Mr. Chairman, and Members of the Committees, I am Bernard Tresnowski, Executive Vice President of the Blue Cross Association, the national coordinating agency of the 70 member Blue Cross Plans in the United States and Puerto Rico.

I thank you for the opportunity to share with you our thoughts on health care

costs; on what generally must be done over the short and longer terms to promote more effective containment of those costs; and on S. 1391 as a means to accomplish that end.

The views I shall present reflect the knowledge and experience gained by the Blue Cross organization through the administration of both governmental and private underwritten health care financing programs.

On the government program side, the Blue Cross Association is a prime contractor
to the Social Security Administration for the Medicare program nationwide.
Individual Blue Cross Plans are subcontractors to the association for this program.
Many of our Plans also administer the Medicaid program in their territories.

On the underwritten business side, the Blue Cross organization serves more than 80 million private members who are significantly affected by the rising costs of health care. In nearly all instances, we provide what is known as "service benefits," that is, full or nearly full payment for covered services, in contrast to "indemnity" or fixed cash benefits paid by many commercial insurance policies.

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twenty

In 1976, we paid $13 billion in benefits for our subscribers, covering nine
million claims for inpatient hospital care and twice that number
million

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for outpatient and other ambulatory care.

Our Plans have contracts with 6,700 hospitals, covering both inpatient and outpatient services. In addition, 30 of the Plans are involved with 57 health maintenance organizations, mostly the prepaid group practice type, to help give our subscribers a choice of the kind of care they will receive.

We have been most closely identified with hospital coverage. But now, to a significant degree, we also cover diagnostic laboratory and x-ray services, dental care, home health care, prescription drugs, vision care, nursing home care, ambulance service, preventive care and outpatient psychiatric services.

However,

Because of consumer demand for broader benefits, our payments would have gone
up over the years even if the cost of care had remained constant.
costs have increased significantly.

Need for a Transitional Health Care Cost Containment Program

The Blue Cross Association position is that there is a need for enactment of

a program to contain costs in the health care delivery system. Walter J. McNerney, President of the Blue Cross Association and representing Blue Cross Plans,

believes that a transitional program should consist of two parts: (1) a program to limit inpatient revenues on a class of purchaser basis, and (2) a national moratorium on new plant capital expenditures.

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In terms of the first, we believe the inpatient revenue limitation on a class of purchaser basis should distinquish among the various third-party contract payors (charge-based or cost-based contract payors), cost-based payors which technically are not contract payors (e.g., state Medicaid programs), and noncontract charge payors.

In terms of which providers and services should be subject to a transitional
revenue limitation problem, we share the same concerns that others have
expressed. If such a program is applicable to only one segment of the health
care delivery system, such as hospital inpatient care only, it could have the
positive affect of shifting care to ambulatory services, however, there is a
danger that such a program will not achieve effective containment of health
care costs generally. Continued high rates of inflation are not restricted
to the hospital industry, even though it represents the largest single component
of the delivery system. Nor are the underlying causes of health care cost
inflation that require corrective action and behavioral change restricted to the
hospital industry.

Not only might expenditure increases in segments of the delivery system not subject to a transitional program more than offset any cost containment gains of such a program, but there is a real potential that current problems of fragmentation and unnecessary duplication in health care delivery at the local level would be increased. On the other hand, we seriously question whether a transitional revenue limitation program applicable to several or all segments of the health care system could be effectively and equitably designed and administered over a reasonable amount of time. We share the view of the Administration

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and others that fairly immediate action is in order as a transition to longerterm reforms. For these reasons, a transitional revenue limitation program applicable to hospital acute care services is a viable, though far from ideal, course of action. Concurrent introduction of a new capital expenditures moratorium program should go a long way toward preventing increased fragmentation and duplication of health care facilities and services, where a revenue limitation program would be applicable only to hospital acute care services. Such a moratorium would allow time for more fundamental and permanent reforms in the Planning Act. However, we also believe that if only hospital acute care services are to be contained under a transitional revenue limitation program, the actions and expenditure increases of providers of non-acute care services should be closely monitored to determine whether any corrective actions are needed for those segments of the health care industry.

In the design and operation of a transitional revenue limitation program for hospitals, positive incentives must be provided for hospitals to operate more efficiently. For instance, the program needs to account for the fact that a large number of hospitals in this country are making important strides in containing their costs by improving their operational efficiency, in reaching out to serve the poor and in providing needed, higher quality services to the population generally. The program must be as sensitive as possible to individual hospital differences, in terms of characteristics, levels of performance, needs and community outlook.

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