Page images
PDF
EPUB

My comments relate to three matters. One is the prospective payment—the DRG plan-proposed for reimbursement to hospitals under medicare A health insurance. The second, proposed changes in copayment, or cost sharing of hospital charges for patient hospital care, and against catastrophic costs included in long-term illnesses. And third, reduction of the costs of medical malpractice insurance and malpractice awards affecting both physicians and hospitals.

These views are those of the legislative task force of the board of directors of the Princeton Chapter of the AARP. The opinions are independent of any that may be put forth by the National Headquarters of the American Association of Retired Persons.

The first topic, the prospective payment plan for medicare reimbursement to hospitals may prove highly successful in limiting hospital costs if a number of conditions are properly met.

The scheme has been tested by several States. Of these, the experience in New Jersey has been the most extensive and informative. Based on the results in New Jersey and our own judgment, we call attention to the following necessary features for an acceptable, workable plan.

The first of these is the prospective reimbursement system must apply to all classes of patients and payers. The proposed legislation would

provide for prospective reimbursement for medicare patients only. The results would be a shift of cost overruns to nonmedicare patients and their payers and would thus be unfair to the younger patients and those outside medicare coverage.

In the second place, the introduction of prospective reimbursement should include safeguards to prevent the shifting of excess costs to elderly patients.

In the third place, the prospective reimbursement if it is adopted, it should be made mandatory for all acute-care hospitals. The experience in New Jersey has demonstrated that a program that was initially optional, rapidly gained statewide acceptance and is now enforced in all 96 acute-care hospitals in the State.

Furthermore, considerable flexibility in diagnosis related group rates must be permitted to take into account differences in local costs. Alaska's so-called market-basket hospital costs are inherently much higher than those in any of the lower 48 States.

Then, in the fourth place, prospective reimbursement will introduce several new complications. It will tend to slow the adoption of new medical techniques if they involved additional costs that are outside the DRG schedule.

Revisions to the cost schedules can be excessively delayed by the Federal administrative machinery, so that hospitals are unfairly deprived of any prompt upward adjustments, and the introduction of new medical techniques will be sadly delayed.

Then, in the fifth place, the experience of New Jersey should be examined carefully as a guide to a Federal program of prospective payments.

As we noted previously, New Jersey has the only DRG prospective system in the United States that is both all payer and all hospital. An independent evaluation of the New Jersey experience is almost complete. It was made by the Health Research and Educational Trust of New Jersey, located here in Princeton, N.J. Their reports, some of which are already available, will be the best present source of data on actual results.

The report I refer to that is a summary is by May and Wasserman and is entitled, “Some Preliminary Results From the New Jersey DRG Evaluation," and it was issued in December 1982.

This New Jersey study convinces us that with the proper safe guards an all payer, nationwide prospective reimbursement system to hospitals would help control rising hospital costs.

Then I come to the second major topic. We applaud the efforts to prevent catastrophic costs to patients with long illnesses. There can be no question that long hospital confinement can be financially devastating to medicare patients without adequate private insurance protection.

The plan put forward recently by HHS to reduce the patient's share of the cost of hospitalization beyond 150 days is a major step to avert catastrophic loss of lifetime savings of the patient and of his family on one medical disaster.

The major consequences of the HHS program should be considered. And here are two of them.

One, cost sharing by the patient for shorter-term hospital stays will be excessively increased. In an example given by HHS, and re ferred to by Dr. Davis this morning, for the so-called low-cost hospitalization, a hospital confinement of 15 days would increase the patient's share by nearly $400, and for a term of 60 days, the increased cost would be nearly $1,200. In each case the day-one charge would remain at the present projected $350. The burden of such an increase will fall most heavily on low income participants whose principal income is from social security and who cannot afford supplementary insurance coverage.

Then, restraints must be provided to prevent excessive reliance on long-term free hospitalization. While we have stressed the social necessity of avoiding catastrophic costs of long-time hospitalization in acute-care and certain other facilities, means should be included in regulations on medicare to prevent abuse of the system for longtime hospital confinement is not absolutely necessary.

Perhaps the fairest way is by continued cost sharing by the patient, his family or a third-party payer. The amount of this further sharing beyond day 150 should be a very modest percentage of the DRG hospital costs. The patient must be assured of not being reduced to the poverty level by a single protracted illness.

Thus, we favor legislation to protect against catastrophic costs of illness but only with safeguards to prevent excessive increase in medicare financing costs.

Furthermore, if the committee does not have a copy of the report I referred to on the New Jersey results, I will offer a copy here for inclusion in the record.

Mr. RINALDO. We do not have a copy, and with no objection it will be included in the record. So ordered.

[The complete prepared statement, along with the New Jersey DRG evaluation report submitted by Mr. Bond follows:]

PREPARED STATEMENT OF DONALD S. BOND

VITAE OF THE WITNESS

My name is Donald S. Bond. I reside at 456 Snowden Lane, Princeton, New Jersey 08540. I am President of the Princeton Chapter No. 459 of the American Association of Retired Persons.

I am a physicist and have specialized in electronics and telecommunications for 54 years. During the last nine years I have been a telecommunications consultant with particular emphasis on applications to health care delivery and education for people who live in sparsely settled areas. This has included direct planning of satellite communications in cooperation with the Alaska Area Native Health Service (of the U.S. Public Health Service) in the Alaska bush and with the Royal Flying Doctor Service in the Outback of Australia. I have traveled extensively in these isolated areas.

I have made similar but briefer studies in Northwest Territories of Canada and in Micronesia (The Trust Territory of the Pacific Islands).

AREAS OF MY TESTIMONY

My discussion is directed to Medicare and some of the problems it faces in providing affordable health care for senior citizens and in avoiding exorbitant financial burdens on the taxpayer. In particular the topics I shall address are:

(a) The prospective payment (DRG) plan proposed for reimbursement to hospitals under Medicare A Health Insurance (HI);

(b) Proposed changes in co-payment, or cost-sharing of hospital charges for patient hospital care and against catastrophic costs incurred in long-term illnesses; and

(c) Reduction of the costs of medical malpractice insurance and malpractice awards affecting both physicians and hospitals.

I shall not attempt to discuss Medicare funding by the Federal Government. Rather, the remarks will be directed to cost containment in hospital operations and to costs to senior citizens.

These views are those of the Legislative Task Force of the Board of Directors of the Princeton Chapter of the AARP. The opinions are independent of any that may be put forth by the National Headquarters of the American Association of Retired Persons.

THE PROSPECTIVE PAYMENT PLAN FOR MEDICARE REIMBURSEMENT TO HOSPITALS MAY

PROVE HIGHLY SUCCESSFUL IN LIMITING HOSPITAL COSTS IF A NUMBER OF CONDITIONS ARE PROPERLY MET

As the Committee is well aware,

the prospective reimbursement plan proposed by the Department of Health and Human Services offers a tangible incentive to hospital administrations to exercise diligence and imagination in restraining the exorbitant growth in the costs of hospital care of patients. The nationwide costs rose over

percent during the last year.

The scheme has been tested by several states. Of these, the experience in New Jersey has been the most extensive and informative. Based on the results in New Jersey and our own judgment, we call attention to the following necessary features for an acceptable and workable method.

THE PROSPECTIVE REIMBURSEMENT SYSTEM MUST APPLY TO ALL CLASSES OF PATIENTS

AND PAYERS

The proposed legislation would provide for prospective reimbursement for Medicare patients only. The result would be a shift of cost overruns to non-Medicare patients and their payers and would thus be unfair to younger patients and those outside Medicare hospital coverage. There would be little incentive to hospital administrations to achieve more efficient cost control.

We do not believe that a Medicare-only prospective payment system will help hospitals cope with the major problem of the cost of indigent patients.

THE INTRODUCTION OF PROSPECTIVE REIMBURSEMENT SHOULD INCLUDE SAFEGUARDS TO

PREVENT THE SHIFTING OF EXCESS COSTS TO ELDERLY PATIENTS

Present schedules of costs to be borne by Medicare patients include first-day de ductions and sharing of costs for longer hospital stays. We consider these cost-shar

1 Schweiker, R. S., Report to Congress: Hospital Prospective Payment for Medicare, U.S. De partment of Health and Human Services (December 1982).

ing arrangements already a major burden to be carried by patients, either directly or through other insurance carried. The introduction of prospective reimbursement should not be permitted to make this burden even heavier for senior citizens. IF PROSPECTIVE REIMBURSEMENT IS ADOPTED, IT SHOULD BE MADE MANDATORY FOR ALL

ACUTE-CARE HOSPITALS The experience in New Jersey has demonstrated that a program that was initially optional rapidly gained Statewide acceptance and is now in force in all acute care hospitals in the State.

It may be found that under Federal law the proposed system cannot be made mandatory for non-Medicare cases without appropriate State legislation. Such coop eration by the states is of great importance.

Furthermore, considerable flexibility in diagnosis-related group (DRG) rates must be permitted to take into account differences in local costs. Alaska "market-basket" hospital costs are inherently much higher than in any of the Lower-48 states.

PROSPECTIVE REIMBURSEMENT WILL INTRODUCE SEVERAL NEW COMPLICATIONS It will tend to slow the adoption of new medical techniques if they involve additional costs that are not in the DRG schedule.

Revisions to the cost schedules can be excessively delayed by the Federal administrative machinery so that hospitals are unfairly deprived of any prompt upward adjustments, and the introduction of new medical techniques will be sadly delayed.

A possible disadvantage of prospective payments may be that older patients will not be as welcome. Clearly a given medical procedure for an 85-year-old person is more costly than the same procedure for a 55- or a 65-year-old. A hospital will benefit more from the lower-risk patient.

THE EXPERIENCE OF NEW JERSEY SHOULD BE EXAMINED CAREFULLY AS A GUIDE TO A

FEDERAL PROGRAM OF PROSPECTIVE PAYMENTS

As we noted previously, New Jersey has the only DRG prospective system in the U.S. that is both all-payer and all-hospital. However, when it started in 1980 on a voluntary basis, there were only 26 hospitals involved, whereas now all 96 acute care institutions participate. Thus a comparison of DRG operation with non-DRG operation was possible for a few years, and the change over costs also known.

An independent evaluation of the New Jersey experience is almost complete. It was made by the Health Research and Educational Trust of New Jersey, located in Princeton, New Jersey. Their reports, some of which are already available, will be the best present source of data on actual results.2

This New Jersey study convinces us that with the proper safeguards and all-payer nation-wide prospective reimbursement system to hospitals will help control rising hospital costs and perhaps even reduce these expenses to all patients, not to Medicare patients only.

WE APPLAUD THE EFFORTS TO PREVENT CATASTROPHIC COSTS TO PATIENTS WITH LONG

ILLNESSES There can be no question that long hospital confinements can be financially devastating to Medicare patients without adequate private insurance protection.

The plan put forward recently by Health and Human Services to reduce the patient's share of the cost of hospitalization beyond 150 days is a major step to avert catastrophic loss of the life-time savings of the patient and his family on one medical disaster.

Two major consequences of the HHS proposal should be considered.

COST SHARING BY THE PATIENT FOR SHORTER TERM HOSPITAL STAYS WILL BE EXCESSIVELY

INCREASED

In an example given by HHS for “low cost” hospitalization, a hospital confine ment of 15 days would increase the patient's share by nearly $400 and for a total of 60 days the increased cost would be nearly $1200. In each case the Day-l charge would remain at the present $350.

2 The following summary report has been made available to us: May, J.J., and J. Wasserman, Some Preliminary Results from the New Jersey DRG Evaluation, Health Research and Educational Trust of New Jersey (December 1982).

The burden of such an increase will fall most heavily on low-income participants whose principal income is from Social Security and who cannot afford supplementary insurance coverage.

Other sources of revenue from Medicare Part A must be sought to prevent the present patient's share of the cost from continuing to rise excessively.

RESTRAINTS MUST BE PROVIDED TO PREVENT EXCESSIVE RELIANCE ON LONG-TERM FREE

HOSPITALIZATION

While we have stressed the social necessity of avoiding catastrophic costs of longtime hospitalization in acute care and certain other facilities, means should be included in regulations on Medicare to prevent abuse of the system where long-term hospital confinement is not absolutely necessary. Perhaps the fairest way is by continued cost sharing by the patient, his family, or third party payer. The amount of this further sharing (beyond Day 150) should be a very modest percentage of DRG hospital costs. While we do not favor it in general, a means test of the patient's (but not the family's) resources might be included, but bearing in mind that the patient must not be reduced to the poverty level by a single protracted illness.

We do not favor Medicare schedules by which initial deductible amounts of payments are determined solely on a calendar year basis when applied to medical expenses for a given condition that extends into a second calendar year.

Thus we favor legislation to protect against catastrophic costs of illness but only with safeguards to prevent excessive increases in Medicare financing costs.

COMPLACENCY HAS DEVELOPED ABOUT THE INEVITABILITY OF TREMENDOUS INCREASES IN

MEDICAL COSTS

The views of the health care professionals-in and out of Government-as seen by the public are that the rate of increase of hospital costs and indeed of all medical costs cannot be controlled. It is similar to the general view on inflation until recently.

In the health care field, the rise in hospital costs is now about 18.7 per cent annually. Retrospectively, over the last 10 years' time, such a rate would bring present costs to about 5.5 times their value a decade ago. And this rate has shown no signs of abating

It is evident that hospital administrations have little incentive to control costs for Medicare service. All charges are paid in full by the Government. Pressures from physicians exist for new equipment, new techniques, and more exhaustive tests for patients. Where this improves the quality of Health care it may seem well worth the price. But this engenders complacency on the part of hospitals and physicians, and adequate incentives do not exist to search for cost-saving procedures and for better administrative practices.

One source rising costs for both hospitals and physicians is the threat of malpractice claims and awards. This involves skyrocketing malpractice insurance premiums, large out-of-court settlements of claims by or for patients, and sometimes fantastic awards by tender-hearted juries.

LEGISLATIVE AND OTHER ACTIONS ARE URGENTLY NEEDED TO CONTROL MALPRACTICE

COSTS

Let me offer a personal example of the present overwhelming cost of malpractice insurance:

My ophthalmologist for the last 30 years in Philadelphia is world-famous in the field of eye care and surgery. He will retire in June. He informed me that he cannot continue in part-time practice to help younger M.D.'s because his malpractice insurance would eat up all his income-unless he continued to work full time.

Exploratory work is needed to get at the cause of the vast increase of the malpractice threat. We do not feel competent to offer solutions with any assurance of their effectiveness.

However we do note that the problem has some similarity to that encountered in injuries in the workplace and that involved in motor-vehicle injuries. We must concede that neither existing workmen's compensation laws nor no-fault automobile injury statutes serve fully as models for the medical situation. Some possibilities include: (a) Limitations on awards (including large claims for “pain and suffering”); (b) More careful pre-trial screening by a board including medical professionals;

22-020 0-83_-4

« PreviousContinue »