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[H.A.S.C. No. 107–12]








MARCH 14, 2001

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For sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250
Mail: Stop SSOP, Washington, DC 20402-0001



JOHN M. McHUGH, New York, Chairman
LINDSEY GRAHAM, South Carolina
JIM RYUN, Kansas
ROB SIMMONS, Connecticut
JO ANN DAVIS, Virginia
ED SCHROCK, Virginia
W. TODD AKIN, Missouri

MARTY MEEHAN, Massachusetts
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BARON P. HILL, Indiana
SUSAN A. DAVIS, California

John D. Chapla, Professional Staff Member
Thomas E. Hawley, Professional Staff Member
Michael R. Higgins, Professional Staff Member
Edward P. Wyatt, Professional Staff Member
Debra S. Wada, Professional Staff Member
Nancy M. Warner, Staff Assistant






    Wednesday, March 14, 2001, Implementation of TRICARE Benefits for Medicare Eligible Military Beneficiaries

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    Wednesday, March 14, 2001



    McHugh, Hon. John, a Representative from New York, Chairman, Military Personnel Subcommittee

    Meehan, Hon. Marty, a Representative from Massachusetts, Ranking Member, Military Personnel Subcommittee


    Clinton, Rear Adm. J. Jarrett, MD, MPH, Acting Assistant Secretary of Defense for Health Affairs

    Cusick, Elizabeth, Acting Executive Associate Administrator, Health Care Financing Administration

    Lord, Michael W., Co-chair, Health Care Committee, The Military Coalition

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    Partridge, Charles C., National Military and Veterans Alliance

    Scheflen, Kenneth C., Director, Defense Manpower Data Center

    Schwartz, Susan M., DBA, RN, Co-chair, Health Care Committee, The Military Coalition

    Sears, H. James T., M.D., Executive Director, TRICARE Management Activity


Clinton, Adm. J. Jarrett, H. James T. Sears and Kenneth C. Scheflen

Cusick, Elizabeth

Fairweather, Allyson, Legislative Assistant, Air Force Sergeants Association

Harrington, Alex J., Director of Legislative Affairs, Non Commissioned Officers Association of the United States of America

Lord, Michael W. and Schwartz, Susan M.

McHugh, Hon. John

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Meehan, Hon. Marty

Nelson, David R., President, Sierra Military Health Services, Inc.

Partridge, Charles C.

Smith, Ray G., National Commander, The American Legion


[The Documents submitted for the Record can be viewed in the hard copy.]
Document submitted by H. James T., Sears, M.D., Executive Director, TRICARE Management Activity
Points of Contact—TRICARE and TRICARE Senior Pharmacy

[The Questions and Answers can be viewed in the hard copy.]

Mr. Ryun
Ms. Sanchez
Ms. Tauscher
Mr. Thornberry
Mr. Underwood


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House of Representatives,
Committee on Armed Services,
Military Personnel Subcommittee,
Washington, DC, Wednesday, March 14, 2001.

    The subcommittee met, pursuant to notice, at 2:05 p.m., in room 2118, Rayburn House Office Building, Hon. John M. McHugh (chairman of the subcommittee) presiding.


    Mr. MCHUGH [presiding]. The hearing will come to order. Let me say, first of all, good afternoon. Thank you all for joining us.

    Let me say as well, for the record, how honored I am to have this opportunity to chair this very important subcommittee. Although I served on the full committee, now in my ninth year, this is the first chance I have had to join in the direct deliberations on the Personnel Subcommittee. And as I said, it is an honor, and I expect something of a challenge, as well.

    And the staff and so many others associated with this great effort have been working very hard to bring me up on the learning curve. We are making some progress. I have no doubt more progress needs to be made.

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    But I feel very, confident that, as it has in the past, this subcommittee will discharge its main responsibilities to our men and women in uniform, to our honored veterans, their spouses and their families in the most effective, efficient and compassionate manner possible.

    In that regard, let me also welcome to this, our first hearing, all of the members of this subcommittee. We are blessed, and I mean that, with a number of new members—new members to the Congress, new members to the Armed Services Committee—who I have had the opportunity to visit with, who are here today on a voluntary basis, much like our military service. They have joined this subcommittee because they care and they want to try to discharge this Nation's responsibilities and this Congress's responsibilities to our service men and women, as fully, completely and effectively as they can. So I am looking forward to working with them.

    And in that regard, let me pay particular acknowledgement to the ranking member and gentleman from Massachusetts, Mr. Meehan. Marty and I have had the chance to work together for a number of years when we both served in the leadership positions on the House Armed Services Panel on Morale, Welfare and Recreation (MWR). I hope that he would agree it was a very, very collegial relationship, a very productive one.

    And I know that he and the members on both sides of the aisle here want to continue that effort of cooperation, of bipartisanship spirit that has been a guiding principle, certainly of the subcommittee, and in the full committee. So thank you for allowing me to be here today.

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    Enactment of the National Defense Authorization Act for Fiscal Year 2001 restored TRICARE benefits to Medicare eligible military retirees and set in motion the most significant expansion in military health care since the enactment of the original Civilian Health And Medical Program of the Uniformed Services (CHAMPUS), program in 1966. This restoration of TRICARE benefits moved the Nation closer to keeping the promise of lifetime health care for military personnel and their families.

    On April 1 of this year, 1.5 million retirees will become eligible for a comprehensive prescription drug benefit that will give retirees several options for accessing prescription medication. First, they will continue to be able to use the Military Treatment Facility (MTF) pharmacies. They will also, for the first time, be able to get their prescriptions filled using the Department of Defense (DOD), National Mail Order Pharmacy (NMOP) service. When neither of these points of access meets their needs, they can use network and out-of-network retail pharmacies as well.

    The remainder of the benefits Congress restored will become effective October 1 of this year with the activation of the TRICARE For Life (TFL) benefit. Under this program, TRICARE will operate as a premium-free supplement to Medicare. TRICARE will also be the first payer of services covered by TRICARE and not by Medicare. The benefits will also be available overseas.

    The responsibility for implementing these benefits rests with the Department of Defense and is dependent upon the cooperation of several agencies. And in today's hearing, we will examine the plans and progress to date in implementing these long-anticipated benefits.
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    Today, we will receive testimony from the senior managers of the Department of Defense TRICARE program and the Health Care Financing Administration (HCFA), the key people for ensuring responsible and smooth implementation of the TRICARE For Life benefits.

    We will also hear from the organizations that represent large numbers of active and retired military personnel and their families. They will, hopefully, tell us what they are hearing from their members about the implementation process and what actions their organizations are taking to educate senior retirees about these new benefits.

    We have a very ambitious schedule this afternoon, with two panels of witnesses, so we want to begin right away. Normally, there is a five-minute rule. As Marty and I managed to put into process under the MWR panel, we are going to start off by waiving that rule. Hopefully, we will be able to accommodate the panels that will appear before us as scheduled, as well as all the needs of all members and we won't have to resort to that.

    But in spite of the presence of blinking lights in the members' faces, I would just respectfully remind them, as they are called upon, that there are others who are waiting their turn, as well.

    So with that, let me get things started by yielding to my friend and colleague, the gentleman from Massachusetts, Mr. Meehan, and if he has any opening comments he would like to make. Marty.

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    Mr. MEEHAN. Thank you very much, Mr. Chairman. And I want to join you in welcoming today's witnesses, and I am looking forward to hearing how the Department is progressing on implementation of TRICARE and pharmacy benefits for our Medicare eligible military retirees.

    Now, last year we passed a number of medical benefits for our Medicare eligible military retirees, including access to a pharmacy benefit, restored participation in the TRICARE program, a reduction in the catastrophic cap to $3,000 per year. The combination of these benefits has provided our Medicare eligible military retirees one of the best health care systems available in the country.

    While on paper these benefits are a historic accomplishment, it will be meaningless if the benefits are not provided on time and in the most efficient manner possible. Congress restored the hope and fulfillment of the Government's promise to our military retirees, but building and maintaining their trust is now in the hands of the Department of Defense. I recognize that this is a huge task for the Department, and they cannot do it alone, which is why I am pleased that the chairman is holding today's hearing.

    Congress has a responsibility to ensure that the implementation of these benefits is proceeding as envisioned. If there are problems with the implementation or issues that need to be addressed, particularly ones that will require legislative action, these issues need to be brought to our attention as soon as possible so we can address these issues and resolve them together.

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    The implementation of the pharmacy benefit begins April 1, just 17 days away. TRICARE For Life coverage will begin on October 1, just six months later. As I stated earlier, it is critically important that we get this right the first time.

    I understand that the Department is working with the beneficiary groups, the managed-care contractors and the services, but this is a national obligation. And the Federal Government and all of our federal agencies have a responsibility to ensure that the Nation meets its obligation to our Medicare eligible military retirees.

    The success of this program will depend on the active support and participation by everyone involved. While Congress can create the programs, the Department can implement the rules and regulations. It is also vitally important that proper funding be allocated. Patients will not be seen, physicians will not participate and drugs will not be dispensed if funding is not available.

    Congress needs to know the full cost of these benefits so it can provide the resources necessary to ensure that the health care costs of our Medicare eligible military retirees are being met. We need to recognize that the price of national security includes the cost of health care for our military personnel.

    I want to thank everyone for being here today. We have much to do to ensure that our military retirees have access to health care services that they earned and deserved. And I look forward, as always, Mr. Chairman, to working with you to move forward in making these programs a reality. Thank you, Mr. Chairman.

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    Mr. MCHUGH. I thank the gentleman. At this time with the forbearance of our first panel, I would be happy to yield to any member who may wish to make an opening comment. If not, we will head right to the testimony.

    Well, with that then, let me introduce the first panel today, which is comprised of senior officials from the Department of Defense and the Health Care Financing Administration of the Department of Health and Human Services. Each of your agencies, as you so well know, has a key role to play in the successful implementation of this important benefit change. And I know I speak for all the members of the subcommittee when we thank you for being here today and appreciate your efforts in preparing your statements.

    We are anxious to hear each of your testimony. We do have another panel of witnesses, so I would ask you to try to summarize your written testimony and try to limit your remarks to about five minutes. As you heard me say, we are not going to hold the members to that. I certainly wouldn't expect to hold you either, but if you could compress your written statements it would be greatly appreciated.

    By way of introductions, starting from our left, from the audience's right, we are pleased to be joined today by Rear Admiral J. Jarrett Clinton, M.D., MPH, who is Acting Assistant Secretary of Defense for Health Affairs; next, H. James T. Sears, M.D., Executive Director of the TRICARE Management Activity; Mr. Kenneth C. Scheflen, Director of the Defense Manpower Data Center; and Ms. Elizabeth Cusick, who is Acting Executive Associate Administrator for the Health Care Financing Administration.

    Lady and gentlemen, thank you so much for being here. I have read all of your testimonies as submitted. I found them very interesting, and we look forward today to your comments.
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    So to keep it simple, why don't we start, Dr. Clinton, with you, and proceed down to the other end of the table. Welcome, sir.


    Admiral CLINTON. Thank you. Mr. Chairman and members of the committee, we are delighted to have this, indeed, first opportunity to speak formally with the Congress about the implementation of this program that was drawn up and moved into an Act last year.

    By way of introducing Dr. Sears, let me clarify that the TRICARE Management Activity is the field agency of the Department of Defense responsible for the implementation of the program. As you know, the Office of the Secretary of Defense (OSD), focuses on the policy. We work very closely on both of these, but I wanted to clarify that point for those of you who may not be aware of that distinction.

    My comments, sir, will summarize for the three of us in the Department of Defense, and the representative from HCFA will speak independently.

    In expanding slightly on your comments today, I would like to review the benefits and their characteristics, say something about the issues and how we took them under consideration in making certain determinations and, finally, close with a word of caution.
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    As already noted, we are implementing, on April the 1st, an expanded, simplified pharmacy program with four key characteristics. The benefits are similar for all of the beneficiaries, active duty, their family members and retirees. Everyone gets the same.

    The co-payments are easy to understand: $3 for generics, $9 for branded products. And this decision will influence participation in the most economic point-of-service and influence the choice of the prescription product.

    We have implemented a robust educational program for all our beneficiaries by mailings, Web sites, through collaboration with The Military Coalition and the National Military and Veterans Alliance partners that represent both active duty and retiree, and through a toll-free phone number, which is the poster to my left, with a telephone number that you and your staff might need to refer to at some point. That number is up and running, receiving 2,000 to 4,000 calls per day right now.

    And finally, the new pharmacy data transaction system, an electronic linking of the pharmacies in our clinics and hospitals, the National Mail Order Pharmacy (NMOP), system and our network pharmacies, assures the safety of the prescription in light of other medications that the patient may be taking. It reduces waste and fraud, and provides essential management information for patient administration. About half of our pharmacy centers are on that system now. It is running well. It will be fully implemented on August the 1st.

    Second, we are implementing the expansion of the TRICARE to Medicare eligible retirees on October 1 as directed and planned. TRICARE becomes the second payer for Medicare benefits received outside our military clinics and hospitals, and the law provides these new beneficiaries the advantages of the more robust TRICARE benefit program.
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    Almost all medical services are a benefit under Medicare, and TRICARE will pay the cost share and the deductibles. If the benefit is not provided by Medicare—an example is pharmacy—but is a benefit of TRICARE, then the Department of Defense will pay with the beneficiary paying the applicable co-payments.

    Finally, we will implement, on April the 1st, the elimination of co-pays in the civilian network for all the active duty family members in TRICARE Prime, except for pharmacy.

    And by October, we will implement the expanded TRICARE Prime for active duty families living with their spouse in locations greater than one hour by travel from a military clinic or hospital.

    The expanded new medical benefits for our Medal of Honor recipients and their families, and the families of deceased service members, will begin on April the 1st. But I note the administration of other benefits, such as paying for the required school physicals, lowering from $7,500 to $3,000 the catastrophic cap for retirees, and the travel reimbursements for referred medical care, will be initiated soon.

    In planning for the implementation of these benefits, we have elected the most expedient, cost-effective means to provide these services, relying on our current contractors, with whom we have developed a very strong partnership. We have worked closely with HCFA to ensure timely exchange of the enrollment data and, later, of claims data. We have examined carefully the anticipated long-term medical requirements of our beneficiary population and are initiating regulations for the most immediate issues.
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    Additionally, we are planning further deliberation with outside consultants to more completely understand the TRICARE benefits that exceed those of Medicare for skilled nursing and for home health care, and how we can most effectively manage that care.

    We have reviewed with extensive internal Department discussions the factors which will shape our proposed TRICARE enrollment policies for the Medicare eligibles, fully recognizing five factors: first, the legal framework that underpins TRICARE; second, the clinical and the medical readiness value of caring for some portion of the over-65 population in our hospitals; third, the primary obligations to provide priority to active duty members and their families; fourth, the need for equity of access to MTF—that is, military hospitals and clinics—of all the retirees; and finally, the financial implications of these options.

    Five factors, then, as we are considering the enrollment policies for the future. We will provide these recommendations to you in the near future.

    I close with a note of caution. The expectations of everyone—the beneficiaries, the associations which represent them, and many others—are exceedingly high. We have balanced with care the issues of equity among our beneficiaries, the programs needing our immediate administrative attention and requiring extensive administrative and sometimes electronic networking, and the enormous requirements for education and information through multiple media.

    Recall that our budget is constrained in the sense that the preparatory arrangements for many of these medical benefit programs were not fully financed in our fiscal year 2001 appropriation. I believe that we have developed a robust medical benefits program which will greatly assist our beneficiaries, and I trust that you will recognize the challenges of doing so many things quickly.
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    We are well-prepared to deal with a surge of more calls for information and the related services from beneficiaries from around the world, noting particularly that the age group over 65 will have more complex medical programs and probably have more questions that deserve more time.

    We need your support in keeping the program stable and acknowledging the inevitable startup challenges.

    I close by calling your attention to the Web site on the right hand side, as I look at it. As you will note, the TRICARE For Life material is right on the front page, and I would refer all of you to that also as an excellent way to get up-to-date information about the entirety of the TRICARE program and particularly those things that have implementation dates in April and October, as we have discussed.

    That completes the oral statement from those of us in the Department of Defense. Thank you.

    [The joint prepared statement of Admiral Clinton, Dr. Sears and Mr. Scheflen can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Dr. Clinton.

    I would say to Dr. Sears and to Mr. Scheflen, as I noted in my opening comments, I did read your testimony. I appreciate your efforts in preparing it. And I am sure that we will have some questions for the individual members.
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    But with that, let us now proceed to Ms. Cusick from the Health Care Financing Administration. Thank you for being here.

    Ms. CUSICK. Good afternoon, Chairman McHugh, Representative Meehan and distinguished members of the subcommittee. Thank you for inviting me to discuss our role in supporting the Department of Defense as it administers health benefits for Medicare eligible military retirees and their families.

    We are dedicated to ensuring that all of our beneficiaries receive the high-quality care that they deserve and that includes U.S. military retirees. We are working together with the DOD to ensure that we are ready to exchange the data they will need to process claims for these retirees once the new TRICARE benefits become effective.

    While our role primarily will be that of sharing data with DOD, we recognize that this is an important aspect of administering the new benefit. We look forward to continuing to work with DOD to ensure that these new benefits are implemented efficiently and that military retirees have the care they are entitled to receive.

    We act as a primary payer for more than 39 million Medicare beneficiaries. Eleven million of these beneficiaries also have supplemental insurance, commonly referred to as Medigap, which is sold by private insurance companies to cover and pay for some additional items not covered by Medicare. We regularly exchange claims information with private sector Medigap insurers so they know what Medicare has covered and paid for and can determine what they are responsible for paying.
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    In administering the new TRICARE benefits, DOD will have a role very similar to a Medigap insurer and will cover and pay for some services that Medicare does not. And like any Medigap plan, TRICARE will want specific claims information about Medicare services provided to its beneficiaries.

    There are two types of information that we will share with DOD to assist it in successfully implementing these new benefits.

    First, we will share Medicare enrollment data. Because Congress has tied eligibility for the additional TRICARE benefits to an individual's entitlement to Medicare, DOD will need to know which retirees are entitled to Medicare benefits and enrolled in Part B.

    Second, we will share paid claims data. Since Medicare remains the primary payer for many retiree health services, DOD will need accurate claims data to determine when Medicare has already paid for retiree benefits so that TRICARE can determine its appropriate supplemental payments. We regularly share this claims data, commonly referred to as crossover claims, with Medigap plans.

    When we share data with outside entities, the Privacy Act of 1974, as amended by the Computer Matching and Privacy Protection Act of 1988, requires that these entities prepare written agreements specifying the terms of the data exchange. This type of agreement provides safeguards against unauthorized use and redisclosure of such information by an outside organization.

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    All agreements must contain specific details, including the purpose and legal authority for the disclosure, the expected results, a description of the records to be used, how the records are to be used and how the data will be secured.

    We have met with DOD representatives, established key points of contact for them within our agency and are drafting a computer-matching agreement to safeguard the data to be exchanged. Once the agreement has been finalized, the statute requires us to report the computer-matching agreement to Congress and the Office of Management and Budget, and to publish the agreement and an explanation in the Federal Register 30 days prior to its activation.

    We fully expect to fulfill these obligations and to complete the agreement in time to exchange beneficiary information appropriately so retirees can receive their new benefits efficiently and securely by October 1, 2001.

    We are committed to serving our beneficiaries, and we are very pleased that our Medicare beneficiaries, who are military retirees, will receive the expanded benefits mandated by Congress. We have been working cooperatively with the DOD to make sure our respective systems are well prepared to facilitate the exchange of beneficiary enrollment and crossover claims data that will allow these retirees to receive their new benefit.

    We have the required agreements under development, and we expect to be fully prepared to share the appropriate data with DOD in an efficient and secure way by October 1, 2001.

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    I appreciate the opportunity to discuss these preparations with you today, and I am happy to answer your questions.

    [The prepared statement of Ms. Cusick can be found in the Appendix.]

    Mr. MCHUGH. I thank you for your testimony and for your brief synopsis of that.

    Dr. Clinton, let me start it off by asking, first, a rather narrow question and then a more broadly based one on the issue of finances.

    Last year, the Congress appropriated some $600 million to cover unfunded Defense Health Program (DHP) requirements, including TRICARE claims for prior years. I am aware that the globalization initiative was just reached that settled that almost on a class basis—hundreds of outstanding change orders with managed care support contractors as a package. Was that $600 million or will that $600 million be sufficient to meet the costs of the globalization agreements?

    Admiral CLINTON. The general answer is yes. We gathered up funds extensively to resolve the globalization contract resolution. Indeed, we couldn't have done it unless we had money in the bank, so to speak, to do that.

    So yes, with the additional funds, that has been helpful, although we are stretched, as you might expect, by having sort of gathered every possible dollar we could to accomplish that globalization, which settled a very large amount of debts for a very solid number, from our standpoint.
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    We have a report due to the Congress soon that would describe how our globalization settlement of nearly $1 billion is distributed. That report is not yet ready, but will be ready soon.

    Mr. MCHUGH. Then I suspect that may be the answer for the second part of my first question, but I will have you state it, if it is, for the record. As you were gathering up these monies, which I certainly understand, was it necessary to redirect any money from the direct health care system as part of that?

    Admiral CLINTON. Yes.

    Mr. MCHUGH. And will the definition of that be part of the report?

    Admiral CLINTON. I have not seen the report in final detail about where the money came from. It was more a request of how do we spend the money. But we will be certain that that is clarified, and it does—

    Mr. MCHUGH. I appreciate that, because obviously—

    Admiral CLINTON. We really needed to turn to every component in the budget, keeping in mind that we had the preparations for this program in mind. But it was such an extraordinary business opportunity; one, to resolve a debt that we owed; and second, in a sense, to put our current five contractors on a sound financial and sound partnership basis.
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    In retrospect, it might have been done earlier, but it is hard to revisit all that history. But it established a solid platform that we now have to implement this program and future programs.

    Mr. MCHUGH. Well, just so the record is clear, I don't in any way question the need to do this and the manner by which you did it. Now, I have no doubt. And the reason I asked the question is that I am sure it was both important from the business side of the perspective, but a very difficult challenge to meet the financial side.

    And the reason I would be interested, and I am sure the other subcommittee members would as well, to see where that may have had an impact on direct health care programs is so that we can, if possible, make supportive arguments about the need for Congress to step in and to help in that area, if it is possible.

    Admiral CLINTON. Well, I am sure that the managers of the military department's medical program, the Surgeons General, would probably take some issue with what I might conclude. I don't think there is any essential function being provided in our clinics and hospitals that isn't being sustained. There are always issues of repair, of certain maintenance. But in terms of providing the pharmaceuticals and providing the providers and the equipment they use and the beds and facilities we use, those were able to be sustained.

    Just timing-wise, recall this is a December event, essentially, so, therefore, we were working very early in the fiscal year. In a sense, we were borrowing against time. And we are still borrowing against time, hopeful that we can resolve our financial constraints before the end of this fiscal year.
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    Mr. MCHUGH. Well, though—

    Admiral CLINTON. If this were in August, it would be a different discussion.

    Mr. MCHUGH. I understand.

    Admiral CLINTON. But we are early in the fiscal year. One of the reasons I noted that some of the things cannot be planned, in terms of administration—an example would be the reimbursement for travel associated for medical care—is we simply do not have sufficient funds to put that in place. We made judgments, in what I was trying to say in the opening statement, of which programs had the greatest priority and required the greatest complexities. Some of them requiring, then, the expenditure of funds earlier in the fiscal year than others.

    Mr. MCHUGH. I understand. Well, the fact that those other folks aren't here today to contradict you is to all our benefit, I guess.

    Admiral CLINTON. I will talk to them tomorrow. [Laughter.]

    Mr. MCHUGH. If you provide that information, to the extent it is possible, it would be greatly appreciated.

    Admiral CLINTON. The report about the globalization, we will do that. And we will ensure that it demonstrates carefully how we were able to pull funds together.
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    Mr. MCHUGH. Very good. I appreciate that.

    Now, let me broaden that out. Congress obviously has a number of great concerns as to how these new benefits are going to be implemented from a programmatic perspective, but clearly one of our primary concerns has to be the cost. As we said here, early in the fiscal year and early in the implementation process, although April 1 is coming very rapidly—that was an act of Congress, not yours, I understand that—do you foresee the need to go into, again, direct health care programs to help fund this new TRICARE benefit? In other words, what does the money situation look like from your view?

    Admiral CLINTON. I can tell you, frankly, that we have an unfunded requirement for the rest of this fiscal year that is $1.4 billion. An example of that is that we were given an appropriation of about half of what it will take to sustain the pharmacy program for the rest of this fiscal year. It is obviously only half a year, not the full year. We received $200 million for that pharmacy program. Our expectation is that it will be at least $400 million for the pharmaceuticals themselves, and that perhaps another $50 million to $75 million for the administrative costs associated with putting a new program in place in that startup time. That is one example.

    There is no way that we could take enough money out of the MTF to take care of that unfunded shortfall. There is no way that we can basically take it out of anything in the Defense Health Program to cover a shortfall of that magnitude.

    In the old days, the numbers looked big, but 5 percent of that little number of the total budget was small. Now, when we have a shortfall of something that approaches 4 or 5 percent, it is a big number.
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    We have then directed money, borrowing against the last quarter, to put into place the things we have described. And we are discussing within the Department of how we resolve this unfunded requirement of $1.4 billion.

    Mr. MCHUGH. I appreciate that. And obviously it is going to be a very significant challenge.

    Let me just quickly go down to Ms. Cusick, and then I will be happy to yield to the other Members. You heard they need money. You discussed a crossover claims process. Very simply put, what are the plans of HCFA with respect to charging for those crossover claims, if at all?

    Ms. CUSICK. It would be our intention to treat TRICARE the way we treat other Medigap insurers, which is that we do, in fact, charge them for the work that we do in preparing their crossover claim.

    Mr. MCHUGH. Well, let me do a little bartering here on behalf of Dr. Clinton, et al. Is my understanding that you do not charge for Medicaid crossover claims a correct one?

    Ms. CUSICK. That is true.

    Mr. MCHUGH. Other than using the generic term of ''Medigap,'' why do you discern differently in this government program then with, say, Medicaid?
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    Ms. CUSICK. The way our statutory authorization reads, it allows us to charge all programs except those included in the Social Security Act, and Medicaid is in the Social Security Act.

    Mr. MCHUGH. You use the word''allows.''

    Ms. CUSICK. It is, in fact, permissive.

    Mr. MCHUGH. Well, now. [Laughter.]

    Ms. CUSICK. We also were not funded to do this work, and the amount that we would charge would be to pay us for our costs in doing it.

    Mr. MCHUGH. Have you reached an estimate as to both the per claim charge and the estimated total charge you would assess against poor pauper Dr. Clinton over here?

    Ms. CUSICK. The charge that we use with Medigap insurers is $0.69 for a Part A claim, which is an institutional claim, and $0.54 for, in essence, a physician or provider claim. And yes, we have told him that.

    Mr. MCHUGH. Do we have an estimate as to how many? What, 25 million claims?

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    Admiral CLINTON. Something in there, 25 million to 30 million. We weight-averaged those costs, saying it is $0.60 per claim. That would run us $15 million to $18 million.

    Mr. MCHUGH. I see. Well, we will talk later about this, Ms. Cusick.

    Ms. CUSICK. I sort of thought we would. [Laughter.]

    Mr. MCHUGH. Well, fine. I don't want to hog all the time. I warned everybody about the five-minute rule, in spirit. So with that, let me yield to the ranking member, Mr. Meehan.

    Mr. MEEHAN. Thank you, Mr. Chairman. I will stay with Ms. Cusick for a minute here.

    Medicare will continue to be the primary payer for our Medicare eligible military retirees and TRICARE will become the secondary payer. However, for all practical purposes there is only one payer: the Federal Government. Could Medicare use its current contractors to make one payment to the provider and charge the different trust funds for the costs?

    Ms. CUSICK. I think the issue with that is that the TRICARE payment rules are different than the Medicare rules. It would require us to make a lot of changes in our software systems to be able to make the kind of payments you described. And that would be expensive and might put us in jeopardy of not making payments, or doing work that we are required to do for Medicare.
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    Mr. MEEHAN. How difficult would it be to change the software?

    Ms. CUSICK. Our software systems, in general, were developed in the 1970s. We are in a process of modernizing them even as we speak. But they are very fragile, and so it is not an easy thing to change them.

    Mr. MEEHAN. But you are changing them anyway, because they are left over from the 1970s.

    Ms. CUSICK. We are changing them because Congress has changed the way that we make payments to a lot of different providers. And so we have other statutory requirements that we need to implement.

    Mr. MEEHAN. I understand that the general enrollment period for Medicare ends at the end of this month, and many of the eligible military retirees, who previously chose not to participate in Part B, will have to do so in order to participate in TRICARE. The financial implications to these individuals obviously are tremendous; and having only a few weeks to decide whether to pay the penalty and participate is a stressful decision. Can Medicare extend the general enrollment period to October 1 of this year?

    Ms. CUSICK. We have looked at that issue. The Social Security statute is very prescriptive about our ability to extend the enrollment period. And, in essence, it has to be on an individual basis when there has been an error on the part of the Government.

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    And it is our opinion that since TRICARE actually did a mailing and did a lot of notification in January, it is very hard to say that there was an error on the part of the Government. So we believe it would take a statutory action.

    Mr. MEEHAN. Dr. Clinton and Dr. Sears, in your efforts to implement the benefits and ensure the most efficient service, do you foresee any problems that would require legislative changes?

    Admiral CLINTON. There may be legislative adjustments that are necessary in the management of the accrual fund, which is not something that Health Affairs is directly responsible for. It is managed by our Comptroller's office, and our General Counsel and others are working on preparing those.

    They are minor in nature. But as I recall the discussion with General Counsel, they will discuss this with the Congress and ask for some adjustments and clarifications. There are more clarifications than any other point.

    With regard to your earlier question, I would only add that the claims processors we use are claims processors that also are claims processors for Medicare. Therefore, the people who do our claims processing are fully familiar about the interactions between Medicare and other health insurance, and now they have ours.

    We have talked and worked with HCFA, discussed many, many options of how we are going to handle the second-payer payment. And I think that, given where we are now, there is no question in our mind that using our current claims processors, who also are Medicare's claims processors in those states, gives us a way to make this transaction move quite smoothly. I think from the beneficiary's standpoint, it will be almost seamless.
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    I see your point, theoretical point, that it would be very helpful to a provider to get one check not two. But I think we have worked through all the problems we can work, and have been working with people who are experienced on both sides of this claims processing to make it work well.

    The other point I would add is that claims processing was a significant challenge for TRICARE. And we had a record, let's say about a year ago, in which we really were not doing as well as we knew we should.

    Dr. Sears and his team put together an extraordinary group, and we now lead the Nation in terms of claims processing records. We are really doing extraordinarily well. It is just outstanding.

    So I think with that experience behind us, we have demonstrated how to make it work, and I believe we can make it work in the short run. Indeed, there might be a better solution in the long run, but it would take some time to implement that.

    Mr. MEEHAN. Thank you. One final question to Mr. Scheflen. The eligibility for these programs depends on the correct information within DEERS, the Defense Enrollment Eligibility Reporting System. Has information on how to establish or re-establish eligibility in DEERS been included in the information packets that have been provided to beneficiaries?

    Mr. SCHEFLEN. I think the question is probably more preferably addressed to Dr. Sears, who is the originator of the material that was in there.
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    I can say, in general, that there are procedures in place at all the military bases, for example, and in a joint regulation about what people need to do and what kind of documents they need to bring to establish or re-establish eligibility.

    It isn't really a problem for the military members because their entitlements are there, period. It is really the dependents.

    And there are kind of two groups that are a problem. One of them is there are people that are in the database as a spouse of a retiree who may have an ID card that was not renewed. And the way that entitlements work in DOD is they are tied to the member. So in order to get an ID card for a spouse, which has a life of four years, they have to take some action to get it renewed, and there are some people in the database where that didn't happen. And what we don't know is whether we have an unreported death, an unreported divorce or they simply weren't using any kind of benefits and didn't need to get it renewed. So they will need to take action, with respect to the spouses. The members themselves, or survivors who are getting a survivor benefit payment, don't really need to do anything because their entitlements are really tied to their periods of service.

    There is one other group that is potentially a problem, and I believe it to be a very small group, but probably one that will be very difficult to deal with, and that is, there are probably some folks who were already over 65 and, therefore, not entitled to any medical benefits back when we did enrollment in DEERS for the first time in the early 1980s, particularly those where the member was already deceased.

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    And those people, today, I think, as a group, I would probably describe them as widows in their mid-80s. And you know, we have never had a record on some of those people. They will have to come forward, and we will have to figure out, you know, how to get the right documents and everything to get them into the system. You know, if the member was already dead and they were already over 65, there may have been no reason for them to come forward and try to get new benefits, unless they lived near a military base and wanted to use commissaries and exchanges.

    Admiral CLINTON. If I may, sir? The information materials we have given to the new forthcoming beneficiaries has described the many ways to contact the DEERS system, by Web sites, by telephones, by letter, by going to military installations. It did not provide a detailed listing of what it takes. Since that varies by individual, we thought it better to introduce them to the DEERS system and let the DEERS people describe what that individual needed to have.

    Mr. MEEHAN. Okay, great. Thank you, Mr. Chairman.

    Mr. MCHUGH. I would, for the record, state that I have probably, my most important constituent, falls under the description by Mr. Scheflen, an 80s widow, Jane O. McHugh, who is my mother. So we are going to have to reach out to her or I won't be able to go home for any holidays in the next 10 years.

    Mr. Schrock is next up. For the edification of the committee members, particularly the subcommittee members, those new ones, the committee rule provides that we go by seniority for people in the room when the gavel went down and then as you appear in the room after the gavel. And by that, Mr. Schrock was one of the earliest arrivals.
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    Mr. SCHROCK. Probably the only time that will happen. Thank you, Mr. Chairman.

    Let me establish myself by saying I represent the 2nd Congressional District of Virginia, which probably has the largest number of active duty and retired military anywhere in the world. And, of course, I am a retired naval officer, so I have an incredible interest in this because I hear about it every single day.

    I took aboard what you said, Admiral Clinton. One thing stuck out that puzzled me is you said priority to active duty over retirees. I understand. That is the way it was the 24 years I was in; that is probably the way it is now.

    Is that kind of a clever way for us to say: ''You can sit there and wait all day and go home and finally give up on the process?'' Or are they going to be actively seen, like the active duty will be seen?

    Admiral CLINTON. What we want to assure is that there is total equity among retirees; that the age 65 number, that we will use to describe certain things at the moment, becomes not an issue.

    Therefore, in the Space A (available) issue, which I know you are familiar with, that is to say, someone who is not active duty or family member, they have rights to Space A, if it is available. We are saying that it should be the same for someone who is 60 and someone who is 70.
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    Mr. SCHROCK. All right.

    Admiral CLINTON. So as we think through an enrollment process, and that is my term—equity for all retirees—that someone is not disadvantaged by age.

    Mr. SCHROCK. All right. Because of that brand new hospital we have down there, that probably will not be a problem to have those people seen, but it certainly will be in some parts of the country, I am sure.

    Admiral CLINTON. Well, the military health system (MHS), recall, is sized to be prepared for medical and military readiness. So we need to think carefully about the number of retirees we bring into the system. It brings us great advantage in terms of the clinical—the sense of being and participating with these people who have served our Nation.

    At the same time, the construction requirements, the cost of medical care, and indeed if the individual comes into the Military Treatment Facility, then we pay 100 percent of the costs. If they were seen in a civilian facility, we would probably pay something in the order of 20 to 30 percent, because Medicare would have paid the other. So that was my point in saying, as we go through these options, we need to understand the financial implications of the options.

    Mr. SCHROCK. Oh, I see.

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    Admiral CLINTON. I am sure that we can see some of them. We already do. The question is how many more before we either begin to displace active duty members—and that is unthinkable—or exceed our capacities. And the capacities of the hospital there are, indeed, much greater than the capacity someplace else.

    So in the final decision, I want the Surgeon General and the MTF commander, the hospital commander, to make a determination about how many they can bring in without displacing their other responsibility, with an eye on the dollar implications to the Department of Defense.

    Mr. SCHROCK. Okay. I want to ask you an administrative question. We are getting questions about this all the time, and we really don't have a sheet that we can talk to people about.

    How are retirees being notified that this benefit is going to exist? And will Congressional people like me and people in my office have something they can guide people to if they call, because they probably need something like that?

    Admiral CLINTON. I may be overstating it, but I think we have advised them in a thousand different ways. One of the great things—

    Mr. SCHROCK. They still call. They still call.

    Admiral CLINTON. They still call. I think they will. They will call everyone, everyone they think they have immediate access.
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    You will hear from the Alliance and Coalition later, the collaboration we have had with them. They have been very helpful in the design of the materials that we have produced for things such as the Web page, and the letter from Dr. Sears, and the pamphlet we have here on the new pharmacy program, which is available, which provides very simple, straightforward detail about the mail order program and an example about how much they might save if they use one site of getting their pharmacy versus another.

    The Coalition and Alliance have not only put this material out in their own publications, but they have been very helpful in identifying other organizations or groups of individuals who might be interested in the same information, and they might have a membership. Sometimes they don't have any association with the military—nursing homes associations and many provider groups, and geriatrician groups—all the people that we think would relate to the older population, we have used that to get out.

    I think we need every possible means. We want to be sure that your offices have easy access, like the material on the Web site and the telephone number, so you can quickly refer your constituent or interested party to that phone number.

    Mr. SCHROCK. Okay. Great. I just have one more comment. When I was listening to Ms. Cusick, when she said the word ''permissive,'' my ears perked up. And if we can do it for nonmilitary and nonretired people, I think we have an absolute moral obligation to do it for those as well. And I would suggest we would do that. It would certainly save Admiral Clinton's budget, and serve the people a lot better than they are being served now. Thank you, Mr. Chairman.
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    Mr. MCHUGH. I thank the gentleman. The gentlelady from New Mexico, Mrs. Wilson.

    Mrs. WILSON. Thank you, Mr. Chairman. I just have a couple of questions. I apologize for having to step out for a moment there, but I enjoyed reading the testimony last night on this issue that is affecting large numbers of retirees and has been really welcomed by people in my district.

    I wanted to ask you about coordination with HCFA, between the Department of Defense and HCFA, on eligibility determinations and so forth. I would like to hear from both of you on your perspective of where we are now and what needs to be done to make this work so that this is seamless.

    Admiral CLINTON. Well, the information that comes to my staff indicates that HCFA's working staff has been fantastic in making these two levels of data exchange work.

    First, the data tape exchange with Mr. Scheflen's organization is well under way. There are certain legal agreements or memorandums of understandings, if you will, that need to be done; those are well under way.

    Similarly, in working through the claims processing, at the working level, we have had excellent collaboration. I work for the Department of Health and Human Services. That is where my paycheck comes. I have worked with HCFA, and I am delighted to say that the family of HHS is working with the family of DOD.
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    We have some other issues to talk about which we have not addressed today, which deserve further attention on our part and HCFA. But I think here we are focusing on: Is the data system adequate for the beginning of the program on October the 1st? And I think all of our judgments are, it will be.

    Ms. CUSICK. What I would say is that the eligibility data, if I understood your question, is data that we need to use all the time to make sure that people should be getting their Medicare benefit. So it is data that we have readily available; we are not creating it anew.

    The issue is making sure that we have all of the i's dotted and t's crossed on the computer-matching agreement to make sure that the data exchange rules are clear between us. But this is something that we do with other people that we know how to do, and I am confident that it will be able to be done seamlessly.

    Mrs. WILSON. Let me just give you a ''for instance.'' I know that the Defense Department is trying to work on making sure that eligibility determinations are instant, just as they are for most insurance companies, and yet for those who are on Medicare, at least for constituents in my district who are trying to get prescriptions verified, there is a two-week delay with Medicare. Is that going to be the case under TRICARE? Are we going to have it better than HCFA or are we going to have it slow down to HCFA's pace?

    Ms. CUSICK. What I believe is going to happen is we are going to give them, on a regular basis, a list of all of the Medicare beneficiaries so that they will have the data and can make it available however they do that, and I think Dr. Clinton needs to answer the rest of that.
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    Admiral CLINTON. We need the data on the Part B portion by October 1, even for the pharmacy. There is sort of an intermediate period. By that time, we will have the pharmacy data transaction system totally implemented in every pharmacy, in the hospitals that we own and operate, in the national mail order, and in the network pharmacies. That transaction takes about three seconds, and that will verify—

    Mrs. WILSON. So you will actually get the data, as opposed to relying on it—

    Admiral CLINTON [continuing]. Having had the data from HCFA into our database.

    Mrs. WILSON. Okay. There is a question about the enrollment period, and particularly during this transition, whether the enrollment period is long enough, given that we don't have finalized regulations and those kinds of things. Is it your view that the enrollment period is long enough or does it need to be extended? And in your view, could that be done by an administrative decision or would it take an act of legislation?

    Admiral CLINTON. Are you asking, ma'am, for the enrollment into the Medicare Part B?

    Mrs. WILSON. Yes.

    Admiral CLINTON. That is beyond the jurisdiction of the Department of Defense, so I will refer that to HCFA.
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    Ms. CUSICK. We believe that it would require statutory changes to extend the enrollment period, because the only authority that we have to extend it is if there is proof that there was a government error or misrepresentation, and we do not believe that this is the case with this program.

    Mrs. WILSON. In view of TRICARE For Life just getting up and on its feet, is it your view that it should or should not be extended, the enrollment period, just from a management point of view?

    Ms. CUSICK. I am sorry. I don't have enough information to answer the question.

    Admiral CLINTON. I think that our discussion with The Coalition and Alliance group—and you will hear from them, and perhaps they can give a better judgment. Anecdotal stories that we hear suggest that it is going to be difficult to get the word to everyone and for them to have completed the transaction by the end of this month.

    That might include a retiree family that lives in Panama. They can't enjoy the TRICARE benefit unless they are part of Part B, even though Medicare isn't providing services in Panama. It gets complicated quickly, but they are required to have that Part B. They may have thought they never needed it, and they forewent that some years ago. To get the word out to all these people that we have been talking about—maybe it is only 5 percent, but we are talking about 5 percent of 1.5 million people—would probably be difficult by March the 31st. I am sure someone is disadvantaged, but they made a choice earlier not to do it. And so much of the debate is: Is it really equitable to, in a sense, forgive them so easily when others have lined up and paid their Part B from the beginning?
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    Mrs. WILSON. With respect to that, obviously we have changed the benefits significantly and the options for those retirees who chose not to be part of Medicare Part B.

    This is my last question, Mr. Chairman. Some of them made that choice because they had other employer coverage or because they were disabled and covered by the Veterans Administration, for all kinds of different reasons, and now the rules have changed. Do you think that it is fair to have the late enrollment fees apply to those retirees who, for a good reason at the time, did not enroll in Medicare Part B and now find that the rules have changed?

    Admiral CLINTON. This isn't a Department of Defense issue so I can only give you personal opinions, and I don't think that is of much value here.

    I think The Coalition/Alliance can probably give you a better sense of the magnitude and whether individuals are really disadvantaged or not in those circumstances. We only hear that secondhand. So I understand the position of HCFA and the Social Security Administration. I have nothing else to base it on, except sort of anecdotal stories.

    Mrs. WILSON. Ms. Cusick, could you comment on that?

    Ms. CUSICK. I think that we need some information about how many people we are talking about in order to assess the impact.

    Mrs. WILSON. Thank you, Mr. Chairman.
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    Mr. MCHUGH. So, let me get this straight. Ms. Cusick, you work with Dr. Clinton and you are still charging him $15 million? [Laughter.]

    Tough people. [Laughter.]

    The gentleman from Connecticut, Mr. Simmons.

    Mr. SIMMONS. Thank you, Mr. Chairman. And thank you to the witnesses for your testimony.

    Like Congressman Schrock, I come from a district with substantial numbers of military retirees and substantial numbers of active duty personnel, largely Naval personnel, but some of the other services represented.

    You have described a protocol for a system which you anticipate will be up and operational by the 1st of October, if all goes well, as I understand it. What do we tell our constituents if all does not go well and if we miss that deadline?

    Admiral CLINTON. It will go well, sir. [Laughter.]

    Mr. SIMMONS. Is that what we call a promise?

    Admiral CLINTON. It is as much of a promise as a federal employee can make. We have examined, re-examined, we are testing things, running phony claims through systems. It can work.
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    Indeed, they are entitled to this benefit. You know, if there was an earthquake or something that interfered with all the electronic transmissions on the day it started, then the person is still entitled to the care. And so, retrospectively, we would finance, as appropriate, that care that was provided under the rules of Medicare and TRICARE, which is the same instance as some of the programs which do not have the resources to implement on an on-time basis, they still enjoy that entitlement. And we will retrospectively provide the financing for it.

    It is an awkward way of doing it. But that, if you really wanted the worst-case scenario and say that all the electricity turned off on that day, they still get medical care. And they incur a bill, and we would eventually pay that bill.

    Mr. SIMMONS. My second question goes to the issue of communication and information. And I have no doubt that you have under consideration plans to disseminate information on how this system is going to work and how potential beneficiaries can participate.

    I share with Ed (Schrock) also the frustration that, for all the information the government puts out, still people call us and try to figure it out. Locally, we have the Dolphin newspaper, which is the Navy publication, which every week has TRICARE information in it.

    Admiral CLINTON. Good.

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    Mr. SIMMONS. Quite frankly, there is so much, it makes your hair hurt, for those of us who still have a little bit left.

    But I guess my question is, how can we partner with you as we move through this process so that we can effectively communicate with our retirees and with our military personnel on this issue so that they can be fully informed?

    Admiral CLINTON. Well, we understand that challenge. My sense, sir, that referring anyone that knows how to get to a computer to that Web site is the most complete, up-to-date, thorough information for anything that a constituent might have with regard to TRICARE, and certainly the high emphasis on the TRICARE program that begins on October the 1st.

    I think that is the best source of information. And certainly for newspapers and other outlets that are trying to write the story, they can turn there first. We have a constant array—I sent out three more press announcements today—about components of it. But I recognize, as you do, that these things sometimes get spottedly distributed. And it takes many messages, I think, to get to all the constituency.

    We will prepare materials that will be available to the military hospitals and clinics, so that they can have community meetings, and to our lead agents like a regional manager, so that their staff can provide some of this in the community setting, in the town hall or the Kiwanis Club or whatever group might be appropriate for this information.

    We in Washington can't be on the road all the time to do that role, or we won't get our other work done. So we are trying to find ways to continue to use the Internet, which is very powerful, continue to use material that we can send out to others to be the conveyor of this information.
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    Mr. SIMMONS. A final question: Is there any problem with us including some of this contact information in our newsletters?

    Admiral CLINTON. We would be delighted.

    Mr. SIMMONS. Thank you. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman. The gentleman from Rhode Island, Mr. Langevin.

    Mr. LANGEVIN. Thank you, Mr. Chairman.

    I would like to thank you for your testimony here this afternoon, and commend you for your efforts to provide good quality health care for our retirees.

    I would like to just focus for a minute on the prescription drug benefit that you provide. Can you describe that for me a bit, particularly in the area of making sure that individuals that are covered have access to the medications that they need?

    I am particularly interested, because I have been told, in some cases, that a particular drug may not be provided when it is needed. In particular, I know that there may be a class of drugs, maybe, you know, five different medications that do the same thing. And so one may be offered and others may not. But is there an effort made to see to it that the medications that are needed are, in fact, provided in all class of drugs?
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    Admiral CLINTON. We do that in several ways. We have expanded the Military Treatment Facility pharmacy stock. We have expanded our basic formulary. The Congress directed that we establish two advisory committees, one which would be a beneficiary advisory council, one which would be a pharmaceutical and therapeutics council.

    The first probably raises issues just as you do: Are you sure that you have everything in the right place? And the second one makes judgments about what is the spectrum of a given class of drugs: How frequently? What magnitude should we have? What about this one versus that one? Issues of cost-effectiveness would be included in that.

    We have made many efforts to try to stock our MTFs and clinics adequately. There is no question that the size of pharmacies varies by the facility. So a small facility is not going to have the same array as a large medical center. That is understood.

    The second resource, of course, is the National Mail Order Pharmacy program. So if a small pharmacy isn't able to get it from a larger pharmacy or hospital, and get it sent there for the person who wants to use the MTF, which requires some delay, they can use the National Mail Order Pharmacy program, which for generics is only $3 for a 90-day supply and $9 for a branded drug. That is a fantastic bargain.

    In our TRICARE senior pharmacy program—and I will be sure our staff gives you this brochure—it gives an example of a drug that many adults use to lower their cholesterol level. They are called statins, is the name of this class of drugs. And you will see there the extraordinary bargains they get. They get no cost in the MTF; $36 for a whole year; that is, getting four 90-day supplies out of the National Mail Order Pharmacy program, and then the other issues of the retail network and the non-network.
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    It gives them a fantastic bargain. Even in the network, where they get a 30-day supply for $9 each of those months, it is only $108 for a drug that would normally cost around $1,000 in the course of a year. So it is an extraordinary benefit program, with many, many opportunities.

    If your question is,''Will every small pharmacy have everything that everyone needs?'' I think the answer is ''no.'' But they will have a way to get it from a larger pharmacy or the individual can use the National Mail Order Pharmacy, which has a much more robust array of drugs.

    And we are working toward advisory councils, which take some time, because of the Federal Advisory Committee Act, to put into place. They will be in place next calendar year some time.

    Mr. LANGEVIN. How are prices negotiated? Do you have Pharmacy Benefits Managements (PBMs), basically, that you work with?

    Admiral CLINTON. We do. We have some that are undertaken by the Department of Defense directly, and others that are negotiated with VA and the Department of Defense. So we get the combined buying power of both of those. We save about 25 percent on the unit cost of that drug when we are able to do that, lowering our total bill, I think, something in the order of about $60 million last year just for these price negotiations.

    Mr. LANGEVIN. It is a great model, I think, for us to follow in other areas as well. Thank you.
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    Mr. MCHUGH. The gentleman yields back. The gentlelady from California, Mrs. Davis.

    Mrs. DAVIS OF CALIFORNIA. Thank you.

    I appreciate your being here today. I wonder if you could discuss—and perhaps, Ms. Cusick, you could respond to this—the Administration's budget presents a combined A and B, basically. How does this affect the viability of TRICARE For Life? How do you see it affecting it?

    Ms. CUSICK. If I understand the question, I don't think it affects it at all. If you are asking about the Administration proposal about the relationship of the Medicare A and B trust funds, I don't quite see how that would affect TRICARE. The commitment is to pay Medicare benefits. The Medicare benefits would be paid.

    Mrs. DAVIS OF CALIFORNIA. Is it a guarantee? And for how long? How do you see that in the budget? What are we looking at there?

    Ms. CUSICK. I am sorry to say this, but I don't think I am the right person to be addressing that. I am sorry. Our policy officials are doing that. I am not prepared.

    Mrs. DAVIS OF CALIFORNIA. So at this point, you really can't say one way or the other? Is that right? Okay.
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    The issue came up earlier in terms of home health care, and I wondered if you could elaborate on that a little bit, and what provisions might be in place, what help, what support, might be available so that we actually develop a home health care program, one that is really reliable and meaningful?

    Admiral CLINTON. We will be making recommendations on that point. Medicare provides these services under their program. One distinction about the Medicare program is their time limits. Without getting into intricate detail here, basically, they are entitled under Medicare to X days of this and X days of that.

    The TRICARE benefit does not have a day limitation. Therefore, we have had to consider the more expensive cost outlays that would incur in the event our beneficiary exhausted their Medicare benefit and then moved into the TRICARE benefit for an extended period of time.

    We are trying now to look at the implications of that. It represents a large block of money. And I think, in our subsequent discussions, we will be able to give you better specificity on that. All we know is that it is a lot of money.

    The current budget for 2002, in the President's umbrella budget of $3.9 billion, takes all of that into consideration. The question is: What about 2003? How do we bill this? How do we provide some reasonable equity, keeping in mind the limitations of Medicare and the almost no limitations that currently are on the TRICARE benefit, in terms of the time allowed for skilled nursing home and home health care?
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    Mrs. DAVIS OF CALIFORNIA. Thank you. I was concerned earlier when you spoke about the $1.4 billion, $1.5 billion unfunded. And at what point can we begin to get more information about that and to know, in the context of future discussions now, where that is in trying, I think, to address the other issue in terms of both A and B programs?

    Admiral CLINTON. I think the clearest documentation of this will come when the President's complete 2002 budget is presented for the Department of Defense, and that will provide a level of detail, I think, that can let us engage more completely in the discussions.

    Meanwhile, we are talking, as I indicated earlier, with experts inside and outside of our Department about these long-term skilled nursing home and home care requirements. What do others do? What are the cost implications? How do they manage it?

    Even if we are to do it irrespective of cost, there are management skills that we have traditionally not had in Military Treatment Facilities. And to some extent, some of our contractors are not as familiar with those things, although they know partners who are.

    So all of this is something that we are learning: How to manage it from a clinical standpoint and a financial management standpoint. So we have an experience to collect together, and we need some cost estimates to think what are the implications of doing this or that for the future. At the moment, it is, as described in TRICARE, not limited by time. So we will approach the October 1 year fully recognizing that.

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    Mrs. DAVIS OF CALIFORNIA. Thank you. I appreciate that. I know how difficult it is in our communities today, not necessarily with the veterans community, just to get people in the pipeline working in the fields and being able to provide that kind of care. And clearly the, kind of, attrition, because we don't have good salaries or a good career ladder, if you will, with what is really a major problem. So perhaps we would have an opportunity to address that here.

    Admiral CLINTON. Well, you have mentioned one of the partners in this, and that is the Veterans Administration. In our collaboration with them, we recognize they have more experience in this area than most of our Military Treatment Facilities. So our engagement with outside consultants will include them in finding, at least case-by-case or city-by-city or area-by-area, where their long-term capacities might be an extremely good way for us to partner in a relationship with VA.

    Mrs. DAVIS OF CALIFORNIA. Thank you. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentlelady. The gentleman from New Jersey, Mr. Andrews.

    Mr. ANDREWS. Thank you, Mr. Chairman. I appreciate very much hearing the testimony this afternoon, and reading it as well. I was delighted in the last Congress to join Republicans and Democrats in restoring a piece of our own integrity, in restoring this promise to the men and women to which it was made. And I thank each of you today for helping actualize that promise, to make it a reality. I am encouraged by what I hear.

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    I do think, though, that Colonel Partridge has raised, in his testimony which is to come, which I have already read, a very important question about the context in which this is going on. Senator Domenici is on the record as saying that there is a $1.4 billion gap in the military health system for the fiscal year that we are in—

    Admiral CLINTON. He is correct.

    Mr. ANDREWS. —2001.

    Admiral CLINTON. That is the number I was referring to earlier.

    Mr. ANDREWS. And I am very concerned that we don't create the law of unintended consequences here, which is to say that the dollars that have been committed to meet the discretionary funding obligation for fiscal 2002 do not come from some other accounts in the same system.

    I know, Admiral, that is not a decision you get to make, but I wanted to explore a little bit with you. On page six of your testimony, you say,''The President's budget request for fiscal year 2002 will include an increase of $3.9 billion in the Defense Health Program funding to fund the new TRICARE For Life benefits,'' which is the news that we all want to hear.

    The question I would ask, and not as a rhetorical question, is: on top of what? If the $3.9 billion is on top of a baseline that is $1.4 billion shy, then we are going to have the totally undesirable situation of financing the restoration of this benefit from other benefits for people that we are trying to help. Do you know the answer to the question,''on top of what?''
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    Admiral CLINTON. You know, that is an awkward question.

    Mr. ANDREWS. I do, and as I stated, it is not yours to answer. I guess I ask you if you know, from those who will answer it, what their position is.

    Admiral CLINTON. Let me say that we have an organization in the Department of Defense referred to as the Defense Medical Oversight Committee. It includes the vice chiefs of all three services and the Marine Corps and their civilian counterparts.

    This group meets every two to three weeks, and the issues of 2001 and the issues of 2002 have been thoroughly explored. And everyone whose mission in the Department of Defense is to defend the country recognizes that this entitlement is being drawn from a discretionary budget.

    Mr. ANDREWS. Right.

    Admiral CLINTON. So the agony is thoroughly understood. I think the Secretary and the Deputy Secretary, the only two Presidential appointees in the Department, are coming to grips with that issue and I think it will get reflected in the 2002 budget. I think when that 2002 budget comes out, we would be in a better position to discuss it with you.

    Mr. ANDREWS. I appreciate that.

    Admiral CLINTON. All I can do now is say that it has been under full discussion. Some of the things we have talked about will affect the long-term costs. There is a behavior that we do not know about this 1.5 million.
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    Mr. ANDREWS. Right.

    Admiral CLINTON. Half of them don't even live close to a Military Treatment Facility, so they will go to Medicare and we will only end up paying 20 or 30 percent of their total bill.

    Mr. ANDREWS. Right.

    Admiral CLINTON. There are those that argue that not many are going to come to the military hospitals. Then there are others who argue they are all going to come. We have tried to capture what are the attitudes of our retirees in my survey.

    The general sense is that many of them want to come. And many of them have come, traditionally, to the pharmacy. The pharmacy will be a very large bill; certainly in the order of about $1 billion a year. It is one of the reasons we are very pleased that the Congress has allowed the co-payment process to stay with the pharmacy. And I think that is another way in which we can try to manage this prudently in the long run.

    Mr. ANDREWS. I want to repeat for the record that I am convinced that both as a matter of legal commitment and as a matter of spirit that the entire panel is going to work hard to make this happen. And I appreciate that. And I also appreciate that the question I asked is not one that you are authorized to answer.

    I did want to get on the record, though, my understanding of this, which is that if the military health system budget does no more than it did in fiscal 2001, no increase in other programming, that in order to fund that programming and meet the full $3.9 billion obligation which we created for you in the defense authorization bill, you would need $5.3 billion. Is that correct?
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    Admiral CLINTON. I didn't follow the $5.3 billion. You are right that if we have no more than we had in 2001, which had a substantial supplemental—

    Mr. ANDREWS. But we start in 2001 with a hole of $1.4 billion. So to bring us up to baseline for 2001, we need another $1.4 billion.

    Admiral CLINTON. I understand your point, right.

    Mr. ANDREWS. So therefore, in order to bring us to baseline plus the new $3.9 billion obligation, the required increase to meet that standard would be $5.3 billion. Is that correct?

    Admiral CLINTON. Your math is correct.

    Mr. ANDREWS. I raise that because one of the key issues this committee is going to have to come to terms with, in its usual bipartisan fashion, is how to navigate this promise in a world in which our resources are, I would use the verb, depleted by the decision the House made on the floor last week with respect to the tax cut. And that is a decision that we will grapple with, happily. And that is one you don't have to grapple with. But I do appreciate the chance—

    Admiral CLINTON. Well, I think we are trying to grapple with it. We are trying to consider places where constraints could be allowed. That is why I ask in my opening statement, ''Let's keep the program stable.'' It would be attractive and of interest to some individuals, constituencies, to add here and add another here and add another here. But I think until we stabilize this program, we are all going to have difficulty in making it run well and be understood well and financed without causing great hardship for the other requirements in the discretionary budget of the Department of Defense.
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    Mr. ANDREWS. I am very grateful for your efforts and appreciate your testimony. Thank you.

    Mr. MCHUGH. I thank the gentleman. Gentlelady from Virginia, Mrs. Davis.

    Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman. I am not sure who this goes to, but I am just trying to clarify it in my mind. As I understand it, those 65 and older after April 1 who have not enrolled in Medicare Part B could not enroll in it again until next January through March? Is that correct?

    Ms. CUSICK. Yes.

    Mrs. DAVIS OF VIRGINIA. And what do we tell our constituents? Is that something that Congress did, that time line?

    Ms. CUSICK. Yes.

    Mrs. DAVIS OF VIRGINIA. Then we need to change that. Because like Mrs. Wilson said, the rules have changed. So a lot of people who, in my opinion, a lot of people who had not signed up for Medicare Part B more than likely lived near military bases at the time and didn't feel they would have to go to outside hospitals. And then we had base closures. So by no fault of their own, they are going to be left in the situation, from April 1 of 2001 until they can enroll January 1, 2002, where they don't have the TRICARE For Life, if I am understanding it. Is that correct?
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    Admiral CLINTON. That is correct.

    Mrs. DAVIS OF VIRGINIA. How difficult will it be for them—and a lot of them may not even know about it—so what obstacles will they have to overcome in order to enroll in Part B? And will it be tough? Do they just go somewhere and do it? I mean, how hard is it?

    Ms. CUSICK. Enrolling in Part B is done through the Social Security Administration. It is pretty easy actually. There are 1,300 Social Security offices around the country, if people want to visit them. You can do it over the telephone. I believe they are looking at options to be able to enroll online, although I don't know if they have gotten to that yet. But the Social Security Administration is an agency that is very easy to gain access to.

    Mrs. DAVIS OF VIRGINIA. So the biggest obstacles, I guess, that I see, that they will have is the time that they will not be able to and then the penalty that they will have to pay.

    Ms. CUSICK. Yes.

    Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentlelady. And we won't blame you on the Medicare enrollment; you weren't here. Wished you were.

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    Mr. Akin? He left. I am sorry. Mr. Thornberry, gentleman from Texas.

    Mr. THORNBERRY. Thank you, Mr. Chairman. Dr. Sears, you and I have talked before about claims processing. I wrote it down. I just heard that now TRICARE is leading the Nation. Last year, we talked about TRICARE claims processing of nearly $8 a claim, where Medicare was $1.78. Most people wouldn't think of Medicare, with all due respect, as the model of efficiency. Where are we now? How much is it costing to process a claim?

    Dr. SEARS. The cost hasn't changed. We have not changed contracts. The improvements you are hearing are in the timeliness of the processing, the accuracy and timeliness of the processing. And we now have exceeded all of our standards; are processing nearly 100 percent of our claims in 60 days; a good share of our claims in 14 days; and our claims remaining after 60 days and 100 days is approaching zero. So when we talk about being an industry leader now, it is in relation to the efficiency of the claims processing.

    Mr. THORNBERRY. Remind me—I don't have my notes in front of me—how much does total claims processing cost?

    Dr. SEARS. It varies, but it is about—I will get you the accurate—

    Mr. THORNBERRY. I mean, for the whole system, how much of the health care dollar that we are talking about being short now goes to process claims?

    Dr. SEARS. Well, as you mention, we pay about $7.51 a claim, and I will make sure that that is the right number.
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    What you have to remember about TRICARE claims, as opposed to the Medicare claim, is when we talk about a Medicare claim costing $0.75 or $1.50, those are the numbers that are often mentioned, that is what it costs essentially to do the electronic processing of that claim.

    When you talk about a TRICARE claim, you are talking about all of the other services that we provide for our beneficiaries in relation to claims processing. And a very significant piece of that cost has to do with the people that have to participate, in terms of answering questions or being involved in the processing of that claim. So that we add all the administrative cost of the claim.

    So if you remember the testimony from before, we are paying approximately the same amount that the Federal Employee Health Benefit Program (FEHBP), pays to process a claim, within a few cents of what FEHBP pays. And they have some of the same issues in terms of the additional administrative costs beside the actual processing. And if you actually strip away all of these other services, then our costs come pretty close.

    If you remember also from that testimony, in the industry, most of the managed care claims cost around $5—$4.50 to $5.50, in that range—for a managed care claim. And that is without some of the bells and whistles we put on for our beneficiaries in terms of some of the administrative advantages.

    Can it be done more cheaply? Yes, and we are moving toward that. Certainly there is significant motion toward Web-based claims submission and claims processing. And as we roll out new contracts, that will be, I am sure, a part of the new contracts with significantly lower costs, and that is something, obviously, that we look forward to.
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    Mr. THORNBERRY. Well, you just can't help but reflect that, for all the value of the bells and whistles, it could be that that money could be used to actually help people get better, rather than all of the other processing claims, whether it is hand-holding or talking to people or whatever.

    Let me move on. The Military Coalition has made a number of recommendations about adjustments to TRICARE For Life. We have talked a lot about the Part B penalty, and I don't want to ask about that one. One of the suggestions they make is for TRICARE to assume 100 percent of the cost of service for people that are in the hospital beyond the Medicare limits, or in a skilled nursing facility (SNF) beyond the Medicare limits. Dr. Clinton, do you have an opinion, yes or no, on whether that is a good idea?

    Admiral CLINTON. Would you repeat that again, please?

    Mr. THORNBERRY. Sure. One of their recommendations is that TRICARE For Life assume 100 percent of the cost of service for beneficiaries who incur hospital stays beyond the Medicare maximum, or skilled nursing facility stays beyond the Medicare maximum.

    Admiral CLINTON. No, they would have a co-pay associated with that at the present time.

    Mr. THORNBERRY. Right.

    Admiral CLINTON. Sir, it is only a matter of money, and I think we can run the numbers and present to the Congress what that is.
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    Mr. THORNBERRY. What that would entail. That would be helpful.

    Admiral CLINTON. I understand the need for that. And we both understand the need for us to prudently manage a budget that we have. And that is where we are.

    Mr. THORNBERRY. That is what I want to get, where you are on this.

    One of the recommendations is to—and we touched on this—eliminate the requirement that folks living overseas have to enroll in Part B. Do you have an opinion whether that is a good idea or not?

    Admiral CLINTON. I think that was established by the Congress and I am assuming the Congress gave some thought to that. We have simply—

    Mr. THORNBERRY. Well, don't assume too much now. [Laughter.]

    Admiral CLINTON. Well, I have had a lot to think about. I haven't given that one a great deal of thought. We will do so and get back to the staff on that point.

    Mr. THORNBERRY. I am just curious whether you think this is a good idea, whether it is something that we ought to consider. If we are going to look at making some adjustments, you know, what could we consider?
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    Admiral CLINTON. That is a good point. I think we all understand that programs ought to be adjusted when the evidence indicates that. And we will take that in consideration, too.

    Mr. THORNBERRY. Okay. And the last one they mention, which is also mentioned by the Air Force Sergeants' Association, is some sort of arrangement with private contracts. And the argument is made, particularly by the Air Force Sergeants Association, that patients get bounced between MTFs and private doctors and there is really nobody talking to one another beside the patient and the patient is left to coordinate that care.

    One of the suggestions made by The Military Coalition is that TRICARE should make partial payments for individuals who enter into private contracts with non-Medicare providers, the way that FEHBP does.

    Admiral CLINTON. I think that would make our life very complicated and their medical care not necessarily good. What we have instituted are primary care managers by name. Now, that is not fully in force yet. We have worked to assure portability of the TRICARE benefit as it moves from one of our regions to another. That will be accomplished through a national enrollment database.

    I think there are a number of things that are making the program more simple and administratively manageable. I think what they are proposing is simply another complication which would take more money and more time. And I am not sure yet that they would get better medical care.
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    Mr. THORNBERRY. Okay. Thank you. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman. Gentleman from Illinois, Mr. Kirk.

    Mr. KIRK. Thank you, Mr. Chairman. For me, I just got out of TRICARE, and for my fiance, who just left the military as well. I actually wounded my ankle over in Iraq. If you have somebody over here who can help me out, that would be a good thing.

    In my experience in military health care, especially at least the sick bay on the USS John C. Stennis, was outstanding. But, if you can forgive me, I will get to the policy in a second, but I do have some cases that have come to my attention that I wanted to briefly touch on.

    I seem to see a lot of TRICARE problems with psychiatric care. And one of the cases that has come to my attention is Lieutenant Larry Jones, in my district, had a 16-year-old son, Matthew, does, who is suicidal and homicidal, and we had arranged for a residential care facility to take him over after TRICARE let him go, but TRICARE kicked him out of the hospital a week early. And this was a kid who had threatened to kill his mother, and the psychiatrists said he was going to do it.

    So I would like to give you this letter and look into it, because there is a sensitivity factor here. I have another case, a Captain Bennett, whose 15-year-old daughter was in psychiatric care, and they got a call from TRICARE that morning that their daughter was being put on a bus and being sent back home.
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    And you would hope that TRICARE would have an ability to alert a family of that kind of impending situation.

    Admiral CLINTON. On the surface, that sounds unconscionable. But we will certainly take those cases and have a specific program that looks at these very complicated people who have exceptional needs.

    My point earlier is that we are going to have that with even a larger population, the older population. So we are trying to sort through how we manage the ones we do now, which I think are generally done with great care.

    There are tough cases, and I regret that they have had to call it to your attention. If you'll give us the details, we will certainly work with them.

    Mr. KIRK. I will. I have another, more, sort of, usual case. Lauren Turner's son's accident three months ago—$225,000 in TRICARE bills, but then TRICARE announced that they won't pay. And the next day, the bill collectors already started calling, put a lien on the house. So there is a—

    Admiral CLINTON. We have a very specific program to manage those issues. Let us look at it. On the face of it, I can't make any comment, but we will certainly examine each of those, if you will be sure I get that information, or one of the staff here.

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    Mr. KIRK. Great. On the policy side more, next weekend, I am going to go out to Nellis Air Force Base in Nevada, where I am told we have a unique institution.

    Admiral CLINTON. Correct.

    Mr. KIRK. This is a joint VA/DOD health care institution. I want to get your thoughts on where you think that cooperation is going, and then pull you in the local direction of my district. I have one of the largest VA medical facilities in the country, the North Chicago VA Medical Center, three blocks from the Great Lakes Naval Training Center Naval Hospital.

    The cooperation between those two institutions totals $160,000 at the moment. But it would seem the Nellis model saves the taxpayer money and provides higher care for both veterans and the DOD facility. But can I get your thoughts on the Nellis model and how you think that is going?

    Admiral CLINTON. I am sure Dr. Sears has been there, and I am planning to go there in about three weeks with the Air Force Surgeon General to look specifically at that.

    In a general sense, Dr. Garthwaite, the Chief Medical Officer of the VA, and I are reconstituting working groups to look at VA arrangements, whether they be better ways to buy pharmaceuticals or find ways to get across what might be called cultural barriers in collaborating together on the provision of services, either separately or combined, as is the case. Dr. Sears, you have had experience at Nellis.
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    Dr. SEARS. Yes, those are very successful programs.

    Mr. KIRK. I am told by Mrs. Wilson that also at Kirtland we have a joint—

    Dr. SEARS. Albuquerque, Nellis, also in Alaska. The most recent cooperative venture was in Alaska. We do it in Hawaii at Tripler. We used to do it extensively at Great Lakes with the VA, that you speak of.

    Mr. KIRK. Right.

    Dr. SEARS. Those are successful programs that make tremendous sense because we share various services—lab, X-ray, emergency room services at Nellis, for example. So we are very supportive of those sorts of interactions. They make tremendous sense to us.

    We do a lot of work with the VA in sharing. For example, I was just at Keesler down in Biloxi, and a lot of work is being done cooperatively between the Keesler Air Force facility and the VA. So as a general statement, we look forward to those sorts of arrangements, those sorts of sharing, sorts of opportunities, and are supportive of them.

    Mr. KIRK. We have a situation here, just two huge institutions three blocks apart, where certainly for the people of northern Illinois it would make sense that we combine their strengths.
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    My predecessor's predecessor, in representing us in Congress, is Don Rumsfeld. So when I met with him the other day, I recalled this, just a couple miles north from where he lived, and he remembered the two facilities. And I think it is a good way to go.

    We are about to get big-time, as the Vice President would say, into the pharmaceutical business, even more than ever before. We have a very large pharmaceutical purchasing operation at the Veterans Administration, and a slightly smaller one at DOD. What about combining those two operations as well?

    Admiral CLINTON. We have combined contracting capacities. Whether all procurement is combined into one joint service is really beyond what Health Affairs would immediately engage in, but we can certainly put it on the table. That is another construct of the Department of Defense, which does other things besides buy pharmaceuticals.

    So it gets complicated and I am not sure how much savings it would be and I think that is what we would have to argue. If you make these organizational changes, how much do you save, given the organizational change?

    Mr. KIRK. Right. It just would seem to me since we—I guess the VA runs its pharmaceutical purchasing out of the Midwest, and my understanding is the DOD does it out of Philadelphia?

    Admiral CLINTON. That is correct.

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    Mr. KIRK. But we have two large pharmaceutical purchasing operations, basically doing the same thing.

    Admiral CLINTON. Similar things.

    Mr. KIRK. Right. So it would make sense to combine them since we are all—

    Dr. SEARS. As long as it did not interfere with our readiness capability that the Defense Supply Agency in Philadelphia provides for us. The go-to-war sort of capability and the overseas capability that is critical to the Department of Defense, that would have to be kept in mind if you considered joining those sorts of procurement and supply organizations.

    Mr. KIRK. Now, last, if I can indulge, what is the pharmaceutical inflation factor that you are reporting in? What do you expect in the out-years?

    Admiral CLINTON. Which factor?

    Mr. KIRK. In the price rise for the pharmaceuticals that you will be purchasing now in much larger quantities, what is your assumption in the cost growth? Is it the same that HCFA would use in its consideration of a prescription drug benefit or is it—

    Admiral CLINTON. I think we always turn to HCFA, which keeps the national accounts on expenditures for America in general, not just in Medicare, to look at that. But every other paper issue is 12 to 15 percent pharmaceutical growth for America. There would be no reason for us to think that ours would be substantially different.
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    One of the difficulties is that the majority of drugs that we consume are not generics. They have been invented and marketed in the last few years. Therefore, the price is very high. That contributes considerably to the cost of pharmaceuticals today.

    Mr. KIRK. Is there any difference between the formulary of the VA, HCFA, the DOD, and now TRICARE For Life?

    Admiral CLINTON. The answer would be absolutely yes. HCFA doesn't have a formulary per se, but we will put that aside. The two delivery systems, VA and DOD, have strikingly different populations, so our formularies would be different and they should be different.

    Mr. KIRK. But your population is going to begin to look a lot like the VA's population.

    Admiral CLINTON. They don't have children. They don't have as many women. They don't have as many young families. So there are striking differences. I think it would be clinically quite constraining to say that we had a common formulary.

    We can make an awful lot of accommodations and collaborations. Let's make that part work. But to force a VA beneficiary formulary and a DOD formulary would simply make us have to go through all kinds of workarounds and I don't think that is your intent. You are looking for the best efficiency and I think we are obligated to show you how we make that work. And we will do that.
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    Mr. KIRK. Thank you. Mr. Chairman, I think for the coming bill, looking at the Nellis-Kirtland approach in cooperation with the Veterans Administration, I think is the way we want to go. Thank you, Mr. Chairman.

    Mr. MCHUGH. Well, I commend the gentleman for his courage, in light of it is in his district, and I wish him well.

    Mr. KIRK. Great. [Laughter.]

    Mr. MCHUGH. Thank you all very much for your patience. You have been very gracious with your time. We are approaching two hours now and we are very appreciative of your responses.

    I would say, and I thought the experience was somewhat unique, and it turns out from the observation of others that I am correct, that the level of cooperation across your various regions of responsibility is, fair to say, remarkable.

    And Congress did hand you a very, very significant challenge. Not to say that there aren't and there will not be further problems, but speaking for myself, I have been very impressed with your devotion and dedication and carrying forth with this. And you have our thanks and our appreciation as well.

    So thank you.

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    I would say we do have a number of other questions that, with your forbearance, we would submit and appreciate your response in writing so that we can complete the hearing record on this as we go forward. Thank you all very much.

    We would recess the first panel and request, as they make their way out, that the members of the second panel please join us at the front table.

    Mr. MCHUGH. I thank the three of you for your patience. And we deeply appreciate your sticking with us and, of course, your being here at all.

    I have, as I mentioned, read all of the testimony, and yours included. And let me say, just from the overview, all of us on this subcommittee are very appreciative of the work you do, certainly as it relates to this challenge, a happy one though it may be, of establishing the pharmaceutical benefit and the follow-on TRICARE For Life, but more than that, the efforts that you make through your organizations each and every day on behalf of the military community.

    Several military interest groups support active duty and retired personnel and their families. Two umbrella groups represent most of these organizations. The National Military and Veterans Alliance and The Military Coalition are the voice for all military personnel and their families. These two organizations, and many others, worked hard for the successful enactment of these new benefits. And I know we are all appreciative of the very, very important effort that you played in making this new program a reality.

    As I did on the previous panel, I will begin on my left, the subcommittee's left, working to the right. And we are pleased to be joined by Mr. Charles C. Partridge from the National Military and Veterans Alliance; Ms. Sue Schwartz, who is co-chair of the Health Care Committee of The Military Coalition; and Mr. Michael Lord, who is the other co-chair of the Health Care Committee, Military Coalition.
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    So as I mentioned, thank you all for being here. And we are anxious to hear your comments.

    Mr. Partridge, we would be happy to start with you.


    Mr. PARTRIDGE. Thank you, Chairman McHugh, Mr. Meehan, Mr. Thornberry. We appreciate the opportunity to testify.

    The National Military and Veterans Alliance represents 23 military and veterans associations totalling some 3.5 million members. Our top priority over the past few years has been military health care and the pharmacy benefit, restoring the health care promise.

    And we want to thank you and the members of this committee for leading the fight, in the House and in conference, to restore the benefit and make it permanent. It would not have happened without this committee's aggressiveness in pursuing this goal. And we very much appreciate it.

    We also want to thank Dr. Jarrett Clinton and his team in Health Affairs, and Dr. Sears and Admiral (William) Cowan. They began work on implementing this legislation before the ink was dry, literally. And they involved us and they have involved other retirees in an unprecedented way to help design and implement the law. And we certainly appreciate that. And since you have my statement, I won't go over all of those issues. I would like to hit a couple of them, and I am sure my companions here will hit the rest.
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    But the funding issue, $1.4 billion is a major issue. We are aware that Senator Domenici has begun to work on it. And what it means really is that health care has been underfunded over the years. And the color chart that is with your testimony will show the degree to which it has been underfunded, and particularly the two red lines. Because that, in effect, represents deterioration of the Military Treatment Facilities and a lot of other shortages. And the rebuilding is going to have to start, and we certainly would like for it to be as part of the top line of the budget in the budget resolution rather than scrambling for the money once the defense budget has been set.

    The Part B problem. We are going to have some people who can't participate because of the Part B problem. And the Health Care Financing Administration representative made it clear that you can sign up easily for it. But a person who was getting their care in an MTF and the MTF closed under the base closure system and they had failed to sign up, at $50 a month and a penalty of 10 percent per year for every year that they didn't sign up, that is going to be a significant penalty. And we have some proposals in the testimony that we would ask you to look at.

    Another issue we are concerned about, we believe in, to misquote Ronald Reagan where he stated,''Trust, but verify,'' we believe in,''Trust, but have a backup plan.'' And we like the idea of having FEHBP out there as an option for several reasons, one of which is the best patient bill of rights is a good fee-for-service plan. And we believe FEHBP is probably the closest we will come to a true fee-for-service plan that might be available to us.

    It is also very popular in Puerto Rico. The demonstration that was conducted that included FEHBP has taken off like gangbusters down there. And initially, we would like to see the demonstration extended. And let's keep it for a few more years, as we work through TRICARE For Life.
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    And as the only Medicare eligible person at this table, I would like to mention briefly the claims processing. Claims processing with Medicare is straightforward, easy, fast. There is never an argument. The doctors don't like Medicare—the rates particularly—but they seem to like the claims processing system.

    And we are concerned that the claims processing in the TRICARE For Life be as smooth and easy as that. And that will certainly add acceptability to the program and make the program go smoothly.

    And one other point I would like to make is on the DOD Medicare eligibility retiree health care fund that comes into place on 1 October, 2002. This is our trust fund. And there is discussion on how that fund is going to work. And we would just like conceptually for the fund to vest in the individual.

    There is some discussion, I think, as to whether that truly will happen. And we are not talking about the money go to the individual or even a voucher go. But if it vests in the individual, then wherever that individual gets care, that is where the money goes. If they get care in the MTF, then we believe the MTF ought to be paid, and, of course, if they use a supplement downtown, then those should be paid.

    And we believe that is the best way to ensure that the retirees are welcomed whether they ultimately get their care.

    Thank you very much, Mr. Chairman.
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    [The prepared statement of Mr. Partridge can be found in the Appendix.]

    Mr. MCHUGH. I thank the gentleman. Our next panelist I introduced as Ms., and she is, but she also is Dr. Schwartz. I apologize for that oversight—a hard-earned title that you deserve to be referred to by. So, Dr. Schwartz, thanks for being here.

    Dr. SCHWARTZ. Thank you. Only my mother calls me ''doctor,'' but that is okay.

    Mr. MCHUGH. She has every right to. I won't tell you what my mother calls me. [Laughter.]

    Dr. SCHWARTZ. Mr. Chairman and distinguished members of the subcommittee, along with Commander Lord, I would also like to express The Coalition's profound gratitude to you for authorizing TRICARE For Life, the most significant retiree benefit improvement in decades. We appreciate the opportunity to present our views for the subcommittee's consideration.

    First, we want to acknowledge that there has been excellent collaboration between OSD and beneficiary groups. And we appreciate the Department's strenuous efforts to implement the new benefits as quickly and as smoothly as possible. Still, there are some important implementation concerns we wish to bring to your attention.

    There are two themes that have permeated discussions with our members: first, will doctors be more willing to treat TFL patients than they have been willing to treat TRICARE patients in the past; second, will TFL be as good as or better than their current Medigap policy?
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    Timely and hassle-free claims processing is the linchpin to the success of TFL. The beneficiary expects that when they go to the doctor on 1 October, their doctor can submit one claim to Medicare and expect to be paid promptly by both Medicare and TFL, without any extra paperwork on the part of the patient or the doctor.

    This high standard can and must be met if we are to maintain the confidence of the beneficiaries, encourage providers to treat TFL patients, and avoid administrative and financial worries by either party. Since Medicare will have already adjudicated all TFL claims, DOD is seeking to expedite automatic claims processing and eliminate any beneficiary claim-filing requirements.

    DOD intends to accept Medicare credentialing where Medicare and TRICARE have the same requirements, so if Medicare pays the doctor, TRICARE will also.

    This is a critical issue, and we are pleased at this beneficiary-friendly approach. But where TRICARE and Medicare standards are not the same, i.e., physical therapists and others, DOD may require extra credentialing documentation from the provider. The Coalition believes that these credentialing differences should be reviewed to ease administrative requirements that will complicate care delivery for beneficiaries. Should problems arise from this process, The Coalition would urge the subcommittee to amend the statute to deem all Medicare-approved providers as TRICARE-approved providers.

    The Coalition remains concerned about provider education. We continue to hear our members' concerns that their doctor refuses to participate in TRICARE Prime or Standard. Overcoming this problem will require an aggressive education campaign to persuade providers to treat TFL patients without charging them up front for services. We have partnered with OSD to provide a conduit, both for beneficiary and provider education, but lessons learned from the previous test programs have taught us that the elderly will require an intensive education process, often one-on-one.
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    The second major concern is to reassure our members that TFL will cover at least the same health care services that their current Medigap plan covers. In our analysis, the only area where TFL falls short of the Medicare Plan F, is that it does not cover the full cost of inpatient stays beyond 150 days, or skilled nursing facility stays beyond 100 days. TFL covers 75 percent of this cost, rather than 100 percent under Plan F.

    Despite many TFL advantages, critics tend to focus on these minor disparities, even though experience indicates that less than 500 beneficiaries per year would need either type of extended care. It would cost less than $1.5 million per year to eliminate this small, relative disadvantage for TFL that would impact less than 1 percent of all beneficiaries.

    The Coalition urges the subcommittee to support this very modest investment. It will pay large returns in beneficiary goodwill and eliminate skepticism that somehow TFL doesn't measure up to their current Medigap plan.

    Mr. Chairman, distinguished members of the subcommittee, in closing I thank you for this opportunity to present some of The Coalition's views on this critical program and I will turn the second part of our statement over to Commander Lord.

    [The prepared statement of Dr. Schwartz can be found in the Appendix.]

    Mr. MCHUGH. You have just been introduced.

    Mr. LORD. Thank you, Mr. Chairman.
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    Mr. MCHUGH. Thank you for being here, Mr. Lord.

    Mr. LORD. Thank you, sir, and Mr. Meehan. Thank you for the opportunity to address this subcommittee today on the implementation of TRICARE benefits for Medicare eligible uniformed services retirees. I am really pleased to be able to join Sue and represent the 5.5 million members that are served by The Military Coalition.

    In a classic example of actions speaking louder than words, the National Defense Authorization Act for Fiscal Year 2001 proclaimed in the most effective way possible that Congress really does put people first and that it did indeed view the fulfillment of a commitment of lifetime health care as a top priority.

    Congress responded to a situation that needed a solution in a way that exceeded the hopes of even the most optimistic among us. On behalf of our grateful beneficiaries, we say thank you for making a difference.

    We are grateful, too, to Dr. Clinton and his team. As he mentioned, the collaboration we have had with the Health Affairs team and the TRICARE Management Activity staff to develop plans for the implementation of the new benefits have been outstanding. And we elaborate further on this in our written statement.

    No doubt all of us, Congress and beneficiaries, would like to view last year's legislation as a solution to a major problem and move on to the next pressing issue. And while The Military Coalition is optimistic that the solution has been identified, we can't ignore a couple of clouds on the horizon.
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    Just as last year's legislation has given us much to be grateful for, it has also presented a major challenge. It is a simple fact that the provision of health care does not come without cost, and it is the issue of funding the benefit that has us most concerned. We are grateful to hear our concerns echoed by Mr. Meehan in his opening remarks and several of the members in their questions.

    Rising health care costs are not unique to DOD. Nationwide, premiums for health insurance have outpaced inflation. The program that has been held out as a model, the Federal Employees Health Benefits Program, has experienced a 10.5 percent increase overall in 2001.

    In addition to providing traditional benefits, DOD must now administer a number of over-65 health care benefits to some 1.5 million new beneficiaries. This comes with a price tag and the bill will come due quickly.

    Along with this current reality is a long history of funding problems experienced by the military health system (MHS). As you well know, the MHS has, for the last two decades, been plagued with annual budget underestimations that have left significant portions of the program underfunded.

    The consolidated Defense Health Program, in existence since 1993, has experienced shortfalls requiring supplemental funding every year since it was created. The understated budgets have often been addressed by reprogramming funds from the military departments, supplemental appropriations from Congress or internal adjustments in the DHP, and all of this before the introduction of an additional 1.5 million Medicare eligible beneficiaries.
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    We are already hearing concerns expressed by some that the new over-65 benefits are too costly and should have better thought out before being enacted into law. But that isn't the issue. The fact is they were thought out, enacted only after years of discussions between beneficiary groups like ours and Capitol Hill, followed the implementation of demonstration programs and analysis by numerous government and private entities.

    In addition to being the right thing to do, providing health care for current employees, family members and retirees is simply the cost of doing business in the 21st century. And it is especially critical for DOD as a key recruiting and retention incentive.

    Because the health benefit is so critical, it can't be allowed to founder because of lack of funding.

    It is our hope that the over-65 provisions enacted by Congress will serve as a much needed wake-up call that quality health care comes at a cost and will finally force all parties to accept the reality that the cost must be identified accurately, up front and funded completely.

    In this regard, we urge you to work with your colleagues on the Budget and Appropriations Committees, along with DOD, to help them accurately project health care costs and to bring an end to the cycle of funding shortfalls.

    There are a couple of additional issues that we have included in our written testimony for your consideration, but in the interest of time, I won't go into detail here. I would like to just mention two of them before closing.
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    First, we address in our statement the issue of Medicare Part B penalty and present a proposal for addressing the issue for both stateside and overseas beneficiaries. We believe we have an equitable solution to a problem that could be enacted within the jurisdiction of this committee, which would satisfy our concerns and those expressed today by members of this committee.

    Second, we address a troubling item in the President's budget that would force DOD beneficiaries who are also eligible for VA medical care to choose between the two options. It is our view that service-connected disabled veterans, many of whom require the specialized care available in the VA health system, should be able to access the benefits that they earned both in the VA and the DOD systems.

    Mr. Chairman and Mr. Meehan, I would like to conclude by observing that last year the 106th Congress did the right thing by fulfilling health care commitments made long ago. Before closing the book on the over-65 health care issue, however, we urge you to write one more chapter. The chapter must squarely face the issue of funding; and that being the funding necessary to deliver the benefits that have been promised to all DOD beneficiaries.

    This concludes my statement. Thank you, sir.

    [The prepared statement of Mr. Lord can be found in the Appendix.]

    Mr. MCHUGH. All right. Thank you, Commander. And you raised some very salient points.
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    I hope the subcommittee has expressed its concern on the fact of the cost of these programs, where the money is ultimately going to come from. Because it not only impacts directly our ability to provide the promise that we have made under these programs, there is a potential to have a derisive effect upon readiness and the other military care programs that we are equally concerned about. So the challenge is a significant one.

    All of you in your written testimonies made a series of very helpful recommendations, some of which you have outlined here today. I was curious, though, have you had a chance to cost out, either in total or line-by-line, what those recommendations' price tags may be? And Colonel Partridge, I would start with you.

    Mr. PARTRIDGE. Well, I think the major point that—but to answer your question, I haven't taken it line-by-line and costed them out. But I think probably the one I should probably address here is the Federal Employees Health Benefits Plan because people say we can't afford it.

    Mr. MCHUGH. Right.

    Mr. PARTRIDGE. But now that this TRICARE For Life has been enacted, the cost of TRICARE For Life versus FEHBP, I understand, is essentially a wash. So if someone did take FEHBP, that would be that much more money you didn't have to spend on their care somewhere else.

    And since FEHBP is an expensive program for a beneficiary, especially a military person whose average retired pay is $16,000 a year, they are not going to take it lightly. So it would only be used if the program they were in was just not working. So my answer to that would be it would be a wash.
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    Mr. MCHUGH. Yes, there does seem to be, when these demonstration programs are established, the number of projected enrollees was far higher than what has actually occurred. You mentioned Puerto Rico. It is very popular there, probably for obvious reasons. But I suspect, as I think you are suggesting as well, the cost estimates that are being associated with an expansion of it may be somewhat overstated.

    But Dr. Schwartz or Commander Lord, have you had a chance to cost-out the provisions that you have laid forth here?

    Dr. SCHWARTZ. Yes. The suggestion that I mentioned in my oral testimony on the skilled nursing facility (SNF), care greater than 150 days and the inpatient days, that is based on extrapolating data from The Retired Officers Association (TROA). TROA insures 150,000 of this 1.4 million population, which is roughly over 10 percent of the population.

    Last year, in TROA's experience with Seabury & Smith, who is the insurer, for those Medicare eligible retirees with inpatient days exceeding 150 days, only five of 150,000 beneficiaries exceeded that. So if you extrapolate it and multiply it by 10 percent and their $3,000 catastrophic cap, this is what the beneficiary would be liable for. Because once the beneficiary spends the $3,000 out-of-pocket, then TRICARE is going to pick up 100 percent anyway. So that would come to $150,000 a year based on that math. Now, you need actuaries and statisticians, but, you know, 10 percent is a good population, good chunk for a sample size.

    For SNF care greater than 100 days, 31 of 150,000 beneficiaries exceeded that limit. And then you multiply that by the $3,000 and that comes to $93,000. Combining those two together, it is roughly, like, $1.4 million.
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    And the key to this is the beneficiaries out there are scared. They are scared to give up their Medigap plans. They are very fiscally conservative. They fear for their health. And sometimes we even find ourselves arguing with them that,''Yes, you can drop your Medigap plan.'' So if the beneficiary can't conceive that their chance is less than 1 percent, they are so fearful, that we want to assure them that this is as good as Plan F, if not better. So that is our point, sir.

    Mr. MCHUGH. Right. I appreciate that. And the record should show that, as to the cost projections you just spoke to us about, they are in your prepared testimony, which I did read. But I wanted to provide both of you with that opportunity to get that out on the record.

    Dr. SCHWARTZ. Yes. Thank you for that opportunity.

    Mr. MCHUGH. I was surprised at the numbers and the relatively small numbers that this potentially could impact.

    Dr. SCHWARTZ. Right. Well, if I may put my nurse's hat on for a minute too, sir, it would be very difficult for a patient, in today's managed care environment, to be hospitalized for greater than 150 days. They would have to be very sick, because Medicare has a very strenuous diagnosis related group (DRG), program. And to be able to remain in an inpatient facility greater than 150 days, from my clinical experience, that is very minute.

    The second issue is the SNF care greater than 100 days. When you are in a SNF facility, you have to be making progress toward goals set, otherwise Medicare doesn't pay. So I think people start to get confused with custodial care, long-term care, nursing home care. So that gets into the mix, which is another conversation.
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    Mr. MCHUGH. It clearly does, though.

    Dr. SCHWARTZ. But to the beneficiary, they don't understand that. So that is why we wanted to make that particular clarification.

    Mr. MCHUGH. Appreciate that. I think in my limited knowledge at this point, that most of the suggestions you made probably fall under the purview of the Congress. But there may be some opportunities, and maybe the skilled nursing facility is one of them, where it could be negotiated. Have you explored any of these with your friends on the first panel as to their potential achievability without legislative action? Or has the conclusion been reached that all of these would take a Congressional action?

    Dr. SCHWARTZ. Our testimony today, essentially the points of it, we have presented to Dr. Clinton for discussion. We meet at certain levels. We meet on the working group biweekly. And then some of us, the leadership of The Coalition and the Alliance, meet with Dr. Clinton on a micro level also. We have brought up that. We have not had in-depth discussions with them at this point.

    Mr. MCHUGH. Well, you have a lot of other items on your plate.

    Dr. SCHWARTZ. Yes. But after April 1, maybe.

    Mr. MCHUGH. Okay. The mere point I wanted to make is as you go forward and if and when the opportunity presents itself for you—the two sides—I don't like using that because you are both on the same side.
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    Dr. SCHWARTZ. No, no. It is not. No, we are all on the same team.

    Mr. MCHUGH. But the two parties, shall I say, the two parties, to discuss those further. We would appreciate being informally updated on that.

    Dr. SCHWARTZ. The second issue, that we won't discuss today but we would like to bring to the attention of the subcommittee, is the issue of custodial care. And we didn't want to get into that at this point. And Dr. Clinton has committed to us that at some point we are going to look at it in greater depth.

    Because if you look at the custodial care benefit that we don't all, in all honesty, that we don't all understand all that well, it hasn't worked for the under-65s, it hasn't worked for the children. And now we are going to this 1.4 million population that consumes the largest amount of health care dollars. So we have a concern from that and we would like to address that at a later time. But we would like the record to reflect that concern.

    Mr. MCHUGH. Well, I appreciate that. And I thank you for doing that. And obviously that will be a big concern that we want to work with you to pursue.

    Mr. Meehan.

    Mr. MEEHAN. Thank you, Mr. Chairman. And thank all the panelists for their testimony.
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    In your written testimony, you indicate that the military retirees over age 65 shouldn't have to pay their Part B premiums because they cannot use their Medicare benefit. Would you require these retirees to pay the same TRICARE premiums as military retirees under age 65?

    Mr. LORD. Yes, we would, Mr. Chairman. And that, we think, is the solution to this penalty problem. There would still be costs imposed on these folks, but they wouldn't be those potential 10 percent per year into very large numbers, doubling and tripling in some cases, the annual Part B costs.

    So we think that it is the solution. Of course, it wouldn't need then to go to Ways and Means. It is a jurisdictional issue for this committee, which we think is probably the easiest solution to the problem.

    And in answering the question that Mr. McHugh asked, have we costed that? We have not. But we believe about 6 percent, and no more, than the 1.5 million beneficiaries are probably falling into that category.

    Mr. MEEHAN. Great. Thank you. We always look to avoid Ways and Means wherever we can. [Laughter.]

    Dr. SCHWARTZ. We share mutual goals, Mr. Meehan.

    Mr. MEEHAN. Thanks, Mr. Chairman.
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    Mr. MCHUGH. We only rented the room until now. There is another hearing coming.

    Let me just throw out generically—we will pay a few minutes of overtime—you sat and listened to your partners in the first panel. Is there anything you heard them say or state that you would like to respond to or add to or, if it is appropriate, take issue with? I am not trying to set them up. But there was such a wide range of discussion that we could be here all day just trying to narrow in, if that were the case.

    Mr. LORD. I could respond to that, Mr. McHugh. Every year we hear the comment, which they have to make, about this fully executable budget. And,''We can do what we need to do based on the money that we are given and that we are talking about.'' Then every year it becomes a problem.

    They are indicating it is being worked on, but we hear that every year. So I guess I am a little skeptical. And, of course, Dr. Clinton and his team can say what they can say because they are limited in their comments. But I definitely take that with a bit of grain of salt that this is going to be worked out; it would be certainly a change from past practice.

    Mr. MCHUGH. Well, you raise an interesting point. And I agree with you. The folks that were kind enough to be here today are given certain areas of jurisdiction, not amongst them is the budget, and they act upon the information they believe is accurate. And I have no doubt to question their responses today were exactly that.

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    But as now a nine-year member of the Armed Services Committee, I go to sleep every night and pray to God that someday I will live in an out-year. [Laughter.]

    It is going to be a hell of year. But it hasn't come in nine years as yet.

    But with that, let me again express my appreciation to you. It has really been a remarkable exercise in cooperation. And obviously the folks that you represent are the intended main beneficiaries. They should all be very proud of the work that you did.

    I appreciated, as I know all the subcommittee members did, your gracious comments as to the actions of Congress. It was a law that we passed we are all quite proud of. You can find it on all of our campaign material, I guarantee you.

    However, without the leadership and the constant urging of organizations like yours, I am absolutely certain it would have never happened. We are deeply in your debt.

    More than that, we are looking forward to continue to work with you so that this promise that shines so brightly isn't dimmed by a failure to get it right. And I am so thrilled that everyone we are hearing from, especially the first panel and yourselves, are absolutely committed to that.

    So, with our appreciation for both being here and the effort that brought you to us this afternoon, please go with our thanks. As well I would say to you, as we did with the first panel, there may be a number of questions that we would like to submit to you for written response. And that would be greatly appreciated.
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    Also for the record, we have two statements that have been requested to be submitted, one from the Air Force Sergeants Association, and The American Legion. And without objection, those will be entered in their entirety in the record.

    [The information referred to can be found in the Appendix.]

    My thanks to Mr. Meehan, as he always is, the guy who sticks with me longest. Probably questions his sanity, but I appreciate his dedication. The hearing is adjourned.

    [Whereupon, at 4:20 p.m., the subcommittee was adjourned.]


March 14, 2001
[The Appendix is pending.]