that public programs, programs like Medicaid, the Public Health Service, the VA, are paying for prescription costs, you know, advertising. In effect, those programs end up getting shellacked, you know, twice. There are tax breaks for the pharmaceutical folks to advertise on TV. Nobody is quarreling with that, trying to take it away. But after that expenditure is made with taxpayer money, then more money gets spent for in effect like Medicaid to pay for all those purple pills, you know, dancing across everybody's television set. So we are trying to address this issue and obviously advertising increases utilization of prescription drugs and, of course, the program.

Let me ask it this way: The official sources on drug advertising seems to be that the country spends between $3 billion and $5 billion a year on prescription drug advertising. According to the bipartisan experts, after the Medicare drug benefit kicks in, Medicaid is expected to be about 10 percent of the prescription drug market. That seems to be a kind of consensus recommendation.

So Senator Sununu and I are interested and working on the language of this and would very much like your counsel so as to focus on utilization and focus on market share. It is our sense that if we do that, the government could save about $300 million to $500 million a year on Medicaid, in effect over a billion dollars over a 5year period.

Do you feel that that is essentially a reasonable kind of analysis? Mr. HOLTZ-EAKIN. Yes, given that the language was tight enough, that it could find a way to actually recoup the costs, and that we can, you know, get a sense that the numbers are on the mark. They certainly seem reasonable. Yes.

Senator WYDEN. Well, I appreciate that, and I would like to work with you on the language because I know that the way it is framed so as to focus on utilization and market share is really, really key, and if we could follow up with your technical folks. They have been very helpful to us already. This is a bipartisan bill, and I just point it out because we have Chairman Smith here, and he has done excellent work on the Medicaid program. He is trying to get $10 billion worth of savings without hurting people on Medicaid, and I would just like to make it clear for the record that Dr. Holtz-Eakin has said we could get more than a 10 percent of the savings in the target that Chairman Smith is looking at by the advertising provisions along the lines of what Senator Sununu and I have been talking about. So we will be anxious to follow up with you, and we got to figure out how to save $10 billion on Medicaid, and we all want to do it without hurting people. We just on the record a way to in the ballpark to get 10 percent of the money. That is what we ought to be trying to do is sharpen our pencils.

Chairman Kohl, I thank you for this, and Dr. Holtz-Eakin for all his analysis.

Mr. HOLTZ-EAKIN. Thank you.

Senator KOHL. Thank you, Senator Wyden. We also have with us this morning Senator Blanche Lincoln from Arkansas. Senator Lincoln.

Senator LINCOLN. Thank you. A special thanks to Senator Smith and Senator Kohl. They have been tremendous leaders in the Aging Committee, helping us focus on the important issues that

face this country, both financially as well as for all us emotionally because one of these days we are all going to be old. We are all aging, and we are grateful to both of

you.

Mr. Holtz-Eakin, we should have you as an honorary member of the committee. We have heard from you a great deal, and we certainly appreciate all the work that you at CBO have done in helping us realize that we can do a better job in administering these programs, particularly for these high-cost beneficiaries.

I would urge you to take a look at legislation I have been working on as well, S. 40, and would appreciate getting any help with scoring it. I would love to work with CBO on a way to ensure that a new Medicare benefit for geriatric assessment and chronic care management of individuals with multiple chronic conditions would save money to the program. I know in my own personal experience with my father who went through a long period with Alzheimer's, Disease with other diagnoses, I saw how important it was to have coordination of all the medical professionals, in treating his multiple chronic diseases. Fortunately for us in Arkansas, we have the Don Reynolds Center on Aging, which focuses on patients with multiple chronic conditions and management of chronic illnesses, which makes all the difference in the world. My constituents see a difference when they go from visiting six or seven different health care providers to a care team that manages all of these chronic diseases together.

You said in your report that reducing spending among the highcost beneficiaries would ultimately rest on the ability to devise and implement effective intervention strategies, clinical or otherwise, to change beneficiary use of medical services. I think that by giving an individual a geriatric assessment, which assesses a person's medical condition, functional and cognitive capacity, primary caregiver needs, and environmental and psycho-social needs would go really a long way toward reducing some of the unnecessary and expensive medical services.

I just wanted to see what you thought about that in terms of the research that you have done. Would that assessment be beneficial and could it be helpful to us in saving financial resources?

Mr. HOLTZ-EAKIN. It is on the list of appealing strategies that comes up all the time, and in that regard it always falls to me to throw a little cold water on some of the hopes. The first is that in many cases you could not see lower costs, but it would still be worth it. You know, you are paying more and people have better health for longer periods and function better in their lives. That is not a cost saving issue, but it is still a good step.

Then the second caveat I am compelled to offer is that there isn't any systematic evidence to date that we can, in any broad way, get a lot of savings out of the Medicare population from this. That doesn't mean that it isn't true. It means that, to the extent that researchers have gone and looked at to the best of their ability groups with and without these kinds of checkups or other services, you can't find a compelling scientific case that the costs are lower for the group where you have undertaken the new treatments. There are lots of reasons why that might be the case, and I would be happy to work with you on that.

But it is largely the difficulty in setting a high scientific bar in a very difficult area. Most of the studies just really aren't conclusive enough to feel confident that I could say to you, "Yes, this is a great idea and you will save a lot of money."

Senator LINCOLN. Mm hmm. Well, I am not necessarily saying that we have got to save all the money in that category, but if we can do something that actually does help us in terms of better use of our resources and providing better care, it seems to me it is a no brainer that it is something we should certainly be looking at. So you are saying that there is no conclusive studies that show that not only assessments but also the new medical physical in the Medicare program, are cost effective. Is that what you are saying? Mr. HOLTZ-EAKIN. Yes.

Senator LINCOLN. You don't feel like those produce some cost benefit?

Mr. HOLTZ-EAKIN. There are two levels to it, and I will give you a longer answer than you deserve for that reason.

The first is just at the level of the economics. Does it save money? That is the kind of question where the research is inconclusive at this point because it is difficult to actually do the experiment you would like, which is give some people the checkup, exactly identical people don't get the checkup, and then track their health care costs from that point forward to the end of their lives. Then just compare the two. That is just not doable.

So there are a whole series of halfway houses in which the scientists live that are short of that. They try to extrapolate from their experience to that experiment that we can't do, and that is just simply hard to do.

So the research, which we tried to survey pretty carefully in a letter we wrote to then Senator Don Nickles, was really about how difficult this is-to conclusively decide whether it will save money. So that is No. 1.

No. 2 is, Will it show up on the Federal budget? If this is really a good thing and it is saving money, it could be that people are doing it already. If you then put it into the Medicare Modernization Act, all you do is then cover the cost of it. You put the cost on the Federal books, but you don't get any of the savings because they were doing it anyway. So the answer is a mixture of those two things. One, would it really lower total economic costs in the health system? Two, would those costs show up in lower Federal outlays? That is why it is difficult to give really definitive answers in this area for things that are otherwise very appealing ideas.

Senator LINCOLN. Thank you, Mr. Chairman.

Senator KOHL. Thank you, Senator Lincoln. Dr. Holtz-Eakin, before we let you go, you are the director of CBO, so would you place this into context versus Social Security, the costs for which we do not have any sources of revenue over the next 50 years, one versus the other. It is our understanding that there is no comparison in terms of Medicare versus Social Security. Would you put that into context?

Mr. HOLTZ-EAKIN. Certainly. There is no comparison, and I have told many people that it is my job to say apocalyptic things about our fiscal outlook in public, and this is really how it sizes up. Right now we spend about four cents on a national dollar on Social Secu

rity, a bit above. We spend about four cents on our national dollar on Medicare and the Federal share of Medicaid. So they are about even right now. If we repeat the experience of the past 3 decades, over the next 50 years, and we layer in the demographics, Social Security will rise from 4 to about 612 cents. Medicare and Medicaid will rise from 4 to 20 cents or the current size of the Federal Government. It is not even close. The great spending pressures are in the health programs.

Senator KOHL. So of all the problems fiscally that we are facing in terms of Medicare, Medicaid, Social Security, this Medicare-Medicaid is clearly the big elephant, the 800-pound gorilla?

Mr. HOLTZ-EAKIN. They are certainly the big Federal dollars and they reflect the underlying growth of health care costs in the United States. It is not just the programs. It is the underlying health care system as a whole.

Senator KOHL. That is dramatic. Well, we thank you so much for being here. You have been really important to this Committee, and your experience and knowledge is invaluable, and we look forward to continue to work with you.

The CHAIRMAN. Mr. Chairman?

Senator KOHL. Yes.

The CHAIRMAN. May I ask one other question. In light of that and as we try to wrestle with how we get additional revenues or how we find a way to meet this obligation, the population that is using so much of the resources currently are any of these chronic conditions the result of personal choices that lead them to this, that would warrant that they bear some greater portion of their own co-pay or something like that? I mean

Mr. HOLTZ-EAKIN. The seven we looked at, I will just run down. The CHAIRMAN. OK.

Mr. HOLTZ-EAKIN. You know, they are asthma, obstructive pulmonary disease, renal failure, congestive heart failure, coronary artery disease, diabetes, and senility.

The CHAIRMAN. I am thinking of smoking. I am thinking of you know some people would say alcoholism is not a choice. It is a disease in itself. But a lot of these conditions, not all of them, are taken on by people's individual choices and that is not fair to everyone else who is making the right kind of health choices.

Mr. HOLTZ-EAKIN. Certainly, lifestyle figures in many of these chronic conditions. I think that is clear. It is not the sole determinant. But it certainly figures in that, and the degree to which those lifestyles are altered as a matter of choice would alter these outcomes.

The CHAIRMAN. Well, it seems to me people do respond to incentives, and if there is an additional incentive to lifestyle choices that like smoking, I would just I find it repulsive to say to everyone else who is making the right choices, you have got to pay for everybody making the wrong choices, and I don't know. I am just thinking out loud.

Senator LINCOLN. Can I add something to that?

The CHAIRMAN. Yeah.

Senator LINCOLN. That is why I think the screening is so important, because if it is something like alcoholism, the earlier the screening and the earlier the diagnoses, the treatment is less cost

ly. So it would seem that the screening and the other things that I think are so important, you are saying that there is not a scientific ability to be able to figure out what the cost savings would be for that, but I mean just commonsense tells you that if you can treat an ailment earlier, you can diagnose and treat it earlier, then the long-term costs are not going to be as much.

But I understand your side. I am married to a research physician, so I know there are scientific things that you have to use, but, still, I think commonsense plays a little bit in what we decide.

Mr. HOLTZ-EAKIN. I am economist by training. I left commonsense behind. I am an incentives guy.

Senator KOHL. Again, just to put this thing it its context, would you agree that looking ahead at our fiscal condition, as the director of CBO, perhaps the single most important challenge we face is Medicare and trying to contain its projected cost?

Mr. HOLTZ-EAKIN. Yes. I think that the rising cost of health care is the single most important domestic challenge the United States has today. It is very simple.

Senator KOHL. Thank you very much.

Mr. HOLTZ-EAKIN. Thank you. [The report follows:]