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Full and associate participating providers would have to accept this payment as payment in full, except that this rule would not apply to associate participating providers in the case of outpatient drugs and biologicals.

This exception troubles us. HEW has announced that Medicare will soon pay for covered drugs only at the lowest rate at which such drugs are available under generic names in the locality. This exception to the full payment rule for outpatient drugs and biologicals is designed to permit the pharmacy which furnishes a brand-name prescription drug to recover cost in excess of the generic drug cost.

With respect to payment procedures, each certified State would have to prescribe reimbursement rates and standards applicable to payments by FHIP plans in accordance with criteria established by the Secretary of HEW. However, no specific standards are set forth in the bill. The matter is left wholly to the discretion of the Secretary and the individual certified States. While there are provisions in the bill with respect to PSRO's, institutional planning, and utilization review, these provisions are not likely to be effective in restraining health care costs.

On the other hand, under present law, the statutes provide specific standards for the purpose of determining reasonable cost or reasonable charges. The lack of standards for the promulgation of regulations by the Secretary under the administration's bill seems to be an unwise abdication of accountability. Simply delegating the matter to the States is not the "cure-all" for rising costs. Moreover, since the FHIP program and the relevant provisions of the Comprehensive Health Insurance Act would be in effect only in States which are certified, an administrative problem of monumental dimensions could result, since we assume that present standards for Medicare would govern in noncertified States.

RESTRAINING RISING HEALTH CARE Costs

It may be that the Comprehensive Health Care Insurance Act (CHIP) contemplates the establishment by certified States of prospective budget review procedures for institutional providers and negotiated rates for noninstitutional providers on the basis of which payments would be made. Our organization's bill, however, specifically so provides and in substantial detail. We believe that such procedures will result in a more rational and efficient utilization of health care resources and aid substantially in restraining rising health care costs.

In conclusion, Mr. Chairman, our organizations consider the Comprehensive Health Insurance Act of 1974 to be inadequate in its protection for the health care of the aged and disabled. It does, however, have some good features. The concept of catastrophic benefits is commendable. We think the charge account payment procedure has merit and we like the general revenue financing principle. But we are particularly concerned that there can be no FHIP program unless the State is certified. We are also concerned that the disabled will not be covered. The inadequate coverage of long-term care because of the 100-day and post hospital limitations on skilled nursing services and

the absence of coverage of intermediate care services is unacceptable. Also the 100-visit limitation on home health visits dissatisfies us.

Our organization's bill and CHIP address themselves to the same elements (except with respect to payment procedures). We ask serious consideration of our provisions as a substitute for FHIP. Such a revised provision could be easily incorporated into whichever total national health care plan is ultimately adopted by Congress. These are some of the items that are in our bill.

Senator Muskie, Senator Fong—three of my associates would like to address themselves to specific issues.

I would ask Mr. Hacking to address the committee on hospital charges under the Ribicoff bill and also what happens if the States fail to cooperate, or to participate in the programs under the administration's bill.

Second, my colleague, Mr. Ellenbogen, has raised what we think are serious Constitutional questions in connection with the Nixon administration bill.

Finally, my other colleague, Mr. Lane, will speak on the deletion of the disclosure of ownership provisions in the nursing home care part of the bill.

With that introduction I would ask Mr. Hacking to address the committee.

STATEMENT OF JAMES HACKING, NATIONAL RETIRED TEACHERS ASSOCIATION-AMERICAN ASSOCIATION OF RETIRED PERSONS

Mr. HACKING. Sir, as Mr. Brickfield has indicated, our organizations are concerned primarily with two things: providing the elderly with comprehensive health care protection and doing something about restraining increasing health care costs. These are the goals of our bill.

We have evaluated the administration's bill in terms of these same goals. As far as we are concerned

Senator Fong. You are putting more emphasis on the elderly?
Mr. BRICKFIELD. Yes; we are here on the elderly.

Mr. HACKING. As far as we are concerned the statistics do not support the overworked contention that rising health care costs are due to overutilization. Because of its contention that rising health care costs are the result of overutilization, the administration's remedy is to introduce substantial cost-sharing requirements with respect to shortterm health care.

As a matter of fact, I think that this subcommittee has assisted in exposing the overutilization myth. The problem is not on the demand side of the economic coin but rather on the supply side. We therefore think that the administration's entire approach to the rising health care cost problem is wrong.

Specifically, the problem is the cost of supplying health services, but not all health services, rather primarily the cost of supplying hospital services.

TREND TOWARD HIGHER HOSPITAL Costs

As was noted here today, hospital care constitutes 38 percent of the Nation's health bill. Hospital costs have continued to rise and we think this trend to higher hospital costs is largely a result of financing by the Government programs and by private insurance on a cost-reimbursement basis.

Part A of Medicare all along has provided relatively full cost reimbursement. Because this is the case, the level of hospital costs have been above the minimum level necessary to provide hospital services of a given quality.

Throughout the Medicare period, hospitals have been expanding their staffs and investing extensively in plant and equipment, in the complete absence of cost restraints.

Two questions therefore arise as far as we're concerned. To what extent does Medicare finance these outlays and to what extent have they been cost effective?

It is clear to us that hospitals are neither competitive nor profitmaximizing. Hence, there is nothing in the economic system that would tend to automatically keep cost down, with one exception.

That exception is the inability on the part of the patient to pay for the services. To the extent that Medicare has removed this rather crude constraint, it is logical that Medicare has contributed to rising hospital costs.

The Social Security Amendments of 1972 seem to have recognized this by introducing such things as the requirement that there be excluded from "reasonable cost"--costs found unnecessary in the efficient delivery of health care services, the requirement that institutional providers establish operating capital budgets, and the requirements for institutional planning.

We think this isn't enough. It's a good start, but it isn't enough. We think that methods must be found to analyze hospital spending plans to assure that proposed outlays are going to be cost effective.

Any system which tends to reimburse all costs by a third partyand I don't care whether we are talking about the employee business expense account, or whether we are talking about hospital charges is going to have to be closely monitored if costs are going to be held to reasonable levels.

As far as I can see, the administration's bill does nothing in this respect. It would pour a lot of money into the health care system, but it would simply leave the reimbursements procedures and standards to the uncontrolled discretion of the Secretary and the States aimost as if dropping the problem of rising costs in the lap of the States is a cure-all for it.

While it has been said that the administration's bill contemplates a prospective reimbursement procedure—even negotiated fees—we don't see it in the bill. The procedures and standards are not there.

As long as those procedures and standards are not there they may never be.

Thank you.

Overall the administration's bill will probably exacerbate the problem of rising costs. That is a problem we tried to deal with in our own bill—and in very great detail.

Mr. BRICKFIELD. If there are no questions of Mr. Hacking-
Senator MUSKIE. I wonder if he would give us briefly the approach

bill to control of rising costs. Mr. Hacking. Since our bill would provide coverage only for the aged and the disabled, we didn't feel that we could try to restrain rising costs by reorganizing the delivery of service mechanisms by mandating the use of HMO's such as would be done by H.R. 1, and the Kennedy-Griffiths bill.

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PERSPECTIVE REIMBURSEMENT PROCEDURES Instead we had to turn to perspective reimbursement procedures for institutional providers. Basically, institutional providers would be required to submit annually a budget for the year and a schedule of charges derived from this budget.

All of these would have to be approved either by the Secretary of HEW or the State rate review agency, if one exists.

On this basis, payments would be made during the course of the year subject to a year-end adjustment if, in limited cases, costs exceeded what was planned for during the year. We really tried to limit the exceptions to the general rule of nonreadjustment at the end of the year.

We want to see institutional providers plan how much they are going to spend, and for what, during the course of the year. There has to be some planning.

They can't simply be allowed to spend freely and invest wherever and for whatever they want.

And with respect to noninstitutional providers—and here we are talking primarily about physicians, optometrists, dentists, and other licensed professional practitioners—the country would be divided up into regions.

Within each region, or within parts of a region, the Secretary would attempt to establish a negotiated schedule of fees for services.

However, in the absence of successful negotiations, the Secretary would have residual authority to prescribe the fee schedules.

The rates that are contemplated here are rates that would provide fair and equitable compensation but in no event more than what would be provided under the “reasonable charges” standard of present law.

We are not trying to prevent providers from getting back a fair return. We are simply trying to keep down costs.

Mr. BRICKFIELD. Standards would have to be put in the administration's bill by the Congress; they are not there now, Senator. They would be left to the discretion of the Secretary and the States.

And, you know, we're worried--we'd rather see them put in the bill--not the regulations themselves but the standards that would set the guidelines.

Senator MUSKIE. Does your bill contain such standards?

Mr. HACKING. Yes. As I just indicated with respect to noninstitutional providers, for example, the standard is fair and equitable compensation but not to exceed the "reasonable charges" standard of present law.

Mr. BRICKFIELD. This is Theodore Ellenbogen, Senator. He, for many years, was the Assistant General Counsel to the Department of Health, Education, and Welfare in connection with legislation.

STATEMENT OF THEODORE ELLENBOGEN, NATIONAL RETIRED

TEACHERS ASSOCIATION-AMERICAN ASSOCIATION OF RETIRED PERSONS

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Mr. ELLENBOGEN. I hadn't prepared anything for this. I was just called on. If I may, I may not confine myself entirely to the constitu

I tional aspects. I think these aspects are tied in with philosophical aspects also in this administration proposal.

I might say, though, that obviously a tremendous amount of work has gone into the development of the administration's proposal. I'm not trying to—in raising certain questions, I'm not trying to belittle that effort.

The thing that concerns me in the context of what Mr. Brickfield was saying about the questions I have raised is something that permeates the entire bill, all three parts of the program, and that is that these programs would be inoperative in States that are not certified by the Secretary of HEW under the proposed section 1861 of the Social Security Act. This holds true not only for the assisted health insurance program, which would be a federally aided State program, but also for the new Medicare program, which would be a straight Federal benefit program, and for the employee health insurance program, which is a Federal regulatory program based on the commerce clause.

In the case of the employee health insurance program, the employee is protected only if employed in a state that is certified under section 1861.

In the case of the assisted health insurance program a State plan qualifies only if the State is certified under that section and the individual must be a resident of such a State, or, if brought in by his employer, must be employed in the State. And in the case of the new Medicare program, the individual would have to be a resident of such a certified State. If he is not, the old Medicare program would apply to him.

Two So-CALLED MEDICARE PROGRAMS

The result of that-focusing now on the special interest of your committee in relation to the aged—is that the bill envisions the possibility-and the administration hopes otherwise, I'm sure—that there may be two so-called Medicare programs operating side by side-one for the aged in States that are certified under section 1861, and one for the aged and disabled in States that are not certified.

And also, as has been mentioned this morning, I believe, the disabled would not be eligible under the new Medicare program. They could qualify under the old Medicare program if resident in a non

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