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of money. Now, I do not know if this is true throughout the country, but if it is not true, Congress should look into making this mandatory, because hospitals, sometimes just for prestigious reasons, they just want to be big, will spend hundreds of millions of dollars in expansions throughout the Nation and add it to the bills, which could be very unnecessary.

Mr. Smith. I am sure all of you would agree, too, just based on your home health care emphasis, that you also see an equal emphasis should be placed on outpatient delivery of testing as well as

care.

Mr. KEISERMAN. Yes, definitely.

Mr. Smith. Finally, I have one more question, and that is to Mr. Bond. You spoke extensively of prospective payments and you warned that there is a new complication, and the way you put it, it may slow the adoption of new medical techniques if they involve additional costs that are not in the DRG schedule. Could you elabo rate on that?

Mr. Bond. This is the point I was making. Let us say there are 460 diagnostic groups reported. A new technique is reported in the medical journals. A physician sees the applicability of it to a patient that he has, but it does not involve any of the types appearing on the DRG schedule. What should he do? Should he have the hospital carry those out and have an overrun on that? Should he decide not to use the latest technique because of the lack of a category to put that in? That is the general question I was raising on that.

Mr. SMITH. Thank you for your comments.

Mr. RINALDO. Thank you. And I certainly want to thank the panel for the reactions of the organizations and your own reactions on these very, very serious problems.

Mr. KEISERMAN. Thank you very much, sir.
Mr. Bond. Thank you.

Mr. RINALDO. I would like to acknowledge the presence of Mayor Jack Rafferty of nearby Hamilton Township who is here this morning. Without objection, I will insert his prepared statement in the hearing record.

We now call the final panel on medicare reform, cost containment and benefit restructuring: Anne Somers, a professor at the University of Medicine and Dentistry of New Jersey; Faith Goldschmidt, health economics services, New Jersey Department of Health; and Winifred Livengood, the executive director, of the Home Health Agency Assembly of New Jersey.

Your testimony as presented, the written testimony, will be included in the record in full. And we would appreciate a summary.

PANEL TWO, COST CONTAINMENT AND BENEFIT RESTRUCTURING-CONSISTING OF ANNE SOMERS, PROFESSOR, DEPARTMENT OF ENVIRONMENTAL AND COMMUNITY MEDICINE AND FAMILY MEDICINE, RUTGERS MEDICAL SCHOOL; FAITH GOLDSCHMIDT, HEALTH ECONOMICS SERVICES, NEW JERSEY DEPARTMENT OF HEALTH; AND WINIFRED LIVENGOOD, EXECUTIVE DIRECTOR, HOME HEALTH AGENCY ASSEMBLY OF NEW JERSEY

STATEMENT OF ANNE SOMERS Mrs. SOMERS. Thank you, Mr. Rinaldo, and Mr. Smith, ladies and gentlemen. My name is Anne Somers. I am a professor in the Department of Environmental and Community Medicine and Family Medicine at Rutgers Medical School, which as you know is a branch of the University of Medicine and Dentistry of New Jersey. I am also a research associate, industrial relations section at Princeton University.

I have been a close observer and student of the medicare program since its inception. My husband, Herman Somers, and I served successively on the original HIBAC, the Health Insurance Benefits Advisory Council to medicare between 1968 and 1975. And we authored the first serious study of the program, "Medicare and the Hospitals”, published by the Brookings Institution in 1967. We anticipated a great many of the problems which are generally recognized today, including the cost problem.

Now, I regret to say, we have a different point of view. We are both beneficiaries. But at least it has given us a well-rounded experience, and the opportunity to view medicare from many points of view, some more advantageous than others.

My general views have been set forth in several recent articles, especially a paper entitled "Rethinking Medicare to Meet Future Needs” that I gave to the National Leadership Conference on Health Policy in June 1982.

Mr. RINALDO. If you will yield, we would like a copy of that to be included in the record if you have one.

Mrs. SOMERS. You will have it. And a second paper on “Medicare and Long-term Care," which was published in the New England Journal of Medicine, last July. I would welcome the opportunity to discuss them in greater detail with you or Mr. Smith or any members of your staff.

What I have tried to do in what was even for 10 minutes a very brief time-is boil my views down to a series of six statements. Obviously, it has to cover a lot of territory. The challenge you have thrown out to us is both imaginative and urgent.

In an effort to be both precise and comprehensive, I inevitably run the risk of sounding somewhat dogmatic. But the topic is so complex and so important, that it really must not and cannot be dealt with effectively on a piecemeal basis.

One, the original goal of the medicare program, that is, to provide needed health services of good quality to all Americans 65 or over, without a means test, was not only humane and idealistic, but feasible.

In reforming medicare, we must be very sure that we do not destroy, but instead we protect and strengthen, this original goal.

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Two, the 17-year medicare experience has been, on the whole, positive. Average life expectancy for those 65 has been extended by about 2 years in that short period of time, a very remarkable achievement.

The quality of life has improved for millions of both the elderly and seriously disabled. Health care personnel, technology, procedures, and facilities have improved both quantitatively and qualitatively.

And private health insurance has flourished, both as an administrative adjunct to, and as a supplement to, medicare.

Three, the major negatives in the medicare experience involve the unacceptable rise in costs and the precarious situation of the part A Hospital Insurance Trust Fund. I am not going to spend any time documenting these cost problems. You have already done it, Mr. Chairman, very succinctly and effectively. My husband and I have been saying this for 15 years and there is now very little disagreement.

The real disagreement, however, still involves the causes and the appropriate corrective action. In my view the cost explosion results from a combination of overlapping external and internal factors, some of which the program can address, and some of which the program has to live with but cannot directly address, but both of which should be taken into account as reform is contemplated.

The situation is far more complex than just a matter of changing financial incentives or changing the behavior of physicians or individual patients.

Externally, the principal factors include: (a) the constant improvements in and the rising costs of medical technology, resulting in what we have long called “the paradox of medical progress”. That is, the more patients we save from acute illness—from dying of a heart attack, stroke, or early cancer-the more we save, the more patients there are going to be to live longer, to require longterm care, and probably to cost more over the long run; (b) the aging of the population; (c) the shift from acute to chronic disease as the principal cause of morbidity in the United States-remember, by definition, chronic disease is never cured. It is not something you die from or get well from in 2 weeks in the hospital. You live with it the rest of your life: (d) the growing proportion of women in the population, a point Mrs. Abrams addressed very eloquently; (e) declining birth rate; and (f) the shrinking American family. All of these external factors add up to a longer lived beneficiary, with more chronic disability, with fewer family supports, more expensive medical care, and reduced financial base-both for the individual patient and the program as a whole.

Internally, medicare has suffered from two major deficiencies: an almost total lack of cost controls and overemphasis on acute inpatient care at the expense of less expensive primary and long-term care.

Four, medicare reforms should be addressed simultaneously to the two programmatic deficiencies with full appreciation of the change to external environment.

Efforts should be focussed on effective cost controls, consonant with the original and continuing goals of the program; and rede

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sign of the benefit package to fit the new pattern of chronic dis

Obviously there are many other relevant approaches to reform, for example, the one that you have stressed this morning, Mr. Chairman-exploring new sources of revenue, such as general revenues; or one that I feel has not been mentioned-administrative consolidation of parts A and B, which could have, not only administrative, but some other important consequences. Those obviously should be included. I cannot do it for question of time.

And, in any case, it seems to me that cost control and redesign of the benefit package are basic.

That leads me to the last two points.

Five, cost controls, should be directed at both providers and consumers. Among the specific measures needed with respect to the providers: fixed rates or prices for all provider services-all, not just hospitals, but all, both institutional and individual practitioners. I realize the word “prospective” is the “in” word today. It is a euphemism, I think. The important thing is that the rate be firmly fixed for an agreed period of time.

There are numerous acceptable methodologies for establishing such rates. The DRG or per case method is certainly one. I do not think it is applicable in all cases. There are cases—long-term care, for example-where per diem is more appropriate than the per case rate.

In the case of practitioners, sometimes fee-for-service is appropriate. It is not the only culprit in the cost rise. Salary or capitation may be better in other cases. In all cases, whatever methodology is used, it must be, fixed for a definite period of time, even if it is just 1 or 2 years. And preferably, rather than being imposed by one side or the other, the ratio should be negotiated and renegotiated in the tradition of American collective bargaining by the principal provider and payer organizations.

Assignment provisions, as you have already discussed, obviously also need tightening up.

Let us turn to consumers. Reasonable cost-sharing provisions, ranging from zero deterrence or even financial inducements for certain preventive services—where societal considerations are overriding—to some degree of deterrence for certain high-technology services-which, of necessity will have to be rationed in one way or another. The artificial heart, if it ever works, is an obvious example.

Six, with respect to benefits, the existing bias toward acute inpatient care should be reversed to emphasize primary care, the latter defined to include appropriate preventive services, and long-term care—the modalities most appropriate to the new picture of chronic disease.

Specifically, the existing section 1862 prohibition on preventive and custodial-a euphemism for long-term care should be removed; the Secretary of HHS should be instructed to establish schedules of reimbursible, professionally approved periodic preventive services. Such schedules should be reviewed periodically and revised as appropriate-perhaps every 5 years.

All medicare beneficiaries should be encouraged, to undergo a health assessment by an appropriate primary care practitioner or group at the onset of medicare eligibility, and to remain in periodic contact with that practitioner or group before resorting to any specialized care.

The Secretary of HHS should be instructed to establish a schedule of reimbursible professionally approved long-term care services, both institutional and noninstitutional. Noninstitutional, of course, means primarily home care; institutional means nursing home care. Such schedules should be reviewed periodically and revised as appropriate, perhaps every 5 years.

Existing medicaid responsibilities and Federal funds now budgeted for long-term care through medicaid should be transferred to medicare for this purpose.

Objections to this approach to medicare reform may be anticipated from many who are happy with the status quo, as well as from some who would like to demolish medicare altogether. But the status quo is, as you have pointed out, financially untenable for more than a very few years, and the real medicare wreckers have no serious political support at the present time. Too many providers, as well as nearly all elderly consumers, are too dependent on the program.

The practical question then is how to put together a reform package made up of many different components which addresses the major programatic deficiencies as fairly and as painlessly as possible.

The suggested package, I submit, provides at least a pragmatic beginning for a politically and financially viable compromise which protects the idealistic vision of the original medicare program while introducing fiscal responsibility and realining benefits in keeping with changing demographic, epidemiologic, and technological developments. Thank you very much.

[The material submitted by Mrs. Somers follows:]

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