sor of Community Medicine, Unitistry of New Jersey-Rutgers Med

liness of the topic are self-evident. eat debates over the King-Anderson at led to enactment of Titles XVIII rity Act has American health care "up for grabs" as it is today. What edicare in the next year or two, will eversible, impact on both the U.S. the health of the American people. he principal source of health care lion of our most vulnerable Amerierly and about 3 million seriously nearly 35 percent of total patientn's community hospitals? and supof the entire personal health care more important, Medicare has become omy-pattern-setter, quality-assurer, se, insatiable consumer of resources! spite all the rhetoric, the responsible he final analysis, been slow to tamper arkable program. For, make no miss a remarkable program, one of the ctive governmental initiatives ever y.

of unprecedented and inadequately ansion, Medicare has developed some must be corrected if it is to continue adership role. But this is a far cry from nt or even curtailment. The thrust of s precisely the opposite: I see reform edicare as the Number 1 health policy day--not only for the sake of those nd patients, physicians, nurses, hospidependent on it, but precisely because attern-setter.

t to the pre-Medicare days of grossly rationing on the basis of ability-to-pay, cre quality-the days so passionately

ted by Anne R. Somers at the Government Seventh Annual Leadership Conference ngton, D.C., June 17, 1982.

condemned by Dr. Alan Gregg of the Rockefeller Foundation in his remarkable little book, Challenges to Contemporary Medicine, published in 1953? Or, having taken a long step toward Dr. Gregg's goal-"Great Medicine" (which includes teaching, practice, and medical research, and adequate resources therefor) and having experienced some of its remarkable achievements, can we now adjust our thinking and our principal institutions to the new biochemical and demographic world that is emerging?

Most of this paper will be devoted to a brief summary of the achievements and problems associated with Medicare and related programs, followed by some suggestions for reform. But first it may be useful, before this sophisticated and probably somewhat cynical audience, to establish my credentials as one long-concerned with cost.

Over 20 years ago, long before Medicare, I gave a paper at the AMA in Chicago entitled "Coverage, Costs, and Controls in Voluntary Health Insurance," in which I said,

"Many experts feel that costs have become the greatest single issue facing voluntary health insurance today.... If the price of medical care continues to rise at its current rate, and health insurance even faster as it must to keep up with the greater rise in hospital prices, the major component in insurance benefit payments, then we may find that all the additional money is absorbed in maintaining the present level of benefits.... Health insurance, originally designed to ease problems of medical costs, has actually contributed, by its effect on utilization and on prices in a scarcity market, to intensification of the problem. This is not to deny the great good that insurance has already accomplished. However, if it is to continue to play a constructive role in the easing of medical costs for consumers and in the stabilization of income for producers, it must acknowledge, more forthrightly than heretofore, its influence on costs and be prepared to accept the corollary responsibilities."5 That was the last speech I delivered at AMA headquarters! In 1967, when Medicare was less than a year old, my husband, Herman Somers, made the following statements with respect to the "reasonable costs" and "reasonable charges" provisions of Medicare:

"Even the limited knowledge we now have... is sufficient to indicate some large issues confronting not just Medicare, but the whole medical care economy, issues that demand prompt and serious attention.... Congress, following the precedent of most Blue Cross organizations, legislated that providers should be paid 'the reasonable costs' of services.

Many Congressmen may not have realized how elastic the concept of 'reasonable costs' could be, that it was as much an issue to be resolved by bargaining as by the data, complicated by the generally backward state of cost accounting in most hospitals.... Important as the specific provisions of the reimbursement formula are, far more fundamental is the question of whether the basic concept of individual cost reimbursement has long-term viability. In the tense controversial atmosphere that characterized the legislative struggle, Congress probably had little practical choice.... If, however, payment of costs, whatever they turn out to be, is virtually guaranteed (and Medicare, under present regulations, is practically open-ended in that respect). where are the financial incentives for cost control, difficult enough in any case, to come from?... In no other realm of economic life are payments guaranteed for costs that are neither controlled by competition nor regulated by public authority, and in which no incentive for economy can be discerned. Clearly, Medicare faces stormy days ahead in the entire field of payments to providers.... Present arrangements are so vulnerable that it seems unlikely that they can be lived with very long.... Yet any basic reforms will invite strident controversy. They will be slow in coming and the expense of delay will be high.""

repeat: That paper was given in 1967 and published the xt year. Red was correct in all his predictions, including the owness of corrective action and the price of delay.

Having emphasized the seriousness of the cost problem for arly 25 years; having been repeatedly accused of crying wolf" too often; having, in some quarters, suffered, at least uratively, the fate of Cassandra; perhaps you will underand why-now that cost has become a Washington obsesn― feel justified in warning against repetition of the same sic error-our apparent inability to concentrate on more an one problem at a time-which marked the original Medire legislation and related health programs.

Whereas they concentrated exclusively on increasing access d improving quality, with virtual disregard for cost, many of day's cost-targeted proposals appear to have totally lost ht of the continuing problems of access, quality, and approateness. The order of priority among these problems has anged over the years but none has disappeared. What is eded now is a balanced view of costs and benefits and a ional program for revitalization of Medicare, based on a ear understanding of its strengths and weaknesses.

Medicare and Related Programs:
Major Accomplishments

It is no more appropriate to credit Medicare for all the good ngs that took place in the health care area during the cade and a half following its enactment than to blame it for the inflation and other cost problems. Still, as the national ttern-setter, it should carry a significant share of responsiity in both respects. The following list of achievements is esented in that spirit.

Creation of a manageable national health insurance ogram.

For our elderly and most seriously disabled, Medicare now ovides a form of national health insurance-inadequate to sure in several respects (as will be pointed out below) butiversal within its own definition of eligibility and, despite eat complexity, administratively viable at surprisingly low anagement costs. In 1979, for example, 36.4 million bills ere processed under Part A; a much greater number under

Part B. Nevertheless, the Part A ratio of administrative costs to total costs fell from 2.24 percent in 1967 to only 2.14 in 1979. Even under Part B, with its much larger number of smaller claims, the ratio fell from 8.42 in 1967 to 6.01 in 1979.

Despite initial provider and private-insurance opposition, within a couple of years this understandably changed to strong support which continues to this day. Medicare has clearly demonstrated that some form of NHI is viable even in a country of this size, heterogeneity, and extreme emphasis on individual and interest group rights. Significantly, it has also demonstrated the desirability of intermeshing responsible public and private enterprise.

2. Positive effect on Health Care Resources

The quantitative expansion of health care resources is a matter of record. From 1960 to 1978, for example, the ratio of community hospital beds/1000 population rose from 3.6 to 4.6 and then began to decline, under planning constraints. From 1969 to 1978, the ratio of nursing home beds/1000 population rose from 44.5 to 60.0. In 1960, there were 142 professionally active physicians/100,000 population, the same ratio as in 1950." By 1980, the ratio had increased to 202/100,000.

It is, of course, far more difficult to measure qualitative changes. The very rapid expansion of sophisticated medical technology, during this period,12 is variously interpreted as an important qualitative advance or an expensive redundancy which may actually increase the risk of iatrogenic accidents. Even allowing for some technological overkill, as additional investment in this area reaches the point of diminishing returns, or what has been called the "flat of the curve" point," there can be no quarrel with the statement that, at this point at least, the average U.S. hospital and nursing home is a better place for patients than it was in 1966.

Are our doctors better today than they were in 1966? Some critics of current medical education complain of a decline in standards; perhaps there has been some leveling down along with the vast expansion of enrollment. However, the question here is more one of the appropriateness of the current specialty distribution rather than individual quality-an oversupply of tertiary specialists and a continuing undersupply of primary physicians, a point to which I return under "shortcomings."

3. Major advances in clinical medicine.

Progress during the past 15 years has been especially dramatic in terms of sophisticated diagnostic techniques, surgery, anesthesia, and pharmacology. Except for out-patient drugs, these are all areas covered by Medicare. The CAT scanner, open-heart surgery in cases of left-main-coronary disease and triple-vessel disease, drug treatment of angina and other cardiovascular conditions, and cimetidine for ulcers are illustrative of literally hundreds of new diagnostic and therapeutic techniques that have been made possible, in good part, by Medicare reimbursement and associated Great Society programs.

4. Major progress in life expectancy for the elderly and disabled.

Between 1940 and 1954, the death rate for men 65 and over fell by an average annual rate of 1.1 percent." Between 1955 and 1967, it rose by an average annual rate of 0.2 percent. However, between 1968 and 1978, there was an average annual drop of 1.5 percent-about 15 percent for the decade. For men 85+ the improvement was even more dramatic. Between 1955 and 1967, their death rate rose by an average of 0.9 percent per year; between 1968 and 1978, it dropped by 2.2 percent-about 30 percent for the decade. In terms of life expectancy at 65, between 1950 and 1960, there was an addi

tion of 0.4 years; between 1960 and 1978, a 1978, the average woman could look forwa years, the average man, 14.

The most dramatic improvement was in area. While the U.S. continues to have d coronary death rates in the world, during the began to do something right. Between 1 death rate for men 35-74 from coronary h fell by 23 percent, the best record of any o countries.

Similar figures are not available for the d But for end-stage renal disease (ESRD) pa in life expectancy has been dramatic. In the the annual death rate for such patients is 98 percent. With dialysis, it varies fro depending on other complications suc whatever reason, or combination of re comes as measured by mortality rates cally under Medicare.

5. Improvement in quality of life for the d
The extent to which the two extra years
elderly person were associated with impr
ty of that life is debatable. However, for
chronically disabled, there was substanti
Rice has pointed out the improvement i
to have cataracts removed for many who
afford such a relatively simple operatio
period, 1974-1979, the proportion of elde
selves in 'poor" or "fair" health, as op
excellent," fell from 33.9 to 31.4 or 2.5

Major Shortcomings an

Medicare's major shortcomings, as a
pattern-setter for, national health policy
briefly: (1) overemphasis on acute care a
fox at the expense of prevention, prima
care, and (2) failure to incorporate any
trols. Like the accomplishments, these
be blamed exclusively on Medicare. T
the prevailing views of most American
consumers, in the mid-Sixties and earl
Overemphasis on Acute Care

First, with respect to overemphasis o
knows that chronic conditions are no
of morbidity in the US. According to
Health Statistics, 83 percent of all "res
those 65 and over and 87 percent
associated with chronic conditions.2
a patient dies from a heart attack or c
very acute exacerbation of the under
However, what distinguishes chronic
disease and trauma is not the absence
but the usually slow and insidious
lengthy period of disability. The latt
interrupted by acute episodes but, n
episodes are handled medically, by d
never "cured."

Medicare was simply never intended
conditions, other than the acute ep
law specifically prohibits payment
including periodic screening and co
aspect of ongoing primary care, eye
for eyeglasses or hearing aids, prev
ing dentures for those without teeth
vices-all of which can frequently

O and 1978, a full two years.15 In Id look forward to over 18 more ment was in the cardiovascular es to have one of the highest id, during the 1970s we obviously 1. Between 1969 and 1977, our m coronary heart disease (CHD) cord of any of the industrialized

able for the disabled as a group. ase (ESRD) patients the increase amatic. In the absence of dialysis, ch patients is estimated at about - it varies from 8 to 20 percent, lications such as diabetes. For ination of reasons, health outortality rates-improved dramati

of life for the disabled.

vo extra years of life for the average ted with improvement in the qualHowever, for at least some of the was substantial progress. Dorothy mprovement implicit in their ability for many who previously could not mple operation.19 In one five-year portion of elderly who viewed themhealth, as opposed to "good" or to 31.4 or 2.5 percentage points.20 mings and Problems

Comings, as an instrument of, and a I health policy, can be summed up on acute care and the "technological vention, primary care, and long-term corporate any reasonable cost conments, these shortcomings cannot n Medicare. The program reflected most Americans, both providers and xties and early Seventies.

Care

veremphasis on acute care, everyone ditions are now the dominant cause According to the National Center for cent of all "restricted activity days" for 87 percent of all deaths are now = conditions.21 Needless to say, when art attack or cancer, there has been a of the underlying chronic condition! shes chronic disease from most acute ot the absence of such acute episodes and insidious onset and the frequent bility. The latter may, or may not, be pisodes but, no matter how well such medically, by definition the condition is

never intended to deal with such chronic the acute episodes. Sec. 1862 of the bits payment for preventive services, eening and counselling as an essential mary care, eye or hearing examinations ing aids, preventive dental care include without teeth, and most podiatry seran frequently help either to prevent the

onset of chronic disabling conditions or to minimize their severity. It matters not to Medicare that an estimated one-half of all the elderly are edentulous and 10 percent have neither teeth nor dentures.22

The anti-prevention bias appears particularly egregious in view of the recent success of preventive programs in reducing or controlling hypertension, strokes, and other cardiovascular conditions. In the words of the National Heart, Lung, and Blood Institute's 1981 Task Force Report on Arteriosclerosis: "The marked and continuing decline in mortality rates from coronary heart disease and the other atherosclerotic diseases in the 1970s lends support to the concept that the epidemic onslaught of these diseases can be controlled and prevented...

"23

I am sure that both Secretary Schweiker and Secretary Califano agree with this view. Yet both Administrations have said that we cannot afford to provide preventive services under Medicare. How pennywise and poundfoolish can we get?

Similarly, Sec. 1862 prohibits payment for "custodial" care, which, as a practical matter, means most long-term care, whether institutional or home-based. Again, this omission can be associated (I do not say causally, but I do believe more than coincidentally) with our failure to show any significant progress with respect to the treatment and/or rehabilitation of long-term stroke patients or those with Alzheimers, now estimated at nearly 10 percent of the elderly.24

Conceptually, the Medicare benefit package, like most private health insurance upon which it was largely modelled, was a product of the late 19th and early 20th centuries, when acute illness was the primary concern, and when most patients either got well or died in a relatively short period of time. The role of behavioral, environmental, and genetic risk-factors in the etiology of chronic disease and the importance of periodic screening, patient counselling, and early treatment in postponing the onset of disabling consequences were not understood. Nor was the frequent necessity of years of rehabilitation and long-term care for those who now survive an acute heart attack, stroke, or serious trauma, or the growing legions with neurological problems.

This is the historical paradox of medical progress: The more successful we are in controlling mortality, the more morbidity usually results!25 This is not a good reason for letting people die untreated or for discontinuing health insurance. It is an urgent reason for adjusting our health care priorities and financing mechanisms to the new realities.

Failure to incorporate Reasonable Cost Controls

It is unnecessary, before this audience, to go into detail with respect to the spiralling costs of Medicare. The figures have been repeated almost ad nauseum. As you know, the program started out in 1967, the first full year of operation, costing only $4.5 billion and grew at an average annual rate of 17 percent?? to an estimated $36 billion in 1980, a budgeted $60 billion in 1983,28.29 and a projected $76 billion by 1985. In one year, FY 1980-1981, the rise was 21 percent. It seems hardly necessary to point out that such a rate of growth cannot and will not be tolerated indefinitely.

Moreover, eventually the elderly themselves would probably revolt. For what we are now witnessing is not just an unacceptable rise in overall costs but a probable shrinkage in value.

Medicare's contribution, as a percentage of total health care expenditures of the elderly has changed somewhat over time, with the last published figure from HCFA, for 1978, put at 44 percent. If Part B premiums had been included in the expense side of the equation as they should have been-the figure would have been closer to 40. No one knows for sure what the ratio is today. But in view of the recent 25 percent rise in

he Part B deductible, the declining ratio of allowable physicians fees to actual fees, and the rising costs of uncovered ong-term care, it is unlikely that there could have been any significant improvement.

Medicare's inadequacy in this respect is underscored by he large sums that government at all levels is having to spend or the health care of the elderly, in addition to Medicare. In 978, for example, the addition represented nearly 20 percent of their total personal health expenditures." Thus, we arrive t a second paradox: The higher the costs of Medicare, the ess beneficiaries are getting from it!

Before attempting to define the missing "reasonable cost controls," it is essential to clarify the major causes of the cost scalation. First, several theoretical possibilities can be ruled ut immediately. There has been no significant expansion of enefit coverage since the beginning. Administrative costs, s already noted, have been moderate from the beginning nd are still declining. In contrast to Medicaid, there has never een any evidence of significant fraud.

What then are the major causes? They are, as I am sure most of you already know, the same five factors which are enerally blamed for the overall rise in health care costs, Ithough the relative role they play in Medicare is not precisely he same as for younger persons. They are: increase in the overed populations; increased utilization per capita; quality mprovements; greater "intensity" of care; and price inflation. The number of Medicare enrollees rose from just over 19 million in 1966 to nearly 28 million in 1979, an average increase f 2.9 percent per year. The largest single year increase-10 ercent-came in 1973, when the disabled and ESRD patients were added. Despite the conservative definition of "disability" or the purpose of Medicare eligibility-30 months after the rst full month of actual disability-this category of enrollees as continued to grow at a much faster average annual rate6 percent-than the elderly-1.9 percent, while the ESRD ategory exploded by an average rate of 21 percent per year. ven the 1.9 percent may be compared with an average growth ate for the general population of less than 1 percent. Within me ranks of the elderly, the rise in the "old-old"-those 75 nd over-was nearly twice that of the young old-those 654-2.7 percent compared to 1.5 percent. And nonwhite rollment grew twice as fast as white. Clearly, Medicare is Foducing the hoped-for effect-the elderly, the poor, and any of the chronically disabled are being helped and are ving longer.

Utilization of most Medicare benefits has increased modately; but not all. For example, the use of SNFs by the elderly ctually declined.34 The picture with respect to short-stay hostal use is particularly significant. In the decade 1967-1977, e discharge rate for Medicare enrollees 65+ rose 28 percent ut, thanks to a 21 percent drop in average length of stay, ays of care were virtually unchanged-up 2 percent.35

The higher rate of admission and discharge, combined with horter length-of-stay, the striking rise in the proportion of Ospitals with specialized high-technology services, 36 and the Ontinuing rise in the number of procedures and/or medicaOns per admission, 37.38 all add up to the well-known phenomnon of increased "intensity" of care. As already noted, the lationship between quality and intensity is complex: Clearly ey are related; but they are not identical.

For example, it is widely recognized that the current pracce of ordering blood chemistries in batches of 12, 18, or 24 s very little relation to diagnostic precision, i.e. quality, but primarily a technological artifact. Similarly, it is well known at some hospital procedures are performed not for the sake a surer diagnosis but as a theoretical protection against a alpractice suit or as a teaching device.

There is, today, a growing tendency, especially in governmental and other third-party circles to question the appropri ateness and the relation to health outcomes of much of the new technology and other intensity factors. Some skepticism is in order and suggests our gradual maturing past the "gee whiz" stage of technological progress. Still, there is a danger of overreaction, motivated too narrowly by cost considerations and with inadequate understanding of the basic problem, i.e. trying to deal with chronic disease on the same basis as acute conditions.

Surprisingly, there are no studies that attempt to isolate the role of price in the Medicare cost rise. However, such an effort is made annually by the Department of Health and Human Services (HHS) for all personal health care expenditures. The latest reports the contribution of price inflation to the overall rise, at five year intervals, as follows: 1965-1970-49 percent; 1970-75-59 percent; 1975-1980-73 percent.40 Needless to say these growing proportions incorporate the general price inflation as well as the additional inflation in health care. The relation between general inflation and health care prices has changed over the past 15 years; but, in general, the rise in medical care prices has led general prices throughout, usually by a substantial margin of difference. With 1967 as 100, for example, the Consumer Price Index (CPI) for all items reached 284 in April 1982; for all medical care, 322; and for a hospital room, 542, almost twice the general inflation rate.**1

Corrective action with respect to hospital costs in general and Medicare costs in particular needs to focus: (1) on prices; and (2) on service intensity. Note that these are precisely the factors over which consumers or patients have virtually no control.

Strengthening Medicare for
Future Needs

In summary, then, in terms of its own objectives, Medicare and its related Great Society health programs have been a real success. Two years have been added to the life expectancy of the average 65 year old American; slightly more to that of the average older Black. For millions of younger disabled, the quality of life has improved; some, such as ESRD patients, have, quite literally, been given years of reprieve from an otherwise unappealable death sentence.

Medicare is now the victim of its own success. The benefit package is not only deficient in specific areas but obsolete in its basic orientation. The program costs too much, not just in dollars, but in its declining value to enrollees, meeting less than 40 percent of their health care costs whereas it should be meeting at least 60 percent. This is clear from the fact that other public programs are paying nearly 20 percent of their costs resulting in fragmentation, considerable duplication, and unnecessary administrative costs.

Don't jump to an erroneous conclusion, however. Medicare should not be repealed! It is the best thing-indeed the only sure thing--that we elderly have to insure us not only against the high costs of care but-equally serious-against loss of professional interest, a loss which could rapidly condemn

"It is important, however, not to overstate the Medicare contribution to medical price inflation, which was evident long before 1965. Between 1950 and 1965, for example, the general CPI rose at an average annual rate of 1.8 percent; medical care prices, 3.5 percent. From 1965 to 1981, the CPI rate was 6.8 percent; the medical care rate, 7.7 percent.

milions of the poor and near-poor to th
asady faces those whose condition is be
erage, and which faced most of the elde
acute illness prior to 1966. No! The cha
mente but to reform and strengthen. Th
easy the latter will be difficult-as difficu
Medicare in the first place.

h my view, reform should take two m
responding to the two major problems: (
emphasis on acute institutional care sho
a new commitment to prevention, prim
erm care, and (2) The destructive cost
moderated through introduction of mear
I am not suggesting that there is anythin
or morally wrong about spending 10 pe
GNP for health care, or even X percent d
As our population continues to age, at le
years, we will inevitably spend more for h
ton relates to what we are, or are not, ge
Fortunately, the two thrusts are compl
be pursued simultaneously. Limitations
thing more than a few suggestions as to
could or should be pursued under eac
For example, specific measures to impl
elt Reorientation might include:

1 Redefine Medicare's basic benefit p
primary care and to include appropriate
nouding periodic health maintenance
able amount of dental, podiatry, and o
vices, also long-term care for disabling
both institutional and home-based

The latter could be financed, in part, b
from Medicaid, Title XX, and perhaps
programs, of the substantial funds--no
$12 billion a year-budgeted for long-te
and disabled under those programs. Al
cost-sharing should be included, along
and cost controls. (More on the latter t
of the essential new preventive service
of the long-term benefits could be finan
poning the normal Social Security reti
58 as suggested by the Technical Con
vices to the 1981 White House Conferer
opment in line with considerations of in
as financial needs." Gradual introduct
might be synchronized with the gradua
retirement age and corresponding adju
nity and other pensions.

2. Require all Medicare patients to
primary care practitioner or primary ca
a referral before consulting a specia
benefit payment.

If the new primary care benefits are
there must be assurance that perso
appropriately used. The requirement t
with a primary care practitioner (PCP
PCG) is in line with long-standing pr
the importance of continuity of care
patient relationship. Provision for refe
cialized care is, of course, essential
always return to his or her PCP or
management of any continuing chron
ing (a) that the patient will not be
specialized treatment has ended but
good quality care; and (b) that such
the least expensive appropriate settin
This emphasis on primary care is in
in HMOS but, unlike the traditional H

-poor to the same fate which dition is beyond Medicare covof the elderly, even those with ! The challenge is not to disngthen. The former would be -as difficult as it was to enact

ake two major directions, corroblems: (1) The existing overal care should be corrected by ntion, primary care, and longuctive cost escalation must be on of meaningful cost controls. e is anything economically and/ ding 10 percent or more of the X percent of the federal budget. Lo age, at least for another 40-50

more for health. The real ques- are not, getting for our money.

are complementary and should Limitations of time prevent anystions as to specific actions that under each of these headings. res to implement Point 1-Benclude:

sic benefit package to emphasize appropriate preventive services, aintenance visits, and a reasonatry, and other allied health serOr disabling chronic conditions-based

ed, in part, by transfer to Medicare, and perhaps other public health funds-now probably more than for long-term care for the elderly programs. Also varying degrees of uded, along with essential quality n the latter below.) Probably most ntive services, as well as portions ould be financed by gradually postSecurity retirement age from 65 to echnical Committee on Health Seruse Conference on Aging."2 a develerations of individual health as well al introduction of the new benefits h the gradual postponement of the Donding adjustment of Social Secu

patients to register with a qualified Or primary care group and to obtain Eng a specialist, as a condition of

benefits are to be effectively utilized, e that personnel are available and equirement that all enrollees register Litioner (PCP) or primary care group -standing professional emphasis on uity of care and a personal doctorision for referral for short-term spese, essential but the patient should her PCP or PCG for the long-term inuing chronic condition, thus assurwill not be "abandoned" when the as ended but will continue to receive b) that such care will be rendered in opriate setting.

mary care is in line with current interest traditional HMO, this proposal does

not involve "closed panel" practice or necessarily the capitation method of provider payment. It is the same formula successfully followed for 20 years by the Hunterdon Medical Center in New Jersey445 and variations thereon have been explored by several large health insurance carriers.

Other points which should be explored in connection with Benefit Redefinition include the special and difficult problem of administering long-term care benefits and special provisions for terminal care.

Under Point 2, Cost Controls, the following are suggested: 1. Firm budgetary ceilings should be established on overall Medicare expenditures, perhaps on a biennial or triennial basis. Whether such ceilings should be established by Congress or the various Fund trustees is perhaps debatable. What is not debatable is that there should be some such overall caps. The "blank check" now extends downward from the Congress, the Secretary of Health and Human Services, and Fund trustees, through the intermediaries and carriers, to the hospitals and their employees, and ends up with the orderly saying to his department head, "Why should you object to my getting another raise? It won't come out of your pocket!" This must be reversed and some fiscal discipline built into the whole system of reimbursement. And I don't mean just on the patient!

2. Establish fixed prices, negotiated and periodically renegotiated, for all categories of provider services and goods.

Any effort to replace the reimbursement "blank check" with fixed fees has, for the past few years, been viewed by the leading provider organizations as excessive "regulation" or government "interference." This is hard to understand. As my husband pointed out in 1967, health care is virtually the only industry or even profession in which the major suppliers of services have refused to accept even the concept of fixed prices. While this unique situation can be largely explained in historical terms, continued opposition, especially on the part of the medical profession, will almost surely have tragic consequences, not only for the public but for the profession itself.

Fixed fees are essential not only to effective cost control but to rational resource allocation, to responsible institutional and group management, and equally important-to the preservation of professional independence. The current desperate effort, in some quarters, to transform the medical profession into a business may appear to some-both in the profession and in government-as a clever and even desirable way of attacking the present untenable situation but it would, almost certainly, lead to near-commercialization of the practice of medicine and this in turn could mean eventual near-total domination by external financial pressures.

46.47

There are some signs that this threat is beginning to be appreciated. The President of the American Hospital Association recently stated that "the traditional system of insurors paying hositals retrospectively for patient costs has outlived its usefulness," and the AHA has now suggested its own version of "prospective rates."'48

So what now? The answer does not appear either mysterious or frightening. But it does involve some important decisions with respect to three interrelated but separate points: (1) payment of physicians, hospitals, and other providers on the basis of fixed rate schedules; (2) determination of such schedules through periodic collective negotiations between the major third-party payors and the major provider organizations; and (3) determination of the most appropriate method of payment for different categories of provider. A few words on each of these points.

1. It appears advisable to adopt the term "fixed rate schedule" rather than the phrase that has recently become popular in health care circles, "prospective rates." While the latter has certain professional appeal in that it does not seem so rigid,