For example, a proposal to reduce only medicare and medicaid reimbursement as a sanction might discriminate against inner-city hospitals with large volumes of indigent and elderly patients and actually force closure of the wrong hospitals. I would be happy to answer any questions. [Testimony resumes on p. 302.] [Mr. Gottlieb's prepared statement and attachment follows:] Sixth, all major purchasers and third-party financing agencies, private and public, have a large, financial stake in the outcome of the capacity reduction program. Their participation in, and financial support of, the program in an equitable manner should be stimulated and encouraged. If financial sanctions are imposed, assuming it is desirable and could be done legally, care should be taken to insure that they support the policy framework in the priority system and that they can be equitably applied. My name is Symond R. V. Gottlieb. I am the Executive Director of the Greater Detroit Area Hospital Council, a community service organization, serving the 4, 800, 000 people in the seven counties of southeastern Michigan. In terms of continuous service, our organization is the oldest areawide health planning agency in the United States. Our goal for the past twenty-one years has been to improve the management of community health resources for the benefit of all of the people of southeastern Michigan. My purpose today is to discuss the problem of current excess hospital capacity and what might be done about it. Our organization is concerned about many aspects of P. L. 93-641 and its administration and about all aspects of H. R. 6575 (especially Title II and Title III); but I believe I can be most helpful today if I concentrate upon the capacity reduction issues. We recently completed a major paper on the subject, "Reduction of Excess Hospital Capacity: A Suggested Strategy for Action Including appendices it is 163 pages in length. Copies were distributed last month to your staff, and additional copies are available on request. Obviously, I am not going to read the entire paper but I would like to - summarize some of its more important features for you this afternoon. In February, 1977, the Greater Detroit Area Hospital Council agreed to conduct a survey of current long-term capital debt in southeastern Michigan hospitals for the Michigan Office of Health and Medical Affairs and to suggest methods of satisfying such debt if a program to reduce excess hospital capacity were undertaken by the state. With excellent cooperation from almost all of the hospitals in the sevencounty area, the survey was quickly completed. Intensive and extensive interviews were carried out with representatives of major financial institutions in Michigan and New York, with attorneys specializing in capital financing issues, and with state officials concerned about the capital financing of hospitals. These interviews enhances our understanding of the complexities of capital financing, potential legal barriers to action, and possible methods which might be used to achieve the objective legally and in a manner which maintained good faith with the financial community. It soon became apparent that a great many other issues were clearly interrelated with the questions concerning satisfaction of capital debt. As the general problem of excess hospital capacity came into sharper public focus in Michigan and throughout the nation, a great many interested people began to suggest relatively simple solutions to the complex problem of excess capacity. During discussions with many such people who had come to believe that huge cost savings could be achieved if capacity were reduced, it became apparent that few of them had thought through the problems which would have to be resolved. Accordingly, we decided to broaden our exploration of the issues and to prepare a paper which attempted to set forth a complete strategy for action. Additional interviews were conducted with attorneys skilled in constitutional and corporate law and with others who have broad knowledge of several aspects of the problem. We also drew heavily upon the twenty-one years of experience in areawide health facilities planning by the Greater Detroit Area Hospital Council -- a period during which GDAHC participated directly or indirectly in bringing about the closure of about forty-eight hospitals with almost 3, 600 beds either unilaterally, through corporate consolidation, or through relocation and replacement - and upon the extensive experience of our entire staff. The final paper was approved by our governing body on November 10, 1978, and is currently being published. Summary A carefully planned and vigorously implemented program to reduce excess hospital capacity would clearly make an important contribution to health care cost containment and to improved costeffectiveness of the health care system. Such a program must be developed within the context of a sound policy framework which includes consideration of the size of the reduction in excess hospital capacity to be achieved, the methods of achieving that objective, the characteristics and contours of the health and hospital system to be in place after the capacity reduction program is successfully completed, and a strategy for action by the public and private sectors at the local, state, and national levels. Attainment of the cost containment objective without equivalent concern for other health systems objectives revolving around quality, accessibility, organization, management, and comprehensiveness of health services is likely to prove to be self-defeating in the long run. For this reason, a methodology for capacity reduction which gives priority to corporate consolidations and unilateral closures of entire hospitals is not only likely to result in the greatest cost savings but is also most likely to achieve the other objectives, especially if the characteristics of the future health and hospital system have been carefully developed as part of the policy framework. The purposes of this paper have been to identify some of the obstacles which must be overcome if excess capacity is to be reduced within a reasonable time frame, to offer some concrete suggestions on methods of overcoming the principal obstacles, and to suggest a strategy and rationale for action. The elements of the suggested strategy include: adoption of an acceptable policy framework; development of relevant measures of capacity (since "bed need" is an extremely imperfect and misleading measure); adoption of a priority system for action; definition of the methods to be used to bring about action; identification of the practical problems which may be obstacles to action; development of the capability to resolve the practical problems; and, the creation of an orderly process to implement the strategy. A number of sociopolitical, professional, legal, and financial considerations which must be taken into account have been identified and a great many suggestions concerning those considerations have been made. Capacity reduction can best be achieved through voluntary action, if such action is stimulated through an appropriate mixture of pressure and support by the reimbursement system and by government. Possible constitutional and legal constraints, coupled with the complexities |