tions that might be serving elderly or poor communities. That is the first point.

The second point is in Michigan we do have a decertification law. It doesn't have any teeth, but we have a law, and that process now is in progress and one of the first hospitals they have identified to decertify and totally close is in a poor, rural community that is very distant from any other major urban center and in terms of their bed capacity and theoretical efficiencies of service and so forth, I think I see why they picked that hospital, but nevertheless it is providing useful service for that community. And per bed, their rates are far below anything in the area. If you closed it, these poor people who are using it today-and the income level in that community is very low, even though it is not designated by one of the HUD programs as a ghetto area or a poor communitygoing to have to drive 30 or 40 miles to the next hospital.

Does that make a lot of sense, and are we in danger of stumbling into that with increasing frequency if we start to really push hard to decertify and control revenues or to pursue it as a priority objective for cost containment with insufficient consideration to access, to quality, to care and so forth? Do you see any evidence of that kind of possibility happening?

Mr. CHAVKIN. You use the words "of possible concern". I think that would be an understatement. That is my view right now on many of those issues.

As to the first point, there are many facilities that continue to exclude medicare and medicaid beneficiaries. These include facilities that are Hill-Burton facilities and as part of their community service assurance have agreed to participate in the medicare and medicaid programs. Cost containment that has its primary impact on medicare and medicaid beneficiaries, such as S. 505, cost containment that would tend to recoup most of the savings from medicare and medicaid programs would encourage one of three possibilities, and most often a combination of both.

First of all, they would encourage further discriminatory admissions policies toward medicare and medicaid beneficiaries. Second, they will encourage dumping of present Medicare and Medicaid populations. And in fact there have been recent articles in the Washington Post about some of the problems in the District with dumping of patients on public hospitals.

Or third, it will encourage a passing on of costs to other sectors of the community. None of those three proposals or possibilities are desirable. Any cost containment package that does not address those concerns is going to have tremendous disastrous consequences for low-income people and the elderly especially. In fact, Senator Kennedy brought up these issues at his initial markup, and strongly urged the staff to draft an antidumping provision that would protect at least against one of these concerns.

As to the second point, the use of productivity criteria, for example, in rural areas has become probably an increasing concern for us as part of the implementation of the Rural Health Clinic Services Act. HEW has begun developing productivity criteria which for some of the facilities would require them to bring not only their current existing patient population but the entire patient population of the area to the facilities several times a day. It is a ridicu

lous state of affairs. It is true in rural areas. It is true in many urban areas.

We have facilities that are generally underutilized. Yet those are either the primary or sole source of care for those patient populations. What should be done in those areas, rather than close them down, is to have a health planning agency working with the facilities in terms of trying to make the facilities better utilized. That may mean using swing beds, setting up part of the facilities in outpatient clinics, or other measures.

There are exciting things that are being done in some areas but to simply close those facilities without realizing the consequences for the present patient population is really untenable.

Mr. STOCKMAN. So you are suggesting that we have to have a much greater sensitivity and flexibility in the legislation, but do you really have confidence that it can be done with statutory fixes of say, the hospital cost containment, where we're going to exert some enormous pressure on revenues? You're going to be tempted to spin off and dump certain patients who are on medicare and medicaid, but we're not going to let you do that because there is something in here that says there's an antidumping provision and if you try it we're going to chase you down and have some kind of sanction.

Do you really have confidence that a statutory antidumping provision or a statutory discrimination provision can safeguard those populations that you are concerned about and I am concerned about if by your own testimony you have said under the current system it doesn't face nearly that pressure of revenue? You have those discrimination processes and those dumping processes underway already. In other words, can you affix that potential, that concern that you are very properly bringing before this committee merely by some statutory language which says don't do it?

Mr. CHAVKIN. No, you can't. The reason you can't is because the agency

Mr. STOCKMAN. Maybe you shouldn't have the hospital cost containment program in the first place that creates the exposure or the jeopardy that these kinds of outcomes will happen, and maybe we need a more flexible discriminating mechanism which could consider the whole range of variables, not just the dollar amounts that are running through the hospital accounts.

Mr. CHAVKIN. If you have a simplistic cost containment-we need cost containment-but this does not mean a simplistic cost containment formula, especially where the agency that is supposed to protect against the kinds of antidumping concerns we have expressed will be the same one that has a tremendous incentive to cut costs. It is not going to be workable. That kind of approach is not going to be workable. We would much rather see what we have proposed in working with some of the other committees.

We would be happy to propose to this committee as well some more flexible cost containment approaches that will realize savings but will not jeopardize the access to basic health care of the patient population.

Mr. STOCKMAN. Is there anything in the draft language of the bill we have before us where those same concerns would be ad

dressed? Do you have some proposals, I think you said something, I haven't read your testimony yet, but you have some suggestions or language for that?

Mr. CHAVKIN. In the section regarding discontinuances, there is funding to reduce unneeded hospital services. Under proposed section 1642, the Secretary may not approve an application unless certain criteria are met. We would add to that criteria, for example, the requirement that the Secretary must be able to determine that the proposed discontinuance and conversion would not have an adverse impact on access to necessary health care in the health service area in which the service is provided. That would provide at least a standard for this committee to evaluate the Secretary's performance and for consumers in the community to challenge the Secretary's determination.

Mr. STOCKMAN. Thank you. I hope you will come back and testify on cost containment.

Mr. SEMMEL. Could I comment on what is going on, Mr. Stockman? If we had truly effective cost containment, that would do as much for the poor and all the medically underserved as well because what I see is when the crunch comes, when there is no effective cost containment, it is always the poor that get squeezed first.

In New York City, for example, now there is a move underway to close half of the public hospitals, which serve only poor people, in order to save money. That is because the city says it is spending too much money on health care.

My view is that a cost containment program which is supposed to be very flexible ends up a kind of bureaucratic nightmare.

Mr. STOCKMAN. I disagree.

Mr. SEMMEL. I think we do disagree on that. Effective cost containment must set a figure so that in the implementation, without having hundreds of lawyers and accountants, we can start out knowing who is complying and who is not. It may be necessary to build in some minor exceptions, but I think basically you have to have a benchmark on which to judge whether the program is working.

Mr. STOCKMAN. Thank you.

Mr. WAXMAN. Mr. Lee?

Mr. LEE. Mr. Chairman, my thanks to the panel. I yield back my time.

Mr. WAXMAN. I too want to thank the panel. Your statements have been very helpful. Your suggestions will be helpful to us; in futher consideration of the legislation.

Thank you.

We now have a panel of hospital representatives. Leo J. Gehrig, senior vice president of the American Hospital Association and the Reverend Monsignor James H. Fitzpatrick, senior vice president of the Hospital Association of New York State, Inc.

I would like to welcome you today. Your statements, of course, will be part of the record in their entirety, and we would like you to summarize the statement in about 5 minutes.

STATEMENTS OF LEO J. GEHRIG, M.D., SENIOR VICE PRESIDENT, AMERICAN HOSPITAL ASSOCIATION, ACCOMPANIED BY CAROL LIVELY, MANAGER, DEPARTMENT OF HEALTH PLANNING; AND REVEREND MONSIGNOR JAMES H. FITZPATRICK, SENIOR VICE PRESIDENT, HOSPITAL ASSOCIATION OF NEW YORK STATE

Dr. GEHRIG. Mr. Chairman, in the interest of time we will do that. [See p. 293.] I think your staff has had the opportunity to see our statement. It is long and is accompanied by an amendment document. I think it represents the seriousness with which we approach this hearing. It is not something which we prepared just recently but we have been working on it on an ongoing basis. I am Dr. Leo J. Gehrig, senior vice president of the American Hospital Association. With me today is Ms. Carol Lively, who is manager of the department of health planning of the association. Our association represents most of the hospitals in the country and about 27,000 personal members.

We certainly appreciate this opportunity to comment and I would only like to make two major summations. First, I would like to give you a little flavor of the attitude of our association with regard to this legislation, and second to touch very briefly on a few of the key areas to which we would suggest the committee directed its attention.

Our association has supported the enactment and implementation of Public Law 93-641 and we endorse the extension of this act. We are committed to the development of an effective health planning process because it is consistent with our goal of improving access to quality health care services. As debate continues over other approaches to reducing the rate of increase in health care costs, there can be little argument that the health planning process is making substantial progress toward the same end through rational planning for the allocation of health care resources.

Because of its important role in the provision of health care services, the hospital has a special responsibility to plan effectively. Therefore, it is particularly important that these institutions be represented and participate in the planning process at all levelslocal, State, and national.

We support and encourage the development by HEW of sound and equitable health planning guidelines and methodologies to assist the planning agencies at the local and State levels, without imposing rigid formulas from the top. We appreciate that in your bill you have stricken the words "consistent with", and have avoided rigid planning guidelines formulas. The health planning process can work most effectively through a bottom-up approach.

Health planning must be based on health needs identified by HSA's, consumers, and providers. The methodology of planning must take into account a variety of factors which apply to the planning area, including the incidence and prevalence of disease, the sociodemographic characteristics of the population, the present capabilities of the health care system and the attitudes of the community regarding the delivery of health care services. Therefore, the approach to planning must provide for a clearcut distinction between health planning at the local level, health planning

and regulation on the State level, and the role of the Federal Government in providing support at the national level.

We would emphasize that the framework of health planning may well evolve into a meaningless, and perhaps even counterproductive process, if it becomes incapable of implementation. Limitations of funding, staffing, the availability of data, and the state of the art in evaluating medical care and medical services affect the extent to which planning agencies can be expected to expand their activities. The AHA firmly believes that a broad framework for health planning must allow the development of programs only as capabilities develop and as relationships between providers and external planning bodies mature. Otherwise, both the credibility and the effectiveness of the process is diminished. The AHA believes that amendments to Public Law 93-641 at this time should strengthen the fundamental aspects of planning and encourage progress toward more comprehensive activities as cooperation develops, but should not overextend the resources and capabilities of either planners or providers.

Mr. Chairman and members of the committee, this captures, I hope, the strong support we give to constructive approaches to this program and we have encouraged our membership in this same direction. There are a large number of amendments that we have urged on the committee. I would like only to touch on a few. I mentioned earlier representation. We are pleased your bill does provide now for representation from hospital administrators at the local and State level. We believe this same kind of change is appropriate on the National Council on Health Planning and Development.

Second, with regard to certificate of need, there are several recommendations we have made. We have supported this process long before it was incorporated into health planning. This year, in attempting to develop criteria by which a State certificate of need process is measured, Congress is now really at the beginning of a definition of new health services.

In the Senate bill there is a proposal for really defining that as a service which on an annual basis has an operating cost of about $50,000. We think this would unfortunately clog the system with many, many reviews that would be unnecessary. We suggest that something like $150,000 would capture those meaningful additions to service to be reviewed and not belabor the process generally. We are concerned about the deadline for State designation agreements. The committee is well aware that there are only eight States that are presently designated. We view with some concern the fact that by September 30, 1980, all are expected to be so designated and if not, there are going to be severe penalties which will be required to be applied by the Secretary.

We would urge the committee to consider extending this deadline to September 30, 1983, to provide adequate time for completion of this important area.

We support the committee's proposal for assistance for hospital modernization, in title II. We think as you surely know, there are a number of nonprofit private institutions that serve very much the same way as public hospitals do. We would hope that with authorization increases that are appropriate to the need, that this support