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This is not entirely a matter of speculation. The trend in this direction is certainly apparent in the history of our national health insurance system for the elderly and the disabled, Medicare. When Medicare was passed in August 1965, the general concern was that it not make basic changes in the health care system. The basic concern in Congress and elsewhere was that this government-operated program not interfere in the way in which the going system of medical care was organized and operated. The public emphasis in the argument for and against the Medicare program was almost entirely on the issue of keeping the economic burden of illness from overwhelming old people and their sons and daughters. Its object was to prevent economic disaster and to do so without interfering in major ways with the traditional organization of the medical care system.

It is true that some hand-holds for change were included-standards of care for extended care facilities and hospitals were provided for by the legislation, institutions were required to provide for equality of service without regard to race, and certain controls, such as utilization review committees and physician .certification of the necessity of services were provided for.

More intense claims review than had been typical in private insurance was set up, and the program itself as compared with most private insurance was designed to guard against the overuse of the most expensive types of facilities by covering physicians' care wherever given, and by including lower-cost extended care and home health services.

Yet, by and large, Medicare accepted the going system of the delivery of care, and with important modifications modeled its structure and administration on going insurance programs. The atmosphere of 1965 was one largely of hands-off on the system itself-the focus was economic risk. Seven years later, at the time of the 1972 amendments, the atmosphere had changed very considerably. The public, consumers' groups, and even organized groups of providers supported using the program as leverage for bringing about changes in the way health services are provided. In fact, those who ran the program were criticized more for interfering too little rather than not interfering enough.

The 1972 amendments included several additional control measures and since that time there has been, if anything, increasing interest in having Medicare do more about the rising cost of medical care, more about assuring the quality of care and the protection of the patient from unnecessary and inferior care. Gradually, from being almost entirely an economic program protecting people against the economic risk of having to pay the cost of whatever medical care they succeed in getting, Medicare is increasingly expected to become a health care program with responsibility for preventing the risk and pain of unneces.sary and poor quality care and, positively, to see that good care is provided. I believe this trend will and should continue in national health insurance.

The first Health Insurance Benefits Advisory Council recommended in 1969 that Medicare should limit reimbursement for various procedures to physicians who are qualified to perform those procedures, not according to the licensing laws of the state but according to standards developed specifically for the purpose of deciding what should be paid for and what should not be paid for. In this year's Kennedy-Corman bill and the Kennedy-Mills bill of last year, only surgery performed by Board certified or Board eligible surgeons would be paid for by the plan. And the Professional Services Review Organization requirement is a major step toward defining what the government should pay for. The government is not the only third-party purchaser with an interest in defining the health care product that it is willing to pay for, but when the government is the third-party purchaser it has a role part way between that of other third-party buyers and direct government regulation. It uses its buying power to improve the health care product as do some other purchasers, but in those instances where the size of its payments makes them essential to providers, its definitions and criteria have much the same effect of direct, if limited, regulation. Yet "product definition" can be even more effective sometimes than direct regulation because it can avoid certain head-on confrontations. The federal purchaser can take the view, for example, that even though state licensing laws may allow a physician to perform any medical procedure this is not good enough when it comes to the Federal Government purchasing a service on behalf of federal beneficiaries.

There are many other important questions in the design of a national health insurance system-what benefits are to be covered, whether to have deductibles

and coinsurance, and if so how much, the reimbursement arrangements, and other matters. However, answers to these questions can be quite readily modified with experience. The decision that is difficult to change and the one that will be determinative of the long-range future is the basic institutional one— health insurance through a social security-type plan or mandated coverage through private insurance.

Nothing is more persistent in government than a basic decision about financing and administration. Vested interests are created once a program is in operation that make fundamental changes later very difficult to accomplish. Workmen's compensation today generally follows the pattern adopted before World War I; unemployment insurance is still a state-operated program, plagued with major inefficiencies and inadequacies, in part, because of a 1935 notion that differing unemployment insurance tax rates would create an effective incentive for employers to stabilize employment. The way we go on the fundamental issue of government responsibility could shape the national health insurance program for a generation or more.

Another important issue concerns the extent to which the health insurance plan can be designed to support a national health strategy that includes not only matters related to personal health services-the focus of health insurancebut also efforts to improve personal health habits and the health-related aspects of the environment, and support for both basic and applied biomedical research. It is no news to this committee that what physicians and health care facilities can do is less likely to make inroads on the incidence of what are now the major causes of death and disability than what could be accomplished by changes in the general environment and the way people live. A general improved standard of living, public health measures and the use of antibiotics and immunizations have brought infectious diseases largely under control. As a result the leading causes of death are now of a sort less influenced by professional personal health services and more by what we laymen can do for ourselves, individually and collectively. The major causes of death and chronic illness from middle-age on are now cardiovascular disease and diseases of the lung. In all likelihood, one of the most important health measures affecting the incidence of these diseases would be for people to stop smoking. If we could keep excessive drinkers and those with aggressive or reckless personalities off the roads, we could make an important dent in the major cause of death among young adults, accidents-and so on.

This does not mean that personal health services are unimportant. Personal health services are now generally perceived as being one of the necessities of life, and, on the whole, it is correct that they are so perceived. Modern medicine does perform miracles. Access to early and good treatment in many instances makes the difference between life and death or health and disability. It is deeply offensive to our ideals of democratic equality that such services should be available on the basis of income rather than medical necessity. And that is what national health insurance is primarily about. However, I hope we will explore the possibility of quite direct connections between the insurance system and the broader field of health promotion.

It seems anomalous, for example, for Medicare not to participate in the costs of patient education programs conducted by hospitals. Perhaps, on the contrary, such programs should be required as a condition of institutional participation in the federal insurance program.

Perhaps increased cigarette and alcohol taxes could go toward financing part of health insurance. One has to be careful not to increase the taxes so much as to bring a major black market into being, but a somewhat higher cost for cigarettes and alcohol might discourage at least young people from using them. In any event, such taxes would seem to improve the fairness of health insurance cost allocation. Why shouldn't the increased cost of illness arising from smoking and drinking be borne in part, at least, by those who bring about the increased cost?

There are other possibilities that should be explored. Should a small part of a health insurance premium go not only to facility development and planning. as in the Kennedy bill, but to research on validating the efficacy of the procedures being paid for, research on medical care improvements growing out of either new applications or out of applying widely the best of what is already known?

I believe we will have comprehensive and universal health insurance in the United States. Grossly unequal treatment in such an important area is unacceptable.

Now that our attention has been turned to the problems of unequal access because of income differences or geographical distribution or racial differences, the American conscience will not let us put it down. We are increasingly shocked by the idea that our main reliance on rationing health services has been on ability to pay. I still hear people say once in awhile that Medicare was a mistake because it increased demand and helped send prices up, but few people are willing to defend the proposition that we should have left the old and the poor without the ability to compete for services in order to keep costs down for those who are well off.

My point is that although we don't know very well what to substitute for ability to pay as a basis for rationing health care, we are unwilling as a matter of equity, now that it has been called forcibly to our attention, to rely on that device any longer, and thus rule out low income people from life-giving services because they are low-income people.

We must, however, see that the result of removing the economic barriers to care is not merely to make generally available a low-quality level of care at high cost. The task is to see that quality is improved, research continued, the results translated into practice, and that health insurance supports and backs efforts at health promotion. Equtity and social justice in the provision of personal health care services, important in themselves, can also be an important part of an overall plan to improve the Nation's health.

Mr. WAXMAN. Thank you very much.
Mr. Lewin.

STATEMENT OF LAWRENCE S. LEWIN

Mr. LEWIN. Mr. Chairman and distinguished members of the committee, my name is Lawrence S. Lewin, president of Lewin & Associates, Inc., a Washington, D.C., management and public policy research firm. I appreciate the opportunity to meet with you this afternoon to discuss the administration of national health insurance. By giving the issue of how NHI is to be administered the prominence it has, this committee has wisely recognized that how a major public program is administered can profoundly affect how well the people are served. Administration is policy, a principle too often overlooked in the design of major programs.

My comments today will focus on the role that should be accorded. to the States in the administration of a universal nationally financed health insurance program which, in some form or another is now recognized as virtually inevitable by most interested parties. In offering my views, I will be drawing on 7 years of experience in research and policy analysis in the health care field in general, specifically, on a series of studies we have carried out for the Department of Health, Education, and Welfare on State health regulatory activities, health regulation in Canada, and State and local efforts to plan for and regulate the expansion of health care facilities. In addition, I have worked directly with several States in fashioning their hospital reimbursement programs and have been a speaker in several seminars conducted by HEW for State officials on prospective reimbursement of hospitals and on the relationship between rate review and comprehensive health planning.

In assessing appropriate administrative roles for States, I should confess at the outset a deep concern about economic issues; namely, about the escalating cost of health care. This concern is considerably more than an abstract managerial concern about efficiency. The experiences of many States, including Massachusetts, has made it increasingly clear that in all of our human resource programs the fiscal tail is wagging some rather large dogs.

Accordingly, my remarks are somewhat weighted toward those administrative activities that relate to cost containment in hospital and physician care services. This focus reveals a somewhat pessimistic attitude on my part based on the experience I have had in the last several years examining State program and hospitals responsible for them, in particular, regarding economics of the health care industry.

I think we are confronting an industry where basic supply, demand, and resource allocation decisions are made by professionals. who, while they may be highly committed to providing high-quality care as they understand it, have few incentives and many disincentives to provide such care in the most economical and efficient manner. Hence, any national health insurance plan must insure that effective incentives to contain costs are brought to bear on health care providers. Past attempts reveal how difficult this is. When it comes to economic regulation, health care providers are not only an adaptive mechanism, they may well be a resistant strain.

Our concern then is what role, if any, should State government and the agencies play vis-a-vis the Federal Government and nongovernmental groups such as carriers and provider associations in administering and regulating a national health insurance program. The form that national health insurance takes, will of course influence the type of administrative structures that are possible and that may be needed. Certainly the choice that Mr. Ball has just discussed is perhaps most fundamental. For purposes of this discussion and without expressing personal preference, I will assumethat we are talking about a universal program of broad benefits with the financing essentially flowing through the Federal Gov

ernment.

As we look at our present patchwork and freewheeling system, it seems to me there are four basic objectives we would want an improved national insurance plan to achieve, would like to deal with these this turn from the standpoint of the desired State roles.

The first objective is to insure access to adequate and needed medical care without regard to the ability to pay. A corrolary to this might be that access to such minimum benefits for care should not be a function of the State in which the person resides. Lack of uniformity in the benefits offered from State to State under medicaid and other social programs and income maintenance programs is often cited as a rationale for federalizing these programs.

Clearly there is merit to the argument, although I personally suspect that the explanation for these major differences among the States may stem more from differences in physical capacity than in the nature of the State health care system and population than from policy differences. It is important to ask, however, "What price uniformity?" Given the tendency of our political system to force Federal decisions to a common denominator, attempts to achieve a rigid uniformity may seriously shortchange citizens in those States that are able and willing to do more.

I would conclude, therefore, that federally established minimum benefits with adequate provision for their financing, and I under

line adequate provision for their financing, should be part of any national health insurance program but that some degree of State supplementalization either to add benefits or to modify the character of the delivery system, a point I will get to shortly, should not be precluded.

The second objective is to insure that the system is operating effectively in a timely and accurate manner. In this regard, the States have had considerable experience notably with medicaid and State workmen's compensation programs. The States' performance record, especially with medicaid, has, if you pardon the license, been "underwhelming." Long delays in making payments, low productivity, numerous errors in certifying eligibility have characterized many of the States' medicaid efforts. The State systems as they exist have made research analysis as well as administration of these medicaid programs more difficult. The Bureau of Health Insurance's record in administering medicare largely through the Blue Cross system has been more successful, although, as Mr. Ball points out, not without difficulties as well. The difficulties have been noted by the Social Security Administration and the carriers. in the program.

Clearly, the greatest expertise in administering the production: aspects of the health insurance lies with the blues and private carriers. In all fairness, medicare and private insurance plans do not face thehorendous eligibility determination problem that plague medicaid and which account, in my view, for a major portion of the problem they have experienced. These problems would, of course, be mitigated under a universal national health insurance plan but only if such a plan did not provide for extensive incometested cost sharing and eligibility provisions.

Assuming that the Federal Government can quickly and effectively develop uniform accounting, data collection, and reporting systems and can provide States with the resources and technical assistance or develop and install effective systems themselves or to contract out such functions to the Blues or private carriers or data system managers, I believe it would be feasible to provide States with an operational role. I do, however, feel that this is an extremely close call, given the past performance and would not be averse to the federally administered contract arrangement that Mr. Ball suggested and that now operates under the medicare program. The third objective is to insure that provisions for effective cost containment practices are built into the system. The key issue here is one of incentives on the regulator as well as on the provider.

It should be noted that historically, most of the innovations and prospective reimbursement and attempts to contain costs by controlling capital expenditures came not from the Federal Government but from Blue Cross and from States such as New York, Maryland, Massachusetts, and Rhode Island. I would like to submit for your information an article from the Toledo Law Review that I recently coauthored with Prof. Ann and Herman Somers, which reviews this history and describes the nature of the State regulatory programs.

Mr. LEWIN. Despite its generally fine record in administering the medicare program, the Federal Government, and Bureau of Health

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