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ing all of us and then having two-thirds plus one to be able to insure that we can put the program through.

Thank you.

Mr. ROSTENKOWSKI. Mr. Vanik, maybe after this week's announcement, the President next year will feel the National Health Insurance is a priority item and will sign it.

Professor Butler, you are so sure that we should get rid of the feefor-services program, and yet yesterday in most of the conversations that we had this was one of the aspects that the panelists felt was going to remain, if by negotiation or some other workable arrangement.

Why are you so sure that we should get rid of the fee-for-services?

Mr. BUTLER. I guess I must not have said it very well the first couple of times. I happen to think there are a lot of good things in the fee-forservice system. What I realy meant to say was that system functions inherently in such a way that costs are hard to control. For example, if vou limit fees for costs for a hospital-day, you may get more hospitaldays.

Îf you set the fees for a physician visit, you can get more physician visits. It has that inherent characteristic. So really what I meant to say was if you want to have an absolute control over costs, you can't do it by the Government or through its intermediaries paying out on a fee-for-service basis. It may still be possible; for example, take the foundation movement in California. It is conceivable that the Federal Government could pay so many dollars to the San Joaquin Medical Foundation to take care of all the people in that area and then that foundation would pay the doctors by whatever way they wanted to pay them, including fre-for-service.

But the point is that the total bill to the Federal Government or to whatever level of government was paying it would be fixed on the basis of number of dollars per person year year. All I really meant to say was unless the Government reaches the point where it can do that, it cannot have any real assurance that it is going to control costs.

You may think that the advantages of fee-for-service is such that you don't care that much about cost control and then all I would say is then you are inevitably looking at the kind of inflation that we have had.

So it is really a choice.
Mr. ROSTENKOWSKI. Would you like to comment on that, Dr. Bellin?

Dr. BELLIN. There is a terrible dilemma here in how you are going to pay physicians. The advantage of fee-for-service is it encourages enormous productivity. Doctors work long hours many, many days during the week. They are really not that much out on the golf course, as has been accredited to them, particularly with malpractice rates being what they are. They have to work another day in the oflice to pay the malpractice fees.

But you can get enormous productivity. At a time when you have a shortage or maldistribution of physicians, I think it is important to decide what price you may pay by abandoning a type of payment which produces productivity. The obvious other side of the coin is orerutilization.

There is a lot of that productivity that occurs that should not occur, services that are unnecessary, unjustified, and sometimes perilous to the patient. The alternative is to put doctors on a salary, to pay them

capitation, which is essentially a disguised form of salary. If you do that, it is true that you can predict with some assurance how much you are going to pay because you are only going to pay a certain amount of money per patient per year.

On the other hand, the obverse side of that coin is underutilization, the number of people who are not getting service who ordinarily could.

I faced a problem when I was in the U.S. Air Force. There was a small group of physicians on the base who refused to work. They were hanging around the officers club all the time. The rest of us carried the hospital by ourselves. Why were they hanging around the officers club? Because they got the same salary we did.

I thought it might be an interesting experiment to put everybody on a fee-for-service basis on that base and maybe some would leave the officers club and help us out at the hospital. Whether it is fee-forservice with the danger of overutilization or whether it is capitation and salary payment with the danger of underutilization, it is necessary that you have the appropriate administrative controls.

Those administrative controls differ. I would argue that wherever you find different systems in the United States, either one or the other. you find inadequate administrative controls. People are very bright when they figure out a way how to beat the system.

Mr. ROSTENKOWSKI. Mr. Heim, would you like to comment ?
Mr. HEIM. Yes, Mr. Chairman.

Of course, in New Mexico we started out by saying, we trust you doctors, we want you to come in and work with us to try to develop the control system that Dr. Bellin was saying was absolutely necessary.

We feel that the record we have accomplished shows that this has been a successful approach. We feel that by involving the physicians in developing the control system, by involving them through the PSRO concept and actually monitoring the necessity and appropriateness of care, that the fee-for-service problem should not be a significant one.

I am not at all convinced that fee-for-service cannot be retained if there are proper methods of control that can be imposed throughout the country.

Mr. DE VISE. I oppose fee-for-service because it is a monopoly profit. I am very much intrigued with the idea of the economists that fee-forservice is here to stay as part of the market economy except that medical care is not competitive. I indicated in my paper that organized medicine has acted in many ways to restrict tlie supply of physicians, to restrict the entry of physician substitutes, and to hamper effective controls of costs. They will continue to do this as long as they have the incentive, that incentive being fee-for-service.

In all the factors we see in explaining the skyrocketing costs of medical services I don't think you can justify the doubling of physician income in the last 10 years. The physician was earning on the average of $30,000 in 1965 and he now earns $60,000 a year largely because he has charged all that the traffic can bear.

So that is a very special kind of inflation. It is not inflation of hospitals where the costs have to go up because they have to pull resources from other sectors, because of increased personnel, because minimum

wage laws make them pay a living wage to the people. I think that there are same ways to reconcile the dilemma presented by Dr. Bellin, that is, the dilemma that you may lose productivity in the capitation or salary scheme, and that is the compromise worked out by KaiserPermanente which has a combination of salary and bonus based on productivity.

So I think there is a way doctors could be reimbursed on the capitation or salary base and still assure their productivity. My main objection to fee-for-service is that it is a monopoly profit and that in other aspects of economic life our laws say that monopoly is illegal.

Mr. ROSTENKOWSKI. I want to thank you for participating in this discussion. We know that it is going to be a tedious job to put together a national health insurance program that it is going to be fair and equitable. It is a proposition that we have not taken lightly and we certainly will think about the discussion we have had with you today.

I am hoping that on July 17 we will have the private sector make their contribution. We will be meeting again on that day.

So, gentlemen, we greatly appreciate the time out of your busy schedule that you have spent with us. We hope that from these discussions something very fruitful will come.

[Whereupon, at 12:20 p.m. the subcommittee adjourned, to reconvene at the call of the Chair.]

Thank you.

NATIONAL HEALTH INSURANCE

(Private Sector Role in American Health)

THURSDAY, JULY 17, 1975

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C. The subcommittee met at 10:05 a.m., pursuant to notice, in the committee hearing room, Longworth House Office Building, Hon. Dan Rostenkowski, chairman of the subcommittee, presiding.

Mr. ROSTENKOWSKI. The Subcommittee on Health will come to order.

The Chair would like to make several announcements before we proceed to the panel discussion.

It is the intention of the Chair to work through lunch and adjourn the committee at 2 o'clock because we have to surrender the committee room to the full committee. And if the panelists will bear with us, we will undoubtedly be interrupted on one or two occasions with rollcalls or quorum calls. However, this should not discourage the conversation to continue principally because of the fact that your contributions are for the record so we can use it in our judgment at a future time with respect to writing national health insurance legislation.

I would like to welcome the panelists. I might say that to date our meetings with the panels have led to very informative discussions. We usually allow panelists to make an opening statement, but would like it as concise as possible.

After the concluding panelist makes his contribution, we will have a discussion among the panelists if there are any diverse views that someone would like to make. Then we would go to a discussion with the members of the subcommittee asking questions.

If the panelists would introduce themselves as they make their statements, we would appreciate it very much. Mr. Herman Somers, you begin the discussion.

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