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or 40,000, of the licensed physicians in this country are graduates of foreign medical schools.

I would think that public policy in this country should aim for 600,000 practicing physicians by 1985. The increased demand for health services, the serious unmet need for medical care which is becoming increasingly apparent each day, the increased cost of health services--all suggest tremendous shortage. Further, the development of new forms of medical practice and of innovative structuring of the health care system will become much more feasible and practical if physicians are not in such obviously short supply. Finally, it must be remembered that increased specialization of physicians has resulted in a marked decrease in the number of physicians available for primary family care. In this connection, a table from a recently published study of "The Doctor Shortage" by Rashi Fein is particularly revealing:

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It has been said that we will never have enough physicians and therefore we must develop paramedical or ancillary personnel to do a variety of tasks that physicians now are doing. I believe that we should use other health professionals in the most creative way possible and that medical practice must be structured so that the physician's time and energy is most productively and effectively utilized. However, this should not be used as an excuse for the richest country in the world to shirk its responsibility to do what it certainly can do—and that is, to produce an appropriate number of physicians to serve the health needs of the population.

For the United States to have 600,000 practicing physicians by 1985 is a tremendous challenge but I believe that it can be done. Studies now suggest that by 1975 we will have about 365,000 physicians in this country. In order to have close to 600,000 practicing physicians by 1985, we will have to graduate roughly 20,000 doctors a year between 1975 and 1985. We now graduate about 7,900 physicians per year. This means then that we must increase the number of our graduates by two and a half times.

Based upon current figures, we calculate that it will take about $5,000 per year to educate a medical student. Therefore, it would cost $400,000,000 a year for the education of 80,000 medical students, i.e., 20,000 in each year of the four years of school. Further, subsistence of $4,000 for each student would cost an additional $320,000,000 per year—for a total of $720,000,000.

To do this job we would probably need 100 additional medical schools. (At the present time there are in this country a total of 102 schools in operation or in some stage of planning.) Construction of a medical school and teaching hospital is now estimated to be roughly $50,000,000. Therefore, the total needed for medical school construction would be Five Billion Dollars ($5,000,000,000.)—or Five Hundred Million Dollars ($500,000,000.) each year for a period of ten years.

Adding this $500,000,000 to the $720,000,000 necessary for the education and subsistence of the students, the total estimate for the cost of this program would be about One Billion Two Hundred Twenty Million Dollars ($1,220,000,000!) per year.

These calculations are rough and will undoubtedly require further refinement and study. Nevertheless, I believe they substantially reflect the magnitude and dimension of the need and the cost.

I am convinced that the financing of this program is a public and government responsibility. I believe that all qualified students of whatever social class or ethnic group, should be able to secure a medical education. There should be no financial barriers to such an education and as a matter of fact, we should follow the example of most western countries where medical education is totally financed by government.

Question 3: For many years hospitals were under-financed. Wages and salaries were unconscionably low. Many hospitals had insufficient funds to develop new and necessary programs. Hospital physical plants especially in urban areas, have been and are in a serious state of deterioration. Yet the explosion of medical science is continuing and in fact hospitals are able and required to do more and more for people with consequent increased costs and expenditures.

By paying hospitals reasonable costs, the federal government, through Medicare and Medicaid, has for the first time put the hospitals of this country on a firm and viable footing financially. This is to be applauded. There was, therefore, every reason to expect that due to this vast infusion of new money, hospital costs would rise. I am convinced that the rise is due substantially to the ability of the hospitals now to begin to pay adequate wages and develop programs and facilities long needed.

This is not to say, however, that all money in all hospitals is being expended responsibly and in the community's best interest. Under an open ended cost reimbursement formula, the certainty of inefficient use of funds clearly exists.

One of the things that must puzzle the layman is why one institution which calls itself a hospital has a $40 per diem cost while another institution has an $80 per diem cost. The same patient may by the choice of his physician, be in either one or the other hospital for his condition. What, in fact, does this difference in cost mean and indeed, should we not adopt the policies of the $40-per-day hospital for everyone?


It must be remembered that hospital care means very different things just as hotel care does. You can get a bed for $1 a night in urban slums or pay $25 or $30 for a luxury hotel. If both the $40 and $80 per day hospitals are operating equally efficiently, the $80 a day hospital then clearly must represent more services and programs than the less costly hospital. You will find that every illustrious institution in this country-illustrious because of its reputation for high quality care and for teaching-counts itself among the high cost hospitals. The hotel services which the hospital renders are the smallest part of the cost. There are marked differences between a top-notch X-ray department, staffed with superb physicians and modern complex equipment, than an x-ray department which does not have these characteristics. The same could be said for the laboratories, operating rooms, recovery suites and for the educational programs.

This does not mean that any hospital's per diem, whether it be $10 or $100 per day, should be accepted at face value as representing high quality care. However, before restrictive formulas are placed on the rapidly escalating hospital costs, very careful examination must be made of these different categories of hospitals to determine whether in the social interest these differences in costs are legitimate and desirable. Therefore, while I would certainly agree that open ended reimbursements are an invitation to inefficiency, I also believe that we need some hard data concerning the operations of various types of hospitals. The important overriding factor must be the quality of care and the program of the individual hospital. I am convinced that at the present time, in most instances, the community is getting more for its money from its high-cost hospitals than from its low-cost ones.

Question 4: In a sense the answer to this question is very much like my answer to question 1, concerning quality of medical care. Coordinated medical care centered around the hospital, it seems to me, should be the direction toward which all federal and local programs in health should be directed. Quality of care can best be achieved through this coordination. It will also result in increased efficient utilization of all services and this would surely lead to economic use of available resources.

In terms of the existing Medicare program, I might say that elimination of physician services in hospitals from Part A is a very serious defect. It makes the delivery of medical care services to the community, by and through the hospital, extremely difficult. Therefore, an initial, practical step would be to allow Part A to pay for physician services located at the hospital.

It seems to me that in any new programs for hospital construction which the Federal Government will undertake, there should be markedly increased funds for the development of coordinated health services, i.e., group practice and community health centers around the hospital. Standards developed at the federal and state level for the recipients of federal funds for hospital construction should demand that such hospitals provide a broad spectrum of care including extramural services such as comprehensive ambulatory care services, extended care services and home care.

I believe that Partnership for Health legislation is a great step forward. If properly done, it will permit for the first time some kind of coordinated and integrated planning for health services on a regional and community basis. It will also provide some modest amount of funds for individual agencies to develop certain new service programs.

True, we have in the past encountered some grave difficulties in dealing with the multiplicity of federal funding programs. The multiplicity of agencies that fund for health at the federal level is overwhelming. This past year we attempted to get federal funds for the construction and operation of an ambulatory center in the South Bronx and we failed even though there was goodwill and cooperation on the part of all federal agencies involved.

It seems to me that major institutions embarking on significant health care programs on a community should be able to approach one agency in the federal government to receive an appropriate amount of money and support. It could be that the partnership for health legislation will eventually be able to provide such an opportunity. The major thrust of the program, however, is on coordinated planning. At the present time I believe it is questionable whether it will solve the problem of direct, single-door funding for a complete program, from a single federal department to a single provider of service.

Question 5: It is becoming increasingly obvious that the way services are paid for has direct and immediate implications on the way services are delivered and organized. There is really no such thing as just a program for financing health care. Part B of Medicare, although making specific allowances for prepaid group practice, really is a payment system designed to expand and enrich solo, fee-forservice practice. In one stroke it effectively sabotages the movement toward broad, comprehensive total coverage for the aged. Among its major defects is the lack of payment for preventive health examination. Further, it separates doctor services from hospital, from extended care and nursing home service. Payment is made to physicians on the basis of charges or fees, and to institutions on the basis of costs. The aged patient is confused and harassed my deductibles and coinsurance.

It is my thesis that if a hospital like Montefiore could be paid in annual capitation on the basis of actual costs incurred in rendering total comprehensive care services to a given population, the services would be of high quality and the cost to the patient and to the Social Security Administration would be measurably less than the exiting fragmented method.

Paradoxically, we who are committed to this type of program are being forced in the operation of our own Medical Group to the fee-for-service payment for those over 65. It is estimated that on the current capitation that we receive from the Health Insurance Plan for the aged, we lose $35–$40 per year per patient. Since we have approximately 4,000 patients over 65 in our group, this could come to $140,000 a year. It is possible to receive this income and more if we were to transfer these patients to fee-for-service under Part B. It would not only cover our costs but under the existing fee schedules, it would be possible to receive substantially more income for the care of these patients.

The point. I believe, is a simple one. Even agencies strongly committed to the capitation system in principle are being forced to consider fee-for-service system which will most certainly result in increased expenditures on the part of government. My plea here is that, at least for demonstration purposes, an institution like our own and others with similar capacities should receive a single overall payment for an identified population. We would then use the Hospital, our Loeb Extended Care Unit, our affiliated Beth Abraham Custodial Home, our Home Care Program, our Group Practice unit and the other ambulatory service facilities in the most efficient and economical manner designed to meet the patient's needs. I will state flatly that such flexibility will produce better medical care more economically than the care obstructed by the present restrictions in Part A and Part B. Indeed, it might be said that Parts A and B were set up to satisfy the providers of service rather than the patients. Sincerely yours,



Senator SMATHERS. Dr. Sheps will now be heard. We will be very pleased to hear from you, sir.


Dr. SHEPs. Thank you very much, Senator Smathers. My comments are directed perhaps narrowly to the problem of health services to the aged in terms of their organization. Having been privileged to listen to the discussion up to this point, I would like to preface my remarks by saying that I believe, sir, that what we need to do, in addition to vastly increasing the supply of personnel, is to face the fact that the solutions lie in a series of confrontations—confrontations between methods of payment and confrontations between different methods of providing care. These two are closely related.

I would say that while there certainly is disturbing evidence that there are physicians who take advantage of the fee structure in the manner in which Dr. Cherkasky has described it, I think there is still another way to look at this fee-for-service method, and that is to evaluate what it means if the physician, under the present scale of fees, or the surgeon, spends a fulì day doing the things that ought to be done for his patients and to determine the annual income he will have under those circumstances, ruling out completely the possibility that he

may be doing certain things because there is a fee in it. Have him spend his whole day working as he should, doing what is needed, and see what income level he will be. Will he be equal to the captain of industry, will he be at the level of the President or a Senator of the United States, or will he be at the level of a college professor? I think this is a pertinent approach to this matter; and, as others have said, the evidence is in.

The second confrontation I would like to mention, sir, before I read my statement or answer your questions, is the confrontation in the organization of care, and it is to that point that I have some recommendations to make in my statement. Shall I proceed?

Senator SMATHERS. You go right ahead, sir.

Dr. SHEPS. My remarks will be based primarily upon the experience that I have had at the Beth Israel Medical Center in New York and also upon observations I have had the opportunity to make in other parts of the United States as an administrator, a consultant, and a researcher in the organization and administration of medical care.

In the various units of the Beth Israel Medical Center, we are now treating over 100,000 patients per year. A little more than two-thirds of these patients are being treated on an ambulatory basis.

Ambulatory care is of crucial importance in providing modern medical care for older people because their problems are predominantly those of chronic illness which needs to be forestalled, discovered early, treated effectively and followed consistently, all within the framework of a program that provides comprehensive care, with appropriate general hospital backup facilities, and continuity of responsibility for the total care of the patient.


In our Gouverneur health services program--to which Dr. Brown referred and in which he was the leader-in the lower East Side, where we serve a large indigent population with a substantial proportion of old people, we are now treating a total of 40,000 people per year who make over a quarter of a million visits.

This program has been in operation for 6 years and has attracted a great deal of attention because it has demonstrated that modern care, incorporating the principles of group practice and the latest scientific methods, can indeed be provided to poor people in an atmosphere of warmth and friendliness with due attention to their dignity as human beings, and may I add, sir, at a reasonable and predictable cost.

In the Outpatient Department of the Beth Israel Hospital, we have completed a little more than 1 year's experience with a pilot program in comprehensive care which incorporates these same principles. These principles are now going to be implemented throughout the entire ambulatory care activities of this general hospital.

A number of conclusions emerge regarding the health needs of the aged:

1. The advent of medicare and medicaid has clearly been helpful. Even though there are still administrative problems to be ironed out in this payment program, there can be no question that this has and will facilitate care. The question that does arise, however, is the kind of care that will be provided. Now that we have taken a giant step in the organization of payment for care, this must be matched by appropriate changes in the organization of care itself. The fact the cost is being borne by Government agencies provides an opportunity that should not be missed in setting appropriate standards of performance and achievement.

Senator SMATHERS. May I interrupt you right there! I like what you said there so very much that I would like to ask you this question: Is it the responsibility of the Congress and the appropriate agencies of the State government and the city government to do anything other than the organization for payment for care, as you call it, and you say it must be matched by the organization of care. Now how far should we go, and what is it that we should do as Members of the Congress other than just make available the organization for payment? We can appropriate the money. Beyond that, what should we do?

Dr. SHEPs. Sir, I think you have a real and inescapable responsibility to concern yourself with the specifications of what you are paying for on behalf of the people of this country, and the specifications can be clearly delineated. It is not enough to say that people will meet certain qualifications of training and experience.

I suggest that methods of performance—we know a lot about this now—methods of performance can be delineated and measures of achievement can be implemented. I would say that it is no different than the specifications that the GSA puts out when they spend billions of dollars on hard goods that one buys.

Senator SMATHERS. Doctor, do you or Dr. Cherkasky, or any of these other eminent physicians here, have any list or set of specifications that, for example, we might use and deliver to the Department of Health, Education, and Welfare?

Dr. Sheps. These are in the literature; this is not a vague, ectoplasmic area. There is literature in this field, there are departments in universities that work on this all the time, and there are programs of medical

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