Senator BENTSEN. Thank you. What we have seen operating in Texas in nursing homes on the medicaid, they will bring in the nursing home operators at the end of the year, the Department will look over their costs they have had during the year, then they will go in and do spot audits to determine the validity of those costs and then make a cost effective allocation for the forthcoming year.

Then they also go back and spot them with an audit for services to see that they are really doing the job in the services for the people. Something like this for hospital and medicare, I would like to see given consideration.

Senator TALMADGE. Thank you, very much, for a helpful statement. We greatly appreciate your contribution, Senator Bentsen. When I introduced S. 2305, I referred to the desirability of the subcommittee examining the potential legitimate role of relative value guides or scales in determining appropriate reimbursement of physicians under medicare and medicaid.

Since that time, at my request, the staff of the subcommittee has been engaged in discussions on this subject, both with some representatives in the medical profession and with officials of various Federal agencies.

As a result of these discussions, the staff has prepared a working draft of specifications for legislative provisions. It is designed to authorize Federal medical insurance programs to use relative value to the extent the programs determine themselves to be useful, appropriate, and noninflationary.

I would like to submit this working draft to the record and I am hopeful that it will receive the careful attention of members of the subcommittee as well as witnesses appearing before today and during the remainder of these hearings.

Relative value guides can play a legitimate role in assisting the Bureau of Health Insurance in its various intermediaries in determining appropriate physician reimbursement levels.

I am hopeful that these hearings will provide the basis for inclusion in the bill of a specific provision which will better take the use of these guides in appropriate circumstances.

[The working draft follows:]

RELATIVE VALUE GUIDES

When I introduced S. 3205, I referred to the desirability of the subcommittee examining the potential legitimate role of relative value guides or scales in determining appropriate reimbursement of physicians under medicare and medicaid. Since that time, at my request, the staff of the subcommittee has been engaged in discussions on this subject, both with some representatives of the medical profession and with officials of various Federal agencies.

As a result of these discussions, the staff has had prepared a working draft of specifications for a legislative provision. It is designed to authorize Federal medical insurance programs to use relative value guides to the extent the programs determine them to be useful, apppropriate and non-inflationary. I would like to submit this working draft for the record, and I am hopeful that it will receive the careful attention of the members of the subcommittee, as well as the witnesses appearing before us today and during the remainder of these hearings, Relative value guides can play a legitimate role in assisting the Bureau of Health Insurance and its various intermediaries in determining appropriate physician reimbursement levels. I am hopeful that these hearings will provide the basis for inclusion in the bill of a specific provision which will validate the use of these guides in appropriate circumstances.

Amend title XI of the Social Security Act to provide that, to assist in determining payment for physicians' services covered under any title of the act, the Secretary may authorize the use of studies, guides, scales, or tables formulated and adopted by a bona fide national, State or local professional society or association of physicians or health benefit organization, the purpose or effect of which is to establish, on the basis of complexity of procedure, time or effort necessary for completion, and/or other relevant medical considerations, a relative value for one or more medical procedures of the type normally performed by the members of such a society or association in relation to or compared with other medical procedures of the type normally so performed: Provided, That such study, guide, scale or table does not assign a monetary value to the procedures covered thereby or to the unit employed in establishing relative value.

In determining whether such authorization will be given, the Secretary shall take into account such evidence as the sponsoring organization shall provide concerning its impact on program costs as well as the appropriateness, clarity and usefulness of the proposed system. The formulation adoption, dissemination or use of such a study, guide, scale or table, whether or not authorized by the Secretary for use under the Act, shall not in itself be deemed a violation of any antitrust law. Nothing herein shall be construed as compelling any person to use such a study, guide, scale or table in connection with either the seeking of, or the making of, payment or reimbursement for physicians' services under the Act, or otherwise.

Senator TALMADGE. The next witness is Dr. John M. Dennis, president of the American College of Radiology, accompanied by Dr. Frederic D. Lake, M. I., chairman, board of chancellors and Otha W. Linton, director, governmental relations.

At this time, Dr. Dennis, I want to thank you and the American College of Radiology for your very helpful contribution in drafting this bill.

STATEMENT OF DR. JOHN DENNIS, PRESIDENT, AMERICAN COLLEGE OF RADIOLOGY, ACCOMPANIED BY FREDERIC D. LAKE, M.D., CHAIRMAN, BOARD OF CHANCELLORS, AND OTHA W. LINTON, DIRECTOR, GOVERNMENTAL RELATIONS

Dr. DENNIS. Thank you, Senator. These comments on Senate bill 3205 are offered on behalf of the 12,000 members of the American College of Radiology. I express their gratitude to the chairman and members of the subcommittee for this opportunity.

I am Dr. John M. Dennis, of Baltimore, president of the American College of Radiology. I am accompanied this morning by Dr. Frederic D. Lake of Chicago, chairman of the college board of chancellors, and by Otha W. Linton, director of Government relations for the college.

The American College of Radiology is the major national professional society of physicians who use X-rays and other forms of energy to diagnose disease or who utilize high energy radiation for the treatment of cancers.

The college has a range of activities which support our obligation to provide the radiologic services needed by Americans. Since provisions of S. 3205 would have an effect upon the circumstances in which radiologists provide their services, to beneficiaries of Federal programs, we offer any possible assistance.

Almost all of the members of the college are also members of the appropriate local and State medical societies and of the American Medical Association. In what follows here, we will attempt to limit

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our remarks to those elements of S. 3205 which are of primary concern to radiologists.

We are grateful to the subcommittee chairman and his staff for the opportunity to discuss S. 3205 during its formative stages. We appreciate his kind remarks about our cooperation on several occasions, including his visit with our board of chancellors and council.

We recognize the need for the Congress to seek improvements in programs through which Federal funds are used to pay for health care. The outlines of S. 3205 were shared with the Senate on June 20, 1975, in the chairman's speech.

Following that, the American College of Radiology responded to an invitation to comment. In a letter to the chairman, we pointed out that the projected provisions dealing with mechanisms for compensation of radiologists who serve Federal health care program beneficiaries were consistent with the policy of the American College of Radiology since 1965.

While a majority of college members now practice independently in voluntary hospitals, perhaps a third or fewer are still engaged with hospitals under arrangements which would be unacceptable for Federal programs under certain sections of S. 3205.

Thus, in supporting the change which the bill would require, we caution against any presumption that these contractual arrangements which we regard as less desirable for all concerned, have necessarily been abusive of patients, physicians, or hospitals where the parties directly involved have been fair and conscientious.

The circumstances of the practice of radiology in hospital departments under previous medicare and medicaid legislation is contained in the college letter. Rather than repeat it here, we submit the letter for the record.

Senator TALMADGE. Without objection, it will be inserted in full at this point, Doctor.

[The letter follows:]

Hon. HERMAN E. TALMADGE,

AMERICAN COLLEGE OF RADIOLOGY,

Chicago, Ill., July 7, 1975.

Chairman, Subcommittee on Health, Senate Finance Committee, Dirksen Senate Office Building, Washington, D.C.

DEAR SENATOR TALMADGE: The following comments are offered on behalf of the 12,000 members of the American College of Radiology who constitute nearly 90 percent of the nation's specialists in the uses of radiologic procedures for the diagnosis and treatment of disease. Our observations are a response to the invitation contained in your June 20 speech in which you announced your intention to introduce legislation which would, among other things, affect the payment by Medicare and Medicaid for the services of radiologists to beneficiaries of those programs.

The principal suggestion with regard to the practice of radiology in hospitals, that radiologists not be compensated by federal programs if they practice under a percentage arrangement, is consistent with policy of this organization adopted in October 1965.

That statement, approved by the College's Board of Chancellors, asserted that:

"It is the policy of the American College of Radiology that members of the College shall separate their professional fees from hospital charges and present their own bills to patients."

The full College policy statement contained a paragraph noting that in those institutions where the entire medical staff practiced on a basis other than that of fee-for-service, it would be considered appropriate for the radiologist to share the common status.

Prior to the adoption of that policy, the American College of Radiology had requested the Congress to cover radiology within the Medicare and Medicaid programs as physician service under the Part B section. When this was done in PL 89-97, the College undertook a vigorous campaign to assist radiologists then working under hospital contracts to alter their practice arrangements and bring them into conformity with legal requirements and with the ACR policy stand.

In some areas, the change was relatively quick and easy for most radiologists. In others, it was opposed strongly by hospital groups and certain insurance carriers. Some radiologists lost their appointments because of efforts to separate their professional income from that of their hospital.

In the intervening years, the College has continued its campaign to persuade and assist radiologists to attain an independent, fee-for-service basis of practice in voluntary hospitals. As a professional organization, the College exercised no sanctions against members who disagreed with that policy or who found themselves unable, because of local circumstances, to bring their arrangement into compliance.

In any event, a survey just completed of College members indicates that 64 percent of those practicing in hospitals in which patients are expected to pay for services now bill and collect their own fees. We attach the summary of that survey for your review.

The position of the College favoring fee-for-service was taken in 1965 for several reasons. One was the recognition that the establishment of separate parts A and B of Medicare made it necessary to categorize the professional services of radiologists in one part. The overwhelming preference of radiologists was for a definition as physician services. This would appear to be retained and emphasized within the implementation of the language in your June 20 speech.

A second reason for the College's current policy was the recognition that percentage contracts, the dominant arrangement in 1965, contained the seeds for abuses of several kinds. Many radiologists and hospitals have continued to function with amicable and apparently equitable contracts, with radiologist incomes comparable to those of other physicians. In some instances, there have been abuses which have seemed as obvious to members of the ACR as they may have seemed to federal investigators. In some of these situations, percentage contracts have resulted in unusually high incomes to radiologists. In others, they have resulted in the retention by the hospital of a substantial proportion of funds allegedly charged as the physician's fee and collected by the hospital under its percentage agreement.

Turning to the paragraph of your speech (p S11124) in which you discuss "hospital-based specialists," we would welcome some of the concepts and express caution about others. As might be perceived from our comments above, we do appreciate and accept a premise to compensate radiologists for patient services on a fee-for-service basis. The College and its members would hope that such a fee-for-service basis would be identical to regulations and protocols for the feefor-service reimbursement of other physicians for services to patients in Medicare and Medicaid.

We must recognize also that there are situations in which radiologists accept salary arrangements for their services to patients. Thus, it is appropriate for legislation to recognize and accept that such institutional relationships can allow for food radiology services. It has been the College's preference that salary arrangements be applied only in circumstances where patients are not billed for physician or institutional services.

Continuing through your paragraph, we commend your recognition of circumstances in which physicians directly perform services and those in which technical personnel perform certain elements under physician supervision. In radiology, for example, technologists may work with patients to produce the images from which the radiologist makes his diagnosis. In all instances, the critical diagnostic decisions are made by the radiologist and provided to the patient's attending physician in a written or oral consultation. When the radiologist treats patients, most commonly for some form of cancer, he normally sets up the treatment protocol and supervises each session.

The question of compensating radiologists for administrative and supervisory functions is one which has arisen in good part because current Medicare regulations made it desirable for hospitals to be able to attribute certain professional expenses to departmental costs. In most voluntary community hospitals, radiologists feel that their role in administering radiology departments is akin

to that of other chiefs of medical service. Over the past decade, we have observed a trend for hospitals to provide an x-ray department administrator. These x-ray administrators usually are not physicians. They are charged with the logistical management of the department, relieving the physicians to concentrate on providing patient service. Ordinarily, in community hospitals, the radiologists have no source of income other than patient fees and reject any extra payments from the hospital if allowed to practice on a fee-for-service basis.

Conversely, there are large public and academic hospitals in which the chief of radiology and his staff carry burdens of administration, teaching and research which account for significant portions of their time. In such institutions, it is felt proper for there to be arrangements for institutional compensation for such non-patient care.

It should be noted that where a radiologist or group of radiologists hold responsibilities for activities other than patient care, their volume of patient services is diminished proportionately by comparison with a group undertaking only patient services. Thus, we would urge that care be taken to avoid differentiating the basis for compensation the individual patient services of radiologists who also administer or teach or do research from the straightforward fee-for-service to be allowed for their colleagues who spend full time on patient service.

In that same paragraph of your speech, there is a sentence which reads, "No percentage, lease or direct billing arrangements would ordinarily be recognized for Medicare or Medicaid purposes." This sentence introduces two new concepts which should receive serious thought.

Over the years, a relatively small minority of radiologists have practiced in hospitals under a variety of lease arrangements. Some leases were based upon the volume of practice, amounting to an inversion of the percentage contract in which the hospital divided a joint fee with the physician. The majority of leases known to the College represented situations in which the radiologist purchased space, equipment and supportive services from the hospital, usually for a fixed annual fee. The radiologist, in turn, charged patients on much the same basis as he might have billed in a private office not located physically within a hospital. The lease basis for practice has not been a popular one for hospitals. In some states, attorneys general have ruled that a non-profit institution cannot lease a portion of its facilities without jeopardizing the status of the whole. However, the lease does not necessarily share the same attributes of a percentage contract. The subsequent phrase in your sentence, “direct billing arrangements,” represents what we would hope is a semantic misunderstanding. Within the common usage of that phrase by physicians and health insurers, this refers to the sending of a bill by a physician to a patient for services rendered. We would use the term similarly whether the physician sends it only to the patient or whether he accepts assignment and sends it to a health care insurer. In that context, direct billing is the opposite of arrangements under which a hospital bills for physician services by combining the physician charge with hospital service charges. To us, direct billing and fee-for-service mean the same thing.

If the phrase is meant to prohibit the sending of bills to patients or their insurers by radiologists, then it would negate the fee-for-service basis promised above. If the phrase means that radiologists would be required to accept assignments of benefits for Medicare and Medicaid patients, this would constitute discriminatory treatment and surely would be opposed by those radiologists who refuse assignments and, on principle, by many who accept assignments.

If the phrase could be deleted from further discussions and from legislative language, it would resolve the problem we have suggested and would leave clear your intent to cover radiology services on a fee-for-service basis. If the phrase means something else, we respectfully request further explanation.

In the paragraph in your speech following the one just discussed, we applaud your understanding of the need to cover outpatient diagnostic services in an equitable way to avoid the large movement of patients in covered programs away from physician offices. Such an unchecked movement can only add to the public expenditures involved in expanding hospital facilities and, at the same time, represent an economic waste of private office facilities. We have held that there should be no discrimination in the payment for ambulatory services according to site. i.e., office or hospital outpatient department.

We have written at considerable length about what we perceive as the implications and impact of your words, once translated into legislation. Your legislative