CRITERIA FOR CONVERSION OF P.H.S. HOSPITALS

Mr. FLOOD. Our spies tell us in very recent weeks there has been a softening of your position down there with reference to the Public Health Service Hospitals. Have you heard that?

Secretary RICHARDSON. Yes; I have heard that.

Mr. FLOOD. My compliments to my spies.

Secretary RICHARDSON. I am sure this committee's sources of information are very adequate and I can only say that we in the Department would like to feel that we were contributing, to the maximum possible degree, to the completeness and accuracy of your information. Mr. FLOOD. You are doing that now.

Secretary RICHARDSON. Thank you very much, sir.

I should add a word of explanation. What happened was that sources on the Hill picked up the rumor that we were going to propose the closure of the eight hospitals and various associated clinics in the budget. I was called before the Garmatz subcommittee of the Committee on Merchant Marine and Fisheries and I explained no definite decision had been made. This question had arisen and we were considering what to do.

In the interval the position I just read to you was developed, namely, that we couldn't as a practical matter close any given hospital without being satisfied on these three points that I have just mentioned at the top of page 13 of my prepared statement.

We must be successful in making arrangements for the alternative use of the hospitals, and we must be successful in arranging for the care of our beneficiaries through some other means.

There has been a good deal of comment and various editorials in the local press and in the respective communities calling attention to the services rendered by the hospitals and no doubt they do constitute a significant health resource in these communities.

It doesn't follow, however, that this is a resource that makes as efficient use of the physical facilities or the personnel as an alternative use may. I haven't seen a comparative study of patient care per man hour provided in PHS hospitals versus community hospitals, but I suspect it can be shown that the intensity of the use of personnel in most community hospitals is considerably higher. The question then is, taking into account all the considerations of capital outlay involved in the improvement of the system, the utilization of the doctors, nurses and technicians in the hospitals, as well as the utilization of the facilities for various community purposes, which might range from community mental health services to family outpatient diagnostic and ambulatory and outpatient care and so on; what is the best course and this is something we are pursuing community by community.

This leads then to a point where I hope the committee will keep an open mind on the issue so we may have an opportunity at a later point to bring you up to date on the results of our efforts and to demonstrate to the extent the facts justify it, the feasibility and desirability of taking action in any given case.

Mr. FLOOD. I gather you are suggesting one community differs from another and it is entirely possible that your actions with respect to each of these hospitals will also differ.

Secretary RICHARDSON. That is correct.

FINANCING HEALTH SERVICES FOR THE POOR AND THE AGED

Both medicaid and medicare will continue to grow in 1972. It is estimated that about 24 million people will receive services financed by one or both of these programs. Total outlays for medicare and medicaid are estimated at $12.4 billion, an increase of $900 million over our current estimate for 1971. These estimated outlays would be over $1 billion higher were it not for special cost control efforts which we have endeavored to implement both through administrative action and through proposed legislation. Our objective is to make the health care system function more efficiently and hold down rising medical costs.

COST-SHARING PROPOSALS

Perhaps the most controversial aspect of our cost control proposals is our effort to increase the degree of cost sharing borne by the beneficiaries of these programs. Our objective is not to reduce benefits for those who need them but to decrease the unnecessary utilization of an already overburdened health care system. Our cost-sharing proposal in medicaid will be strictly related to the beneficiary's ability to pay. It will be consistent with the benefit schedule and deductibles which we develop for the family health insurance plan. Our cost-sharing proposals in medicare will increase the coinsurance for hospitalization and put the deductible for supplementary medical insurance on a dynamic basis, like the deductibles under medicare hospitalization insurance. Should the medicare beneficiary not be able to afford the increased coinsurance the medicaid program would pay this cost. So here too, the cost sharing will be related to the beneficiary's ability to pay. We hope that the net result will be a reduction in the unnecessary utilization of the health care system with no reduction in needed

services.

AID TO THE NONPOOR

Mr. FLOOD. You are probably doing your best here, I gather, to help that group who are not quite poor?

Secretary RICHARDSON. Yes. At this point we are talking about how to reduce pressures on the system. Of course, the result will be to impose an added cost on medicare beneficiaries. The President's health message will more than offset this, however, by proposing to merge parts A and B of medicare into a single package and to fund this in the way that part A was funded, except for a continuing general revenue contribution comparable to what is paid in now. This has the effect of relieving beneficiaries of the $5.60 a month payment. The cost of that is about $1.4 billion. Because of the increased costs for coinsurance and the dynamic deductible, outlays would decrease by $440 million so the beneficiaries would be benefited to the extent of $1 billion.

Mr. FLOOD. This would raise the criticisms of the system that hospitals charge those who best can pay at a fee higher than would ordinarily be charged to bear the burden of the others who can't pay. Secretary RICHARDSON. That will contribute to this, yes.

Mr. FLOOD. You have heard of that, yes?

Secretary RICHARDSON. Of course today the system of paying the health-care costs of those who can't afford it should be adequate so that the health charges of others don't have to be loaded.

OTHER AMENDMENTS TO MEDICAID

We are also proposing other amendments to the medicaid program to increase efficiency and hold down medical costs. We would discourage the overutilization of hospitals, nursing homes, and mental institutions by reducing the Federal matching rate after certain maximum time periods had passed. At the same time, we propose to increase Federal matching for services providing through outpatient clinics or health maintenance organizations. This proposal should not result in any cut in essential services received by the poor, but take an important step toward providing these services more efficiently. We would also place a limitation on the reimbursement rate for nursing homes and intermediate care facilities. We would provide Federal matching for State average rates which were no more than 5-percent higher than 1971 rates. We hope that this will contain nursing home rate increases within the overall price increase experiences in the economy in 1970, while giving States the flexibility to adjust rates for individual providers without loss of Federal funds.

POSSIBLE HEW HEALTH AID TO VETERANS

Mr. FLOOD. Most of us have encountered, as a result of administrative directions to veterans' hospitals, problems regarding World War I veterans who have been-perhaps they have been terminal cases of various kinds, and some who need little more than custodial carehospitalized for quite some time, sometimes for many years, and preventing other veterans in need of medical care from being treated. They are advising the families of many of these men they they must remove the patient.

Is there any way that you are tied in with the VA people? Is there any halfway house? This has become increasingly common in the last few years.

Secretary RICHARDSON. It may be that some cooperative arrangement could be developed. With the exception of the Public Health Service hospitals, we are not in the direct-care business as is the VA and it would only be possible through some arrangement whereby an individual transferred from a Veterans' Administration hospital into some kind of long-term care facility where he would be picked up by medicare or medicaid upon the transfer.

Mr. FLOOD. I was just wondering about your last paragraph, whether that could be done administratively between you people and the Veterans' Administration for this particular type of patient? Secretary RICHARDSON. I am not sure these would be individuals in any case eligible under our reimbursement programs.

Mr. FLOOD. Have somebody take a look at that and provide soinething for the record on it.

Secretary RICHARDSON. Yes, sir. (The information follows:)

ARE VETERANS NEEDING LONG-TERM CUSTODIAL CARE ELIGIBLE FOR MEDICARE AND MEDICAID BENEFITS?

The medicare administrative and reimbursement mechanisms are directed toward dealing with providers of acute, short-term care, and have little applicability to institutions which primarily provide long-term care. In part, because

of the greatly increased program costs that would be involved, no provision was made at the time of medicare's enactment to include benefits for the custodial or personal type of institutional care that is needed by many older persons who suffer from chronic and progressively degenerative conditions common to the aging process. Thus, those elderly persons now receiving long-term care in veterans' hospitals would not ordinarily qualify for medicare protection against the costs of their institutional care upon transfer from a veterans' hospital to another facility.

Veterans needing long-term nursing care are eligible for medicaid benefits. However, States normally recommend that they use VA facilities instead, in order to avoid the State matching requirement of the medicaid program.

The Veterans' Administration has informed us that no veteran in a VA hospital has been, nor will be, discharged if he is still in need of hospital care.

For veterans who only need nursing home care, the VA has some nursing home facilities and can contract for outside facilities for up to 6 months. Legislation has been proposed that would extend this period to 9 months.

ADMINISTRATIVE ACTION TO HOLD DOWN MEDICARE COSTS

Secretary RICHARDSON. We are taking administrative actions to hold down medicare outlays. First, we will institute simplified reimbursement procedures. Hospitals with over 100 beds will be required to use the so-called department method of reimbursement rather than the "combined" method. The combined method somewhat overstates the true costs of providing hospital services for medicare beneficiaries, because certain high cost services not used by the aged are given weight in the reimbursement formula. The department method, on the other hand, allocates cost strictly according to the services actually used by medicare beneficiaries. We have already established a limitation of what medicare will recognize as the prevailing level for physician's fees. This level is now pegged at the 75th percentile for physician's fees in any region. Finally, we will require more frequent utilization reviews in both medicare and medicaid to reduce the length of hospital stay and prevent unnecessary admissions to hospitals and extended care facilities.

These cost control proposals can be viewed in the aggregate as further efforts for shaping medicare and medicaid into instruments for making our health delivery system more efficient.

Mr. FLOOD. Those determinations presumably must be made by boards of directors in the hospitals themselves?

Secretary RICHARDSON. Yes, that would be the case.

Together with our proposals to offer beneficiaries the option of receiving services through a health maintenance organization, these actions should go a long way toward achieving this objective.

EDUCATION PROGRAMS

The budget for education provides for important new initiatives in 1972. The most dramatic new proposal is to make aid for elementary and secondary education a type of special revenue sharing. We have also resubmitted legislation to authorize a special program of emergency school assistance and establish the National Institute of Education, and will shortly submit proposals to reform college student assistance and establish a national foundation for higher education.

PROPOSED CONSOLIDATION OF GRANT PROGRAMS

The 1971 budget funds 33 separate formula grant programs in elementary and secondary education. Each of these programs has its own formula and its own set of regulations, and very often, its own grant application form, its own reporting requirements and its own State plan. When looked at in isolation, a good argument can be made for starting each of these programs, but when viewed in the aggregate, the situation is chaotic. Many of the authorities overlap. The sheer volume of paper shuffling needed to meet legislative and administrative requirements is wasteful of staff time at all levels of government. The large number of categories and subcategories is confusing to State and local officials and limits the flexibility that they should have to manage their resources efficiently.

Our grants consolidation objective under the President's special revenue sharing proposal is to reduce the number of categories of elementary and secondary education assistance to the following five: Compensatory education for the disadvantaged;

Education of the physically and mentally handicapped;
Compensation for the adverse effects of Federal activity;
Vocational education; and

General support for educational innovation and improved management by States, local governments, and school districts.

A simplified formula is being developed for the distribution of Federal assistance among these categories. We would hope that greater amounts would be available for the disadvantaged and handicapped than are currently made available under titles I and VI of the Elementary and Secondary Education Act. We would also like to provide incentives for the States to attain specific educational objectives.

As a prelude to the consolidation under special revenue sharing, we have already taken steps to consolidate funding for the vocational education programs under existing legislation in the 1972 budget. Instead of funding the separate programs for students with special needs, consumer and homemaking education, work study, cooperative education, and State advisory councils, we have put all of our formula grant money into the basic grants to States for vocational education. This will give the States the option as to how they will allocate these funds. Anything which can be carried out under the special authorities can also be accomplished, if the State desires to do it, under the basic grants. This consolidated grant for vocational education would then become the core of the vocational education category under special revenue sharing. We anticipate that the total amount to be made available to the States under the new category will be higher than the amount now being requested for basic grants.

IMPACTED AREA AID

Last year the Department made a very strong effort to reform the program of school assistance in federally affected areas. Although our efforts did not meet with complete success, we did find sympathy for