Chairman STARK. Then you are saying what I am saying. I have said that if you got the Medicare rate for everybody who came through your door, no bad debts, no charity, that you could probably survive.

Mr. SNYDERMAN. Yes. We would have to change, and I think we are changing. We are going to become very cost competitive.

Chairman STARK. Which is why I want to stay in an indemnity plan until I qualify for Medicare so I can come to see you guys. Because if I don't, if I get into one of these managed plans, they aren't going to let me get 2 blocks away from home.

Dr. FOREMAN. Just one comment on Medicare. Medicare is a better payer for some organizations than for others. Medicare is an outstanding payer for academic health centers, because it explicitly recognizes the special cost needs of those institutions. It is a poorer payer in nonacademic medical centers, poorer, and in some States it is arguable as to whether the basic Medicare payment pays full costs of care. But it doesn't

Chairman STARK. It is arguable as to what costs are. Because if you put into the cost the uncompensated care, the bad debts and the shifting, it doesn't. But as Dr. Snyderman said, I don't think you are going to find an appendectomy in a small hospital with no academic attachments where it pays a whole hell of a lot less as a percentage than it does for Johns Hopkins or Duke or any of the

centers.

That is not to say that it is perfect, believe me. But it is one of the reasons that when we got this trouble in Florida is that what you are finding is that after people are in these deals and they suddenly say, Oh, my God, they go back to Medicare. And why it is very popular, quite frankly, is that there is that choice factor in which the physician community keeps talking about, but I don't think they illustrate it as well as they might. It isn't the fact that they can continue to control the patients; it is that those patients who are closer to my age and the stories you see about people who aren't 26 any more, who suddenly say, Uh-oh, if this happens, I want to go there, and rightly so.

That is one of the great things that I have always felt about Medicare is that that choice is limited only by the cost of a plane ticket.

I am sorry. Mr. Levin.

Mr. LEVIN. Thank you.

Let me just ask a quick question to go back to what the chairman and some of you were discussing before, and that relates to the training of physicians, because at some point a basic decision is going to have to be made.

Dr. Foreman, you say on page 7, "if an allocation methodology is necessary," and then you go on. Let me just ask you point-blank. Forgetting for a moment about what form it might take, let's assume a reasonable "allocation" methodology could be found. Is it necessary or isn't it?

Dr. FOREMAN. Permit me to spend a moment talking about the surfeit of specialists, because a little background information I think throws some light on this. If one compares the number of specialists in each specialty to some reasonable projection of need for those specialties, it turns out that the surfeit of specialists is

not uniform across the board. There is no reason to believe, for instance, that we are producing too many general surgeons or too many orthopedic surgeons or too many neurosurgeons, or in fact, virtually all of the surgical specialties. The production of those specialists has been in balance with the needs for those specialists over the last 10 years more or less.

There are some exceptions. More or less. Where the surfeit has developed is in what are called subspecialists, particularly in internal medicine and pediatrics, but much more so in internal medicine. That is, people pursue a training program which leads them to a complete education in general internal medicine, and then decide they want to go on to become a subspecialist: Cardiologists, gastroenterologists, endocrinologists, pulmonologists. It is those subspecialists in both medicine and in pediatrics that constitute the largest proportion of the extra specialists.

Now, it is important to recognize two things about that. First, before one decides to become a subspecialist one has to be a complete generalist at the outset. What moves people to go beyond the welltrained generalist career to become a subspecialist are a whole bunch of complex incentives: Lifestyle, income, recognition, prestige, practice pattern, all of that.

It is now apparent that the emerging competitive economy is not going to support the surfeit of specialists it has in the past. Managed care is reducing the demand for specialists and the income for specialist.

What we are seeing now is two trends. Young internists saying, I am not going to go on and take two additional years to become a gastroenterologist because the demand for my services is falling and the income associated with them is falling.

The second thing is, among our practicing subspecialists, we are seeing more and more open their offices to general internal medicine particularly and general pediatric patients that they previously would not have had to see, because there was enough demand for their subspecialty time that they didn't open their practice to generalist time.

So the bottom line on that is, I believe that the market is already driving people to, one, not choose subspecialties as they used to, and two, for those people in the practice of subspecialty medicine, to go back to their primary specialty and practice in that area. And I believe that incentives in the market place may tip us in that direction over the next 5 years without large interventions by the Federal Government, although we are prepared to support them if the incentives don't work.

Dr. EL-ATTAR. I agree that the marketplace is actually shifting and we are seeing some great changes, but it is very difficult for a medical student to feel some of those changes. It takes a lot longer for us to actually reach a point in our training where we see the impact of some of the market forces, and a lot of the decisions required are made long before that.

Í actually feel, and AMSA feels, that if there are some significant changes made in the way undergraduate medical education is done today, we will see some significant changes in medical student choice, without any changes in the graduate medical education sys

tem.

And I want to acknowledge our osteopathic colleagues sitting here, for their training exemplifies what good primary care emphasis and basis in undergraduate medical education can produce from medical students. Their numbers are falling, and I think the numbers of the students in osteopathic medicine are falling because of some of the other factors that influence medical students, such as prestige and income. But they have a good foundation in the 4 years of medical school to primary care.

I could have gone through 4 years of medical school and never seen and never done a primary care rotation, and it is very difficult to make a choice to become a primary care physician if you never see one or never experience that.

Ms. BEDNASH. Mr. Levin, one other comment that I would like to make. One of the concerns that we have had for a number of years is that there is this resistance to movement into primary care by other providers, and there is a discipline that is actively involved in primary care, and supported by other disciplines in their role as primary care providers, and that is nurses, and yet there are inadequate resources available to expand dramatically the production of these providers.

We know that in 103 of our member institutions, we have 308 nurse-practitioner programs. Over half of those programs report waiting lists of people to get into the programs, and the other half don't report waiting lists because they don't keep waiting lists.

And the primary factor that is hindering the acceptance of these students into the program is faculty, faculty who can be on board to accept those students. It is a labor-intensive curriculum but nowhere as labor intensive as other kinds of curricula that are out there. And with some additional resources through some sort of a stable funding initiative, whether or not it is a Medicare-type-based program, we can dramatically expand the production of those providers, along with removal of some of those barriers to this practice. I think we can meet some of those needs that are there.

Mr. Chairman, in response to your concern certainly about some of the resistance to using a variety of providers in the delivery of nursing care, I would like to, for the record, also let you know that the four major nursing organizations, the Tri-Council for Nursing, which includes the American Nurses Association, the American Organization of Nurse Executives, the National League for Nursing, and our organization (AACN) is on record that we accept the use of unlicensed assistive personnel, that in fact they are a vital resource in the delivery of services today. But we do believe there absolutely must be adequate supervision by professionals who can assure the quality of the care that is delivered to these patients in those settings.

Chairman STARK. That could have been written by the AMA.
Ms. BEDNASH. Wonderful. Then we are right in line, aren't we?
Dr. FOREMAN. You are absolutely right.

Mr. LEVIN. I don't want to get into that. But when you pull together what you have been saying, it seems to me that there are arguments for enhancing the incentives for trying to avoid some of the overly rigid walls, the walls among the services. But I also think, Dr. Foreman, that you are saying it might make sense to see

how the market works with some enhanced incentives, but have a backstop provision there in case it doesn't work.

Dr. FOREMAN. Correct.

Mr. LEVIN. And perhaps the notion is that if there is a backstop provision, it may accelerate the working of the market? Is that an accurate description?

Dr. FOREMAN. Exactly.

Mr. LEVIN. Thank you, Mr. Chairman.

Chairman STARK. I want to thank the panel very much. We will be in touch with you, I am sure, over the few weeks ahead as we try and put Humpty Dumpty back together again. Thank you very much.

Chairman STARK. Our final panel today is comprised of Wendy Herr, who is the group executive of policy services for the Healthcare Financial Management Association; Jim Houtz, who is chairman of the Association for Electronic Health Care Transactions; Robert Peterson, who is the president of C4SI, Inc.; Linda Watson, who is the vice chair of the Joint Legislative Task Force for the Medical Library Association; and David Kreidler, on behalf of the American Society of Association Executives.

We welcome the panel, and as our previous panel and their guests move on, we will suspend for just a moment. If you would like to proceed to summarize or expand on your written testimony, which will appear in the record in its entirety, in the order in which I called you, you may proceed.

Ms. Herr.

STATEMENT OF WENDY W. HERR, GROUP EXECUTIVE, POLICY SERVICES GROUP, HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION

Ms. HERR. Good afternoon, Mr. Chairman and members of the subcommittee. My name is Wendy Herr. I am here today representing the Healthcare Financial Management Association. I have served as head of the association's Washington office for the past 3 years, and have been a personal member of the professional society for most of my health care career. Prior to joining the national staff of HFMA, I worked for over 15 years in various financial management positions, including several years as the chief financial officer of a private nonprofit psychiatric provider.

HFMA represents more than 31,000 professionals involved in the financial management of various types of health care institutions. These entities include hospitals, clinics, managed care providers and physician offices. On behalf of these individuals, I appreciate the opportunity to present our views on health care administrative simplification.

HFMA's membership is very diverse, both in terms of geography and professional affiliation. This puts us in the unique position of being able to identify problems from all angles that are associated with health care claims and patient accounting.

HFMA determined several years ago the need for uniformity and simplification. By working closely with our members, we have developed a detailed plan to achieve this goal.

From a personal standpoint as a former chief financial officer, I can tell you that administrative simplification is needed and it is

needed now. I still vividly remember the choices I had to make and the tough decisions the volunteer community board had to grapple with when making spending decisions for the various clinics. Often the decisions boiled down to whether new clinical staff could be brought on board to meet the demands of an ever-growing waiting list of patients, or if more clerical personnel needed to be hired instead to move the mountains of paperwork, making the time-consuming phone calls, and to decipher the never-ending iterations of billing and claim forms.

Mr. Chairman, last May we had the opportunity to present HFMA's proposed administrative simplification process to this subcommittee. The membership has recently revisited this proposal and affirmed the approach as feasible, practical and cost effective. The fundamental goals of administrative simplification are to simplify and standardize the health care administrative functions. Our written statement provides a detailed analysis of HFMA's seven guiding principles on administrative simplification. These principles are: Industry compliance; use of an industry commission reporting to Congress; mandated use of electronic transactions; definition of basic core transactions; maintenance of data; confidentiality and privacy protection with the use of uniform identifiers; and strategic timetables that are realistic and constructive to the transition process.

Mr. Chairman, we urge you and the members of your subcommittee to consider the HFMA proposal and these guiding principles when deliberating administrative simplification. Administrative simplification can and should be enacted with or without overall health care reform.

Mr. Chairman, while HFMA recognizes the need for comprehensive health care reform, we remain convinced that certain key elements of health care reform can be enacted quickly. Administrative simplification is one of those key elements.

HFMA supports the subcommittee's work toward enacting legislation to simplify and standardize the health care administrative process now. We are available to be of technical assistance to you in your work, and pleased to offer our expert guidance as you make decisions.

On behalf of HFMA, I appreciate the opportunity to appear before you today and present the organization's views on health care administrative simplification.

Thank you.

[The prepared statement follows:]