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Mr. SOMERS. Thank you, Mr. Chairman.

I am Herman Somers. I have been working in the health field for some 25 years. I am a former member of the Health Insurance Benefits Advisory Committee and of the Advisory Council on Social Security. I was on President Kennedy's Task Force on Health and Social Security, and I have been a consultant to HEW for many years. I am on the board of trustees of the College of Medicine and Dentistry of New Jersey, and of Blue Cross of New Jersey, and the author of four books in the health field.

I have been asked to discuss briefly the role of the private sector. I will in these introductory remarks, for the sake of brevity, confine myself to generalizations and if anybody asks, I will be glad to develop them later.

Mr. ROSTENKOWSKI. Professor Somers, I might make the observation that your full testimony which you submitted will be entered into the record.

Mr. SOMERS. Thank you.

The boundaries between private and public sectors have become pretty murky. The distinctions present difficult definitional problems. The statistical data usually are not illuminating on the real relationships and can be quite misleading.

For example, of the $104 billion reported as the Nation's health expenditures for fiscal 1974, about 40 percent is shown as coming from public funds.

Such expenditure figures do tell us the source of funds, but they are not descriptive of the relative roles of the public and private sectors. Government, of course, typically purchases directly or indirectly from private providers the health care it finances.

The great bulk of Government payments is made to privately owned and operated institutions and privately practicing professionals. Even the Government payments themselves are in large measure funneled through private insurance instrumentalities.

Further, the private institutions, particularly hospitals, receive a variety of Government subsidies for construction, research, and other purposes. Thus, there is considerable ambiguity in the data.

When Government merely pays for services rendered by and controlled by private providers, should the figures present that phenomenon as public or private sector activity, or both? And how much should be attributed to each? In practice, the figures are often inconsistent.

Should we wish to complicate the matter further, we could note that a large portion of the private sector is represented by not-forprofit institutions of a quasi-public character. One could argue that

the nonprofit sectors should be classified as part of the private sector, or the public sector, depending on the emphasis given to the concepts of profit or nonprofit. Some have argued that we should really think and classify in three separate categories-Government, private profit, and private nonprofit.

In short, our health system is now a marble cake mix of a pluralistic multitude of enterprises; the private and public enterprise activity overlaps are great and clear distinctions usually are dislicult, if not impossible, to make. This seems to trouble some people who believe in tidy packaging. I am not one of them.

The health care industry has been the subject of an increasing volume and range of criticism in recent years, due, I believe, primarily to the rapid inflation of costs and the uncertain access to adequate care by large segments of the population.

The growing discontent is not due to the things having become generally worse, however. On the contrary, I believe any objective appraisal would show there has been substantial improvement over the years. To a large extent the discontents reflect the higher standards of expectation.

For example, the problems of the poor are not new and certainly are smaller in relative volume than ever before, but unnecessary discriminations are now no longer morally acceptable. Or, of course sickness has long been a menacing hazard for the middle-income family, but it is now seen as an avoidable financial hazard given proper social organization.

The private sector has contributed substantially to these dissatisfactions, but paradoxically, I believe, it has not been primarily its errors and omissions that have done so, but rather its successes that have helped generate rising expectations.

By making more people acquainted with the wonders of modern medicine, by opening wider the door of access to care, and by making the public aware of what is potentially available through improved financial and organization mechanisms, it has greatly increased impatience with remaining barriers and inadequacies.

That is one of the reasons there is widespread agreement on the need for better and universal protection.

Since the private sector has been the most dominant and visible factor in the health field, it is natural that it would be the focal point of criticism. The inadequacies of private health insurance are many and real. But, if we examine the specific criticisms, we generally find that the faults are at least equally attributable to Government in an interactive process.

Vír. ROSTENKOWSKI. Professor Somers, on that note we will have to suspend 5 or 6 minutes to answer this quorum call.

We shall return.
Vr. SOMERS. All right. Thank you.

Mr. Cotter (presiding]. I think we can resume now, Mr. Somers, if you would continue.

Mr. SOMERS. Thank you. I was at that point saying that if we examine the specic criticisms of the private health insurance sector, we find that the faults are at least equally attributable to Government and it is an interactive process.

Some examples. First, until recent years the health insurance industry showed little interest in developing effective controls over costs of care or pressing for more effective professional control of quality.

They used to say that their charters were merely to act as fiduciary institutions and that their role was simply to apply the magic of averages to spread risks and to ease the burdens of payment. Thus the industry was providing increasing resources to underpin a system that was progressively less satisfactory.

But exactly the same condemnation could be made of Government and probably more sharply. Government also did little about quality control or containing costs. For example, when in 1965 the National Government undertook to finance medical care for millions of additional persons through medicare and medicaid, the same omissions characterized those programs. Both private and public sectors were victims of knowledge lags which with the advantages of hindsight both now recognize.

Second, the fragmentation of insurance has contributed to the fragmentation of health services. Some of this was historical accident, some resulted from the obdurateness of the medical profession. The separation, for example, of Blue Cross, the hospital plan, from Blue Shield, the physicians' service, has obviously not contributed towards better integration of delivery of health services.

However, as late as 1965 when the insurance industry was beginning to move away from this pattern, Government adopted the same error in its major health insurance program, medicare, and set up two distinct financing and payment systems for the two types of services.

I have a list here of other examples which I will omit in the interest of time. The point of these simple examples is to suggest there are no automatic solutions to be found in doctrinaire formulas regarding preferability of public versus private operations.

Observers of the current debate on National Health Insurance can, however, readily perceive that the symbolism of old ideologies remain a potent force and may interfere with what ought to be a pragmatic search for answers in terms of workability and practicalitv.

On the one hand, we have proposals that would completely preclude any form of private participation in financing or administration. On the other hand, we have proposals such as the old administrationNixon-plan which, in order to avoid Government financing, abandons the major objectives of National Health Insurance. Years of intensive effort by some very bright young men at HEW demonstrates that it is not possible to achieve universal coverage and to avoid means tests under a mandating program.

Both approaches seem to me to pay more obeisance to so-called principles than to realities of finance and administration. The fact is that for the vast task at hand we need the resources and special strengtlis of both Government and the private sector and they need each other. Our best protection against inadequate public accountability of which we have seen a great deal recently-lies in diversity, a spreading of functions and power centers,

I tistorically, Government has been most effective at picking up and advancing ideas and programs that have started elsewhere and won support, or that need assistance against sluggish responses in the private sector.

The cutting edge of a new movement is usually in the venturesomeness of relatively small and often new organizations.

Right now, for example, the most prominent organizational reform being advocated is the nationwide development of health maintenance organizations based largely on the success of the Kaiser Foundation health plan. But it should be recalled that Kaiser emerged from very small beginnings more than 30 years ago in the private sector and persisted against the impediments of governmentally created legal restrictions as well as the opposition of organized medicine.

Had a unitary system existed in the 1910's, it seems highly doubtful that a Kaiser scheme could have gotten off the ground. Good as the Kaiser idea is, it will undoubtedly not prove to be the final word in health organizations for the indefinite future. From whence will the next generation's innovators, the potential Kaisers, get their launching leverage in a unitary plan?

The ponit is we don't have to abandon private initiative to obtain the advantages of governmental financial strength, social equity, or democratic control. Government undoubtedly must assume responsibility for financing health care if universal and equitable access are to be assured, because there is no other way. But that does not mean that Government must itself directly carry out the policies and administer all operational aspects to effect the execution of governmentally determined objectives.

Some time ago in a discussion of the administration's plan and his own, Senator Kennedy was quoted as saying:

The most basic difference is that the administration relies on the private health insurance industry while we rely on the social security approach. I don't see how there can be compromise on that issue.

Probably the private insurance spokesman would utter similar sentiments.

But the fact is that social security financing can be reconciled with the use of private instrumentalities. In fact, with good will an approach can be developed that borrows significant elements from all the major proposals that have been submitted to the Congress.

For illustrative purposes Anne Somers and I developed and published one such program several years ago. It was built on the general model of the Federal employees health benefits program, a significant practical experience with an effective public-private mix.

I am not liere to peddle any particular program, so I need not describe the plan here nor is there the time. The point of the exercise was to illustrate that Government financing and policy initiative can be reconciled with the advantages of private management.

There are undoubtedly other ways.

Finally, I again say that on the one hand Government merely mandating the purchase of private health insurance—which has been erroneously called public-private partnership—would leave the essential health care problems just about where they are now, perhaps exacerbate them. On the other hand, I doubt that there exists in this country the managerial competence to administer a unitary all-inclusive system of diverse and continental dimensions dealing with such sensitive personal services. I doubt that the political system could withstand the strains of the inevitable multitude of complaints, dissatisfactions, demands and misfortunes of the entire enormous and complex health system heaped on it alone.

To achieve the objectives of national health insurance, Government needs help from the private sector. It needs the managerial expertise and experience of the private sector for effective decentralization and exposure to varied administrative alternatives.

It needs the diversity and incentives for efficiency that capacity for risk-taking, innovation, and experimentation make possible. It needs the political protection of a spread of responsibility and blame for mishaps. It needs the involvement of large portions of the private sector to promote broader understanding and tolerance of the immense difficulties of running such a system. It needs the support of such groups as a counterforce to the tendency of Government budgets to become unduly restrictive.

It is, of course, equally true that private health insurance needs Gorernment to provide the necessary financial strength and stability and to insure universal and equitable coverage if it is to survive.

The traditional demarcations between private and public sectors are obsolete. The fabric of a democratic society requires that Government not be considered the sole vehicle with a public welfare mission. Public service is not antithetical to private or voluntary auspices. The concept of community involves something broader than strong government alone.

Thank you, Mr. Chairman.
Mr. ROSTENKOWSKI. Thank you, Mr. Somers, Mr. Stark?


Mr. STARK. Mr. Chairman, members of the committee, I am Nathan Stark. The role of the private sector in planning for national health insurance is of paramount importance. Unless there is deep insight and understanding of the private sector, designers of health insurance legislation could structure a program that would not assure the full cooperation needed. Without this cooperation a program could fail to get off the ground. It is encouraging indeed to see the interest and concern of this committee in examining with great thoroughness all of the complex issues involved here.

First, let me correct what may be an understandable but erroneous assumption of my position in this discussion. My titles at the University of Pittsburgh obviously identify me as a health professional. This is å new role which I have had for less than a year now.

Prior to that-literally for a quarter of a century-my vocation was private industry. My interest in the health field was strictly an avocation. As a business executive my primary concern was industrial planning and development. But like many industrialists there was secondary concern for community improvement. This led me progressively into the health field—as a hospital trustee, chairman of the board of an urban regional planning agency, and on into the development of a new school of medicine and a major medical center.

It was this experience in the health field and my commitment to it that less than a year ago led to changing from a business career to an academic health center. So in addressing the issue of national health insurance you will understand that I speak from a long experience in industry, as well as a health professional.

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