BRIAN LAMB, HOST: Dr. Mark McClellan, why have you decided to leave Medicare?

MARK MCCLELLAN, ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES: Brian, it’s good to be with you. First of all let me say I really appreciate your show. It gets into some – the depth on some issues that I think are really worth exploring.

A lot of things went into my decision. The main one is that I need to spend a few more dinners with my kids. They are seven years old now. They don’t remember back before I was in government and before this job at Medicare and Medicaid for the last two-and-a-half years I worked as the FDA Commissioner, before that at the White House, was even in the last administration, too. So it’s been a pretty long haul. It’s been a wonderful experience but it’s time for a little bit of a change of pace.

LAMB: When’s your last day?

MCCLELLAN: I’ll be leaving in mid October and so just a few weeks from now. We are making sure that we have a smooth transition from my time at CMS, the Centers for Medicare and Medicaid Services, to the new leadership team. We have a lot of strong leaders in the agency. I am very confident with their path forward and we’re working over these weeks to make sure that we have a smooth transition.

LAMB: And what are you going to do?

MCCLELLAN: I am still looking at options. In the short term I’ll probably be going to one or more of the think tanks in the Washington area. I was telling my seven-year-old daughter about what I’m doing now compared to life in a think tank was, oh, that sounds great, you get to go and think and write and so forth.

I think I’ll do that for a little while but I expect to move on to doing something that’s continuing to be a combination of trying to come up with good ideas and actually rolling up sleeve and implementing them to improve our healthcare systems. We’ve made a lot of progress but there’s still certainly a lot more work to be done.

LAMB: Before we head into the issues on this, I want to go back over again the jobs you’ve had. You were – you headed up Medicare for the last two years?

MCCLELLAN: About two-and-a-half years, that’s right.

LAMB: You were commissioner of the Federal Drug Administration …

MCCLELLAN: The Food and Drug Administration …

LAMB: Food and Drug Administration, excuse me.

MCCLELLAN: … from late 2002 through early 2004.

LAMB: You were a deputy assistant secretary of the Treasury for Economic Policy under the Bill Clinton administration.

MCCLELLAN: That’s right and between there I was a member of the Council of Economic Advisors. I started there early in this administration under President Bush and while I was in the White House I also coordinated a lot of the healthcare policy for the administration for its first couple of years.

LAMB: Go back to the education, you got a lot of it. Start with your undergraduate degree, where did you get that?

MCCLELLAN: Well, I’m a fourth-generation Texan so I went to the University of Texas like my parent, grandparents and so forth. I did my graduate training in Boston. I went the Harvard Medical School and did a Ph.D. in economics at MIT and that was not a plan going in, things just kind of worked out that way. Went on from there to do my residency training in internal medicine and then I moved to Stanford University where I was on the medical school faculty and also the faculty in the department of economics. And tried to do a combination of working on ideas in healthcare policy but also practicing medicine and making sure that I was up to speed on what really is happening in our healthcare system. I think it makes a big difference when we’re trying to do healthcare policy here in Washington and make sure we don’t lose touch with the doctors and the patients that are really affected by all the things that we do here.

LAMB: So explain how you were to do Harvard and MIT when it came to medicine and economics?

MCCLELLAN: Well, that wasn’t the plan. Most people in my family are in either law or politics or both. I wanted to go to med school to do something that was a little bit of a change of pace. And I had started out intending to go into medical research after spending a little bit of time working in the labs though it was pretty clear that I wasn’t cut out for being that far away from patients and that far away from having a direct impact on people’s lives.

And one thing led to another. I had a lot of background in statistics and some of the mathematical techniques that are very helpful in thinking about healthcare financing and other types of complicated statistical and medical issues and that’s what led to the combination with economics.

LAMB: Did you – were you able to do both the Ph.D. and the MD degree at the same time?

MCCLELLAN: With a lot of help and sympathy from my fellow students and the faculty I spent some time doing my medical degree and some time doing my course work in economics and working on my dissertation in economics, some of one some of the other.

Actually, in many of the medical school programs today they are encouraging a combination of people getting the medical training and also get training in one or more of the sciences and in my case it was economics. But having a combination of hands-on experience with clinical medicine and understanding the underlying sciences is a good way I think to make sure that you can have a practical impact on patient care that’s very effective.

LAMB: How long were you associated with Brigham and Women’s?

MCCLELLAN: I did my residency there from 1993 to 1995.

LAMB: Did you ever practice internal medicine anywhere?

MCCLELLAN: I did. While I was in the residency that was a lot clinical work and subsequently I was on the faculty at Stanford Medical School and worked with the Stanford Internal Medicine Clinics.

LAMB: Where did you meet your wife?

MCCLELLAN: We met while we were both in Boston. She was a graduate student there as well. We had a mutual friend who set us up on a blind date, thought we’d get along because we were both from Texas. And tells you something about my social life?

LAMB: So where do you get all this interest in politics and education and all that? Where does it come from?

MCCLELLAN: Well, I think it really is part of a family tradition. My grandfather was the dean of the law school at the University of Texas for a quarter of a century. And he had a saying that he told us a lot when we were growing up and that he lived by himself which was it’s not the dollars you make it’s the difference you make. Through his example and its been handed down through my family, my mother’s involvement in politics and a lot of public service going way back in the family it’s been very important to all of us to focus on making a difference not just about making money. It’s about working together to help people’s lives improve.

LAMB: And you’re – because people don’t know how old you are they look at you and they say he might be 28 or whatever.

MCCLELLAN: I wish.

LAMB: You’re 43?

MCCLELLAN: 43 years old now, that’s right.

LAMB: In the column that Bob – excuse me – Bob Samuelson wrote about you when you announced you were going to retire from Medicare, he said that you’re not a rabid partisan. Is that true?

MCCLELLAN: Well, I like to think that with the academic background and focusing on the ideas that that’s the best place to start in policy. Now a lot of the ideas that I support are ones that republicans have been very comfortable with but also that democrats have been. A lot of the ideas that we’re implementing now in Medicare started out with some work that I did in the Clinton administration, and with people in the Department of the Treasury under Secretary Rubin, and previous White House Gene Sperling, Chris Jennings, and others who were working on healthcare issues then.

I like to think that if we can focus on good ideas we can find a way to get both parties together on moving our healthcare system forward.

LAMB: So what do you tell your daughters?

MCCLELLAN: I …

LAMB: What do you tell your daughters about the future when they’re our age – your age not mine – actually my age, frankly, will they have Medicare?

MCCLELLAN: I haven’t talked to them about the specifics of Medicare. We talk a lot though about the importance of public service. In fact, a few years ago soon after we’d moved to Washington, the girls were just three, my wife came home, they were playing downstairs, they had arranged all their Barbie and princess dolls in a circle and my wife asked them, ”So are you all having a tea party?” And one of the girls looked up and said, ”No, mom, we’re having a town meeting.” That’s what they really focused on I think in growing up here is the importance of getting involved and finding out about public policy issues. That’s a family tradition that we very much want to continue.

As far as Medicare goes we do need to keep working on making sure that the program is sustainable. While I’ve been here at the Medicare and Medicaid programs we focused on two ways to do that. Number one is to make sure that we’re spending the dollars in Medicare and Medicaid as effectively as possible and there have been really some transformations in the Medicare program I’ve been a privilege to be a part of over the last couple years. And big change is happening in Medicaid as well.

But we’re also taking steps to recognize that to keep the program financially sustainable for the future we need to bring in some other sources of private funding for people who can afford to pay. And next year we’ll be implementing for the first time ever a premium for Medicare services in which the wealthiest four percent of beneficiaries pay a bit more for their services. They still get a subsidy but we’re trying to move towards a more sustainable financing system for the program as well.

LAMB: Go back to Part A of Medicare, who pays for that?

MCCLELLAN: Part A is funded by a payroll tax that people pay through their working lives and that goes into Medicare Hospital Insurance Trust Fund, that’s the trust fund that you hear about every spring when Medicare trustees’ report comes out and says that we’re headed towards financial insolvency for the Medicare Hospital Fund. Right now the projected date is still a decade or more away but that’s not that far. We need to make sure we’re taking steps to make Medicare more financially sustainable.

LAMB: Let me ask you this, though, what is it, 1.45 percent …

MCCLELLAN: That’s paid by the employee, another matching portion paid by the employer. So it’s 2.9 percent overall on all affected payroll taxes.

LAMB: So every dime you make you’re going to pay that kind of tax on?

MCCLELLAN: Yes, and there’s no income limit so this goes – this adds up to a lot of money every year but still it’s not enough under the current way that we’ve got Medicare set up to make it sustainable for the long term. And that’s why we need to take some of these further steps to improve Medicare’s sustainability.

LAMB: When was that tax raised last time?

MCCLELLAN: The tax was last raised in the early 1990s and that did improve the financial outlook for the Medicare program. Really the main thing that had happened then, about 15 years ago, was raising the cap so that there is no income limit subject to the payroll tax does not run out regardless of your income.

LAMB: And that’s – excuse me – that’s for hospitalization?

MCCLELLAN: That’s for hospital care and it also covers now some alternatives to hospital care like home health services. If you can – idea is if you can support services that people can get in the home when they’re recuperating they can get out of the hospital sooner and that can save money and improve quality.

LAMB: The Part B, where does the money come for that?

MCCLELLAN: The money for Part B comes from general government revenues. It’s financed 75 percent by general federal tax revenues and it’s financed 25 percent by premiums that beneficiaries pay. So all of our beneficiaries have a Part B premium that they pay each year. And we know we pay close attention to that because the costs of Part B translate directly into the cost that beneficiaries have to pay. And also as Part B costs rise it becomes harder and harder for the federal government to pay for all those services and pay for our other important national priorities. And that’s another reason why we need to keep working on the sustainability of the Medicare program.

LAMB: Go back to the trust fund you have on Part A, is there anything in it?

MCCLELLAN: It’s an accounting construction but it does direct in an accounting sense the dollars that are raised through payroll taxes to the use of Medicare services and Part A. And as part of what’s known as a pay-as-you-go system so the payroll taxes are raised and they’re used to finance in part the benefits that people are getting today. And because in recent years the payroll taxes have been a little bit bigger than the spending in Medicare Part A some of that money has gone into this trust fund but it really is just an accounting structure for tying the tax payments and these payroll taxes to the spending in Medicare Part A.

From the standpoint of overall government spending the main thing that we’re concerned about is the total obligations of the Medicare program under Part A, Part B, Part C and Part D and the sources of those obligations. Most of those – or the sources of payments for those obligations. Most of those payments are coming from federal general tax revenue so aside from the issues with the Medicare Part A trust fund and its projected insolvency in the next decade, there also are concerns about the rising general revenue demands of the Medicare program.

And again, that’s why we want to take these key steps, number one, make sure we’re spending the dollars more wisely and there are a lot of things we can keep doing to make progress on that; and number two, make sure we’ve got a sustainable financial arrangement where we’re not paying subsidies that are too too large to the wealthiest beneficiaries, where we have taken other steps to keep Medicare costs down in the long term.

LAMB: How many people work for your outfit?

MCCLELLAN: My organization has around 4,700 employees nationwide. They are busier than ever. They oversee the programs that make us the largest healthcare payer in the world between Medicare and Medicaid, spending about $600 billion on healthcare and we’re providing health insurance for around 90 million Americans. And these are not just any person, these are the people who can get the most out of our healthcare system, our seniors, people with disability, people with chronic diseases, many low-income children and families.

LAMB: This morning in the Washington Post when we were taping this is this page three story, I’m sure you’ve seen it.

MCCLELLAN: Well, we have a story in the paper almost every day.

LAMB: ”Millions of seniors facing Medicare doughnut hole.” That’s the Part D, the doughnut hole has come at this stage in the year because of what?

MCCLELLAN: Well, the – let me just back up a minute and let’s talk about Part D, that’s that fourth part of Medicare. So we talked a little bit about A, B and C, let me spend a minute talking about Part D.

This is new prescription drug coverage that started in 2006 which filled an absolutely critical gap in the Medicare program from the standpoint of preventing diseases and spending money well. Up until now we were spending hundreds of billions of dollars, almost all of it going to paying for complications of health problems after they occurred.

As an internist, in 2006 I can tell you that that is not the way healthcare should work. We should be increasingly and primarily focusing on keeping people well and preventing complications before they happen. That’s where prescription drug coverage comes in.

Now when Congress passed the Medicare Part D legislation they were concerned about the overall cost of the program. They wanted to try to get the most bang for the buck to make the dollars go as far as possible so there were three priorities: number one was providing comprehensive drug coverage at a very low cost for our beneficiaries with limited incomes, and one in three Medicare beneficiaries gets comprehensive coverage now for little or no premium, typically pays about 95 percent of their prescription drug costs. So that people with limited means no longer have to choose between paying for their drugs, paying for other basic necessities. And it helps them stay well and it helps us keep costs down in the program.

The second priority was providing protection against very high expenses for every beneficiaries. So under the Medicare prescription drug benefit there is an out-of-pocket limit on what you pay for your medicines. This, by the way, is a new feature of Medicare. Up until now Medicare’s benefits in Part A and Part B didn’t have any catastrophic limit on how much you could spend. So even with Medicare coverage seniors typically ended up spending 10, 15, $20,000 on their healthcare if they have a very serious illness. That isn’t going to happen for prescription drugs any more because of the protection against very high expenses. Now protection accounted for some of the cost of the program.

And a third piece of coverage was assistance for every beneficiary with some of their healthcare costs. So Medicare in the standard drug benefit pays for 75 percent of the first $2,000 in drug expenses after the deductible. And it’s after that that the doughnut hole kicks in, this gap in coverage in the standard benefit between when that upfront coverage runs out and when that catastrophic protection against very high expenses kicks in.

There is some good news about the way the doughnut hole is working out. First of all, because people have had a chance to choose their coverage and because we’ve had very strong competition in providing the drug coverage, people have access to plans that cost much less than expected so they’re saving more money on their prescriptions, average about $1,200 a year for people in the program.

Second, the options include coverage that goes beyond that standard benefit designed by Congress. Now no offense to Congress but 90 percent – nine-zero percent of our beneficiaries have enrolled in plans other than that standard benefit with the standard doughnut hole and the standard deductible and the standard co-insurance that Congress designed.

People have had access to plans that fill in the doughnut hole, that fill in the deductible, that give them very predictable co-pays for each of their prescriptions. And that’s overwhelmingly what people have chosen and we’re going to have these same kinds of options available next year and we want to make sure everybody is aware of that.

As a result of the lower costs of the drug coverage with aggressive competition and price negotiation, and the fact that so many people have chosen options other than the standard benefit, the number of people subject to the doughnut hole is less than half as many as had been predicted a couple years ago when this bill was enacted into law.

And not only that, the cost of the drug coverage itself is turning out to be a third lower than had been predicted. So for all those reasons people are getting a lot more help at a lot lower cost because of strong competition, because of price negotiations, for all these reasons we’re seeing fewer people going to the doughnut hole than had been predicted.

Now just one more point about this, for seniors who are in the program or for people who are caring for or about seniors who are concerned about the doughnut hole coming up in their plan, several things people should remember. One is to keep using their Medicare drug card for their – for their drug benefit. They continue to get lower negotiated prices for their drugs even when they’re in the doughnut hole.

The second thing to remember is that they’re lots of places to go for extra help. So if you’re really struggling between paying for your drugs, paying for other necessities, we can help. There’s the extra assistance available in the drug benefit that I already mentioned for people with limited means, and also there are around 25 drug manufacturers that make most of the cost of drugs used by seniors that have assistance programs that work with Medicare’s drug benefit.

There also are a lot of state programs, foundation programs. And if you call us up at Medicare we can tell you about ways to lower your drug costs by using generic versions of your drug, which are just as safe and just as effective as the brand name, and by looking and talking with your doctor about less costly preferred brand name drugs that can save you a lot of money.

LAMB: How long does it take somebody who calls Medicare to get a voice on the other end of the phone?

MCCLELLAN: Just a few minutes. We have literally thousands of trained customer service representatives on the phones. We’ve gotten more than 20 million calls in the past year and we are tracking how we’re doing with performance on those calls. We’re seeing wait times of just a few minutes and we’re seeing very high beneficiary satisfaction rates with the service that they’re actually getting. So that’s one important place to go.

And people can also get this kind of personalized information at Medicare.gov, that’s our online Web site. And you say well a lot of seniors don’t like to go on the Internet and that’s true some don’t, more and more are. We had close to four million people enroll in drug coverage this past year online and more people signing up every day because there’s a lot you can take advantage of online now. We can give you very personalized support and tell you how much you can save by looking at generic drugs, how – what other drug options are available – drug coverage options are available, drug coverage options – that might be better for you.

We have another enrollment period coming up for Medicare Part D it starts in mid November. And we’re advising seniors right now to start thinking about whether they’re satisfied with their current coverage. The latest surveys by independent groups like J.D. Power and Associates are showing that people are overwhelmingly satisfied, satisfaction rates of over 80 percent. But if you’re not, if you’re in a doughnut hole and you don’t want it, if you’re in coverage that’s not working with you for some other reason you have an opportunity to change plans starting in November – starting in mid November – and we’re encouraging you to think about what you may want in your coverage for next year and know that you can go to 1-800-Medicare for help or Medicare.gov or one of the many thousands of partner organizations around the country. For all the people who don’t want to go online themselves, they can call us up or they can get face-to-face counseling from literally thousands of events all over the United States this fall.

LAMB: In the next couple of weeks the President calls you up and says, ”Mark, come over I want to talk to you in the Oval Office and I want you to tell me in the strongest possible terms what’s wrong with the future in Medicare and what we need to change.” What would you tell him?

MCCLELLAN: Well, I’d try to put Medicare in the context of our broader healthcare system because where Medicare goes that’s where our healthcare system goes. We’re the largest healthcare payer in this country and it’s impossible to reform healthcare to make it work better unless Medicare is part of leading the way to make it better.

And I’d emphasize two things and we talked about this a little bit before, number one is we have to take steps to spend the money better and that means moving towards more of a emphasis on preventive care not just paying the bills when people get sick; moving towards more of an emphasis on supporting the best efforts of doctors and patients and other healthcare providers working together to improve quality of care.

That’s not the way that our system has worked in the past. Up until now if a doctor orders extra lab tests or if a patient has preventable complications we pay more. And one of the things you earn in economics, right, I’ve got economic background – is you get what you pay for. What we ought to be paying for is better quality care.

So Medicare and many leaders in our private sector – health plans, physician groups, hospital groups – have been working on ways of identifying what it is that we want in our healthcare system, better quality care, preventing unnecessary costs, and paying for that. So continuing to move toward spending the dollars better in Medicare and in our healthcare system is really essential.

By some estimates 30 percent of healthcare spending or more goes for services that are used inappropriately, goes for medical errors, goes for complications that can be prevented. We can’t afford to wait any longer to do everything possible to change the way our healthcare system works, to help patients get the best care for their personal needs the first time. So that would be a big part of what I’d talk to the President about.

And a second part is making sure we continue on the steps that we’re taking now to make Medicare more financially sustainable, steps like the income-related premium that we talked about earlier where wealthier beneficiaries continue to get a significant subsidy in Medicare but instead of 7 or $8,000 a year maybe it’s 3 or $4,000 a year. Still enough to keep them part of the program, still enough to make sure everyone is a big part of making Medicare sustainable for the long term but more sustainable finances for the long term.

LAMB: Let me stop you. Explain to the audience, though, if you – I know there’s an $80,000 figure or a married couple with $160,000 where you’d pay more. Explain how that works and when does it kick in?

MCCLELLAN: Well, Medicare’s premium for seniors next year for Part B, and so the Part B that we talked about before that’s physician and other ambulatory services, is going to be $93.50. For most people that’s $5 above where it was this year, it’s about a five percent or so increase which is less than medical inflation. And that’s because of some steps that we’ve taken and worked with physicians to take to keep overall cost down.

LAMB: That’s a month?

MCCLELLAN: That’s per month.

For people who are wealthier instead of paying just 25 percent of the cost of their health insurance in Medicare for Part B they’ll pay a larger share. They still get a big subsidy so next year Medicare will still be paying more than half of the cost of Part B services even for the very wealthiest beneficiaries but we are asking them or under this new program they are required to pay a larger part of their share of the expenses. So their Part B premiums could be $110, $130, $140 a month depending on their income. And that higher income premium starts at $80,000 for an individual and $160,000 for a couple. Altogether it’s about four percent, four percent of our wealthiest beneficiaries who are affected by the higher premium. (INAUDIBLE) …

LAMB: How high can it go? Is there a cap on that at any point?

MCCLELLAN: Well, the premium subsidies get smaller for the very highest income beneficiaries. For individuals with incomes above $200,000 and couples with incomes above $400,000 that’s about the highest level of payment under this income-related premium. But even there, those beneficiaries are still going to get thousands of dollars worth of subsidies from Medicare to continue their health insurance. We’re just trying to shift the balance to something that’s a little bit more sustainable for our very wealthiest beneficiaries.

LAMB: I want to go back to the Oval Office and your little chat with the President in a moment, but in the column that I read earlier by Bob Samuelson …

MCCLELLAN: OK.

LAMB: … he says that, ”He can” – talking about you, ”He can tell us what to do about Medicare, it’s the monster in our future.” Do you – do you agree with that?

MCCLELLAN: Well, it’s a pretty special kind of monster if it’s a monster. The thing that Medicare has helped bring to this country is up-to-date healthcare. Without good health insurance people can’t afford all of the marvels of modern medicine. And looking ahead, again speaking as a doctor, I can tell you that the 21st Century ought to be the biomedical century in this country. Our nation is leading the way in innovative treatments based on new sciences like genomics, and proteomics, and new uses of information technology, nanotechnology, where we should continue to get – just as we’ve seen over the last 50 years – continued rapid progress in improving people’s health and preventing diseases that are such a problem for older Americans today. We need to continue that.

But at the same time, speaking as an economist, we need to make sure we’re paying for these services in a way that’s sustainable for the country and that means focusing on getting here right the first time, not paying more for more complications’ not paying more when people have costly surgery, strokes, major health problems, because we didn’t have the right emphasis on prevention and personalized care. And it also means taking steps to make sure that government isn’t paying excessively for care for people who have the ability to afford it on their own. Medicare should continue to provide important subsidies for everyone but we’ve got to get to a more sustainable balance and we’re taking steps to do that already.

LAMB: What’s a – what’s a day like for you?

MCCLELLAN: It’s – no day is typical. The wonderful thing about this job is that on the one hand I get to work with members of Congress, members of the administration, members of my staff, who are all deeply committed to making our program work better and helping to improve healthcare in this country.

On the other hand I get to get out and get around the country. We’re turning Medicare into much more of a grassroots program where we interact directly with our beneficiaries, both through our regional staffs and increasingly through the thousands of volunteer organizations that we work with, seniors groups like AARP, and counseling organizations like state health insurance assistance programs, to make sure our beneficiaries connect with Medicare at a personal level.

Again speaking as a physician, you can do a lot more in preventing illness and getting to better healthcare if patients are aware and involved in thinking about their options and their medical decisions and that’s what we’re trying to do in Medicare. So a big part of my job in the last couple of years has been getting out there, hearing what’s working, hearing what’s not, telling people about the new resources we have available from places like Medicare.gov and through our 1-800-Medicare number, and through our partnerships with many, many organizations around the country, or all kinds of different political views. All with one goal in mind which is helping you get the most out of your Medicare benefits as we are turning this program into no longer being just a program that pays the bills when people get sick – we can’t afford to do that anymore – but a program that helps partner with them and their physician to help them stay well, help them take advantage of all that modern medicine has to offer.

LAMB: When are you eligible for Medicare?

MCCLELLAN: Most people are eligible when they turn 65. If you’ve been in the workforce and you develop a chronic disability that prevents you from working you can become eligible for Medicare at a younger age. About five million of our beneficiaries have – are people with a disability who are under 65. So it’s a very important program for people with a disability as well.

LAMB: You know you hear a lot of doctors today won’t treat people with Medicare payments, that they won’t take Medicare payments.

MCCLELLAN: Well, we actually – we hear a lot of concerns about that but when you track this very carefully – and there also are independent studies done by groups like the Government Accountability Office that are finding that across the country – at least right now – the vast majority of beneficiaries are reporting no problems with access to physicians in Medicare. There are some concerns about where Medicare physician payments are headed for the future and this is a good example of the right way and the wrong way to solve Medicare’s problems.

Under the current law Medicare’s payments to physicians are scheduled to go down automatically by about five percent per year because they’ve been growing rapidly in the past years. And this is what happens in healthcare when people just run out of ideas about how to solve a problem. If you can’t do anything else just cut the payment rates, try to cut the prices or something like that.

The problem with that is that it’s not sustainable. If the prices go down too far doctors will stop seeing Medicare beneficiaries, we won’t get access to up-to-date care. On the other hand, the way that we’re paying now where we just pay more and more for more services regardless of their quality or impact on patient health, that’s not sustainable either.

So we have been working closely with Congress to find a better way forward. And it gets back to the ideas that I emphasized before about identifying what is it we really want to do. I mean there are a lot of frustrated doctors out there. I used to be one of them before coming into Medicare where, you know, there are a lot of ideas that you know you could do in your practice like implement electronic heath records, or hire a nurse to stay in touch with your highest-risk patients to head off their complications before they show up in the emergency room and maybe even keep them out of your office. The problem is because Medicare pays more for more services, you know, more lab tests, more visits to the doctor, more emergency room visits, more imaging procedures, that’s what we’re getting.

So we’ve been working with physician groups to find ways to support them better so the good ideas that doctors have about how to keep their patients with diabetes from having complications and keeping their sugar under control, and watching their nutrition more effectively. There are a lot of proven effective ways to do that, we’re doing more to support that now. Or for their patients with heart problems to help them with their diet, to help them notice the early warning signs of getting into problems with controlling their – managing their breathing and keep preventing complications of their heart disease, who is complying with their medicines. That’s the direction that we’re moving.

LAMB: Who sets the office visit fee?

MCCLELLAN: Medicare sets the visit fee for people who are in the original Medicare program …

LAMB: But who?

MCCLELLAN: … Part A and Part B of Medicare. We set the rules every year according to some requirements by law set out by Congress. And there’s a very specific formula in the law that says what happens to each of our payment rates every year and we just implement that, something that’s determined by statute. And that’s why to address these problems with our physician payment system, the problem of it’s not sustainable from a cost growth standpoint, it’s not sustainable from a standpoint of providing access to quality care. That’s why we and physician groups are working with Congress to get to a better system, one that focuses on paying more for better quality care and for keeping costs down. Which doctors know better about how to do that than anybody else. Doctors working with their patients can do a tremendous amount to prevent complications and improve our healthcare system and our health. That’s what we’re going to be doing more to support.

LAMB: Let’s say I needed a heart bypass operation, does Medicare pay for that?

MCCLELLAN: Medicare pays for heart bypass operations, every other kind of surgery that a patient in the Medicare program might need.

LAMB: Who specifically sets the price for that bypass operation?

MCCLELLAN: Congress has laid out rules that determine the framework for paying for heart operations and everything else and then we issue regulations every year that implement those payment rules.

LAMB: Decided by doctors, decided by insurance companies, decided by …

MCCLELLAN: It’s decided by statute. And there are a whole lot of factors that go into influencing where the law comes out. But it is something that’s set by Congress every year because of the growing frustration with our current payment system where on the one hand doctors are finding their payments going down year by year in real terms but on the other hand Medicare spending has kept going up and up. There’s a real pressure to get to a better system where we’re paying for the kind of care that we want, preventing complications.

Let me give you an example just sticking with heart surgery. Right now if a patient has a surgical procedure, has bypass surgery and then goes on to develop complications where they’re readmitted to the hospital, or if they have to get a lot of extra imaging procedures, echocardiograms or lab tests, we’ll pay a lot more for those cases. And what if the surgeon comes up with a good idea on how they can deliver better care – remember, surgery is a team effort. It’s the surgeon, the anesthesiologist, the nursing staff, the other staff in the hospital, the people who are involved in post-acute care. Well suppose they came up with some good ideas that can help prevent those kind of complications and that can avoid duplicate lab tests or duplicate imaging procedures? What you would end up with is better quality care and lower cost. And what the surgeons have told us is that better quality costs less. But in our payment system we would pay much less in those cases because we pay by the complication, we pay by the imaging procedure.

So what we’ve worked on with many of the thoracic surgeons, the surgeons who perform these kinds of procedures, is a better approach that we want to test out now and that we hopefully can get incorporated into law where we pay them more when they are able to take steps working with the hospital and the nurses and the people involved in rehabilitation to get better results for the patients by preventing the complications that happen too often after heart surgery today and by doing it at a much lower cost. It’s a different way to pay. It’s a fundamental change in the way that Medicare works and it’s starting to happen right now. And it’s really essential for the future of the Medicare program.

LAMB: 4,700 people is that – does that include all of the operators that answer the phone?

MCCLELLAN: It doesn’t include all the operators that answer the phone. That’s our staff working in our central offices here in Washington and in Baltimore and in regional offices all over the country. In addition we also work with many insurance companies that help us with processing the claims in Medicare that doctors and hospitals and others send in for billing. And we are increasingly shifting our resources into providing personalized support for our beneficiaries, that’s those 1-800-Medicare operators, that’s the work that we’re doing through local partners like health insurance assistance programs locally, and our partnerships with many private organizations that are out there in the community that are reaching beneficiaries where they live, and work, and play, and pray. That’s the way to deliver 21st Century personalized healthcare.

LAMB: Did you say they are included or are not included?

MCCLELLAN: They’re not included.

LAMB: So how many operators do you have nationwide and who pays their bills?

MCCLELLAN: Well, nationwide right now we have several thousand operators on contract with us as we head into the next open enrollment period when people in Medicare can choose their healthcare coverage for 2007. That runs from November 15th through the end of the year and we’re encouraging people to look into their options starting next month in October to find out about whether there are better options available for them if they’re not satisfied with their current coverage.

We’ll be staffing up a lot so we’ll probably get up to six-7,000 operators then helping us with these questions …

LAMB: Who trains them?

MCCLELLAN: … from beneficiaries.

LAMB: Who trains them?

MCCLELLAN: We work with many of the nation’s leading customer service organizations that specialize in providing services for by phone for many different kinds of industries. We have an extensive training program that’s been ongoing now for years that makes sure that their operators are familiar with the key features of the Medicare program. Before anyone can start as a customer service representative with us they have to go through a full-time training course, they have to be evaluated, and then we have ongoing evaluation of all of our operators. That’s that reviews of performance that I mentioned earlier where we’re seeing satisfaction rates and accuracy rates of 90 percent plus.

LAMB: How many different offices do you maintain around the country?

MCCLELLAN: Well, these customer service representative offices are all over the United States. I’ve visited some in South Carolina, in Arizona, we’ve got other locations in Kansas, the Midwest, out on the West Coast as well. Our regional offices for the staff that are part of the Medicare program are also located all over the country. We’ve got 10 major regional offices from coast to coast and point in between. And we also have staff that fan out from there that work in state capitals, that work in other major cities to help make sure we have as much presence on the ground because that is so important to delivering personalized healthcare today.

LAMB: How many medical doctors and how many nurses work for Medicare?

MCCLELLAN: We have hundreds of professional staff that includes doctors, nurses and, increasingly, pharmacists. One of the big areas where I worked to expand our professional services was making sure we have a pharmacist in our central offices here in Washington and Baltimore and also in our regional offices all over the country become pharmacy services are now such an essential part of the program.

LAMB: So if an individual is frustrated they can’t get through on the 800 number or they don’t get – because this somewhat mind boggling when you try to deal with A, B, C and D.

MCCLELLAN: It is.

LAMB: Can you go somewhere physically and talk to a human being about all of this?

MCCLELLAN: You can and our customer service representatives have now integrated the ability to answer questions about any parts of these programs. We really are trying to get people a one-stop shop for getting all of their questions answered because that’s so important to have personalized service. We’ve got to focus on what’s best for the patient not whether it happens to be A, or B, or C or D.

Also we’re seeing more of our beneficiaries choose the Medicare Advantage health plans. These are the health plans that provide the full spectrum of coverage, the physician services, the hospital services, in many cases extra preventive benefits, coordination of care services to help people with chronic illnesses prevent complications.

They are also able to deliver the drug benefit at a lower cost because when they provide good coverage for prescription drugs that helps them keep their costs down in providing physician and hospital services because people are staying healthier. So that’s an option that more and more people are taking to get coordinated care and it saves them on average about $100 a month now.

LAMB: You know there’s a lot of talk every year about the Social Security trust fund the money there’s more money coming in than going out being used to give us, you know, an unclear picture about what the budget whether it’s balanced or not. Is there more money coming in than is going out with Medicare?

MCCLELLAN: Well, in our Part A trust fund, that’s for the hospital insurance, that has a dedicated payroll tax there is about as much money coming in right now as is going out. It’s a little bit out of balance but it’s pretty close. What’s coming in is about what’s going out in terms of payroll taxes.

But most of Medicare funding actually comes from general revenues and that’s different than Social Security. Social Security is funded entirely by a dedicated payroll tax. Medicare has a payroll tax that accounts for some of our funding but an increasing proportion of our funding comes from general revenues. And that’s why we have to look at both these financial burdens in thinking about how we make the program sustainable for the future.

LAMB: Is it safe to assume that if you got to a bad problem and in the future and you’re going to have all these baby boomers coming on line in a couple years with Medicare, that you could just up the required fee every month?

MCCLELLAN: Well, that’s further steps to increase the income-related premium would be a way to make the program more sustainable and that’s actually one of the proposals in President Bush’s budget this year is a step towards greater sustainability.

But I think we’ve got to move on two prongs. One prong is steps like the income-related premium. The other prong is recognizing that we have got to do more to pay for care that really is high quality. And we’ve got to keep taking steps like we’ve taken in the last few years to transform Medicare from a program that just pays the bills when people get sick to a partner in helping our beneficiaries stay well. By getting people involved in their care and choosing how to get their care and their coverage we’re seeing the cost of the drug benefit be much, much less than expected. The premiums next year are going to average around $24 or less, that’s 40 percent less than had been predicted just last year and that’s because people are engaged in choosing plans. It’s an effort on their part and I know early this year it was frustrating for many beneficiaries. But because they got involved they’ve been able to choose plans that they are overwhelmingly satisfied with – the satisfaction rates are over 80 percent – and the costs are 40 percent lower than expected.

That usually doesn’t happen for a government program and it’s because of the switch towards more personalized care and more personal involvement in people and getting the most out of their benefits. It saves them money, it improves our healthcare system, and most importantly, it improves their health.

LAMB: You weren’t involved in Medicare when the Part D was passed back in 2003. But a lot of people were cynical about that move and suggesting that the Republicans just wanted to run the election and they came up with the plan and they said it would cost $400 million and then after the election was over it went up to $700 million and no one paid or very few people paid attention to the doughnut.

All right, now what’s it costing this government a year now compared to what the prediction was …

MCCLELLAN: Well …

LAMB: … the $700 billion what, over 10 years or something?

MCCLELLAN: Now the costs are way back down. We actually have experience in the program that 2006 costs are 25 percent less to the government than had been predicted a year before. And that’s where that $700 million …

LAMB: Which prediction …

MCCLELLAN: … came from.

LAMB: … now, which the …

MCCLELLAN: The most recent one, the one that’s consistent with 700 billion. And not only that but …

LAMB: So you’ve lopped off 150 billion from that …

MCCLELLAN: That’s right, that’s right. And next year the costs are going to be even lower. Because of strong competition the bids, the amount of money that the plans say they need to provide coverage, is going down by another 10 percent. So by next year we’ll be 40 percent below where the projected costs had been just a year ago. So we’re way lower than that 700 billion number that you mentioned.

LAMB: We’re back in the Oval Office and the President he still doesn’t have enough from you in the way of suggest for the future. First of all, the President says everybody keeps talking about this train wreck down the road, and I know we’ve talked something about this, but is there going to be a train wreck on Medicare?

MCCLELLAN: I think if we keep taking steps now to improve the way the program works, to shift the emphasis to prevention, to get our beneficiaries more …

LAMB: How do you do that?

MCCLELLAN: … involved in their care – well, some of the steps that we’re taking already. We’ve talked a lot about giving beneficiaries personalized support to choose a health plan, to choose the coverage that meets their needs at a much lower cost than expected …

LAMB: But how do you do that?

MCCLELLAN: … that’s what …

LAMB: I mean give me …

MCCLELLAN: Well …

LAMB: Is this Part – Medicare Part C?

MCCLELLAN: It’s working for Part D already. We’re seeing much lower costs for Part D because our beneficiaries are involved in choosing their care and strong competition is working.

It also can work for Medicare Part C, people who join the Medicare Advantage plans can save close to $100 a month on their healthcare costs on average and many people are doing that. (INAUDIBLE) …

LAMB: Let me just ask you about that though. I’m – say I’m 65 years old and I want to do the Part C thing. What do I do?

MCCLELLAN: All right, you call us at 1-800-Medicare or you go on the Web to Medicare.gov or a new tool that we have, it’s called MyMedicare.gov where you can get very personalized support online based on your own healthcare needs, your own preferences about how you like to get your care. You know some of our beneficiaries they like very coordinated care. They don’t like to pay much out of pocket. They like the kind of care that you might get in an HMO. That’s great, we have those options for them.

Other people like to get much more involved in making decisions. They like to have access to any doctor or hospital. We have health plan options that meet those needs as well. There …

LAMB: Do they cost …

MCCLELLAN: … (INAUDIBLE) whole spectrum.

LAMB: … you more as an individual?

MCCLELLAN: They may cost a bit more but we can help you think about what the costs are going to be. We can give you some very personalized information about what your healthcare costs are likely to be under any of the options available in Medicare.

And this does require you to get involved or if you’re – often we hear from the adult children of our beneficiaries and they – these are people in their 50s and 60s and may have a mother in their 80s and they’re already involved in many of their healthcare decisions, they’re trying to do a lot more to help them lower costs and get better coverage and care for their beneficiaries through these kinds of tools.

So 1-800-Medicare, Medicare.gov, or going to one of the many thousands of events that are being sponsored this fall by our partner organizations are great ways to find out about how you can get more out of the Medicare program, save money at the same time, and make our program more sustainable for the future, too.

LAMB: Why aren’t you getting out of government and going to work for either a major pharmaceutical company or run a major hospital company or lobby?

MCCLELLAN: Well, remember before coming into this I was in the academic world, I was a professor at Stanford and I’m actually technically still on leave from Stanford University. They’ve been extremely patient over the past six years and going back to the previous administration the past eight years.

What I really enjoy doing is working on some of the big ideas that we can together develop to get to a better healthcare system but not, you know, sitting in an ivory tower office or something like that but also rolling up sleeves and actually implementing them, make them – making them work. That’s what I tried to do in my time in government with CMS and FDA and before that in the White House and the Treasury Department in the last administration.

I’m not sure exactly what I’m going to be doing in the future but I’m sure it’s going to be some combination of that. There are so many ways in which we can make our healthcare system work better. We’re seeing these steps towards a better healthcare system happening in Medicare, in Medicaid and in many other creative ideas in the private sector around the country right now.

I want to reinforce those efforts to get us to a truly prevention oriented personalized healthcare system because that’s the only kind of healthcare that we’re going to be able to afford in the 21st Century and that’s the kind of healthcare we need to help people keep living longer and better lives.

LAMB: Are you against lobbying eventually?

MCCLELLAN: Well, I don’t think I – I’m just not cut out for that. I’m not a – that’s not my background. I don’t want to get too far away from working on the ideas. And just like in medical practice or in going around the country talking to seniors about what’s working and what’s not, actually getting involved in implementing steps to improve our healthcare system – much more suited to my background and my preference.

LAMB: Now you’re still in the Oval Office of the President and he still doesn’t have enough information. He’s afraid that there’s still problems there that he hasn’t seen. What would you warn him about?

MCCLELLAN: The things that we’ve talked about are all very important. I think that the most important thing is that we need to keep making important progress towards improving the quality of care in this country to avoiding unnecessary healthcare costs, and keep making steps to making Medicare more sustainable from the financing standpoint as well.

Secretary Leavitt at HHS has been working with us and has helped to – has really been leading a nationwide initiative on getting better information available about quality of care and costs of care. That’s a very important initiative to continue the efforts in Medicare to transform the program from a program that just pays the bills when people get sick to one that helps them stay well – to help them get the care they need to stay well is important.

We need to do this in Medicaid as well. There are steps like that happening now. We need to keep building on them.

So this is a very important issue and one that I certainly intend to stay very much involved with in my future capacity.

LAMB: Would you recommend that the doughnut be taken away and that all those drugs be paid because the doughnut, you know, drives a lot of people crazy?

MCCLELLAN: It does but that’s why we want to make sure everyone knows that there options available that fill it in. These options cost more but compared to the out-of-pocket costs you can face with your coverage it’s still a very good deal. People who reach the doughnut hole have already gotten $1,500 worth of help and you can get a comprehensive plan for much less than the cost of paying for all those drugs in the doughnut hole yourself. And that’s something we really want people to look into and we also want to make sure that people with limited incomes know they can get very comprehensive help.

All of the specific proposals, though, to actually fill in the doughnut hole are extremely costly. The last specific proposal supported by some Democrats, you know, there’s not been any specifics mentioned this year but the last specific proposal cost most than $500 billion on top of the existing costs in the Medicare drug benefit. That’s an extremely high cost that would really substantially worsen the financial outlook for the Medicare program.

And that’s why we want to make sure people know that there are options that they have now. Even if the government doesn’t get around to spending hundreds of billions of dollars more money on this program there are many options available now that can fill in the doughnut hole that can give them much more predictable expenses at a relatively low cost – much more – much better than paying out-of-pocket for their drugs.

LAMB: You’ve had all these government jobs, what’s your philosophy about government?

MCCLELLAN: I have been extremely privileged to have the opportunity to serve in government. And there certainly are a share of frustrations, there are issues that come up, there can be a lot of politics, but I am leaving my job at CMS with a real sense of optimism about the future of this country. There are a lot of people here who on the surface and when they get on news shows – not yours but some of the other ones – they might say extreme things – but who really want to work together to make the nation’s problems better, who really are here for the right reasons.

And I’ve seen and have had the privilege of working with people who are elected, people on our staff, who are all about improving our nation and making our healthcare system work better, helping our beneficiaries improve their health. It’s been a unique experience for me and a very positive one over all.

LAMB: If you had it to do over again would you get a medical degree and a Ph.D. in economics?

MCCLELLAN: You know the combination has been extremely helpful for me in my work. And it certainly wasn’t a plan, as we talked about earlier, but having the experience on the medical side really has emphasized to me how much room there is to do more to support doctors and patients in making better decision about care and preventing medical errors, and using medications effectively in staying well and saving a lot of money and a lot of lives by delivering care more effectively.

But on the economics side you really see that you – you know, how you pay matters. And we’ve been trying hard to reform the ways that we pay to put people more in control, to give – to empower them to choose how to get their care, to choose – to take advantage of benefits that can now help them stay healthy with up-to-date care. So that combination really does matter I think.

LAMB: When you turn 65 do you have to take Medicare?

MCCLELLAN: You don’t but it’s a very good idea to do so because it’s worth at this point over $7,000 a year in health insurance coverage. You can’t get that anywhere else.

LAMB: And if you don’t take it at 65 can you do it later?

MCCLELLAN: You can do it later. If you enroll in Medicare Part B later the physician services, you will pay a little bit higher premium for it and that’s to reflect the fact that people wait until they get sick to use their insurance. We need them to pay more to make sure the insurance works for everybody.

LAMB: And if you don’t at age 65 do you still continue to pay for Part A?

MCCLELLAN: If you are still working past age 65 you’re going to continue to pay your payroll taxes on Part A services. And more and more people are doing that. We’ve got a couple million people for whom Medicare is what’s called a secondary payer. They’re primarily getting their insurance through their jobs. I want to encourage more of that. So we’re trying to find ways to make Medicare work better with existing coverage that older workers have.

LAMB: Dr. Mark McClellan who leaves Medicare as the – called the director?

MCCLELLAN: Administrator …

LAMB: Administrator?

MCCLELLAN: … director, chief, whatever you want.

LAMB: (INAUDIBLE) October 15th.

MCCLELLAN: By mid October I’ll be out. Just a few more weeks left in this wonderful job.

LAMB: Thanks for joining us.

MCCLELLAN: It’s great talking with you, Brian.