autonomous hospital and a constellation of doctors, most of whom are in private practice. It is a symbiotic relationship. The doctors are dependent on the hospital's diagnostic, treatment, domiciliary and, to a growing extent, educational facilities. The hospitals depend on the doctors to refer the patients who are the source of 95 percent of hospital revenues.

How did this symbiosis develop? Why don't we have the neat pyramid of health services that other nations such as Britain have: a broad base of primary physicians, a network of secondary hospitals, and a few tertiary hospitals at the apex? For the answer we must look at the other chains of causation.

EDUCATION OF PHYSICIANS

After a promising start in the 18th century at Pennsylvania and Columbia, medical education in the United States went into a long century of decline. Over 400 schools-most of them diploma mills bloomed and withered during the 19th century. Doctoring fell to such a low estate that it was said medicine was the career for those who were too lazy to farm, too stupid for the law, and too immoral for the pulpit. Opening of Johns Hopkins Hospital (1889) and Johns Hopkins Medical School (1893) marked the birth of a new era. Hopkins took all that was best in English and French medical education, which was based on clinical experience in hospitals, and combined it with all that was best in German medical education, which was based on researchoriented universities. The result was unique a medical school in which students were taught by clinician-scientists in a hospital. John Shaw Billings, the unsung genius who conceived Hopkins, never intended it to replace other medical schools, which he saw continuing to produce practitioners. To him, Hopkins was a unique school for future teachers and researchers.

A Kentucky schoolmaster named Abraham Flexner changed all that. His report on the state of medical education in the United States was published in 1910 with the powerful backing of the AMA and the Carnegie Foundation. Hopkins was the only school which completely met Flexner's standards because he wrote the report under the influence of members of the Hopkins faculty who believed medicine was emerging as an exact science on a par with physics and chemistry. Like Moses descending from Sinai, Flexner presented the Hopkins curriculum to the other schools. Those that did not accept it eventually closed their doors, and for the next 60 years American medical students marched in lockstep through a curriculum which had been exemplary in 1910.

The other part of Flexner's credo was that this curriculum should be taught by full-time professors who were not distracted by practice. This took longer to achieve. There was not enough money to pay fulltime faculty in most schools until the Congress poured Federal funds into research from 1945 to 1965. This permitted the many schools that had been unable to achieve Flexner's dream of a full-time faculty to finally consumate it.

If I may interject there, Mr. Chairman, this is a beautiful example of how as you said earlier changing one factor in the health care system has completely unexpected results, because this was not Congress intent.

Unfortunately, by the time the last school fell into line the Flexnerian era was over- a victim of its own success. Almost all the infectious diseases that blighted the Nation in 1900 had been conquered by 1954. In that year the death rate suddenly stopped falling and we entered a new era. Now the chief banes of the Nation's health are emotional, environmental, and genetic in origin. Some may be contained but once they are started they cannot be cured but only contained.

But the pattern first cut at Hopkins had been set. Scientific medicine was too complex for a single mind to encompass, so doctors divided into 2 dozen specialists. Scientific medicine, taught on hospital wards full of patients with florid diseases, beguiled students into specialty practice, and general practice whithered and almost died. Scientific medical practice required modern hospital facilities, and two generations of superbly trained specialists brought this message to communities across the land which were eager to provide them with everything they needed.

Thus, we can see how the first two chains of causation intertwined to produce the system we have today. Hospitals flourished and became centers of medical care because scientific practitioners needed them, but post-Flexnerian doctors became what they were largely because they were taught in hospitals where the main thrust was care of and research on acute diseases. The third chain, financing of health services, simply bound the first two more tightly together.

FINANCING HEALTH SERVICES

I will spend the least time on this topic because most of it is well known to the committee.

Health insurance had flitted across the national stage since the early 1900's, but the Great Depression gave it a major role. The earliest plans covered hospital expenses for surgery, and, some years later, surgeons' fees. Over the years, benefits have been extended to cover most hospital expesnes-although many still skimp on psychiatric coverage and most doctors' fees for services rendered in the hospital. Only recently have benefits been available for ambulatory care-and these are still far from comprehensive. Medicare and medicaid perpetuated this undue emphasis on hospitalization. The reason is simple. Discreet services for acute conditions rendered in 6,000 hospitals are far easier to monitor than comprehensive care rendered in 100,000 offices and clinics. But in their eagerness to control costs the accountants put the finishing touches on the system that had been developing for 200 years. Third-party payers dangled incentives to hospitalization before patients, doctors, and hospital administrators that were impossible to resist. To do otherwise meant the patient paid out of pocket, the doctor had less certain fees, and the administrator staffed empty beds.

CONCLUSION

The vast enterprise which some find so confusing that they call it a health care "nonsystem" evolved through a chance coming together of 18th century organizations, 19th century science and education, and 20th century finance. But evolution has not stopped. It is still going on as the Nation experiments with new methods of delivering care, with new educational techniques, and new financing schemes. We have not come to a dead end. Far from it.

The problems we face today resulted from the successes of our health care system, not its failures, and if it can continue its evolution I am confident that we can lick the problems of the present and prepare for those this Nation will face in the 21st century. The three chains of causation have not come to an end. Knowing the directions they have taken in the past and the effects these changes have had, we should be able to extrapolate each chain into the future. With a knowledge of history, we can substitute a degree of rationality for mere happenstance as we move ahead.

Flexibility, innovation, evolution-these are the keys to success. But let me close with this caveat. Every other nation that has adopted national health insurance has frozen its health care system at that particular moment in its development. No other nation has been able to use national health insurance has made change slower and more difficult. I respect fully suggest that this committee should resist the temptation to think that one piece of legislation can revolutionize health care.

Americans are always tempted to tear down the old and rebuild from scratch, but the history of previous legislation to effect social changes shows that it is impossible to tear down social systems which have taken centuries to evolve. This is even more true when the hospitals of our health care system represent a $40 billion capital investment, a $50 billion annual budget and employ nearly 3 million people. Like it or not, we must build on what we have, not on airy flights of fancy.

The challenge to this committee, as I see it, is to construct an insurance system that will remove all financial barriers to health care but will not raise barriers to the continuing evolution of our health care system.

Mr. Chairman, thank you for this opportunity to present my views. I wish the committee good fortune in the task ahead.

Mr. ROSTENKOWSKI. Thank you, Dr. Freymann.
Professor Fein.

STATEMENT OF RASHI FEIN

Mr. FEIN. Mr. Chairman and members of the subcommittee, I wish I, too, could assure Mr. Duncan that I treat patients but the best I can do is say some of my best friends are physicians.

Mr. Chairman and members of the subcommittee, I very much appreciate the invitation to participate in this panel discussion and am pleased to be able to do so.

National health insurance remains one of the most important, unresolved domestic issues that this Congress faces. In part, the postponement of debate on a universal and comprehensive national health insurance program reflects the fact that other high priority matters have commanded the attention of the legislative and executive branches and of the American public. In part, it reflects the complexity of the issues that surround the medical care sector and its financing. It is, therefore, most encouraging that you have decided to move forward with these sessions. All of us who are concerned with the inequities, inadequacies and costs of existing programs and who are con

vinced that action is required if all the American public is to receive its full money's worth for the over $100 billion spent in the health sector look forward to your deliberations.

In the interests of allowing a maximum opportunity for questions and answers, my prepared remarks are very brief. I have outlined a few major points that may help provide a framework for discussion of the goals and mechanisms of a national health insurance program. 1. The economics of the medical care sector is unlike that of other sectors. We are led astray if we apply the tools of conventional economic analysis: assumptions concerning the goal of profit maximization, assumptions concerning competition consumer sovereignty, and so forth. The medical care system has developed patterns of behavior and of decisionmaking, patterns of resource allocation and funding that set health care services apart from other economic activities. All economic sectors have their own special characteristics, but the health sector is more "special" than others. Perhaps the most critical element of difference is that the key decisionmaker in the medical care drama. is the producer (physician); not the consumer (patient). To focus on patient decisions is to misdirect our attention. Patients do not enter or leave a hospital, do not buy drugs, order tests, or elect surgery except as physicians decide for them that they shall consume these goods or services.

While only 21 percent of the $90 billion spent for personal health care is accounted for by physicians' services, the physician "controls" the level of expenditure for other major parts of the health care sector; for example, the $41 billion for hospital care. It is the physician who, in large measure, decides what and how much care shall be consumed. Financing programs that are designed to affect consumer behavior—say, via cost-sharing mechanisms-miss the essential point: it is producer behavior that is at issue. It is the physician, not the patient, who is making the critical and costly consumption decisions. 2. It is a fallacy to imagine that physicians make decisions solely on the basis of "scientific" considerations. Many variables, including economic relationships, affect choices. Medical care services can be produced in different ways, utilizing various combinations of resources. The choices-which services, where offered, for whom-are not determined by medical science alone. They are affected by payment mechanisms, economic incentives and penalties, reimbursement formulas-by the nuts and bolts of insurance contracts, Government regulations, et cetera. If public or insurance dollars are available to pay for certain services-for example hospital care-rather than for other-for example, preventive care-the system will emphasize the former. Physicians and institutions respond to the availability of various resources and to the existing patterns of financial coverage. There is no "neutral" financing program. The issue of the range and scope of benefits, thus, becomes more than an issue of financial protection. It lies at the heart of the resource allocation problem. It affects the direction and costs of the system.

3. Historical developments have emphasized insurance protection for hospital expenses. This is fully understandable since these are the high pricetag items, and both patients and hospitals needed the financial protection. Nevertheless, it is a fundamental error to believe that

all that hospital insurance did was: (1) To offer financial protection, and (2) to permit some persons who required hospitalization to enter the marketplace and obtain these services. We also "force-fed" the hospital sector. We have paid, are paying, and will continue to pay a high price as a result of our emphasis on hospital care. We must avoid the error of believing that the care we finance in the future and the way we finance it will not help shape system response. What you will give priority to in defining a national health insurance program will determine the priorities of the system itself. That, for example, is the reason that many observers, and I include myself here, believe that that which is sometimes termed catastrophic health insurance would be just that— catastrophic.

4. Just as covering some services but not others has not been neutral to the "uncovered" elements of medical care, so the presence of thirdparty payment for some persons has not been neutral to those without it. Many Americans have no private insurance or coverage through public programs. Those without coverage tend to be the economically vulnerable; for example, persons with marginal or irregular employment, or with low incomes. These individuals face a medical care system whose behavior is influenced by the fact that others have insurance. It is not only that producers prefer to serve those for whom payment is guaranteed. It is also the case that those without protection enter a system whose price levels, standards, and orientation have responded to the presence of insurance. Those without protection become doubly disadvantaged.

5. Insurance coverage meets many needs. For the producer of services it means a guarantee of payment. To patients and potential patients it means the sharing of financial risk and the opportunity to budget. The former point (risk sharing) is self-evident. The latter point, however, has a special, dynamic consequence. Because of the desire for budgeting, consumers will attempt to insure themselves against extremely high deductibles. Thus, the attempt to erect significant cost barriers in order to bring economic "discipline" to decisionmaking will fail as those who have the economic resources to purchase insurance to cover the deductible will do so. In turn, we would reenter the world of inequity-the world in which some have and others lack protection, the world in which some utilize preventive care services since "they are already paid for" while others postpone care, hoping to avoid the dollar expenditure.

6. The historical development of third-party payment mechanisms has not stressed the achievement of equity or the translation of the concept of access to medical care into operational reality. While, today, there seems to be significant agreement that the uilization of medical care services should not depend on an individual's income, there is still disagreement on specifics and on mechanisms to assure this right: shall a program be universal, shall it cover all services, shall it provide firstdollar coverage? In considering alternative operational answers to these questions, we must remember to assess the administrative costs associated with "refinements." The less comprehensive the range of covered services, the less complete the dollar protection, the less universal the program, the greater the burden of administrative costs. Nor do such mechanisms reduce total costs. We are already spending