less of billing method. Most Blue Cross and Blue Shield contracts cover inpatient radiology in full between them-Blue Cross through the hospital cost base for salaried or percentage radiologists; Blue Shield through usual and customary payments for individual, direct-billing radiologists. HMO-type groups must also be included here-HIP in New York, GHI in Washington, HCHP in Massachusetts, and so on. Thus, in Massachusetts, some 70% of the population is covered in such a way that it makes no difference, from the standpoint of benefit entitlement, to the patient how radiology services are billed.

For those people covered under most indemnity health insurance policies, however, we all must recognize that in some cases it may make a difference. If fees charged directly by radiologists for inpatient services do not fall below scheduled limits, the patient would in general, be required to make up the difference between the limit and the fee. In addition, further payments might be required through deductible provisions.

This is a factor which should be weighed carefully in making any responsible decision regarding direct radiology billing.

The Pennsylvania report states that "The most obvious and direct cost increase would be incurred in the area of billing expenses.", pointing out that two bills would be required where now one suffices. It estimated the cost of producing a bill at $2-3. If that were true, billing costs alone could raise the charges on some services by as much as 50% for low cost procedures. In the first place similar claim information must be assembled and transmitted by the radiologist regardless of the system within which he participates. Otherwise stated, there is a cost factor involved where the radiologist bills the third party directly and also where he submits the information to the hospital and it bills the third party.

The report completely ignores the other side of this cost issue. Medicare requires a split between hospital charges and physician patient care charges. In cases where radiologists bill directly, Part B simply pays them. In cases where the radiologist's fee is included in the hospital charge, however, someone, somewhere either in the hospital or in the offices of the intermediary-must artificially develop the amount of the physician charge billable to Part B (direct patient care) and that amount chargeable to Part A (supervisory time and other activities not considered direct patient care). The time and money involved in making these determinations has apparently not been included in the calculations reported by the Pennsylvania Insurance Department.

In arriving in its final conclusions regarding cost, the Department made, it seems to me, a serious error in methodology. The report stated: "Figures from a recent study conducted in several major Pennsylvania hospitals revealed that if hospital-based physicians billed directly in accordance with the recommendations of their various Associations * radiologists would experience a 112%, of $1,673,000 increase." Clearly, they were comparing applies with oranges, that they are being paid with what an admittedly self-interested group thinks they ideally should be paid. This is rather like comparing a current union wage with the first union demand as a contract negotiation session approaches. What should have been compared was the current per-procedure amount attributable to the physician in a salaried or percentage situation with the amount the physician would have been allowed for the same procedure under a usual and customary system.

As a check on the Pennsylvania conclusion, we sampled our own Medicare data and came to a startling different conclusion. We chose 20 procedures at random and compared the physician portion of the hospital bill, in two randomly selected hospitals, with the allowable Medicare Part B level II in each of our two areas. We made, then, 40 separate comparisons and found that in 6 cases, the allowable payments would have been equal. In 18 cases, the usual and customary payment would have been higher. And in 16 cases, the physician's portion of the hospital charge would have been higher. Thus, far from being necessarily more expensive, direct billing charges can be lower than charges in salaried situations. We are entering into a full-scale statewide study of this issue with Blue Cross and our Insurance Department of Massachusetts.

We wanted to find out more about aggregate differences so we applied the differentials determined in our first-phase study to the number of times each procedure was performed for Blue Shield's regular business. The 20 procedures represented about 140,000 services or 20% of total radiology services paid for by Blue Shield. We found that had these services been performed for Medicare patients in a situation in which the physician were salaried, the aggregate cost would have been more than $15,000 greater than if they had been performed by fee-for-service radiologists. The actual differential would probably have been

greater still, but we assumed that all direct-billing radiologists would have been paid 100% of the maximum allowable limit-which is not our usual experience. The statement made in Pennsylvania that direct billing is "exorbitantly expensive" then, is clearly untrue. Not only do the differentials vary from procedure to procedure, but it is highly likely that, overall, the usual and customary system is slightly less expensive. The usual and customary fee, by the way, routinely includes normal costs of doing business-including the cost of billing. So much for the exorbitant cost of direct billing.

The report also makes a number of references, obliquely, to the lack of control supposedly inherent in direct billing. First, it touches productivity. "When the physicians are employed by the hospitals their income (sic) is usually tied in to the productivity of their departments, whereas in direct billing situations increases in incomes can be generated by simple fee increases." It also touches on quality, stating that the move to direct billing "would increase overall costs for their services without increasing quality. . . ." Both comments ignore the real state of controls in the health care system. They assume a complete lack of cost or quality controls outside the hospital setting.

In Massachusetts, at least, the situation delineated in the Pennsylvania report seems to be reversed. The move to direct billing would expose the radiologists to more stringent controls, in both areas-cost and quality. Let's take a look at precisely how the controls really work.

Most hospitals these days have Utilization Review Committees, or some variant, whose sole purpose is to review procedures performed at the hospital for propriety and necessity. In general, because radiology is an ancillary procedure requested by another physician and because, unlike, say, anesthesiology, radiological procedures rarely have adverse effects, radiologists come in for relatively little scrutiny.

Claims for hospital services are processed through commercial insurers or through Blue Cross. In general, commercial insurers do not provide any control whatever on the system. They simply either pay the full charge or the contractual indemnity amount. Although our Blue Cross contract with hospitals specifies cost containment methods, these appy only to the bottom line and are generally based on the current hospital cost base. That is, rather than scrutinizing each radiological procedure, Blue Cross looks at the total cost of providing ancillary services and limits increases in that cost.

In point of fact, the only mechanism that provides any procedure-by-procedure control in the area of radiology is Blue Shield-and that works only for fee-forservice, direct billing radiologists. Lets' look at the cost control side first.

In order for a radiologist to bill Blue Shield directly for non-Medicare business, he must sign a participating agreement with us. This agreement insures cost control in two ways. First, it requires the physician to abide by the usual and customary mechanism. Second, it precludes balance billing by providing that the physician accept the usual and customary payment as payment-in-full for that service.

Far from permitting simple fee increases as the Pennsylvania report threatens, increasing fees under usual and customary is a long process. The U & C profile development process insures fairness and control. A radiologist's fees for the preceding year are first arrayed by procedure. For each procedure, the median fee is termed that radiologist's "usual" charge. The usual charges for all radiologists performing that service in that area are then arrayed and the "customary" limit is set at the 90th percentile (75th for Medicare) of the array. Our participating radiologists agree to accept 95% of the lowest of their charge, their usual charge, or the customary charge as payment-in-full for that service. This method provides the only direct control on radiology fees in the health care system today. It certainly does not provide permission for simple and unlimited fee increases.

In terms of utilization control, too, Blue Shield again provides the most direct method. While Blue Cross looks at the aggregate departmental costs, Blue Shield looks at the procedure. When a charge is submitted to Blue Shield, it is passed against our utilization screens and is checked, among other things, for the appropriateness of the procedure in terms of the stated diagnosis. I should say that the computer screens were implemented in 1972 after extensive consultation with the Massachusetts Radiological Society. If a chest x-ray were done, for example, in conjunction with a hangnail on which no surgery requiring general anesthetic was performed, the system would suspend the claim for further review. If, in fact, the x-ray were determined inappropriate, no payment whatever would be made

for it. In addition, we currently have contracts with two foundations for review services relative to determination of medical necessity of specific claims.

This mechanism, of course, also provides an additional control on costs through controlling unnecessary utilization. A check with our Utilization Review Department produced the information that four radiologists will probably over the next year have almost 750 claims reviewed and that their total denials and reductions will probably exceed $16,500. Overall, the department experience indicates that some $50,000 in radiology claims will be denied in 1975, largely because they were unnecessary services.

In addition to Blue Shield's own review mechanism, direct-billing radiologists are also (or will be) subject to peer review through the PSRO mechanism. Thus another cost/quality control is being added to the direct billing side of the equation.

In any case, National Health Insurance is likely to tend to tip the balance slightly in favor of direct billing in both cost and quality/utilization terms. The most recent proposal, last year's Ways and Means Committee draft proposal, for example, provided for a fixed fee schedule system for direct-billing physicians with balance billing precluded by law. It also would have made the peer review system mandatory for all portions of the government-mandated program. Contracts between hospitals and radiologists would be regulated only indirectly through control of increases in hospital costs. Most NHI proposals would operate in roughly the same fashion.

At present, however, some things are clear. First, in purely cost terms it is highly questionable as to whether hospital-based radiology billing is really cheaper and more efficient than direct billing. Certainly it is not true to the extent that the Pennsylvania Insurance Department claims. We found direct billing to be slightly less expensive. We await the results of the full scale study being begun in Massachusetts. Second, in terms of controls, direct billing definitely provides more options to the system than does the salaried arrangements.

Our operating policy in Massachusetts is entirely consistent with this. We believe that the decision as to methods of compensation is the prerogative of the individual radiologist. We assist the physician, if asked, in identifyng the varous factors that must be taken into consideration in order to reach a rational decision. We do not proselytize for any particular form. A decision to shift from one method to the other does effect our counterpart-Blue Cross with the result that both corporations are striving to insure that a decision to shift is not stimulated by a different net compensation for the same services resulting only from the choice of compensation mechanism. It would be inappropriate for Blue Cross and Blue Shield to be so called "competitors" on this issue.

The issue raised in Pennsylvania and under discussion here today is a weighty one and should be studied carefully and analyzed rationally. Inflammatory declarations are out of place in this dialogue in which each side has valid points of view for discussion. My purpose here today has been to attempt to return the ongoing discussion to its previous rational base. Straw men set up solely for the purpose of argument must be ignored so that the real issues-cost to the system, quality medical care, freedom within responsible limits-can again become central to the resolution of this very serious problem.

Mr. COTTER. In Massachusetts is the surgery work performed by the pathologist, anesthesiologist, is it considered a doctor's service for which Blue Shield reimbuses or is it a hospital service for which Blue Cross reimburses?

Mr. THOMPSON. In regard to the subscribers it makes no difference because it is covered either way. It is a matter of absolutely no significance to a person receiving the service.

Mr. COTTER. Are you a joint plant?

Mr. THOMPSON. We are one of the strange combinations of separate boards, separate presidents, some employees working for one, some for the others, some in between. There are a variety of models around the country in that regard. There is

Mr. COTTER. Is it one premium for both plans?

Mr. THOMPSON. That's correct, sir, and all of that is allocated.

Mr. COTTER. Take a State where you have separate entities, Blue Cross and Blue Shield. Is it considered a hospital service or doctor's service?

Mr. THOMPSON. I don't think you can establish that as a rigid pattern. I think it would be somewhat unusual to see it characterized in any particular State that way and then exclude it from one of the other contracts. At least it should not be.

Mr. COTTER. In other words, the subscribed would pay for one service twice.

Mr. THOMPSON. I can't imagine that happening because you have a professional component in there that will be billed only once. It may be included in your hospital bill or demonstrated by the receipt of a bill from the anesthesiologist to use that example. But that professional service under no circumstance should arise twice.

Mr. COTTER. Take the State

Mr. CORMAN. The gentleman's 5 minutes are almost up.
Mr. COTTER. All right.

Mr. THOMPSON. I will be pleased to send you a copy of that report. It is the first one on the subject that I am aware of.

Mr. COTTER. Thank you.

Mr. CORMAN. If we could get back to talking about compulsory private. Mr. Thompson and Mr. Cathles leaped toward compulsory private, but with the caveat it would require that the compulsion would be to every single person.

We will not solve the problem unless we exercise the police power and compel every American to buy an insurance policy that is at least some reasonable coverage that would have to be mandated in the statute. Is that about where we come out?

I hope you understand that we only have 5 minutes. I do not want to put words in your mouth but I want to figure out where we could go particularly with those two.

Mr. CATHLES. I am bothered by mandated coverage because when you mandate, you have to regulate. When you have to regulate, then you have to set up some kind of bureaucracy.

Also, if you mandate, you lose some of the good effects of competition. So I am basically troubled by that kind of approach.

But, on the other hand, I am not so naive as to think that you would achieve universal coverage short of mandating.

Mr. CORMAN. Should universal coverage be our objective or not? Mr. CATHLES. Well, you know, I think that if you make coverage available to everybody who has the means to pay for it, at a reasonable price, under some kind of a system where you are assured that they are going to get a fair shake and good treatment, and if you take care through Government help for those who do not have the means to pay, then I think you have done about as much as really ought to be done under our kind of system in this country.

Mr. CORMAN. What do we do about adverse selection of the individual?

Mr. CATHLES. Well, I think that a means can be found to offer coverage at a fair price to every individual and to have the antiselection, you get some of it but nobody knows exactly how much, but have it underwirtten by the insurance industry. In effect that would be the price which the insurance industry pays for participating in the

overall program. That might be the cheapest way and the easiest way to do it, you know.

Mr. CORMAN. But the industry does not underwrite anything. The people who pay the premiums underwrite it. We are going to leave ourselves in a situation where anyone could wait to buy this insurance until he needs it and heap that cost on the other insureds.

Mr. CATHLES. Well, you have to have some rules. You have to have some waiting periods so that an individual couldn't wait until he knew he was sick to join the plan, but you could set up a mechanism which would be voluntary and which would provide good coverage at a fair price so that everybody who had the money could obtain coverage. Then you would have a separate mechanism for providing coverage for those who don't have the money.

Mr. CORMAN. That we will lay aside because we all concede that there are some and it is hard to figure out what that area is. But there are some who cannot afford it.

Mr. CATHLES. About 11 million people.

Mr. CORMAN. There are many people and they make optional decisions in spending money. I cannot imagine that they will pay insurance premiums voluntarily. We see the medical costs are high and that premium will have to roughly fit that cost, of course.

I cannot see them making that decision to pay the premium.

What would be the selling cost to reach that segment of the community?

Mr. CATHLES. Your expense rates run about 50 percent of the premium and that is largely made up of the distribution cost, the paying of the commission to the individual agent, but it also includes the administrative costs and also the costs of medical selection.

Mr. CORMAN. Did you want to add anything, Mr. Thompson?

Mr. THOMPSON. Ours naturally would be lower, running in the neighborhood of about 22 percent to service the nongroup category. That would include all costs associated with the administration of that category. Obviously it is substantially higher than it is for the group categories. That is very apparent.

I do not think anybody likes to deal with the philosophical issue of mandating what individuals do in this country or any country, but there are some examples of such a mandate as to individuals and the best one I can think of is that practically every State in this union mandates that if you wish to drive an automobile you are going to have automobile insurance. So the analogy is not that far off; it can be done.

Mr. CORMAN. I do not think any of the States do that. What the States sav is. "You have a certain financial responsibility and if you wish to meet that through buying a policy, you may." But I am aware of compulsion on an individual basis to buy any kind of insurance. Mr. THOMPSON. I would suggest that the net effect in the State, my own or any other. that you are mandated to buy insurance. Mr. CORMAN. Well, you do have the option

Mr. THOMPSON. It may be called otherwise, but the practical effect is that you buy insurance.

Mr. CORMAN. The risks are such that he buys, and it is not expensive. The odds of getting sued are not nearly as bad as the odds of getting sick.