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Mr. ROSTENKOWSKI. If Lew, you will begin with your opening statement, then we will go down in that order, and then we will be open to discussion.



Mr. BUTLER. Thank you very much, Mr. Chairman and members of the subcommittee.

I think all of us here will find this kind of discussion very beneficial. Instead of your having to listen to long speeches from us, this kind of informal exchange is really very productive for us and I hope it will be for the committee.

I have written out a short statement, but rather than just read from that, or even follow it in detail, I thought perhaps it might be more useful for the subcommittee for me to go over some of the mistakes, or at least misunderstandings, that I personally have been involved in in the health policy field when I found myself in HEW doing the health planning as the Secretary for Planning.

That started in 1969, and in going over today's agenda I found it at least useful for me to try to think back and discover how many things we thought were so-at least I thought were so in 1969-maybe it was just my ignorance and on which we based a lot of our planning and policy, many of which just turned out not to be the case.

So if the committee can get any insight from hearing a story about, in some respects, how not to do some of these things, I would be happy to tell you that story. I apologize for the fact that it comes in somewhat personal terms, but that is the only way I know how to tell it, I guess.

I am sure you have heard a lot about national health expenditures. I must confess it took a long time for it to sink into my head how huge they are and how fast they grow. The numbers are just numbers and they don't mean much until you see them in relation to other things. things.

For example, in 1969, when we started the policy planning in HEW, national health expenditures were about $60 billion. That is only 6 years ago. This year they will be exactly double that, $120 billion. At the time, we were trying to make 5-year projections-I must say that none of our projections indicated that we would reach $120 billion by now. We just didn't believe that the rate of inflation would continue and, of course, it has, and in some respects has gotten worse.

So when you think about a doubling of anything as big as this in a 6-year period, it is a rather significant event.

I suppose the other striking aspect of the expenditures, at least to me, was to see them in relation to other kinds of governmental expenditures.

In 1969, we had the view in HEW that if we could only get the Defense Department's money, we could take care of HEW's needs and, specifically, if the Vietnam war would only end, why, we would be in good shape.

It came as somewhat of a shock to me that the Vietnam war was costing I can't say only-but it was costing at its peak $25 billion a year. When we did the projections, we suddenly realized that the end of the Vietnam war would have some minor impact, but very little really on HEW's ability to pay its bills, that our expenditures were increasing and a lot of this was due to the health sector. They were increasing at such a rapid rate that the end of the Vietnam war was certainly no salvation for HEW and, of course, that has turned out to be exactly the case.

To give you some sense about that, right today total national expenditures this is not just Government, but total national expenditures for surgery in medical care, just surgery, now exceeds the cost of the Vietnam war's biggest year. HEW's expenditures for medical care alone-forgetting the welfare and education side of the Department— HEW's expenditures for medical care alone now exceed the Vietnam war in its biggest year.

So gradually some of the enormity of these expenditures began to sink into some heads such as mine that really had not been very much exposed to the problem up until then.

The second characteristic of the medical care area in the role of Government that was sort of slow coming home to us is what was happening with the medicaid program. At that time, of course, most of the attention was devoted to medicare for older persons. Medicaid was a program we knew had a problem, but that was just another problem among many in our view.

Gradually it became apparent to us that medicaid was not just another problem. It was an overwhelming problem. For example, after a couple of years we began to realize that the growth in medicaid expenditures, which, of course, were coming out of general revenues, not out of payroll taxes, but the growth in medicaid expenditures-and keep in mind the Federal Government was only paying half of thatwas such that it was going to squeeze HEW's entire budget; that is, biomedical research, education, all were going to be squeezed because of the growth in medicaid and some other so-called uncontrollable programs.

To put it in another framework, I and some others came thinking that the so-called welfare mess-we are talking about cash payments for public assistance-was our biggest problem, and gradually we began to see that the payments under medicaid were going to outstrip cash payments eventually at the rate they were going.

While not all of that has turned out to be the case, because of States cutting back since then in their plan for medicaid expenditures, we are still now at a point where $7 billion is going out for that purpose matched by another $7 billion by the States. That continues to be, at least in my opinion, the No. 1 priority for any approach to health insurance on the way towards national health insurance or as a part of an overall bill.

Perhaps I will make one other comment about the expenditures. At that time medical costs nationwide were inflating at 10 or 12 percent. We, of course, had no idea that inflation generally would become as


bad as it has in the United States, but that rate of inflation was double the normal size of inflation for everything else, that is the Consumer Price Index was going up maybe 3 or 4 percent a year, and medical costs were going up double that.

I will refer to this later, but the more we got into it, the more it seemed that there ought to be a way to stop that; that if we could only become more efficient and handle the Government's affairs better and the Nation's and do something about inefficiency in medical care, we would be able to control that inflation.

Now here it is 6 years later and the normal rate of inflation is under control, if you call 6 percent under control, but at least it isn't in double digits this year, and medical care costs are still increasing in the range of 12 to 14 percent this year. So nothing much has changed and we are spending 8 percent of our gross national product.

When I started it was 7 percent, and where it stops it is hard to tell. It leads you to the conclusion that while it is possible to do nothing in this field, that is, to have no further Government initiatives, it is not possible to do that and stop the trend in costs that is going on now. If the problems are to be addressed, at least in my view, it may require spending some money to, in the long run, reverse some of these trends.

Now without going into any detail on the issues I have enumerated in the testimony, I would like to hit five or six basic misconceptions that we had at that time, or at least that I had, that underlay a lot of our thinking about medical care policy. It took a number of years for those to get out of our heads.

The first, and I think you have heard quite a bit about it over the last few months, perhaps even yesterday in the testimony, is the influence of medical care or more medical care on the Nation's health. I remember then we would go up and testify before Senator Kennedy's committee, and we would make statement such as "America is 10th or 12th in health standing in the world and life expectancy and, therefore, we need national health insurance."

Senator Kennedy would say the same thing, and he would also say, "Therefore, we need national health insurance."

Well, we were both wrong. It is very clear now that while there are a great many reasons for having a coherent health insurance system and a national health insurance system, one of them is not to improve these overall health indicators for the country. That is just not going to happen.

Now I could not believe that at first, because I said, "Well, I know people who, if they had had medical care, they would have lived longer or their lives would have been saved or if they had a heart attack, if we would have gotten them to the hospital in 20 minutes, and they would have lived," and "How can you tell me that the cumulative effect is that it won't improve the Nation's overall health?"

Of course, it will improve individual health and there are some groups, particularly the poor, who should have longer life expectancies, but the other factors that influence health, personal habits, stress, employment status, nutrition, the environment, these have such a major impact on these overall indicators that in that picture medical care is not that significant.

So when we talk about the Nation's role in health, which is the Government's role in health, the subject today, we have to remember that

most of what we have been talking about, and I think we will be talking about this morning, is the Government's role in medical care. There are all of these other things the Government is doing that have an enormous impact on health. In that respect your programs for income maintenance, for housing, for nutrition, for jobs, all of those in the long run may turn out to be more important health programs than any program that deals with medical care.

Unfortunately we don't know how to deal with these comparisons, I don't think, at the moment and I don't want to take our time on such a global issue other than just to mention it.

I suppose the next misconception that we have had concerns the amount of science that is in modern medicine. We have made enormous strides in this country in the last 50 years in medicine. As a nonmedical person, an outsider, I have found myself, and still do, with tremendous respect for the quality and dedication of the researchers and the practitioners and so on, particularly now that I am working in a medical center. But the fact is, as my friends will admit in their candid moments, that modern medicine is a very limited thing. We know how to do very well some things and we do not know very much about a great many other things.

What I find myself continuously astonished about now is how little we know about the efficacy of a lot of modern medicine. That is, we do not really know how much good it is doing. There are some indications, and these can be misconstrued and warped, that a lot of our effort is not doing very much good in some measurable sense. It may be doing an enormous amount of good in the psychological sense, and it really is important to care for people and to try to do as much as you can and a lot of medicine is devoted to that. But when you look at the statistics on the rates of recovery or death from cancer or for the major killers, they have not changed very much in 20 years.

So as Government gets more and more into paying the bills for all of this, which of course it is, it is up to 40 percent of the total bill now, it is incumbent on Government to try to find out how efficacious all of this care is and, unfortunately I think, to begin to cut down on some things that do not do very much good, not to mention things that do positive harm. That poses enormous problems. It is hard to measure what does good, since you are experimenting largely with human beings. You can't delay care to someone, on ethical grounds, in order to see whether he is worse off or better off in an experiment, so we have enormous difficulties in doing this. But I think we do have to continually recognize, in thinking about Government's role, that we have not reached perfection by a long shot in medicine, and are way short of that in many respects.

I suppose another misimpression that we had was about what medicine did, that it was largely acute care and that a certain amount of it could be avoided by prevention. But, having marvelously solved the problems of infectious disease over the last 50 years, medical care has turned in increasing portions to care for chronically ill people, people who come back year after year. Most of the great killers that we think of, heart disease and now cancer, we are learning how to manage as a chronic illness. We are faced with dealing with populations that we cannot cure, whose diseases we can only manage.

These are the same populations in many respects that the Committee on Ways and Means deals with in other programs, whether they are called disabled, dependent people, or people receiving supplementary security income. These are all of the same people in many respects, so medical programs are going to have to be coordinated, I hope with our programs relating to these people.

For example, there are about six different programs, all within the jurisdiction of this committee, that may be sending money to the same persons that visit our hospitals at UCLA Medical Center every day. That would be supplemental security income, social security, disability, medicaid, medicare and social services and then there may be vocational rehabilitation and a few other things of that kind.

So the role of government has become increasingly complex and a lot of it focused on the same chronically ill population.

Another point had to do with cost control. I firmly believed at that time that if we could manage the inefficiencies in the program. We could control costs. I used to write big statements about cottage industry and if we could only get it shaped up and make it efficient and do away with profiteering, we could solve the cost control problem.

We went up and testified how our various cost control measures were going to do wonderful things, various kinds of limitations on fees, 75th percentiles and all that. I am not saying all of those things. shouldn't have been done and are not worthwhile, but the fact is that medical care costs, given the present system, are inherently uncontrollable. I don't think it is an accident that this rate of inflation has continued the way it has and I think it will continue to go that way for the next decade unless some major change is made in the payment system.

The reason is not all bad at all. Medical care grows every year. Every year a day of hospital care is a different thing than it was the year before. There is more technology, more technique, more good research, more of everything.

In most businesses normal cost constraints cause you not to put in new technologies that will cost more money. You only put them in if you save money. But in the medical care business, this is not so because of insurance which is a necessity to protect people against unforeseen events. Because insurance is there, the money is there and because the money is there, the product grows in size and so no matter how much we do, how well we do with the inefficiencies, we have this inherently ballooning business. To stop that ballooning means that some things that are good to do, at least for some people, can't be done.

So the cost picture is not an easy one to deal with.

The next point is on administration. At that time HEW was having a lot of problems running things and still is. The committee knows a lot about supplementary security income and the kind of difficulties you have in administering those programs, problems with setting up computers and all of that. At least I had assumed that the problems with the health insurance system would not be any worse than that, although we were thinking about national health insurance going to deal with 200 million people, keeping in mind that social security only deals with 25 million now on its computer banks and 200 million is eight times that.

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