remain in their own homes. We believe that home health and homemaker services, nutrition services, and day care are particularly important aspects of any program intended to provide comprehensive long term care.

B. Home health and homemaker services.-The combination of home health and homemaker services would allow many older people who would otherwise have to seek institutional care to remain in their own homes. Furthermore, there is an element of outreach in connection with home health that cannot be duplicated by inpatient health facilities. By going out into the community to provide health services, home health agencies have the potential to reach elderly people who could not on their own locate the health services they need. This problem of finding even those health resources that presently exist is particularly serious among the old who are often extremely limited in their mobility and avenues of communication.

C. Nutrition services.-Lack of good nutrition is one of the most important health problems of the elderly. Although in some cases the need for special diets is involved, the most common nutritional problems of the elderly stem simply from the difficulties many encounter in shopping and preparing their meals. A general indifference to food may result from the partial loss of the sense of taste common among older people and an aversion to eating alone. Whatever the reason or combination of reasons that lead to nutritional problems, an effective program of nutrition services for the elderly could deal with this basic health problem. D. Day care.-Finally, day care programs have enormous potential to meet the long term care needs of the elderly, while delaying or avoiding the need for full-time institutionalization. Day care programs offer the opportunity for nursing care, rehabilitation and social services, and nutrition services on a part-time basis. Families in which all adult members are employed, may be able to keep elderly relatives with them, if day care services are available to assure adequate care during working hours.

E. Patient's needs should predominate.--It is the position of the American Nursing Home Association that these alternative types of long term care services should be available to all elderly Americans with the minimum of artificial restrictions or limitations. On the other hand, we have noted a tendency in some quarters to assume that home health care is invariably preferable to nursing home care. We are not certain whether this bias is based on an assumption that all elderly patients prefer the home health approach or whether it is believed that home health services are necessarily less expensive. In either case, we believe the assumption is mistaken.

The fact is that the health needs of many patients cannot be met except under the conditions of full-time care provided in an institutional setting. Moreover, while there are undoubtedly many elderly individuals who would prefer to remain in their own homes, there are many others who would prefer the level of care only possible in a nursing facility.

Similarly, while the home health approach may be able to meet the needs of some patients more cheaply, its cost will be dramatically affected as more intensive or frequent services are required. The relative efficiency of home health care will also be affected by nature of the geographic area in which it provided. In sparsely populated rural areas, for example, personnel may find themselves spending more time traveling than delivering health care.

We recognize that the Government has a responsibility to avoid excessively costly modes of health delivery, especially where it has committed itself to bear a portion of those costs.

We believe, however, that the primary factor in determining which of several alternative types of care are provided should be the individual patient's health needs. To the extent possible, full consideration should also be given to his personal preferences.

F. The potential contribution of nursing homes.-ANHA not only believes that alternative modes of long term care should be provided, we believe nursing homes could make a substantial contribution toward assuring the early and efficient availability of such services. America's nursing homes are experienced in dealing with the special problems of the elderly, they employ the largest single concentration of personnel skilled in meeting these problems, and nursing homes are already present in almost every town and neighborhood throughout the country. We believe that nursing homes could become the focal point for the delivery of a comprehensive range of long term services throughout their communities as well as within their own walls. We hope and trust that should the Congress

establish a program of assistance for these services, artificial barriers will not be erected against any class of providers. The only test should be the providers' ability to extend high quality care at costs which are reasonable.

INEFFICIENT SYSTEMS OF PAYMENT

Finally, major problems are raised by the payment systems to providers under our current government programs for delivery of long term health care. In our view these payment systems neither provide incentives to high quality care, nor protect the government against unreasonable costs, nor assure providers of fair compensation for their services.

ANHA believes that payment to both proprietary and non-proprietary providers of long term care services should be under a system which allows for the development of alternative prospective payment methods. These methods should be developed cooperatively by providers and state governments under federal guidelines.

The present system of retrospective cost reimbursement to hospitals and nursing homes under Medicare (and under Medicaid in many states) has been a major factor in the inflation of health care costs. The Medicare reimbursement approach imposes expensive and time-consuming auditing and cost-finding requirements, results in retroactive denial of payments, and offers little incentive for institutions to hold down costs.

Only by implementing simplified prospective payment methods which are based on predetermined budgets can we achieve the efficiency and cost effectiveness that is made possible by sound management practices. Also, such an approach would make it possible to reasonably relate payment to the costs of care.

We regret that little apparent progress has been made by the Department of Health, Education and Welfare in carrying out the experiments in prospective payment methods which were authorized by Sec. 222 of PL 92-603. However, we are encouraged by the fact that prospective payment is called for in several major national health insurance bills.

Such prospective payment methods must take into account all legitimate costs incurred in the provision of quality patient care. In the case of long term care facilities, such payments should include not only the costs of routine nursing service, bed and board, and prescribed ancillary services, but also a reasonable allowance for items and services which are necessary to meet the unique social and psychological requirements of individuals who are institutionalized for relatively long periods of time.

Additionally, prospective payment methods should recognize approved capital costs and a fair return on total investment for both proprietary and non-profit facilities. The Medicare standard for return on investment as a percentage of net equity discriminates against certain providers and discourages the development of new facilities to care for the increasing aged population.

It would also be desirable to include provisions for incentive payments to providers who demonstrate the ability, through effective management, to provide high quality care while keeping costs to a minimum.

ANHA has recently commissioned a study by the Battelle Institute to assess the rates of return needed by nursing homes and to determine the most equitable method of computing that return as part of a prospective payment formula. I am hopeful that the results of that study will be available in time to enable us to offer some very specific suggestions to the Committee.

PENDING NHI PROPOSALS

The foregoing considerations have formed the basis for ANHA's own review of the major National Health Insurance proposals now before the Congress. Two of those bills, the Mills-Kennedy and Long-Ribicoff-Waggoner bills, would contribute significantly toward meeting our Nation's needs in the area of long term care. Of these two, the proposed Mills-Kennedy bill clearly goes further in assuring the availability of high quality long term care to all those who require it. We, therefore, urge the adoption this year of legislation which contains the general approach set forth in Title II of this bill.

Title II of Mills-Kennedy is substantially the same as H.R. 13720 introduced by Congressman Conable. We are pleased to note that this proposal as a separate piece of legislation has gained significant bipartisan support. These developments contribute to our hopefulness that favorable action will be taken on it this year. In the event that the Congress chooses an incremental approach toward the

eventual establishment of comprehensive national health insurance, we call attenion to the urgent needs of the elderly and strongly recommend that increased coverage of long term care be assigned a first priority under any legislation enacted.

Comprehensive National Health Insurance Act (Mills-Kennedy)

This bill sets forth in broad form the kind of program of long term care assistance which the Nation will someday provide to its elderly. We hope that day will be soon.

Title II of the Mills-Kennedy bill would establish a new, voluntary Part D program under Medicare to provide a comprehensive range of long term care services to all Medicare eligibles who choose to enroll. This program would be administered by an independent Social Security Administration through State Long Term Care Agencies and Community Long Term Care Centers. The program would be funded by the premiums of enrollees together with State contributions and supplementation from federal general revenues.

The sponsors of this proposal in their remarks upon its introduction recognized the need for further refinements. ANHA hopes that the following comments and recommendations will be useful to the Committee in its consideration of this legislation.

A. Eligibility.-We believe that by making long term care benefits available to all Medicare eligibles who choose to enroll, this legislation would take the single most important step necessary to preserve the dignity of those older Americans who require long term care. Furthermore, even those who are fortunate enough to remain in good health will be freed from the fear that some future long term illness will drive them into poverty.

We are concerned, however, that no provision has been made in this bill for those, including the mentally retarded, who require long term mental health care. Since the Mills-Kennedy bill would abolish the Medicaid program, the mentally ill and retarded might be left with even less government assistance than at present. Uncertainty also exists with respect to the over 65 population which for any reason has failed to enroll in this Part D program and with respect to those under 65 who are disabled, but have not yet met the two-year waiting period required before they can be deemed qualified for Medicare.

B. Benefits.-This bill would provide the broadest range of long term care benefits of any major National Health Insurance proposal. In addition to nursing home care, the bill would provide the home health, homemaker, nutrition and day care services which our Association believes are fundamental features of a sound long term care program. The bill would also provide foster home services and the outpatient services of community mental health centers. Consistent with our view that coverage of the mentally retarded and mentally ill must continue under a federal program which replaces Medicaid, we believe that inpatient mental health services should be added to be benefits contemplated under this bill. C. Administration.-Under this bill as presently drafted, the Community Long Term Care Center would be responsible for the long term care services provided within the geographic region which it is designated to serve. This Center would screen patients and determine their long term care needs. Afterwards, it would maintain a continuous relationship with each patient to assure the quality and appropriateness of the care provided him.

With respect to the actual delivery of care, the Center would be authorized to contract with providers of care as well to deliver some health services directly. In our view it would be a serious mistake to allow Community Long Term Care Centers to engage in the direct delivery of care. Since these Centers would have complete control over federal financial assistance for long term care, anything less than an arm's length relationship between such a Center and the actual providers of care could lead to abuses. Unquestionably, at least the appearance of abuses would be a constant danger.

Where a Community Center itself engages in the delivery of care, an obvious conflict of interest arises between its responsibility to deliver the care and its duty to oversee the quality of that care. Furthermore, the fact the Center would have a direct financial interest in the delivery of some types of care could lead to the over-utilization or under-utilization of certain services based on considerations other than the needs of the patients.

Under the bill as presently drafted, the Center would indirectly provide long term health services by means of contracts with providers. It appears that the Center would have virtually unlimited freedom to contract with whichever

provider organizations it chooses while excluding others. Likewise it would seem to be free to contract on whatever terms it chooses, including the terms which relate to payment for services.

It is our view that participation in this program should be open to all providers who qualify under a uniform and public system of standards designed to assure high quality care. We believe that provider agreements should be executed between the provider and the State Long Term Care Agency. Patients who qualify for a particular level of care should have the freedom to choose treatment by any qualified provider.

It is also our view that the terms of the provider agreement should be on the basis of a system developed and operated at the state level. The States should be given flexibility in determining the terms under which providers would deliver care, subject to Federal guidelines.

Under these arrangements, Community Long Term Care Centers could be free to serve as a vital resource to the beneficiary population in its area, performing such functions as initial health screening and periodic re-evaluation, referral for services, education and outreach, and data maintenance. By performing this role, the Center could effectively assist individuals in gaining ready access to the services they need.

D. Payments for services. We believe that with certain amendments, the payment system proposed in Section 2042 of the Mills-Kennedy bill would be a sound and equitable approach to payment of providers under both the National Health Insurance and Long Term Care programs. This proposal meets a fundamental requirement of good management by establishing the principles of prospective payment for services. A second important quality of the approach set forth in Section 2042 is that it would allow a diversity of payment formulas within Federal guidelines.

We do, however, believe certain changes in Section 2042 are necessary. Under the Section 2042 formula, the prospective rate would include a factor based on an annual determination of the rate of return of other comparable investments. This return would be measured against the "equity invested" in the facility. If "equity invested" means "net equity" then we must strongly object to this standard.

Since the rate determined annually by the Administration will determine the actual payment to providers, the choice of a particular base against which to measure the rate does not "lock-in" any higher cost to the government or special advantage to providers. The important criterion of the base is simply that it be one which does not distort the payment system so as to discourage sound management practices. To determine the rate of return on the basis of net equity gives preeminence to the wholly irrelevant issue of a particular provider's capital structure.

We believe that a rate of return based on the value of total investment would be the soundest approach and would avoid the possibility of unintended and unproductive discrimination.

A quality management payment such as that contemplated under Section 2042 is an essential part of an efficient payment system. We believe that such a system must be operated with care, however, to avoid discriminating effects. In measuring the performance of a facility, appropriate subcategories must be established to assure that cost considerations beyond the facility's control are not weighed against it. For example, providers in higher cost metropolitan areas should not be required to compete in cost savings with those who operate in lower cost rural areas.

E. Skilled nursing facility care under title I.-In addition to the long term care benefits which would be provided under Title II, the Mills-Kennedy bill would provide for coverage of skilled nursing facility care under its Title I National Health Insurance program. However, these skilled nursing home benefits are limited to post-hospital care. This prior hospitalization requirement should be deleted under Title I of this bill and under the current Medicare Part A program.

The requirement of a prior hospital stay serves no useful purpose and contributes substantially to hospital over-utilization. In appropriate cases, on the other hand, direct admission to a skilled nursing facility would greatly reduce costs while providing an earlier start toward effective treatment.

The foregoing comments reflect our major concerns in relation to the MillsKennedy bill. Naturally there are numerous less crucial considerations which we hope to raise as this legislation progresses.

Catastrophic Health Insurance and Medical Assistance Reform Act (LongRibicoff-Waggonner)

Title II of the Long-Ribicoff-Waggonner bill would improve the long term care program under Medicaid by establishing uniform Federal standards for eligibility. Those with incomes in excess of the statutory amounts would be allowed to "spend down" to those levels determining eligibility whereupon they would also be entitled to assistance. The Federal government would assume all future additional costs of the Medicaid Program.

A. Eligibility.-Eligibility for government benefits under Title II of this bill would be limited to the poor and near poor. We urge that any legislation in this field remove this fundamental flaw in our approach toward assistance for long term care. With respect to this bill, we believe that it should be amended to entitle all Medicare eligibles to long term care benefits.

B. Benefits.-Under this proposal the scope of long term care benefits would continue to be limited to nursing home care and home health care. In our view, as previously discussed, day care and nutrition services should be added. Furthermore, homemaker services should be included as an integral part of home health care.

C. Administration. It is our understanding that the States would continue to have a significant role in the Administration of Title II of this bill. We believe that such a role is desirable and recommend that its exact dimensions be more clearly defined. Our belief in the importance of the role of the States also leads us to recommend that their responsibilities be set forth in specific detail in connection with any long term care benefits which may be provided under amendments to the Medicare program such as these we have suggested.

D. Payment for services.-Title II of this bill contemplates payment to providers of long term care under formulas developed pursuant to Section 249 of PL 92-603. We support this approach to the extent that it would allow for the development of simplified cost-related payment methods at the State level. However, while Section 249 would not prohibit prospective systems of payment, it would not mandate that prospective payment be made available. We believe that providers should have the option of choosing among several prospective payment methods.

E. Skilled nursing facility care under catastrophic insurance.-Skilled nursing facility care would be available under the portion of this bill providing insurance for catastrophic illness. Two changes woud greatly add to the ability of skilled nursing facilities to assist in reducing the cost of this program. The first would be to count days in a skilled nursing facility as hospital days on a two-for-one basis toward meeting the 60-day hospital requirement which must be met in order to qualify for catastrophic coverage. The second change, complementing the first, is to require that Federally certified health policies under Title III provide coverage of the first 120 days of skilled nursing facility care. We believe that these changes would lead to an increased use of skilled nursing facilities as an alternative to hospital care with an enormous resultant savings to the Government.

CONCLUSION

Mr. Chairman and members of the Committee, I am grateful for this opportunity to appear here today to discuss the vital issue of National Health In

surance.

As I have indicated, there is in our view no more important health need in our country than to adequately provide for the long term care of our elderly. It is our hope that National Health Insurance legislation, including coverage of long term care, will be enacted this year.

The CHAIRMAN. Mr. Bell, I apologize for being a little late and not being here when you started. I will read that part of your statement omitted plus the part you read while I was away.

We appreciate your coming here as the representative of the American Nursing Home Association and making your comments. I am quite well aware of the omission of certain areas that you referred to as very important. What I think we were trying to do in this introduction of the recent bill was to not exceed the total cost of the administration bill, but to provide for a different method of financing and a different method of administration so that there could be various views before