Mr. Tierney is appearing in response to a letter which I addressed to him on June 13, 1974, bringing to his attention the minutes of the meeting which took place on April 11, and he was good enough to appear today to respond.

STATEMENT OF THOMAS M. TIERNEY, DIRECTOR, BUREAU OF HEALTH INSURANCE, SOCIAL SECURITY ADMINISTRATION

Mr. TIERNEY. Thank you. I will not go over all of the details, which I know you all know so well now.

Let me say, if I may, Mr. Chairman, a couple of things about the Medicare coverage to get them in total perspective, and then speak directly to your question.

We do cover in the Medicare program outpatient services, both in the outpatient department of hospitals, in the clinics, and in the doctor's office, and the basic coverage is defined as those services which are comprehensively furnished.

Now, on the negative side, and I guess that is what we are all talking about and expressing concern about here today, is the provision that you referred to, Mr. Chairman. In section 1862 (a) of the law, it is provided that notwithstanding any other provisions of title XVIII, the program will not cover expenses incurred for services which are not reasonable and are not necessary for the diagnosis and treatment of illness or injury, or improving the function of a malformed body member.

The applicability of that provision to this situation is debatable, I am sure, from a philosophical point of view, Mr. Chairman. However, there is another part of that section which I think is perhaps more directly involved here, and that is subsection 7, which excludes from Medicare coverage expenses for routine physical checkups.

Now, as I sat and listened this morning, it seemed to me all of the conversation was really revolving about whether these were routine physical checkups or were there symptoms for which a doctor was seeking further documentation of a diagnosis.

Let me say further, if I may, Mr. Chairman, that we think that the services that the hospitals are rendering, and that the Minneapolis Age and Opportunity Center is rendering, are excellent. Obviously, they are doing that. But if you look through the record, you find that there was a letter,' a very honest, straightforward, good letter to potential clinic members, in which it says:

We are setting up an appointment for you to receive a complete diagnostic screening. We will ask you to return for your physical, and someone will be there to direct you.

Nothing wrong with that. It is excellent, but I think I would have to say that it raises a question as to whether or not this is within the exclusion that is so mandatory in the law.

Let me say further, Mr. Chairman, I am sure you know that the congressional decisions setting up the Medicare program and amending it every 2 years since its inception, has been appropriately based on establishment of priorities, and selection of priorities, with limited funds.

1 See appendix, item 3, p. 1385.

ESTABLISHED TO PAY CLAIMS

There is not and has never been any purpose in the Medicare program merely to deny claims. Within the limits of the law, it is established to pay claims. That is the philosophy of the Congress, and that Mr. Chairman, has, on occasion, been forcibly brought back to our attention by the Congress. It is our intention to try to do that not only within the word, but also within the spirit of the law. We are obliged, therefore, to identify situations where there is a routine physical checkup, and direct that it not be compensated.

That is a very tough problem. What is a routine physical checkup, as opposed to a diagnostic workup? I do not know how to answer that problem. We have thought of it in these terms.

If you are feeling fine and robust, and nevertheless go to your doctor and get your annual physical checkup, because that is a good thing to do, then that is what it is.

If you have got a stomach ache or something else wrong with you, that you are concerned about, and you go in to ask the doctor about it, and he does a diagnostic workup, then that is something different.

Before you tell me I am fooling with words, I know I am fooling with words, but there is a distinction.

Senator MUSKIE. Could I put a specific question to you?

What you have here is something that is not either of those. As I understand the testimony, what we have here is a backlog of people who have been accumulating symptoms, pains, illnesses, and refusing to do anything about it because they cannot afford the doctor's fee. Suddenly they are given an open door, and they go in and get some treatment, some health care, and so almost by definition, they are people who are coming in with specific symptoms.

Now, are you saying that they must specifically identify their illness before the doctor opens his mouth. Before any contact is established, they must identify a specific symptom which is later related to a specific illness?

It seems to me we have got a different kind of case. I may be wrong, but what I discussed up to this point is clearly black and white.

I have no problem with that, but here you have a flood of patients who have been held back of a wall, back of a dam, because they cannot afford to come in.

Senator MONDALE. Were you here yesterday?

Mr. TIERNEY. No.

Senator MONDALE. Did you have anybody from your office?

Mr. TIERNEY. Yes, I think I did.

Senator MONDALE. I am wondering whether they heard those doctors. These are very able doctors, and some are on the University of Minnesota hospital staff, and they have been testifying of direct symptoms that could lead to death.

Mr. TIERNEY. Then if they go in because of that situation, and the doctors have to perform services to diagnose and treat, they should be paid for that.

Senator MUSKIE. Is it fair to make an assumption of the class of people when they come in? Do you have to meticulously lay out a stepby-step procedure which avoids the risk that you pay a claim that is

really a routine physical examination when what you have got is a class of patients all of whom are in trouble healthwise? Do you have go through the meticulous programing of procedures?

Senator MONDALE. It sounds like the common law of remedies of 1200, where if you said the wrong thing, you are out of court.

Mr. TIERNEY. I think it is a difficult but valid distinction.

If, for example, you said, one of the things we should provide is an annual physical examination. You could send all 23 million people in for those. That would be a wonderful thing especially since aged people often have something wrong with them, but it costs a lot of money. So when you start out to take care of people's health, it is a question of whether that is one of the benefits that we should try to

cover.

I am not here to argue with the Senator that it is not. I am arguing that it is not in the present law.

PHYSICAL EXAMINATION FOR ALL EXPENSIVE

Senator MUSKIE. Then you see no difference here between the initiation of this program, in Minneapolis, which had the specific appeal to a specific group of old people, and the enactment of the Medicare program? That is the comparison you are making. We did not include it in the Medicare program in the first instance, because we cannot afford to provide an annual physical examination for all.

That is one case, but you see no difference between that and the circumstances of this group of patients? That is what I am asking.

Mr. TIERNEY. I think I do see a difference, Senator, in this respect, and I am not saying this because these people are here or there is anything wrong with the rest of the health system of the Nation.

These people were refreshingly open and honest. They said that there is a need in Minneapolis to detect and define the health problems of the aged people, so please come in and have your physical checkup, and that was wonderful.

Of course, other hospitals have checkups going on, and doctors are doing routine diagnostic workups in their offices, and often there is no way to detect that. Please understand that although routine physicals are prohibited from coverage under the law, detecting them can be very difficult.

Senator MONDALE. Will you yield there?

As I understand it, for a few weeks they were sending out that letter, but in any event, under that program, the hospital itself, they never submitted a claim to Blue Cross and Blue Shield for the original visit by the senior citizen.

Not only that but the hospital picked up the cost of diagnostic tests; it was only when a client saw a physician which was the third step, and the physician thought there was a need for tests, and required a physical.

It was only then that they submitted the cost of what was then the third appointment.

Mr. TIERNEY. If that be true. Senator-—

Senator MONDALE. Is it true?

Mr. TIERNEY. I don't know.

Senator MONDALE. Why are you saying what you are saying, if you do not know?

Mr. TIERNEY. I am saying that is what appears in the letter. Is what you say

Senator MONDALE. You have made a charge based on a letter, and you apparently have not checked into this. Are you aware of this issue?

Mr. TIERNEY. Yes, sir.

Senator MONDALE. Do you consider it a serious one?

Mr. TIERNEY. Yes, sir.

Senator MONDALE. Have you looked into it yourself?

Mr. TIERNEY. Yes, in the time that has been available to us.
Senator MONDALE. How much time have you had?

Mr. TIERNEY. Since June 20.

Senator MONDALE. Have you sent anybody out there to look into it? Mr. TIERNEY. We have had our regional office make a report on it. Senator MONDALE. What did they tell you?

Mr. TIERNEY. They report very much what has apparently been reported to you for the last few days.

Frankly, I did not get out of the last witness' testimony that there was no charge for the services. I thought he testified he was swamped with bills for these services.

Senator MONDALE. Am I correct in my statement of the facts?

Mr. ADAMOVICH. What happened on the first group, Senator, was that all of the Medicare forms were sent in, and the first batch sent back. The batch was never contested by us, and then beyond that, I think it was the February 3 date, from that time on, there was no point for us to contemplate anything like the screening, because of the volume, and load of very sick patients coming through the door. Senator MONDALE. So it was only from then on out that the clients. or the physician, and the physician ordered tests, that the bills were submitted?

COSTS ABSORBED BY ABBOTT

Mrs. KRAUSE. Senator, phase 1 was never submitted. The nursing costs were absorbed by Abbott-they were never submitted. The reason the letter was sent out was because the seniors were never told, they were never told that there was going to be a diagnostic and a physical, and senior citizens get embarrassed about underwear and that kind of thing, so I sent a letter out saying you are going to have a physical.

That is the charge that Mr. Adamovich is referring to. That finished that entire thing by the end of January, because we did not have enough doctors to do it and take care of those sick people, and yet those people were still rejected.

Mr. TIERNEY. Then I would suggest to you, Senator, there is at failure of communication. If the facts are that these people are getting an examination by a doctor, and a determination of a therapeutic need, and it is after further tests are made, and not at the time of the screening exam, then I do not think the two parties have been conferring very well, Mr. Chairman, because as you read it in the law, diagnostic services which are reasonable and necessary for the treatment and health care of the people are covered, physical examinations

are not.

Senator MONDALE. Will you have somebody check into that?
Mr. TIERNEY. Yes, sir, of course I will.

Senator MONDALE. What about this discussion of the situation in which the insurer and the intermediary are the same? Does that raise problems with you about a possible conflict of interest?

Mr. TIERNEY. Senator, I think when you say the possible conflict of interest, you have to say yes, it raises a question.

I thought there was one point that maybe was not made with you, and that is that the intermediary and carrier have no financial gain or loss in paying or denying Medicare bills. It is all Federal money. They do not underwrite benefits. They draw on the Federal Treasury every week, and the more they pay, the more they are reimbursed. There is no profit in their paying less.

Senator MONDALE. What about part B?

Mr. TIERNEY. That is true with part B.

Senator MONDALE. There is no incentive then to be conservative in the determination?

MEDI-GAP INSURANCE

Mr. TIERNEY. Yes, in one area, Senator. There is a potential, and that is that some companies have put out complementary insurance in which they say that they will pay, for example, the amount that Medicare does not pay of the Medicare reasonable charge in part B.

To the extent they make a determination that this is not a Medicare eligible payment, then their money is not involved either. That is a potential conflict.

Senator MONDALE. You are talking about medi-gap insurance, and here you have a situation where the medi-gap insurer and the intermediary are the same person.

Now, since they are underwriting what Medicare does not cover, the more Medicare does not pay, the more they have got to insure; is that not correct?

Mr. TIERNEY. Not really, except that if you turn down the thing as a whole, if you find, for example, this is a noncovered service, then we are off the hook, they are off the hook.

Senator MONDALE. In other words, they are off the hook, and they are going to save money.

Mr. TIERNEY. If they make a decision this is a noncovered service; yes, sir.

Senator MONDALE. Do you think it is possible that there may be one person in America who might get into that conflict where he will be enriched by denying the people coverage which they deserve? Mr. TIERNEY. One person out of 220 million; yes, sir, certainly. Senator MONDALE. Does this conflict bother you?

Mr. TIERNEY. Yes, sir, it bothers us, but we think that the mechanisms are there to assure its nonoccurrence: The surveillance, and continuing watch to see that is not done, and some reliance on State insurance commissions, and a tremendous reliance on the people. When this sort of thing happens, we now have 1,100 district offices, and we do hear a lot of complaints, but we do not see a pattern of this. It is a possibility.