Physicians should then be required to accept such fee schedules in full payment for services rendered. However, to be fully effective such fee schedules should be applied across-the-board, not just to Medicare. Otherwise physicians would likely raise their fees for private patients, thereby creating two levels of care: one level for private patients and another level for Medicare and Medicaid beneficiaries.

Physicians should also be free to select payment by capitation for patients who choose to receive all of their primary care from such physicians. Physicians who elect capitation as a method of reimbursement for their services might well discover that such a payment mechanism results in better continuity of care for the patient and almost no paperwork since a separate claim for each service is unnecessary.

The experience of HMOs has shown that capitation payments reverse the incentives of physicians. Under fee-for-service, doctors make more money for treating sick patients; and the sicker the patient, the more the doctor makes. Under capitation, the doctor makes more money if he keeps his patients well. Capitation is the way in which medical groups are generally reimbursed in prepaid group practice plans. This is the primary reason hospital use in such plans is two to two and one-half times lower than in fee-for-service reimbursement by Blue Cross-Blue Shield and commercial insurance plans. Health Maintenance Organizations serving federal employees had to increase their premiums this year by an average of 19.3 percent, but the traditional insurance plans increased their premiums by 35 percent. Costs averaged 37 percent less for Medicaid patients enrolled in a prepaid group practice plan than for those under fee-forservice care. One way in which to control costs would be for Congress to appropriate more money for prepaid group practice plans under the existing HMO Act.

OTHER PROVISIONS

Section 8 of S. 3205 would terminate the Health Insurance Benefits Advisory Council (HIBAC). The AFL-CIO depplores this provision. While we are quite critical of the treatment HIBAC has received from the Nixon-Ford Administration HIBAC does provide some measure of public accountability in the administration of Medicare and Medicaid and with an HEW Secretary who wanted to use it effectively, could make a major contribution to these programs. The advisory council should be continued.

Section 12 of the bill increases the rate of return on net equity of for-profit hospitals and skilled nursing homes to two times the average rate of return on Social Security investment from the present one and one-half times. We feel this is unconscionable since investigations by the Subcommittee on Long-Term Care of the Special Committee on Aging of the Senate have revealed deplorable and exploitive conditions in the for-profit nursing home industry. We oppose this provision.

The AFL-CIO strongly supports Section 22 of the bill which would deny Medicare and Medicaid recognition to percentage or lease arrangements for radiologists. These hospital based physicians are reaping excessive profits from such arrangements.

Section 23 of S. 3205 would require the states to pay not less than 80 percent of the Medicare reasonable charge for non-surgical care for Medicaid patients provided by physicians outside of a hospital. While we recognize that some states pay even less for Medicaid patients, the standard should be 100 percent of Medicare reasonable charges. Otherwise there will be two standards of care-one for the poor and another for the Medicare population.

The AFL-CIO strongly supports Section 31 of the bill which would make the Secretary of HEW the final certifying officer for skilled nursing and intermediate care facilities under both Medicare and Medicaid. Present law gives the Secretary this authority with respect to skilled nursing facilities participating under Medicare only, or both Medicare and Medicaid, but not where they participate only under Medicaid. Thus substandard nursing homes have continued in operation by accepting only Medicaid patients.

Section 41 of the bill extends the unworkable methods of reimbursement for HMOS that were enacted in 1973 for Medicare and Medicaid. Two methods of reimbursement were provided-a cost-plus reimbursement and a so-called incentive reimbursement method. In order to understand why these methods are unworkable for HMOs, it is necessary to understand how HMOs operate. The

big advantage of capitation payments for a defined population as a means of paying for HMO services is that the HMO can plan and budget on the basis of the medical care needs of the defined populated served. Part of the payments can be utilized to provide incentives to the medical staffs to be efficient and to utilize facilities wisely. Cost reimbursement destroys this incentive mechanism. The other so-called" incentive reimbursement method under Medicare destroys the ability of the HMO to budget prospectively since it cannot know in advance what it is going to receive in payments. The fee-for-service system pays bills retrospectively and the two Medicare formulas confuse prospective and retrospective reimbursement insofar as they apply to HMOs. Thus, this is an example of an attempt to apply concepts developed under fee-for-service to capitation systems.

In conclusion, Mr. Chairman, we believe the cost control provisions of Health Security-that is, a budgeting system for institutional services-would be the most effective way by which the escalation of hospital costs could be contained. Admittedly, such a control would best be carried out if all payments for health services were channelled through a single agency of government such as in Health Security. However, there remains the possibility that legal sanctions could be applied in place of control over payments.

In order for such a program to work, it is quite clear, in our opinion, that the budget review must encompass the hospital's total budget and not just that part of the institution's budget that would apply to Medicare and Medicaid beneficiaries. In short, we would reject ceilings or caps on federal payments alone as has been proposed by the Administration. Caps on part of the hospital budget for federal and state beneficiaries would leave health care institutions free to raise charges to private patients. This merely shifts costs but does not contain them. The premium cost to collectively bargained health plans would increase, along with all other premiums, to cover any shortage of payments for Medicare and Medicaid beneficiaries.

For physicians, we would support negotiated fee schedules which should be accepted by doctors as full payment for services rendered. These fee schedules would also have to be applied across-the-board. Capitation payments should be an alternative method of reimbursement for those practitioners who elect this method of payment.

We favor more stringent controls over fraud and abuse. We also support Sections 22 and 31 of the amendments but oppose enactment of Sections 8, 12, 23 and particularly Section 41 of S. 3205. We hope the Health Subcommittee will give consideration to our views and that the bill reported out will launch a much needed effort to restrain the runaway escalation of medical costs.

Senator TALMADGE. The next witness is Beverly Fiorella, president, American Society for Medical Technology, accompanied by Nancy Preuss, immediate past president.

We are delighted to have you with us. I enjoyed being at your national convention in Chicago several weeks ago.

STATEMENT OF BEVERLY FIORELLA, PRESIDENT, AMERICAN SOCIETY FOR MEDICAL TECHNOLOGY; ACCOMPANIED BY NANCY PREUSS, IMMEDIATE PAST PRESIDENT; L'NORA WELLS, PRESIDENT-ELECT; AND DENNIS WEISSMAN, DIRECTOR, OFFICE OF GOVERNMENT RELATIONS

Ms. FIORELLA. I am Beverly Fiorella, president of the American Society for Medical Technology. With me is Nancy Preuss, immediate past president of the Society.

We are pleased that the Medicare-Medicaid Administrative and Reimbursement Reform Act is being considered, and would like to comment on four major areas.

On the establishment of the Health Care Financial Administration, ASMT endorses the intent of this legislation towards medicare-medicaid reform through reorganization within HEW. However, we do

question the proposal for a separate HCFA to be directed by another assistant secretary reportable to the Secretary of HEW.

Performance records, documented in our written testimony, demonstrate that HEW has been hampered in fulfilling its laboratory administration responsibilities by self-ackwnowledged jurisdictional disputes between involved agencies.

The source of these problems seems to be the lack of top management accountability in HEW for coordination of its laboratory related

functions.

ASMT feels the appropriate position towards the consolidation and coordination of the Department's health care program and their finances would be to place the authority under a single Assistant Secretary for Health. Without such consolidating and coordinating efforts, laboratories and practitioners are faced with the distinct possibility of the continuation of conflicting decisions as well as the unfortunate situation of expanded periods of time lapsing between resolution of issues.

These occurrences are detrimental and jeopardize quality functioning of laboratories. Therefore, we would strongly recommend that the committee consider amending the bill and place the proposed HCFA under the authority of the Assistant Secretary for Health, who would be the single federal official accountable for the administration and financing of Federal health programs.

Regarding the proposed termination of the Health Insurance Benefits Advisory Council, ASMT believes that the advice and information from professionals and consumers is the only way in which those responsible for title XVIII can obtain the sufficiently broad understanding of the challenges and issues to assure final program decisions which are in the best interests of the patient-public and the health care system.

We feel that the abolishment of HIBAC would create a void in professional and consumer input.

Senator CURTIS. What is HIBAC?

Ms. FIORELLA. Health Insurance Benefits Advisory Council. The abolishment of this Council would create a void of professional and consumer input that unquestionably would be detrimental to the future of the health care system.

The consumer has the right to formal and direct input. The Federal Government should not be denied the opportunity to enhance its own ability to reach decisions which will impact favorably upon the health care system.

Therefore, ASMT would like to go on record as opposing the abolishment of HIBAC, particularly without establishing an alternative mechanism as a conduit for formal and informal input from the private sector.

Consistent with our viewpoint concerning professional and consumer input, ASMT further endorses the requirement of a 60-day comment period for regulations under the proposed legislation.

Mrs. Preuss?

Ms. PREUSS. I would like to comment on the Office of Central Fraud and Abuse Control. Consistent with ASMT's historical concern regarding adequate control of reimbursement mechanisms, we endorse

the provisions in this legislation for the establishment of an Office of Central Fraud and Abuse Control.

Although ASMT has been painfully aware of certain fraudulent practices concerning laboratory testing, charges and reimbursement, we are rather shocked to learn that fraud exists within the industry to the extent emphasized in recent governmental reports.

We realize that even under closely monitored conditions, there will be those who will elect to violate commonly accepted practices. However, if we are to believe the available reports, we find that we are not faced with a situation where the violations are rare, but rather a situation where there appears to be a rampant widespread fraud and abuse. Those of us who are in the health care profession would indeed be abrogating our responsibility if we did not publicly deplore the current situation and aggressively seek to effect a solution.

We, as professionals, find the current situation to be disgusting, disheartening, and discouraging. We do our best to assure quality service for the patient, only to find that those with the authority to assure appropriate reimbursement control mechanisms have neglected to assume this most important role.

One way in which ASMT can assist in resolving the problem is to assist in achieving passage of this legislation. We therefore endorse the establishment of the Office of Central Fraud and Abuse Control under the direction of an inspector-general.

However, for such an office to function effectively, everyone in the health care industry will have to assume a personal responsibility for the recognition and bringing to the fore fraud and abuse when it occurs. Such a responsibility cannot be exercised without incurring certain risks, such as loss of employment, suppression of career advancement, internal ostracization or failure to find subsequent employment in other institutions.

Potential loss of economic and job security can serve as a powerful deterrent to disclosure of fraudulent and abusive practices. It does not take but a cursory review of like-situations in other industries to recognize that reprisals for such disclosures are indeed predictable. We are convinced that unless this legislation is amended to include an employee protection provision that the best-conceived Office of Central Fraud and Abuse cannot achieve what is necessary.

We propose an amendment which would protect all practitioners in the health care industry-and I emphasize all practitioners in the health care industry-from discrimination with respect to compensation, terms and conditions and privileges of employment. Such an amendment is regrettably an absolute necessity.

Finally, I would like to comment on the hospital-associated physician reimbursement. Regarding the question of physician reimbursement, this legislation seeks to revise the reimbursement practices.

We feel it is very important for this subcommittee to be provided the opportunity to achieve an accurate understanding of what current employment functions are for laboratory personnel.

Medical technologists perform four major roles in a laboratory. First, the medical technologist performs diagnostic test procedures, routine and specialized.

Second, technologists fulfill the duties and responsibilities of technical supervisors.

Third, the chief administrative technologists assume a variety of managerial responsibilities within a hospital laboratory.

Finally, the medical technologist plays a direct role in the educational process of laboratory personnel.

To expand on each of these roles, first, the role of the medical technologist as a laboratory supervisor. In the majority of hospitals, medical technologists have traditionally served as the technical supervisors of the total laboratory as well as technical supervisors of designated specialty departments or section areas.

Supervisors plan, organize and delineate the responsibilities of personnel working under their direction. They assume the responsibility for instituting new procedures, establishing and maintaining quality control programs. They train personnel, maintain supplies, disseminate information, maintain procedural directions and ascertain reliability of test results.

Medical technologists are unquestionably involved in the supervising, planning, processing and reporting of laboratory tests. These nonphysician functions are commonly established and accepted by hospital administrations.

The role of the chief or administrative technologist in the laboratory management, ASMT recently completed a laboratory management survey. The report illustrates that administrative functions are indeed carried out by medical technologists. A copy of this report has been provided for your committee.

This survey clearly indicates that medical technologists are now playing an essential role in laboratory management. That data points out that the administrative medical technologist carries out the majority of a laboratory's administrative functions.

Thirty-three administrative functions common to laboratories were listed on the survey questionnaire. These functions ranged from who reviews and manages quality control programs to who evaluates electronic data programs and reports.

Senator TALMADGE. I hate to interrupt you, but unfortunately, your time has expired. Your entire statement will be inserted in the record. I want to thank both of you for your very helpful and constructive suggestions.

I presume my first question would be for Ms. Fiorella. In your experience, can a medical technologist with baccalaureate or master's level training in one of the biological, chemical or physical sciences along with appropriate years of work in clinical laboratory testing, assume responsibility for the direction and supervision of a clinical laboratory?

MS. FIORELLA. I would say the answer to that is yes, as long as the duties and responsibilities are not of a diagnostic or therapeutic nature do not require diagnostic or therapeutic decisions.

Management, supervisory, technical decisions-definitely yes. Senator TALMADGE. In clinical laboratory work, what specific activities require a pathologist's skills?

Ms. FIORELLA. Again, those skills would be required in diagnostic and therapeutic decisions as opposed to the clinical significance. of tests that are within the educational expertise of the medical technologist.

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