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other words, if a certified State is not induced by the Federal grant to establish an AHIP program, those who are disabled and covered for Medicare purposes, would be without adequate health care protection. With an added cost of $1 billion projected for the States under the Comprehensive Health Insurance Act, and faced with diminishing resources, we cannot be certain what the States will do.

In comparison, our organizations' health bill would cover all the aged, and continue to cover the disabled.

With respect to the services which would be covered under an FHIP plan, skilled nursing care would be limited to post hospital, and would be subject to a 100-day limit per year. Home health services would be limited to 100 visits per year. Inpatient hospital services for mental illness would be limited to 30 days per year. Such things as eyeglasses and hearing aids and dental care would not be available to aged persons. While coverage of outpatient drugs would be an improvement over current law, the entire FHIP benefit package when considered in the context of durational limitations, represents little if any expansion of benefits in comparison with those available under Medicare.10 We would hasten to add, that in the case of many persons presently entitled to Medicare, the benefit package available under FHIP would constitute a significant curtailment of services.11

Needless to say, in comparison with our organizations' bill, the benefit package of the FHIP plan is not comprehensive.

An FHIP plan would require the payment of premiums," 12 deductibles, and coinsurance, with the amount of the deductibles and coinsurance related to income. However, it would also provide a catastrophic protection feature that is income related and subject to a $750 annual maximum per person.13


In comparison with present Medicare, FHIP is a commendable improvement-simply because present law lacks a catastrophic protection provision. However, for comparison purposes, since the cost-sharing amounts under our organization's bill are minimal, and since its income classes are more liberal, the aged and disabled would be afforded greater protection against out-of-pocket health care costs than under the FHIP program.

With respect to payment procedures, FHIP plans would establish a charge account against which would be charged the cost of covered services without regard to deductibles and coinsurance. In general, payment for covered services would be made at the applicable reimbursement rates. Full and associate participating providers would receive payment without reduction on account of deductibles and coinsurance (unless the account is in default), and the individual would be billed by the carrier for portion chargeable to him.

10 It is difficult to compare the benefit packages of present law and FHIP because of the presence of the "spell of illness" limitation and other complex lifetime durational limitations of present law.

11 Prepared statement, pt. 5, subpart B, sec. 3, p. 85.

12 Except that, no premiums would be required for persons in income classes and II. 13 See prepared statement, pt. 4, subpart B, sec. 8, p. 61, not 145.

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.


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 posthospital 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.


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.


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 imost 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.

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.

Thank you.

Mr. BRICKFIELD. If there are no questions of Mr. Hacking

Senator MUSKIE. I wonder if he would give us briefly the approach in your 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.


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?

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