healthcare sector that’s saturated with inefficiency.  However, Medicare can be significantly shaped in the future by adopting the four cornerstones that we talk about, which are electronic medical records, quality measures, cost comparisons and incentives.

Now, at the risk of sounding like I’m somehow coaching the media, I suspect it could be properly said I am coaxing the media here; I spoke earlier of the cherry blossom syndrome of entitlement warnings. Many will feel obliged to write the same old cherry blossom story of X-billion reductions or why there.  This is the standard Washington winners and losers at the budget submission moment.  But, as a trustee of the Medicare trust fund, may I ask that you spend a little time and some ink on the condition of the Medicare trust fund.  It’s a story that needs to be told, and told and told again.  I’ve admired and appreciated David Walker, the controller general of the United States at the General Accounting Office.  Like me, he has been traveling the country sounding a warning.  If a cabinet member describing our department’s budget doesn’t seem like the right place to source this story may I invite you to get a copy of his speech.  Call the government actuary.  Get a hold of your favorite economist.  Do something, but we’re approaching an emergency here.

Real change is necessary in the Medicare system and it’s required soon.  Just to personalize it, if you’re 54 years of age, if Medicare is left on autopilot, when you turn 65, there won’t be any money to pay your Medicare claims with.  Now, I suspect we all remember what we did on the fourth of July last year.  We’re talking about 20 times the amount of time since the last Fourth of July here.  I’m in my middle 50s and this time passes quickly.  Eleven years is going to happen fast and we need to not only just change budgets, we’ve got to change our philosophy.

Now on to some other matters.  S-CHIP.  As has been stated many times, we believe that all Americans should have access to an affordable insurance policy.  As part of this vision, the President proposes to increase the funding to states by nearly $20 billion over the next five years along with $450 million going into outreach grants.  Our philosophy here is consistent with the position we’ve taken before that S-CHIP should be focused on low income children first.  It’s also consistent with the 18-month extension that passed in December.

On Medicaid, we’re continuing our successful transformation of the Medicaid program.  This budget includes a series of proposed legislation and administrative changes that we estimate would save about $18 billion over the next five years while keeping Medicaid up to date and making it sustainable.

With respect to access to insurance for others who do not quality for Medicare, Medicaid or S-CHIP, again, we restate our belief that every American needs to have access to an affordable insurance policy.  The most significant barrier to many states who are struggling to solve this problem is discrimination by the federal tax code of those who buy insurance from some source other than their employer.  The President’s proposal would fix this and allow millions of Americans to buy insurance, and we hope this matter will be undertaken by the Congress.

Let me speak some about food protection. We have a good system of food protection in the United States, but it is inadequate for the future.  As the global market matures, our systems have to change with it.  Last year, we unveiled a new food protection plan and we proposed significant improvements in the way we deal with imported products generally.  The president’s budget increases the funding for food safety by seven percent, an overall budget increase at FDA of 5.7 percent.

Eighty percent of the budget at FDA goes into people.  In two years, we will have added more than 1,000 people at FDA.  I mention that as an indication of how seriously we’re taking the need for us to aggressively prepare for the future.

Biomedical research.  We’ve proposed increases in every Institute and Center at the National Institute of Health.  The overall budget will support 38,000 research grants, including 9,700 new and competing awards.  Overall, the budget will be the same as it was in 2008.

Emergency preparedness, our nation remains at war with – and we have the threat of terrorist attack.  HHS is responsible to prevent and to detect attacks and respond to mass casualty events that are related to them.  Our budget proposal is a $4.6 billion appropriation to increase bioterrorism readiness, to double advanced development of medical counter measures and to establish new international quarantine stations.  We’ll also be looking to expand and train emergency medical teams.

We’re seeking the funds necessary to complete our pandemic readiness plan.  One rather interesting example of the role that the Federal government can play in all of this is illustrated by ventilators.  In many emergencies, especially those that involve a terrorist attack or a pandemic, for example, ventilators are needed to help victims breathe.

Now, currently, a ventilator costs $8,000 to $10,000 and they also require specifically trained teams to operate them.  The combination of the cost and the technical training necessary makes our supply entirely inadequate.  We’re requesting $25 million to help us do something that the federal government can uniquely do and that is to use the technology and the scientific power of this country to invent a new type ventilator, one that is 90 percent less expensive and doesn’t require special training to operate.

You’ll also see a series of health diplomacy initiatives in this budget, because threats to human health are, of course, not restricted to the United States, and they are as mobile as we are now. So in addition to our work on HIV/AIDS and malaria and tuberculosis, we’ll be helping other nations with disease monitoring and preparedness.

And in conclusion, may I say that these are just highlights of a very complex, and may I add, large budget.  Both the President and I believe that we have crafted a strong fiscally responsible budget at a very challenging time in the federal government.  We have represented the need to further strengthen the economy and also to continue to protect our homeland.  We look forward to working with Congress and the states, and all of the other partners who help us carry out the initiatives that President Bush is proposing to build a healthier and safer and more compassionate America.

As indicated, we now intend move into a question-and-answer period.  As one of my colleagues put it, I will be dealing with the arteries, they will be dealing with the veins, and if you’ve got interest in the capillaries and the nervous system, we’ll have technical briefings for you, after. Yes.

UNIDENTIFIED PARTICIPANT:  Regarding the Medicare trigger, could you be very specific, are you or anybody in the administration going to be sending actual specific legislative language to Congress?

LEAVITT:  We clearly are going to respond.  We are analyzing what the options are right now and consulting with members of Congress and others.  I’m sure, as indicated by remarks today; this is a very important matter, one we take seriously.  We will respond within the time of the deadline.  We’re looking at the options right now, as to how best to respond, yes.

MEREDITH WADMAN:  This is Meredith Wadman with Nature.  You’ve cut half a billion dollars almost from the Centers for Disease Control and Prevention, including $60 million for bioterrorism preparedness.  Is that wise?  Can you tell us how you justified that decision?

LEAVITT:  That is a conversation that I will leave to the next conversation when each of the representatives of the operating divisions can talk about the specific reasoning that was used in their budget.

UNIDENTIFIED PARTICIPANT:  Your dire warnings on Medicare are dire, and doesn’t it – we’ve all been to the trustees briefings over at the treasury department over the last few years – and doesn’t it indicate that perhaps Medicare, and not Social Security, should have been the first priority of this administration when going for major legislative proposals.  I mean you’re in the last year of the administration and the alarm bells are sounding in a loud way, maybe seven years ago.

LEAVITT:  Well, first of all, I want to make clear that the President’s initiatives have been focused on all entitlements.  What I want to create, what I see, at least, as being the difference is that Social Security is a math problem; it can be solved by adjusting certain inputs that will create a predictable result.

When you’re dealing with Medicare, we’re dealing with a broad social change and the change of a large sector of our economy that has been slow to close.  If we are to change Medicare, we’ve got to change the healthcare system.  And if we’re going to create a healthcare system that works, we have to do four things that you’ve become accustomed to me talking about.  We’re making progress on electronic medical records.  We’re making substantial progress on measuring what quality is.  We’re making progress in being able to give people information about the cost of their healthcare in a transparent way and to use incentives.

Without those tools, it would have been previously, and would be in the future, impossible to make the kinds of fundamental changes that are required to correct the course of Medicare.  But those things are now emerging. And now is the time for us to begin to build a system of healthcare that’s transparent, that is not a price fixing system where the government makes the decisions on who will be cared for, how much they will receive and how much it will be paid for.  It needs to be a system where consumers make decisions about their own health informed by information on the cost and the quality and connected electronically.  That’s the system of the future and that’s it will take to fix Medicare, but Medicare can be a leader in this.  Medicare can and must be a leader in making this larger systemic change in healthcare in this country.

STEVEN LANGELL:  Steven Langell with Congress Now.  I was wondering, giving the growing cost of Medicare and the need to bring that under control, why is the administration continuing to resist Medicare Advantage reductions, especially given the fact that reimbursement rates tend to be so much higher than traditional Medicare?

LEAVITT:  We think Medicare Advantage is a part of the future that will bring Medicare into a place where it can be sustainable.  Medicare Advantage has been a bold success.  Now, there are things we can do to improve Medicare Advantage that will make it more of a market force.  For example, currently the rates are focused on a county by county basis.  We could broaden the spectrum of competition, allowing people to compete on a more broadly framed basis.  That’s what we did in Part D. That’s part of why it worked.  It’s been a big success.  Twenty percent of those who are on Medicare have chosen a Medicare Advantage plan.  They like it.  They like the extra benefits it provides them.  They like the fact that they can get a doctor more easily.  We think Medicare Advantage is a very good example of the kind of market forces that need to be injected into Medicare.

I might add, if you go all over the world, and look at systems that are highly socialized in their nature, you will see that the same thing is happening there.  They are desperately looking for ways to inject market forces into their system, because they know that consumers make better decisions about their health than the government does, and they know that it’s a system that provides for a happier consumer, as well.

UNIDENTIFIED PARTICIPANT:  What is your rationale for proposing all of these cuts to hospitals and other providers like skilled nursing facilities, hospices and ambulatory services?

LEAVITT:  Well, again, I’m going to suggest that we get into the specifics of Medicare with Kerry (Weems) and with CMS.  But, can I point out that Medicare is a centrally planned, government-regulated system of price fixing.  Price fixing systems adjust by having government regulators decide priorities.  Government tools are blunt and they are inexact.  Government decides who gets treated.  Government decides how much they get treated, government decides who is best – what the value of what the treatments have been.  And it’s not an efficient system.

And what we’re looking to move towards is a system where consumers are allowed to make decisions, armed with good information, where the efficiency of millions of individually-made decisions begin to drive not only efficiency, but also wisdom, where the priorities are a reflection of value, not a system of price fixing.  That’s what this budget amounts to–we’re having to deal with a series of tools that provide us with a limited set of options.

And so you see a budget here that outlines the same decisions that every administration going forward will face until we see change.  This is not going to go away until it’s fixed.  The reason I say this is a stark warning is because what we have dealt with are the same decisions that any administration will deal with until we come up with a better way than simply a price fixing budget.

CHRIS LEE:  Mr. Secretary, this is Chris Lee of the Washington Post.  Can you talk about your S-CHIP proposal?  A little over $19.7 billion.  Is this limited to kids at 200 percent of poverty?  And when did you all come up with this figure, since you were talking recently, a few months ago, about a $5 billion expansion, rather than a $20 billion one?

LEAVITT:  Well, first, let me remind you that our budget wasn’t – it was that we had $5 billion left, and we had an additional $5 billion proposed, so that was $10 billion.  And the difference between where we are today and where we are in this budget is about $10 billion.  And we’ve dropped a less expensive year and added a more expensive year.  And so when you get into the math of it, what you’ll see is that this budget reflects our position that poor children should be put first.  It reflects our position that we ought to be focusing on those under 200 percent, that if states have additional funds available after they’ve done a good job on getting to the 200 percent, they can use it up to the 250 percent level.  If they want to go above that, they need to show us that they have been successful in getting those under 200 percent.  Our policy is consistent, and it’s also consistent with what the Congress passed on the 18-month extension.

JOHN IGLEHART:  John Iglehart of Health Affairs.  Mr. Secretary, does your budget address the scheduled reduction in Medicare payments to physicians?  And do you propose an alternative to the current SGR formula?

LEAVITT:  I’ll let Medicare deal with that specifically, but answer to you in general, no.  It leaves the law – assumes the law is as it is.  Having said that, I will tell you from my own view, we’ve got to deal with this on a longer term basis. We have assumed the law in our budget.  We’re obviously going to have a robust debate about this in June, and we’ll be a full participant in it.  Let’s go to the back.

DREW ARMSTRONG:  Drew Armstrong, CQ.  Several members of Congress have all ready been quick to call the budget dead on arrival in terms of the Medicare and Medicaid cuts.  What leverage does the administration still have on this?

LEAVITT:  Well, the leverage of history, that is to say, whoever it is that has to deal with this, is going to have to deal with these problems.  And what we have done is create a budget that begins to illuminate in very specific terms what would need to be done, unless we can find a better way.  I’ve indicated to you I think there is a better way.  And, I believe, as we begin to deal with the (Medicare) trigger we may have some additional ideas.  But, it is very clear to me that members of Congress don’t want to deal with this.  I understand that.  It’s hard.  We got into this dilemma because we have a system that’s based on price fixing and government regulation.  And if we want to fix it, we’ve got to fix not only the budget but the philosophy behind it.  And I believe that conversation needs to start.  If they don’t do it now, they’re going to have deal with it later.  Eleven years.  It’s not very long in the context of the people who are going to depend on it.

JULIE ROVNER:  Julie Rovner from National Public Radio.  You talk about how Medicare Advantage has brought market forces to Medicare, and yet every budget analyst talks about how these plans are being paid an average of 12 percent more than they would get under regular fee-for-service.  If you want to have competition why not, at least, bring those payments down to 100 percent of fee-for-service and let them really compete?

LEAVITT:  The law was written in a way as to assure that there were, in fact, market forces available in every market.  Written into the law is a pattern by which those are changed.  But if we really want to change it, in my judgment, what we’ve got to do is begin to broaden the capacity for competition outside the area of a single county.  We need to begin to broaden it to where a competition can be conducted over a bigger range of area.  It will invite more competition, and the same thing that happened to Part D will begin to happen with Medicare Advantage.  This is a very important development in changing Medicare.  And we need to take what we’ve learned and refine it and keep moving towards it.

Twenty percent of beneficiaries have chosen Medicare Advantage.  They’ve chosen it because they like it.  And it’s particularly attractive to those who are in the lowest of incomes, those who are having a hard time getting at doctor.  They like the benefits that they get.  Eighty percent of the money of the higher rates you reference goes back to beneficiaries and benefits.  This isn’t something that’s just going off to the treasury or staying in the trust fund.  It’s going off to those who are receiving benefits and they like it.  And we ought not to try to take those benefits away from them.  We ought to expand the number of people who have access to it, and then we ought to let the market work, and the market will drive those costs down. And, I believe, it will not only undo any disparity in rates, it will make them lower, not higher.

But we do need to fix this competition and the way it’s being conducted.  We’ll take this and one more and then I’m going to turn it over to Mr. Johnson.

FAWN JOHNSON:  Can you hear me?  I’m Fawn Johnson (ph) with Congress Daily.  You had proposed in your budget tying provider payment cuts to the overall Medicare spending involving the trigger as an incentive payment.  I’m just wondering if we can expect to see that as part – written in legislation as part of your trigger proposal in the next…

LEAVITT:  As I indicted, I think you can count on the fact we’ll be responding to the requirement on the trigger.  We’re looking at our options as to how best to do that.  Those answers will come in the coming days.

JOHNSON:  Can you also explain what the rationale is for tying provider payments to overall Medicare spending.  I mean are you…

LEAVITT:  Why don’t you wait until we get down to the veins on that one and I’ll let you deal with Kerry (Weems) and others respond.  Last question, and then I’m going to…

JOHN REICHART:  John Reichard.  I just wondered if the proposal that covered the uninsured is the same as last year’s proposal and how many uninsured people do you anticipate it will cover?

LEAVITT:  The philosophy and proposal are the same.  However, in the interim I think it is clear to everyone that the President has said we need to solve this problem.  Here’s my proposal.  If you have some ideas on how we can solve this discrimination problem, I’m open to them.  Actually, how many people depends on the actual proposal, but there are estimates that are being done independent of us that would indicate that certain combinations of these proposals suggest as many as 20 million additional people could be insured.

Now that would change healthcare in a substantial way, and all we have to do is eliminate unfairness in the system.  There are Republicans and Democrats who have currently, and in the past, used versions of these proposals in proposals of their own.  This is an area where there is a substantial amount of agreement and we ought to be focusing on it, and the President is anxious to do that.  Thank you all.

CHARLIE JOHNSON:  Thank you, Mr. Secretary.

Last revised: August 29, 2008