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facing up to it, facing some risks for me and for the administration and for others in Congress.

I know it's tough, but I think that is where we are at. That is where I am getting the feedback, and I want to pass that along and share with my colleagues as well as with you, Dr. Sullivan.

Thank you.
The CHAIRMAN. Thank you.
Mr. James.

Mr. JAMES. One of the problems that I have observed in the private sector is that when the government tightens down with their DRG, when the government tightens down with their regulations which may be abused on the best of principles and reasoning, et cetera, what happens in actuality in hospitals is they pass it on to the private sector and the bills are then proportionately higher, at least this is what hospital administrators have told me, although many county hospitals have lost millions. One in my county, two of them did. They lose money.

But they tell me, the administrators, they have told me that the reason it is higher is because it used to be, though the rules have changed, though it may be now, over the last 5 years, the DRG, for example, out-payment of services, et cetera, since the medical economy is one-third driven by the Federal dollars is what I understand.

If that be the case, how do we keep—when you squeeze on this end of the balloon, how do we keep the other end of the balloon from bulging; that is the private sector, and therefore affecting our premiums because I have come to the conclusion that I pay 30 to 50 percent higher, I mean some higher percentage.

If you pay cash, you don't have those government regulations to protect you or your small insurance company. Only the very large groups that might have some leverage in contracting with hospitals. But you would pay dollar for dollar that inflated price that is caused by the indigent cost that isn't covered by anyone in the county hospital, et cetera. I would like your comment, perhaps.

There is one other thing before we get to that. How would we prevent that, one. And two, when we say there is 33 million uninsured incidents reported to emphasize that they may be uninsured but many of those, some of them at least, get substantial health care benefits from the counties and the states, et cetera, so it's— maybe it's not as bad a problem in relationship to re-organizing our priorities.

And maybe all medical bills might come down if some proper aggress is involved with the issue. Do you

have any comments on any of that? Secretary SULLIVAN. Yes, Mr. James.

On the latter issue, you are quite correct, that whereas we talk about 31 or 33 million uninsured, the fact is it's a rare individual who does not receive needed health care in our country, and much of that does appear on the ledgers of our hospitals as uncompensated care or care for the indigent.

So clearly, we need to address that problem. But I want to be sure that there is no misunderstanding that most people who do need care receive it.

On the question of the shift of costs-

Mr. JAMES. Excuse me just a minute.

It appears to me that perhaps, we are paying it and may not know it, the private sector, the form of our premiums already in some respects, in some respects, we are paying it by larger premiums that we might otherwise avoid some of the effect if everyone were insured.

Do you follow what I am saying? To some extent, are we not paying it some way or another?

Secretary SULLIVAN. Well, I am sure that much of the care that is provided is more expensive than it should be because what happens with the individuals without insurance is that they do delay going to a hospital or a physician's office until the condition has indeed worsened, and therefore, they crowd our emergency rooms, and the costs of providing that care is much more expensive.

We also have another problem in our system, and that is the cost of liability insurance-not only the direct costs of premiums, but also the costs of defensive medicine that our hospitals and our physicians undertake in ordering tests that really are not necessary and don't contribute to the care of a patient, but rather are provided to protect themselves if there should be a suit.

So that is one example of the kinds of things that we have to look at in trying to fashion a comprehensive solution. That clearly has to be part of it as well.

We are concerned that we ensure that we undertake actions that don't shift costs from one part of the system to the next, but really get costs under control. We already spend more money than any other nation, yet our health status is not as good.

That means that we, whether it's the public dollar or private dollar, are not getting our money's worth. And that is really what we are interested in correcting.

The CHAIRMAN. Thank you.

Dr. Sullivan, you said in your opening statement that you look forward to a continued dialogue with this committee.

May I state that we look forward to that dialogue. We sincerely hope that we can work with you to pass the proper legislation. You and I know that it is going to cost money. It's not going to be free, but it is going to be in the best interests of our entire community.

I thank you for your presence and for your testimony.
Secretary SULLIVAN. Thank you.
The CHAIRMAN. The hearing is adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]

APPENDIX I

The story portrayed in

the

attached House Committee on Aging study is one of people lower and middle income older Americans -- and the pressures they face from a society-wide problem rapidly rising health and long term care costs. While virtually all lower and middle income Americans feel some pressure from these costs, the problem is acute for people whose incomes rise no faster than overall inflation. It is acute for those who have high out-of-pocket health costs or who are at high risk of facing high costs. When these two factors come together as they do for older and lower/middle income elderly, the problem can become unbearable. The elderly's pocketbooks are quickly being emptied as the elderly face spending twenty percent of their income on health care.

The study's result dramatically points out the great need for change. Change in how the nation contains its health and long term care costs is long overdue. Federal, state and employer actions have been relative failures in their primary objective, containing their own costs. Their actions have been too narrow in their application, failing to protect elderly and non-elderly consumers from costs uncovered by public or private third party payers.

As the final chapter of the study suggests, a comprehensive system of cost containment is essential if costs are to be kept affordable for all Americans, including the uninsured and underinsured of all ages. The failure to do comprehensive cost containment will fall most heavily on younger Americans with little or no insurance and on older Americans with lower, relatively fixed incomes.

A nation's respect for all its elders comes from what they did, their contribution to a free and strong America, and from who they are, proud people delicately balancing their own needs with those of their grandchildren and children. Our elders ask no undue attention, only that attention necessary to survive the special trials of later years. They ask only to be treated fairly. They ask only to retain their dignity and independence. They ask only for society to recognize the extra pressure on the elderly facing high health care costs with only limited incomes.

EDWARD R. ROYBAL Chairman, House Select Committee on Aging

(59)

EMPTYING THE ELDERLY'S POCKETBOOK

GROWING IMPACT OF RISING HEALTH CARE COSTS

A STUDY BY THE

SELECT COMMITTEE ON AGING

U.S. HOUSE OF REPRESENTATIVES

March 1990

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