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as opposed to the employers, for health care, or the Medicare system, then we will know what our work is cut out for. I would like to yield whatever time is left to the Ranking Member of the Subcommittee on Health, Peter Stark.

Mr. STARK. Thank you, Mr. Rangel, and welcome, Secretary Leavitt. In this budget and in the Administration's strategy, I have yet to find a Republican who would deny that the overall goal of the Republicans is to privatize not only Social Security but Medicare, and do away with Medicaid, and turn the health care system, Medicare in particular, into a voucher system, which would possibly protect low income, but certainly do nothing but make it more difficult, more costly, and less opportune for senior citizens to get the medical care that they deserve, and which they now get quite adequately under the fee-for-service part of Medicare.

I want to look at Part D as the poster child of what happens when people get obsessed with the free market. Particularly, I am impressed that the people who talk most loudly about the free market have really never held a job in private enterprise or know much about the free market, but they can spout about it a good bit.

We talk about the number of people in Part D, and we knowand by the way, I would not vote to repeal it. It was a lousy bill. I voted against it, but it is there, and I believe we should fix it. We have written to you, written to the Chairman, asking for oversight and an opportunity to work together to make it a Medicare benefit and not a gift to the private prescription drug industry. Twenty million people who signed up already had prescription coverage, and it was a lot better than what they got in the new plan. We are hearing reports now of the benefit manager, after people have signed up, in the first month of the operation of the plan, dropping drugs and raising prices on people who can't change. So, they are in, and all of a sudden they either have a higher cost for drugs they need or their drugs have disappeared. I think that we are treating the most vulnerable, sick, poor people in this country in an obscene manner, and those are the dual-eligibles who are being harmed the most.

I hope you can explain to us why privatization for these programs, which have heretofore been entitlements, will be better for the American public.

Chairman THOMAS. Thank the gentleman. Time has expired. For the record, the gentleman from New York mentioned that Secretary Leavitt's father, Dixie Leavitt, is here. The Chair also wants to indicate that his brother, Mark Leavitt, and his cousins Wade and Rod Leavitt are here as well.

Mr. RANGEL. It is not going to be that rough. He has the whole family?


Chairman THOMAS. They believe in strength in numbers where they come from.


Chairman THOMAS. He has quantity and quality going for him. Let me say that any Member who has a written statement who wishes to place it in the record may do so without objection. Mr. Secretary, your written testimony will be made a part of the record,

and you can address us during your time as you see fit. The time is yours.


Secretary LEAVITT. Thank you, Mr. Chairman. I must say that I heard it was bring your father to work day.


Secretary LEAVITT. Hence, I brought my father, and I am delighted he is here, as well as my brother

Chairman THOMAS. Let me tell you, speaking for all of us who are no longer able to do that, I think it is a wonderful thing.

Secretary LEAVITT. Thank you. I am pleased to have him here. The budget that the President has put forward is nearly $700 billion. It is a significant part of the effort of the U.S. government to meet the needs of our taxpayers.

Roughly, broken into two categories you are well familiar with, one is the entitlement programs and the second would be the discretionary budget. The entitlement programs, over which this Committee has broad jurisdiction, I am sure will be the subject of much of our discussion. With respect to the discretionary budget, it makes up about $75.5 billion in the 2006 budget. We are in a period of time where deficit reduction is necessary, and you will see that budget that the President has put forward contains a $1-1/2 billion reduction of the discretionary budget.

I would like to spend just a few minutes, Mr. Chairman, in talking about the way I went about putting the budget together within the Department. I think rather than try to take a handful of specifics, the philosophy, as Mr. Rangel suggested, might be helpful in terms of understanding. As I respond to your questions today, I will try to refer back to the underpinnings of how I went about it. Let me first acknowledge I was Governor for 11 years of my State, and I put together 11 balanced budgets. I know many of those years were good years where we had growth in revenues; other years were years where we did not. I came to understand fully that reducing deficits is hard work, and it is difficult because almost every program that finds its way into a budget is there for a good reason, and there are people who feel passionately about it. Consequently, difficult decisions have to be made. I want to acknowledge that the decisions I have made will not be the same that some on the Committee would make, and that is why I am here, to let you know basically what decisions were made in the proposal and why they were made that way, and, obviously, you will then have an opportunity to exercise your judgment as well.

The instructions I gave to those who assemble budgets in HHS were fairly straightforward I believe. The first was to tell them there are some new initiatives that need to be undertaken that will have a profound impact on the future of the Department and our citizens. For example, Health Information Technology is an example of such a new initiative. The new HIV/AIDS Initiative that you will see in the budget is an example.

There were some commitments that the President has made that need to be filled. An example of that would be community health

centers, expanding those dramatically, a commitment that we have to keep. The commitment that was made on access to recovery and faith-based initiatives. There are some threats that we have responsibility for-bioterrorism and the concern about pandemicsthey are relatively growing or new threats that we have been responding to.

Then there are some high demand and highly effective programs, that despite the fact that we are in the process of deficit reduction, I felt, and the President felt, needed to be funded and either new or in greater terms that we needed to set aside.

So, I asked my colleagues to go through a series of principles, and hold the existing budgets up against them. One, I needed to find new money for those particular items, and I said, let's find if there are any one-time funds that we could apply that are not being repeated. Let's look for programs whose purposes have been addressed already, either in some other place or have concluded. Let's look for funds that are carrying over that haven't been used, and apply those against those priorities, or let's look for programs where we offered a cut last year, and they weren't enacted. If we still feel the same way, let's put them forward. So, that is essentially how we went about developing money for the new initiatives. I then asked them to begin looking at all of the investments across the entire Department. I believe there are a set of principles that can be put forward, and I asked them to compare each expenditure against those principles, and I would like to just enumerate those quickly for you.

First is the need for our investments to be targeted. I asked them to look for programs where there was good done on a general basis, but where the more specific need was apparent. Therefore, let's begin to target. In some cases you will see examples of where we have funded fewer people, but the ones we have funded have been funded better, so target expenditures.

The second would be looking for prevention programs. If we can prevent illness, we ought to prevent it instead of just paying for the treatment, so you will see an emphasis placed on prevention programs.

You will also see, in a budget that is reflecting deficit reduction, I want to provide services and not always just build infrastructure. Infrastructure is important, but in a time of declining revenues, or at a time when we have fewer revenues, I want to make sure that people are served and not just bolster the infrastructure all the time.

Fourth, I do believe that market-based choices or systems that allow markets to drive various investments to their most logical and their most efficient form are better than circumstances where we have "Government does it all" philosophy.

Fifth, individual choice. I think if there are places where individuals can choose. Again, I think that is better than just the government always making choices.

Sixth, I would point to the need for new research to be done, and if there are areas where research has basically worked its way through, then we need to discontinue our funding in that area and begin to find the new technologies.

I have also asked them to look across the entire Department and to avoid siloed investments. Look for ways in which we can leverage investment across the entire Department. You will also find a very high standard was placed on looking for performance measures. If we can't measure it, I am suspicious of that. I want to be able to see how investments we have made are making a positive impact. If I can't measure it, it is a candidate for reduction.

Mr. Chairman, that is an introduction to the principles, and I am happy to respond to questions from the Committee.

[The prepared statement of Secretary Leavitt follows:]

Statement of The Honorable Michael O. Leavitt, Secretary, U.S. Department of Health and Human Services

Good morning, Mr. Chairman, Representative Rangel, and Members of the Committee. I am honored to be here today to present to you the President's FY 2007 budget for the Department of Health and Human Services (HHS).

Over the past five years, the Department of Health and Human Services has worked to make America healthier and safer. Today, we look forward to building on that record of achievement. For that is what budgets are investments in the future. The President and I are setting out a hopeful agenda for the upcoming fiscal year, one that strengthens America against potential threats, heeds the call of compassion, follows wise fiscal stewardship and advances our Nation's health.

In his January 31st State of the Union Address, the President stressed that keeping America competitive requires us to be good stewards of tax dollars. I believe that the President's FY 2007 budget takes important strides forward on national priorities while keeping us on track to cut the deficit in half by 2009. It protects the health of Americans against the threats of both bioterrorism and a possible influenza pandemic; provides care for those most in need; protects life, family and human dignity; enhances the long-term health of our citizens; and improves the human condition around the world. I would like to quickly highlight some key points of this budget.

We are proposing new initiatives, such as expanded Health Information Technology and domestic HIV/AIDS testing and treatment that hold the promise for improving health care for all Americans. We are continuing funding for high-performing Presidential initiatives, including Health Centers, Access to Recovery, bioterrorism and pandemic influenza; and we are also maintaining effective programs such as Indian Health Services, Head Start, and NIH medical research.

We are a nation at war. That must not be forgotten. We have seen the harm that can be caused by a single anthrax-laced letter and we must be ready to respond to a similar emergency-or something even worse. To this end, the President's budget calls for a four percent increase in bioterrorism spending in FY 2007. That will bring the total budget up to $4.4 billion, an increase of nearly $178 million over last year's level.

This increase will enable us to accomplish a number of important tasks. We will improve our medical surge capacity; increase the medicines and supplies in the Strategic National Stockpile; support a mass casualty care initiative; and promote the advanced development of biodefense countermeasures through NIH to a stage of development so they can be considered for procurement under Project BioShield. We must also continue to prepare against a possible pandemic influenza outbreak. This budget includes a $2.3 billion allowance for the second year of the President's Pandemic Influenza plan. These funds will enable us to meet several important goals, including providing pandemic influenza vaccine to every man, woman and Ichild within six months of detection of sustained human-to-human transmission of a bird flu virus; ensuring access to enough antiviral treatment courses sufficient for 25 percent of the U.S. population; and enhancing Federal, state and local as well as international public health infrastructure and preparedness.

The President's FY 2007 budget provides more than $350 million for important ongoing activities such as safeguarding the Nation's food supply (FDA), global disease surveillance (CDC), and accelerating the development of vaccines, drugs and diagnostics (NIH).

The budget includes a new initiative of $188 million to fight HIV/AIDS. These funds support the objective of testing for three million additional Americans for HIV/AIDS and providing treatment for those people who are on state waiting lists

for AIDS medicine. This initiative will enhance ongoing efforts through HHS that total $16.7 billion for HIV/AIDS research, prevention, and treatment this year.

The budget maintains the President's commitment to the doubling of NIH, and includes new funding at NIH for important cross-cutting initiatives that will move us forward in our battle to treat and prevent disease-such as an additional $49 million for the Genes, Environment and Health Initiative and an additional $113 million for the Director's Roadmap. In addition, it contains an additional $10 million at the Food and Drug Administration to lead the way forward in the area of personalized medicine.

One of the most important themes in our budget is that it increases funding for initiatives that are designed to enhance the health of Americans for a long time to come. For instance, the President's budget calls for an increase of nearly $60 million in the Health Information Technology Initiative. Among other things, these funds support the development of electronic health records (to help meet President Bush's goal for most Americans to have interoperable electronic health records by 2014); consumer empowerment; chronic care management; and Biosurveillance.

The Budget also includes several initiatives to protect life, family and human dignity. These include, for example, $100 million in competitive matching grants to States for family formation and healthy marriage activities in TANF. And it promotes independence and choice for individuals through vouchers that increase access to substance abuse treatment.

In the area of entitlements programs, I want to begin by congratulating you and other Members of Congress for having successfully enacted many needed reforms by passing the Deficit Reduction Act (DRA). DRA supports our commitment to sustainable growth rates in our important Medicare and Medicaid programs. It also strengthens the Child Support Enforcement program.

The Deficit Reduction Act also achieves the notable accomplishment of reauthorizing Temporary Assistance for Needy Families (TANF), which has operated under a series of short-term extensions since the program expired in September 2002.

Medicaid has a compassionate goal to which we are committed. Part of our obligation to the beneficiaries of this program is ensuring it remains available well into the future to provide the high-quality care they deserve. Last year when I made my statement before this Committee, I said that the growth in Medicaid spending is unsustainable. With its action on many of our proposals from last year in the Deficit Reduction Act, the Congress has made Medicaid a more sustainable program while improving care for beneficiaries. The President's Budget proposals build on the DRA and include a modest number of legislative proposals which improve care and will save $1.5 billion over five years in Medicaid and S-CHIP and several administrative proposals saving $12.2 billion over five years.

This Administration has also pursued a steady course toward Medicare modernization. In just the past three years, we have brought Medicare into the 21st century by adding a prescription drug benefit and offering beneficiaries more health plan choices.

Medicare's new prescription drug benefit provides seniors and people with disabilities with comprehensive prescription drug coverage, the most significant improvement to senior health care in 40 years. Millions of seniors and people with disabilities are already using this benefit to save money, stay healthy, and gain peace of mind. According to CMS' Office of the Actuary, Medicare's drug coverage will have significantly lower premiums and lower costs to federal taxpayers and states, as a result of stronger than expected competition in the prescription drug market. Moreover, beneficiary premiums are now expected to average $25 a month-down from the $37 projected in last July's budget estimates. The Federal government is now projected to spend about 20 percent less per person in 2006 and, over the next five years, payments are projected to be more than ten percent lower than first estimated. So taxpayers will see significant savings. And state contributions for a portion of Medicare drug costs for beneficiaries who are in both Medicaid and Medicare will be about 25 percent lower over the next decade. All these savings result from lower expected costs per beneficiary; projected enrollment in the drug benefit has not changed significantly.

Our work to modernize Medicare is not done. Rapid growth in Medicare spending over the long-term will place a substantial burden on future budgets and the economy. The President's FY 2007 Budget includes a package of proposals that will save $36 billion over 5 years and continue Medicare's steady course toward financial security, higher quality, and greater efficiency.

Along with the sustainability of Medicaid, our budget takes steps to improve the long-term fiscal health of Medicare. We are proposing a number of adjustments that will produce a substantial savings.

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