have to be reflected in the grant of identical increases to the highest paid workers. Our experience has been that hospitals, even when only a small proportion of the work force is unionized, argue that identical increases should be given to all once a settlement is reached for low income employees. Such a position does not seem particularly reasonable.

On the other hand, it is necessary that management have flexibility in determining hospital staffing patterns and in the appropriate salary structure to obtain that goal. For this reason it is preferable to review a total hospital budget, not divided into wage, and other expenditure categories. At management's discretion some wage increases can be granted in addition to those collectively bargained, if appropriate reductions are made in cost centers that are proven to be high.

Section 126 proposes that any change in the admission policy of a hospital which may avoid the purposes of the Act be subject to sanction. We strongly support the intent. However, the trigger is a written complaint to a Health Systems Agency. This mechanism is totally inadequate. Again, we agree with Mr. Welsh of AFSCME that there should be detailed public disclosure by hospitals for the information of consumers, including HSA boards. This disclosure should include information about: total costs, charges, patient admissions by type of payor. We feel that consumers need to be given the right to initiate complaints. The records of the New Jersey Department of Health are subject to full disclosure. We also receive many complaints from consumers. Such State Agencies are needed to play a significant role in assisting the enforcement of this section. G. Restrictions on Capital Expenditures

We strongly support the nation-wide "cap" on capital expenditures built into the statute. However, the formula proposed in section 1504 (a) (2) creates major problems for those states with older hospitals of which New Jersey is one. We have no need for new beds, and indeed should be reducing the number of beds. We do, however, have large numbers of beds in deteriorated facilities which need rehabilitation and renovation. While this section provides for the Secretary to develop a formula based on more than population, it does not require him to do so in a timely fashion. It's our view that the formula should be initially mandated to at least include a measure of the plant asset value per bed. We suggest the

addition of the ratio of

beds

asset value of fixed plant. This formula will provide more funds to those areas which have deteriorated physical plants, ut will not underwrite the acquisition of more and more costly technology where it is unnecessary.

IV.

The supply ceiling of 4 beds per 1,000 proposed in section 1504 (b)(2) is a start in the right direction. But, all studies dealing with appropriate provision of health care suggest that a much lower number is appropriate. We feel that the committee should seriously consider reducing the required supply ceiling to either 3 or 3.5 beds per 1,000 population. Section 1504 (b) (3) promulgates an occupancy standard of 80 percent for hospital use levels. In New Jersey we have established a requirement of 90 percent occupancy for medical/surgical beds and 75 percent occupancy for obstetric and pediatric beds. the majority of beds fall into the first category and since the under use of beds falls significantly into the latter two categories, such occupancy standards are more likely to apportion resources more rationally

Since

Major urban hospitals, in New Jersey as elsewhere, have problems with respect to these sections of the legislation. We feel we must speak in their behalf. They must accept a disproportionately high load of the medically indigent patients so that, under standard Medicare and Medicaid cost reimbursement formulae they suffer. They also tend to have the deteriorated plant and thus have difficulty retaining physicians and other staff while they are deprived by the restrictions on their revenue from making capital improvements. Some provision needs to be made for special consideration to those hospitals for provision of care to the indigent patients. It is important also to ensure that the capital formula will not restrict the ability of major urban hospitals to renovate and improve their plant and equipment.

Summary

The New Jersey Department of Health supports S-1391 because the nation cannot wait any longer to make some uniform first steps to contain health care costs. Those of us in States with pioneer programs know it can work without depriving the population of needed care of high quality. Within our State where we have come to know intimately the problems of each of our institutions, we have been able to maintain average hospital rates for protected payors at or under the approximate 9% increase proposed in the Administration's legislation. the same time we have been able to help hospitals with special problems.

At

Therefore, it is essential that the Administration proposal, hopefully with some of the feasible improvements we have suggested, be recognized as it is labelled: transitional. In the long-run we have to be talking about delivering health care, rather than solely hospital care. We have to allocate our capital and operating resources in such a way that we do not encourage ever increasing expenditures for hospitals while preventive and primary care remain the orphans!

In our experience, after the first two years, a cost-based reimbursement program with reasonable restrictions will have effectively identified many areas where hospitals are not as efficient as they should be. We have even found a few in the

13

industry, particularly business-like Trustees, who welcome the technical and management assistance of our budget review. Then it is possible to move away from a pure cost based system methods of payment which will provide incentives to hospitals to move in the desired direction.

to

It is also crucial that the health planning functions in DHEW be integrated with the cost and quality control activities. When these are well linked, as they are in New Jersey, societal decisions about what and where to expand--or contract--are made rationally and with a true knowledge of economic impact on all payors. Cost containment is not a matter of "cut and paste", snip here and tighten there. It is truly a matter of informed consent to spend resources for planned and needed services, properly located. Without the marriage of planning and cost containment, we will ever more experience the "balloon effect"... squeeze in here--and the inflation pops out on the other side!

Senator KENNEDY. The next panel is headed by Stanley Wisniewski, Service Employees International Union.

STATEMENT OF STANLEY WISNIEWSKI, RESEARCH DIRECTOR, SERVICE EMPLOYEES INTERNATIONAL UNION AND MOE FONER, EXECUTIVE SECRETARY, NATIONAL UNION OF HOSPITAL & HEALTH CARE EMPLOYEES; AND RICHARD E. MURPHY, LEGISLATIVE DIRECTOR, SERVICE EMPLOYEES INTERNATIONAL UNION, A PANEL

Mr. MURPHY. My name is Richard E. Murphy. I am legislative director of the Service Employees International Union. Our secretary-treasurer was going to be here to introduce these two gentlemen to offer testimony; and I would hope that Mr. Weinlein's testimony, which has been submitted to you, will be made part of the record. Just a brief comment.

The Service Employees International Union represents over 250,000 health care workers. We have a vital interest in this legislation, and the points that will be made I hope will be taken by your committee and digested and hopefully acted upon.

Mr. WISNIEWSKI. My name is Stanley Wisniewski. I am research director for Service Employees.

What I am going to do is briefly summarize the major points presented in both Mr. Weinlein's prepared statement and my own.

I want to thank you for the opportunity to testify today. Our unions, together representing over 350,000 health care workers, fully support the administration's decision to slow down the rapid increase in the price of medical care.

All of the workers we represent are deeply concerned by the upward spiral of health care costs. Clearly, there is something seriously wrong with our present health care delivery system when workers who we represent in such cities as Detroit and Syracuse see the equivalent of 41⁄2 weeks' wages go to cover the cost of their hospital bills, while just a short distance away, in Canada, workers whom we represent in the same occupations in such cities as Windsor and Belleville, Ontario, have only half as much in weekly wages claimed by hospital

costs.

Inflation in the health care industry is a critical problem, especially to the many low-wage workers who are members of our unions. Indeed, it is ironic that among the workers hardest hit by health care inflation are health care service workers whose wages still remain below the level of earnings enjoyed by workers in most other sectors of the economy. The real answer to this problem is a program of national health insurance.

Short of this, we approve of the Carter administration's approach in S. 1391. There are, however, a number of very critical problems in this legislation which we would like to discuss.

Our main concern is that the proposed program should not be used to interfere with free collective bagaining in the hospital industry nor to hold down the wages of hospital workers while prices continue to rise.

As representatives of hospital workers, we have been saying for a long time that the rapid increases in the cost of medical care are not, in any way, attributable to hsopital labor costs.

This has been documented time and again-most recently by the Council on Wage and Price Stability in a study which estimated that limiting the rise in the rate of earnings increases of hospital employees to the increases experienced by all private nonfarm production workers over the 1955-75 period would have only reduced the annual rate of increase in average cost per patient-day from 9.9 percent to 8.8 percent. In other words, total labor costs were the source of only about onetenth of the annual increase in hospital costs.

Moreover, this figure refers to total labor cost-51 percent of operating cost-while nonsupervisory labor costs equal 35 percent of total operating costs.

Other recent studies of hospital worker wages which focus on only collectively bargaining wages indicate that the union impact on hospital costs appear to be in the range of 1 to 2 percent.

Moreover, while unionized hospitals pay higher wages, they may experience lower labor costs because, unlike their nonunion counterparts, they are troubled less by higher labor turnover rates.

With about 18 to 20 percent of all hospital workers organized and with total payroll costs representing roughly 51 percent of operating costs, organized labor accounts for only 10 percent of hospital costs. Clearly, this is too small a portion to have had a significant impact on health care inflation.

Collectively bargained wage increases in the health care industry have not been excessive as indicated by the data provided in appendix A, tables II, III, and IV. The average increase which became effective during 1975, in SEIU and district 1199, RWDSU, contracts was 7.8 percent.

For 1978, the average increase was 4.3 percent. To date, in 1977, those increases which have occurred or are expected to occur on the basis of previously negotiated settlements average 4.2 percent.

These increases can hardly be termed excessive inasmuch as the effective wage rate changes reported by the Bureau of Labor Statistics for wage settlements in the private sector as a whole averaged 8.7 percent in 1975 and 8.1 percent in 1976.

Clearly, labor costs have played a minor role in pushing hospital costs upward. Health care workers are the victims of rising health costs as much as anyone else, or perhaps even more so, since they are less able to afford such price increases.

Because they recognized this fact, and the fact that hospital workers are still severely underpaid, the administration's bill, in section 124, allows a hospital an adjusted revenue limit to permit wage increases for nonsupervisory personnel, as defined in the National Labor Relations Act.

We fully support the intent of this section as an essential part of any program on cost control. To do otherwise would represent an unwarranted interference with the rights of hospital workers to engage in free collective bargaining-a right that was finally accorded them in the 1974 Amendments to the National Labor Relations Act. We are very concerned, however, about the application of section.

124.