Mr. THOMPSON. Despite these low percentages of total, these items reflect costs that must be dealt with. Shifting these from the private sector to the Government would only serve to move the cash from one pocket to another-someone still has to foot the bill for all of these service related items.

Looking at costs from a broader perspective, let me interject a few more statistics. To compute what it costs us administratively on the average per contract, we simply divide out total operating expenses by the number of existing contracts. In the case of Massachusetts, that comes to approximately $2.30 per contract per month. A low enough figure when you consider that this entails enrolling, billing, paying claims, utilization review, servicing claims problems, answering direct inquiries and processing that contract out should the subscriber leave the group.

All of this is not to say that we have found the answer to controlling overall costs in the system-no one has. We are doing many things to at least get a handle on why costs have moved so sharply and what can be done about it. Utilization review in 1974 in Massachusetts saved $3.8 million for Blue Shield and between $2.5 and $4 million for Blue Cross. That is a start-but more must be done. In order to do that we must get at the root of some of the problems within the system itself the same problems which must be resolved before any National Health Insurance plan can be successfully implemented.

Let me quickly go through some of the more obvious questions.

Acute versus preventive care: Insurers for years have been subject to criticism because we seemingly emphasize sickness rather than health; the fact remains that insurance whether Government or private is provided to insure against a risk. In this case, the risk is that you will get sick and seek medical attention. Blue Cross/Blue Shield were originally set up to meet the needs of the acute illness because technology and the means of the system at that time were also in that mode. The system has experienced a shift away from the heavy institutional emphasis to the more flexible ambulatory and the private sector has kept pace. However, there is sincere and credible concern as to whether a total reorientation toward providing preventive care benefits would either lower the incidence of acute illness or be the most cost effective means for the subscriber and the public at large.

As an adjunct to this, no matter how sophisticated medical technology and engineering becomes, hospitals will probably never be obsolete, at least not in our lifetime. The secret to stopping high cost institutional settings from proliferating is not by refusing to acknowledge them by removing benefits but simply to look realistically at the costs entailed and devise methodologies for adequate regulation. No small job, but one that is becoming more and more necessary.

Resources, are a continuing debate, are we overbedded, are we underbedded. How many physicians per thousand and in what specialty distribution is adequate. Again, good planning is the key. Planning, however, should be based on specific area needs and not on some master plan solution for the Nation as a whole. Only after we are able to look at each region, each area objectively to assess what is good and bad will these questions be resolved.

In summary, there are some basic principles which can be applied