In just a few years in Washington, Mike Leavitt has already proved ready to meet whatever challenge President Bush has laid before him. When Bush needed to fill a vacancy at the Environmental Protection Agency, he tapped the former Utah governor for the post. Soon, Bush would take him out of the pot and put him into the fire, selecting Leavitt as the new Health and Human Services secretary at a time when that agency is facing one of its greatest challenges: implementing a new — and much criticized — prescription drug benefit under Medicare.

In an interview with Roll Call Executive Editor Morton M. Kondracke, Leavitt addressed many of the trials the nation will face as government and health care providers struggle with putting the drug benefit in place, battling counterfeit drugs, covering the millions of uninsured in the nation, overhauling Medicaid, giving Americans “ownership” of their own medical records and benefits, and seeking to shift the focus of both consumers and providers to prevention. A transcript of the conversation follows.

Roll Call Executive Editor Morton M. Kondracke: Let’s start with Medicare prescription drug coverage. What percentage of eligible seniors do you expect will participate in the prescription drug program in the first year?

Health and Human Services Secretary Michael Leavitt: Wall Street analysts are putting it at 28 to 30 million of the eligible 41 million. We think those are good numbers. We’re building a system that will accommodate more, but I would consider that to be a very good success.

Roll Call: The critics of the bill when it was passed said it would be too confusing, seniors wouldn’t know how to sign up, that they would be confused by multiple plans. What’s happened since the bill passed to get this thing up and running?

Leavitt: Well, we spent a year building systems and preparing. I’ve reflected back and done some study of when Medicare part A and part B were implemented. These are remarkably complex logistical setups. And it’s not going to be perfect, it’s not going to be flawless, but we’ll get it done. There’s some adjustment that needs to be done. We have lots of tools now that they didn’t have then that I think will allow us to do it even better. There will be choices. We did have to reach out and find millions of people, and not just find them, but help create a sense of understanding, and help them to a decision. This isn’t a program implementation; this is the sponsorship of a national conversation. There will be daughters that sit with her parents and help them sort through the choices. There will be doctors who will sit down with a patient and say this is a good program for you. There will be health-care workers at clinics that will do the same thing. There’ll be pharmacists at drug stores all across the country that will participate in some conversation. There will be senior-citizen centers that will help people. This has got to become a sort of national conversation. People are just beginning to hear about it. But 10 months from now, it will be on everyone’s mind, and most people in America will be conversing with us.

Roll Call: It goes into effect when?

Leavitt: We’re already beginning to assemble information of potential enrollees, particularly those that are in low income areas that we want to make certain we get all of them. We’ll begin to enroll people on Nov. 15. That coverage will actually become effective in January. The enrollment period ends May 15.

Roll Call: Everybody will have a choice of at least two plans?

Leavitt: There will be at least two — in most cases more — in every area of the country, which is a fairly significant victory already for the plan. There will also be multiple choices of drugs in every category of the formula. So what this is generating is a robust, competitive prescription drug market that has not existed before. That is a piece of this discussion that is too often missed. This isn’t just about rolling out a new benefit. It’s redefining a market, and creating a market for something that has not been an organized market. That will serve all Americans.

Roll Call: Now explain that. I take it that it will be competition then, or lower priced drugs?

Leavitt: Every one of these plans will be working to become the most efficient and to have the best deal possible, so that people will be attracted to this. In this context, what we’re doing is creating an organized market, so that people can turn to a booklet and say this plan offers these benefits, and that will just drive efficiency that may not have been in the market before.

Roll Call: Now the critics, in joining the debate on the bill, said well, some of these plans will offer a nice benefit in order to attract a customer, and then they will change the benefit, that they can drop drugs, and all that kind of stuff. Is that going to be permissible? Leavitt: Every person enrolled will be able to change plans during the enrollment period. If a plan begins to play games, markets simply won’t tolerate that. They’ll go somewhere else.

Roll Call: And can anybody switch out of one plan and into another at their discretion, or do they have a limited time?

Leavitt: They have a limited time. They can do it every year. Now there’s a group of them that can do it once a month, those that are in the lowest income categories, those that are eligible for both Medicare and Medicaid. We’re very concerned about that group. We want to make certain that in that transition no one is lost. And so we’re actually going to make an election for them if they haven’t made their own decision, and in order to give the flexibility to give them the plan that’s perfect for them, and we’ll let them change once a month.

Roll Call: What do you think it’s going to do to drug prices?

Leavitt: Probably drive prices down. It’s a robust, competitive market. It’s organized. And people do like choice, and a clear way to exercise that choice.

Roll Call: On the other hand, it will increase demand for drugs, which will drive up prices. In other words, more people will be eligible, they’re going to take part of this plan, and presumably there will be more demand for any specific drug. Are the drug companies just going to respond by making more, and therefore the price goes down?

Leavitt: I don’t think we’ve ever seen supply of a drug be constrained. I think that the supply of buyers in a competitive market will drive the price down.

Roll Call: What about the other portions of the bill, the ones that got less attention, like health savings accounts, and directives to the Medicare system to try to implement quality controls?

Leavitt: This is an important point to get. Medicare was a sea change, Medicare 2003. Because it began to focus us, for the first time, on prevention. You heard the President say … when he talked about how we are willing to spend a $100,000 on a heart operation, but we are unwilling to spend $1,000 to prevent it. That happens over and over, in category after category. By making those available, the thousand dollars of heart prescription medicine, we’re going to reduce costs in time. Now this has a price tag with it. But we’re paying $1.7 trillion for health care in America, and an increasing amount of that is prescription drugs. … Much more of health care is becoming prescription medicine, in the long run having a prevention mentality is the key to constraining health costs. It also has a Welcome to Medicare physical that hasn’t fully caught on yet, creating a benchmark. When you add a Welcome to Medicare physical, access to prescription drugs, and then health information technology to help people begin to manage their own health records and own their own health records and, again, add more to this robust health market. That’s one of the things that health care generally lacks, is a market, that’s organized, in which consumers can operate.

Roll Call: All that said, you’ve still got 45 to 50 million people in this country who don’t have any health insurance, and the cost of health care is going up at a close to double-digit rate, and various critics say … the President’s plans for this, which he’s not pushing very hard, would cover about 9 million out of the 45 million. How do you answer that kind of criticism?

Leavitt: The question of how many people are uninsured in this country is a sticky issue that probably we could spend a lot of time on, but just for perspective let me offer, the numbers do vary, I’ve seen them as low as 30 and I’ve seen them as high as 54 million. The reason they vary is because, first of all, no one knows with certainty and second of all, they’re almost always counting different things. An example: The president chose as a priority to either dramatically improve or add new community health systems in 1,200 communities, focusing on the poorest counties. We will serve 16 million Americans in those community health systems, and none of them are counted among those who are insured. They have health care, but they don’t have an insurance card. So where do you count them? Same is true with the Indian Health Service; we serve nearly 4 million Native Americans in the Indian Health Service, but none of them are viewed to have insurance. I think that should change. But it has quite a bearing on the question of how many people are truly without health care. I don’t want to minimize the dilemma, but the president has offered proposals, by my estimation, that would increase the rolls of the insured by 12 to 14 million, that include things like better use of Medicaid resources, the uses of HSAs, there’s some dramatic changes coming in the health care marketplace. The life of employer-sponsored health plans, I think, is increasingly becoming suspicious. We have lots of people, lots of organizations, who are now beginning to cover fewer people. Retirees are becoming a bigger and bigger weight on some corporate health plans, and they’re beginning to find ways to take that liability off the balance sheet. This whole area, in my mind, is going to be a fertile public policy discussion, and frankly a robust political conversation.

Roll Call: Let’s go to Medicaid reform. If you’ve got these increasing numbers of uninsured people, and people are being hived off their employer-based system, you nonetheless want to cut Medicaid spending.

Leavitt: Let’s talk about the word “cut.” Medicaid will increase this year and every year, by more than 7 percent. So we’re not talking about fewer dollars, we’re talking about more new dollars than perhaps any other line item in Congress. Money in Medicaid is not diminishing, it is dramatically increasing and will increase over the next 10 years by nearly a trillion dollars. Within 10 years we’ll be spending $5 trillion. We will spend $5 trillion over the next 10 years at a rapid rate of increase. So anyone who suggests we are cutting Medicaid simply hasn’t reviewed the spending projections. What the president has proposed to do is to allow Medicaid to increase at a slightly slower rate, going from 7.4 percent a year to 7.2 percent a year. I believe, and I think most who understand Medicaid know that it’s a program in desperate need of modernization. We’re dealing with a program that is essentially the same program that was passed in 1965. Medicine and the world has changed. One example: Long term care. Sixty-one percent of our health care expenditures in Medicaid are in long term care. Nursing homes — there are 77 million of us who are baby boomers headed to that period of our life. Medicaid is simply unsustainable. … Today if you need government health with your nursing home or your long-term care, you will be on Medicaid. You’ll not only be on Medicaid, but you’ll be in a nursing home. The state of practice in long term care is to care for people in their home or community. The only way that can be done now is with a waiver from the secretary. We’ve got to change that. That’s just one example. There are a number of things we can do that would not affect the coverage, or the number of people of covered but would allow us, in my mind, to even cover more if we could modernize it.

Roll Call: And yet your former fraternity, the governors, look at what the administration has proposed, and they don’t like it.

Leavitt: To their credit, the governors have come up with ways they believe Medicaid should be modernized. Their proposals are similar to those that the administration has advocated. Because we’re conducting this discussion of reforms in the context of a budget, the reforms are referred to as cuts. Whereas if we were talking about them outside the budget we would refer to them as reforms and improvements. I believe the governors and the administration will ultimately be very close in their proposals.

Roll Call: Quality — you appointed a commission to try to create standards for all these firms out there that are trying to computerize medical records. And you likened it to the railroads, where you had different gauges. But you specifically said in the speech that the commission was not going to cover how to pay for this, which various observers of the problem say is the key problem, that doctors, medical practices out there can’t afford the kind of spending, capital expenditures, to upgrade their computer systems, and all their medical records into the system, so they could even meet the standards. How much is this all going to cost, and who is going to pay for it?

Leavitt: First let me say that I’ve said exactly what you suggested; that this is not the place to decide how to pay for it. It needs to be decided, and it needs to be an ongoing discussion, but I want to separate the conversation about standards and how we create adoption. Both complicated, thorny problems, and you put them together, and they may be intractable problems. If you had a trillion dollars to spend, and you spent it on systems that weren’t compatible, you would have made the problem worse. So in my mind, we have to go with the standards issue, and we’re moving with dispatch to do it. Now with respect to what it will cost and what are the benefits. If 15 years ago you had said, what will it cost to put Internet access ubiquitously into communities, at every school, every library, every business, every home, and you had asked Congress to write a check to do that, first of all you wouldn’t have known how much it would cost. It would have been impossible because the technology would be changing over time, and you also wouldn’t know the benefits because it has so transformed our world that being able to equate from a starting point a cost or a benefit is a virtual impossibility. The same is true of health IT. This is not just about making an investment in computers. It’s about transforming the way medicine works.

What we do know is that just like the Internet, there will have to be some infrastructure built. Just like the Internet, it’s got to be built around standards that allow people to communicate. Just like the Internet, people are going to have to have a computer. … [A]s long as it’s built around a set of operating standards, people can begin to transform medicine in a way we can’t at this point predict.

Roll Call: Of all the industries in America, health seems to be one of the most targeted in the IT conversion. The banks are way ahead of them in all that. What is it going to take to get the kind of computerized instant record keeping, availability, everybody walking around with their medical records on a card, kind of world people have been talking about?

Leavitt: … It’s a lot of challenges here, and one of the challenges is that people who have to make the investment are not the same people who reap the benefit, and so there’s going to have to be some fairly important discussions on how we inspire small and medium size providers to use it. I was at the Stanford Medical School, and I wandered into a pathology lab, and there was a young pathologist who was just finishing his training. He said, “So I heard your speech on health IT and I believe every word of it, but I’m just setting up a new practice, and I don’t know what to buy. Can you tell me what to buy? I can’t afford to be wrong. I want to have technology, but I need certainty.” Well, that’s standards. You’ve got to create a sense of certainty before people invest.

Roll Call: About re-importation — is this going to be as big a fight in this Congress as it has been in past Congresses?

Leavitt: I don’t sense it is. For two reasons: One, the Canadians have made clear that they don’t intend to be the medicine chest for the United States. And they intend to shut that down quickly if it begins to look like it could be. The second is I believe there is a growing awareness of a burgeoning international problem of drug counterfeiting, and a fundamental issue of drug safety. You could go onto your internet service provider, go to your search engine and put in “Canadian drugs,” it would pull up a number of different sites. You will see one, I saw one the other day called the Canadian Generics. And it offered name brand drugs and generic drugs. FDA tracked it down to look at it; they found out that the Internet service provider was in China. They found that the Web site was managed out of Belize. They found that the check we sent them to buy drugs was cashed in St. Croix. And the postmark was in Dallas. We got the drugs, and the first box I looked at was impeccably counterfeited. It looked exactly like one that would come from a manufacturer. But when you tested the fluid that was in the syringe that it packaged, it was tap water. When you tested the chemical compound that made up the medications, it had the right ingredients, but they were just in the wrong proportion. Some of them were as high as 200 percent of what was supposed to be there. Some of them were as little as 50 percent. As that awareness grows, I think drug safety is going to become a much bigger problem. It’s always been the dilemma; you can’t guarantee the safety of these drugs.

Roll Call: Last question — Senator Frist made a speech on June 1, saying that we are woefully under-prepared in the case of an avian flu epidemic, a pandemic in the world, or even a bio-terrorism attack.

Leavitt: Let me say on pandemics, that three in the last century, spaced far enough apart that people could get help, they ravage the world. I believe we are at greater danger today of a pandemic than we have been in a generation. It’s a matter we’re taking very seriously. I have an inter-agency team that meets several times each week. We’re deploying diplomatic teams of scientists into all of the areas in question. We’re making every effort to build a network of surveillance that will give us an early warning of this. Our preparation has a ways to go. And we’re not as well prepared as we must become.