t is not understood by the public and is sometimes mistaken o mean payment in advance. It may also be argued that 'prospective rates" really are more flexible, at least when applied to hospitals, in that they include "incentive schedules" which may vary up or down within a defined range, depending on the institution's performance. But this is not a good enough reason to use an ambiguous term. The question of incentive ates versus single rates is one to be determined as part of he suggested negotiations (see below). Even if a range were adopted, rather than a single rate, the range would have to De fixed. Any misunderstanding on the point of predictable prices must be avoided. 2. Fixed rate schedules could, of course, be drawn up in various ways: unilaterally by the consumers or payors, unilaterally by the providers, or through collective negotiations between the two groups. The latter is clearly the most equiable and in line with the general trend of decision-making in highly industrialized democratic societies. A negotiated approach to rate-setting was recommended by the author as early as 1977" and has recently received new support. The choice of Prof. John Dunlop of Harvard University, an internationally respected labor economist with a strong commitnent to negotiations as a basis for decision-making, as chairman of a national health coalition, announced in January 1982,50 suggests an increasingly receptive atmosphere for such an pproach. Inevitably, there will be some thorny questions as to precisely who will represent the two groups for this purpose; what changes would be needed in current anti-trust legislaion; what geographic areas would be served, etc. American experience with the gradual historical development of collecive bargaining law and procedures, culminating in the National Labor Relations and Taft-Hartley Acts should be helpful, as vell as the experience of many other Western democratic countries with respect to the health field. In many respects. however, the American situation is unique and participants in his development must be prepared to pioneer. 3. With a field as large and diverse as health care, it should be obvious that no one method of payment will prove most appropriate. Not only will there be differences between instiutional and individual providers but within each of these groups, depending on the legal form of specialization, etc. For example, a case could be made for paying hospitals on he basis of per diem rates, per case rates, single rates, incenive rates within a range, etc. In the case of physicians, the schedules could be based on fee-for-service, using relative value scales for comparative weighting, salary, capitation, or ome combination thereof. Needless to say, any major changes of this magnitude would require careful study and public debate. Although the hour is late and the need for action urgent, it would still be wise to establish a top-level public/private bipartisan Medicare Commission, alongside the Social Security Commission, to come up with a specific legislative program in time for the next Congress. It is a cliché to point out that the term crisis means both danger and opportunity. The danger in the present Medicare situation and the possibility of irreparable damage both to it and to the nation's health is clearly with us. But so is the opportunity for a whole new approach to health care and health care policy. For years we in the U.S. have been criticized for being the only advanced democratic nation on earth without some form of national health insurance or national health service. Perhaps there was some Providential reason for this seeming lag. Perhaps we can prove the truth of the Biblical proverb, "The first shall be last and the last shall be first." In general, it would appear that fee-for-service is probably nost appropriate for specialized episodic acute care; salary or capitation for continuing primary care. But these too should e matters for negotiation. There is no more basis for accusing ee-for-service of being the major cause of the current health are inflation than for fearing that capitation will result in nadequate care. Whatever the method of payment, profesional self-regulation within a context of public accountability emains the ultimate guarantor of patient protection. One of he major goals of the negotiated approach to provider paynents is reaffirmation of the necessity of professional selfegulation and the development of instrumentalities to make effective. Other points which should be explored under this heading nclude nondeterrent cost-sharing, especially for long-term are, possible limits on payroll tax deductions for health insurnce benefits, possibly some limits on the use of exotic techology—an extremely difficult but impossible-to-ignore topic, nd some administrative reforms such as consolidation of 'arts A and B of Medicare. As we meet here today and debate the future not only of Medicare but of our national health policy in general-note that we are the first Western nation to do so in the wake of four historic developments: (1) after the genetic code has been broken, (2) after average life expectancy has passed the Biblical norm of "three score years and ten," (3) after chronic disease has taken the place of acute disease as the primary cause of morbidity, and (4) after medical science and technology have achieved the capability to give or to withhold life to specific patients in specific situations such as ESRD. These are developments no less important in terms of health care policy than the discovery of atomic fission and fusion in terms of international relations. Apropos that discovery, Albert Einstein said, "The splitting of the atom has changed everything save our mode of thinking, and thus we drift towards unpar alleled catastrophe...." Let it not be said of us as we scurry about thinking up vouchers, "indemnities," "Long-Term Care IRAs," and other gimmicks, that we were so preoccupied with rearranging the chairs on the Titanic that we missed altogether the great icebergs descending upon our health care system-chronic disease, chronic disability, and the costs related thereto. On the contrary, let us recognize chronic disease for the challenge it is and set about learning how to prevent it; how to postpone its disabling consequences; how to live and function with it, when it cannot be prevented; how to die from it— with as little suffering as possible; and how to pay for it. Perhaps the most realistic diagnostician of our current health care problems is also the most optimistic as to future possibilities. Dr. James Fries of Stanford Medical School has coined the phrase "The Rectangular Society" to indicate one in which most people live, without much serious disease or premature death, to a ripe old age of about 85. I conclude with his words: "As chronic diseases are postponed, and as physiological aging is slowed by research and lifestyle changes, natural life will become more prevalent. Personal choice will come to play an increasingly dominant role in health, in the prevention of premature disease, and in the favorable modification of those aspects of aging that are plastic. "What will life be like in a rectangular society? There will not be an accumulation of debilitated elderly people exhausting the medical and social resources of the society On the contrary, granting a stable birth rate, there will be comparable numbers of vigorous, healthy people in each of the first seven decades of life, followed by a decline in the number of individuals between 70 and 100. Although death and debility resulting from congential defects and accidents will always be present, and some will consciously choose not to live out a natural life through personal choice sell-destructive behavior patterns, most ectangular society will succumb to relat nesses in the final senescent period of life will occur at the end of natural life. The rectangular society does not present ey free from problems. The medical care rust undergo a fundamental upheaval ecome geriatricians, and acute care hospit bed prmanly by geriatric patients. Costs anaf heroic treatment methods are aba more rational therapeutic approaches a pce and respite care units, in convalesce modified nursing homes. When people ascular or malignant diseases in their 80 s other 50's and 60's, therapeutic and diag should be more humane and less dramat amor be avoided, no matter the expendi The integration of the older members c mainstream of life is the challenge for the from the agony of lingering illness, filled atural life, the rectangular society repres for the fulfillment of human potential."51 rethinking Medicare to meet future ne ook to such a vision of the future, rather t bsolete constraints of the pre-Medicare pa References US Department of Health and Huma 2 New York Times, April 20, 1982. 3 RM. Gibson and D. R. Waldo, "Natio 4 Alan Gregg. Challenges to Contempo in Voluntary Health insurance, Publi 7. D N. Muse and D. Sawyer, The Me Health-U.S. 1981 (Washington, DC: 184 US Department of Health and Hun Center for Health Statistics, unput 1982 11 Health-U.S. 1981, p. 177. 12 LB. Russell, Technology in Hospit and Their Diffusion (Washington, tion, 1979). 13. S. A. Schroeder, "Medical Tech Medicine: The Doctor-Producer's Medical Education 56 (August 198 14. LA Fingerhut, "Mortality Among t US 1981, p. 17. tterns, most persons in the mb to relatively short-term period of life; natural death life. es not present a utopian socimedical care delivery system al upheaval internists will te care hospitals will be occuients. Costs of medical care thods are abandoned in favor approaches at home, in hosn convalescent facilities, and When people develop cardios in their 80's and 90's instead utic and diagnostic decisions dless dramatic. Natural death - the expenditure. er members of society into the lenge for the coming era. Free illness, filled with the vigor of ociety represents a great hope potential."51 eet future needs, I suggest we ture, rather than retreat to the -Medicare past. ences h and Human Services, Health tration, unpublished data, June , 1982. Waldo, "National Health Expenare Financing Review 3 (Septem to Contemporary Medicine (New ty Press, 1956). "Coverage, Costs, and Controls rance," Public Health Reports 76 excerpted in Somers and Somers, Policies in Perspective (Germanms Corp. 1977), pp. 125-126. are and the Costs of Health Seret al., eds. The American System ew York: McGraw-Hill, 1968), pp. Somers and Somers, Policies in 170-177. wyer, The Medicare and Medicaid hington, DC: Department of Health Health Care Financing Administra982), p. 61. shington, DC: Department of Health Publ. No. (PHS) 82-1232, 1982), p. ealth and Human Services, National tistics, unpublished data, June 14, 177. "ogy in Hospitals: Medical Advances Washington, DC: Brookings Institu Medical Technology and Academic or-Producer's Dilemma," Journal of 6 (August 1981), p. 636. tality Among the Elderly," in Health 15. Health-U.S. 1981, p. 111. 16. U.S. Department of Health and Human Services, Arteriosclerosis 1981, Report of the Working Group on Arteriosclerosis of the National Heart, Lung, and Blood Institute, (Bethesda, MD: NIH Publ. No. 81-2034, 1981), p. 4. 17. Richard Freeman, President, National Kidney Foundation, Written communication, June 8, 1982. 18. G. Hirshman, Acting Director, Chronic Renal Disease Program, National Institutes of Health, Bethesda, MD, Oral communication, June 16, 1982. 19. J. K. Iglehart, "Medicare's Uncertain Future," New England Journal of Medicine 306 (May 27, 1982), p. 1311. 20. Health-U.S. 1981, p. 148. 21. D. P. Rice, Director, U.S. Department of Health and Human Services, National Center for Health Statistics, Written communication, February 8, 1982. 22. James Marshall, American Dental Association, Oral communication, May 20, 1982. 23. Arteriosclerosis 1981, op. cit., p. 31. 24. M. B. Breckenridge, "The Senile Dementias: A Dual Perspective on Their Epidemiology," in A. R. Somers and D. R. Fabian, The Geriatric Imperative: An Introduction to Gerontology and Clinical Geriatrics (New York City: Appleton-Century-Crofts, 1981), p. 156. 25. Somers and Somers, Doctors, Patients, and Health Insurance (Washington, DC: Brookings Institution, 1961), Chap. 1., "The Paradox of Medical Progress." 26. Health-U.S. 1981, p. 212. 27. Medicare and Medicaid Data Book, op. cit., p. 15. 28. Medicare Hospital Insurance and Supplementary Medical Insurance Trust Funds, 1982 Annual Trustees Report. 29. Health Care Financing Administration, unpublished data, June 10, 1982. 30. C. P. Fisher, "Differences by Age Groups in Health Care Spending," Health Care Financing Review 1 (Spring 1980), p. 76. 31. Ibid., p. 87. 32. Medicare and Medicaid Data Book, op. cit., p. 13. 33. U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the U.S. 1980 (Washington, DC: 1980), p. 6. 34. Medicare and Medicaid Data Book, op. cit., p. 27. 35. J. Lubitz and R. Deacon, "The Rise in the Incidence of Hospitalization for the Aged, 1967-1979," Health Care Financing Review 3 (March 1982), p. 25. 36. American Hospital Association, Hospital Statistics, annual editions (Chicago: The Association). 37. A. A. Scitovsky, "Changes in the Use of Ancillary Services for Common Illness." in S. H. Altman and B. Blendon, Eds., Medical Technology: The Culprit Behind Health Care Costs? (Washington, DC: U.S. Department of Health, Education, and Welfare, DHEW Publ. No. 79-3216, 1979), pp. 39-56. 38. T. W. Maloney and D. E. Rogers, "Medical TechnologyA. Different View of the Contentious Debate Over Costs," New England Journal of Medicine 301 (December 27, 1979), pp. 1413-1419. 39. Lubitz and Deacon, op. cit., pp. 37-38. 40. Gibson and Waldo, op.cit., p. 8. 41. U.S. Bureau of Labor Statistics, CPI Index for All Urban Consumers, April 1982, Table 2. 42. 1981 White House Conference on Aging. Report of Technical Committee on Health Services. J. C. Beck, Ch. (Washington, DC: Government Printing Office: 1981-720019/6963), p. 41. 43. A. R. Somers, "Social, Economic, and Health Aspects of Mandatory Retirement," Journal of Health Politics, Policy, and Law 6 (Fall 1981), pp. 542-557. 4. H. B. Curry, et al., Twenty Years of Community Medicine (Frenchtown, NJ: Columbia Publishing Company, 1974). 5. L. B. Wescott, "Hunterdon: The Rise and Fall of a Medical Camelot, New England Journal of Medicine 300 (April 26, 1979). pp. 952-956. 6. A. S. Relman, "The New Medical-Industrial Complex," New England Journal of Medicine 303 (October 23, 1980). pp. 963-970. 7. J. K. Iglehart, "Health Policy Report: Health Care and American Business," New England Journal of Medicine 306 (January 14, 1982), pp. 120-124. 48. R. Pear, "Hospital Industry Proposed Fixed Payments for 49. A. R. Somers, "The Case for Negotiated Rates." Hospitals 50. "Coalition Seeks to Curb Rising Health Care Costs," New 51. J. F. Fries and L. M. Crapo, Vitality and Aging: Implications About the Author Anne R. Somers, Professor of Community Medicine, University of Medicine and Dentistry of New Jersey-Rutgers Medical School, is an uthor, teacher, lecturer, and widely acknowledged authority on health care organization and financing. She has published numerous apers in these fields and written Hospital Regulation: The Dilemma of Public Policy and Health Care in Transition: Directions for the Future With her equally famous husband. Herman Somers, she coauthored two books in the fields of financing and hospital organization: Medicare nd the Hospitals, Doctors. Patients and Health Insurance and Health and Health Care: Policies in Perspective. More recently Mrs. Somers as also published articles on disease prevention and health promotion. Mrs. Somers is a member of the Institute of Medicine, serves on a umber of editorial boards, and is an honorary member of the American College of Hospital Administrators. About Government Research Corporation The Government Research Corporation (GRC) is a private professional organization established in 1969 to provide independent analysis, orecasting and counsel on government, politics and public policy issues. GRC provides direct and specific public policy research and analysis to clients to assist them in making decisions that appropriately eflect government developments in Washington. GRC publishes the National Journal, a weekly publication providing in-depth coverage of Washington policy making, which has twice won the National Magazine Award for Specializeu Journalism in 1979 and for Reporting in 1981. GRC also publishes Opinion Outlook, a wice monthly report on the latest public opinion survey relating to government, the economy, business, labor, foreign affairs and domestic ocial trends. GRC also sponsors seminars and conferences on a wide variety of public policy issues. Since 1976, GRC's annual Leadership Conference n Health Policy has provided a foruin for policy makers to meet and debate health issues with participants from labor, business. the rofessions, academia and state and local governments. Mr. RINALDO. Thank you very much for a very well-thought-out esentation. Ms. Goldschmidt. STATEMENT OF FAITH GOLDSCHMIDT Ms. GOLDSCHMIDT. Mr. Chairman, members of the committee, I Our hospitals were phased in over a 3-year period and all had We feel that the DRG system has the following benefits: he country to cover dis The following informat Four, education. The Five, independent m Seven, flexibility. ['wo, hospitals and physicians are encouraged to use resources in efficient manner by focusing on the DRG as the product plus › use of payment incentives for efficiencies and disincentives for fficiencies. The DRG system provides valuable information for › hospital's management to communicate with its medical staff. The physician is the resource consumer, because he or she nits the patient, orders all services and discharges the patient. ing a variety of reports, hospital management can and does rk with physicians to more effectively and efficiently manage eir patients. Three, in New Jersey, there is equity across all yers. Therefore, the massive cost shifting that occurs elsewhere sey. Four, uncompensated care, which primarily care, is one of the hospital's financial elements. ncompensated care as an element of cost, well ty hospitals can concentrate on effectively providal care to all patients regardless of social or eco information might be of interest also: One, the 1. The 467 DRG's used in New Jersey were conUniversity and the National Steering Committee. it deal of clinical input into these new DRG's, and gful both in a medical and a financial sense. New seven categories to describe patients atypical in resource consumption. The patients are called outre billed charges. Two, data requirements. There ve computer capability for the hospital, the fiscal d for those who set the rates. There must also be eck and correct DRG assignment and claims, and erpret reports. mentation. Based upon New Jersey's experience the he hospitals over a 3-year period was very imporintil a system is actually in place and being used, e problems will be discovered. ion. There is great need for education about the evels, regulators, payers, hospitals, physicians, and ndent monitoring. There also is need for an indeoring system to insure that quality of care does not cause of the incentives to reduce expenditures. The as seen no hard evidence in New Jersey that the as had any negative impact on the quality of care, scuss that later if you would like. chnology. New technology and procedures are adv Jersey by the Rate Setting Commission, either by a l appeal process or by the certificate of need system. rebasing the system also will help incorporate addical practice. Therefore, such advances are not sti bility. Allowance should be made for States to have to implement their own systems, provided such syset the Federal objectives of cost containment. Of parcance is to allow these States that are inclined to inpayers to minimize cost shifting to do so. rsey we have found that management of the DRG Le local State government allows rapid response in of problems, gathering of information, identification and implementation of solutions. Rapid resolution of ourages cooperation and leads to a better system. on, we feel that the DRG system has been successful health care costs in New Jersey. Former Secretary report shows that, in 1981, New Jersey was lower in crease in cost per capita and in cost per adjusted adboth the national average and the other regulated that all New Jersey acute-care general hospitals are nder the DRG system and extensive data is being collected, we ope to demonstrate even greater savings in health care. [Material submitted for the record by Ms. Goldschmidt follows:] PREPARED STATEMENT OF ( DEPARTMENT OF HEALTH, You and your collea with an enormous task, ‹ of literally millions o age of dwindling health ealth care services be and effective manner po of undertaken in haste substantially impair th and most truly needy c: health services, and s any of our most value ospitals, medical sch public hospitals, as w serve many of the poor |