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do there, they may then be willing to work for a salary rather than on a fee-for-service basis.

Fee-for-service medicine is bad for the doctor because it makes him a pieceworker and rewards him for increasing the number of services rather than their effectiveness. If the doctor wants to make more money, under fee for service he will work longer hours and will sacrifice the time available to put into study and the advancement of his profession. [Applause.]

Senator SMATHERS. All right. Thank you very much, Dr. Reader. I appreciate that statement.

(The following are questions submitted by Senator Smathers and replies supplied by Dr. Reader:) Question #1

I am interested in your observation that "people in this decade just before 65 are actually going through a kind of crisis where they need help more and that after they reach the point of 65 they enter a more tranquil period and that it would therefore seem reasonable that this group would have some way of having care extended to them which might take them better in the over-65 era than they are before."

Are you calling for preventive care programs or health screening intended to deal with illness before it becomes chronic? Have you suggestions for implementing such programs? Answer

The research has not yet been done to document my suggestion that health care for the symptomatic before 65 might make them better in the post-65 years; a longitudinal study is needed. We do not know that in general the pre-65 patients in the low-income categories are a high-risk group for illness, have many symptoms, and presumably ought to utilize services better than they do. Presumably, if we were more effective in reaching them with preventive and other services, they would be better off. What is needed then, aside from further careful research, is a program of case-finding in the high-risk group. Screening is one technique; another is development of ways to bring these people into contact effectively with the health care system by removing barriers such as payment. Extension of Medicare to cover the below 65 group, particularly the indigent would seem reasonable. Question #2

On page 65 of the transcript, during your discussion of experimental programs you call for some form of financing “that does not put the entire onus on someone being able to write a proper proposal to get the funds." I would appreciate additional discussion of this point. If the Department of HEW does establish its health services research center, do you think that the center might provide trained manpower capable of giving assistance in grant preparation to doctors and others who have proposals for experimental projects? Answer

What I had in mind in connection with my recommendations that other mechanisms are needed besides project grant proposals for experiments in medical care was a group of expert evaluators in HEW who could work with program directors rather than write proposals for them. Evaluation is essential, but many of the people skilled in managing programs and in innovating do not have the ability to evaluate them scientifically. Evaluation is also often done better by an outside group who can be more objective. I would visualize the health services research center providing this kind of expertise, and working closely from the beginning with program directors starting new medical care enterprises. The contract mechanism might be used for funding, or the evaluation might be a separate proposition funded by HEW. Question #3

You and several other witnesses described the satisfaction experienced by physicians who practice high quality medicine even in poverty areas of cities.

Do you see any effective way of giving large numbers of physicians the opportunity to serve in this way as a normal and predictable part of their lifetime work career? Answer

Physicians might be happy to work in poverty areas of cities if the working conditions were right for them but such conditions require a structured situation. The principles involved are: 1. that group practice is more conducive to satisfactory working conditions than solo practice; 2. that status in a teaching hospital or university faculty is likely to increase participation; 3. that active research opportunities (a spirit of inquiry) enhances interest. It is possible that young physicians could be induced to spend several years in this endeavor as part of their career development, if the opportunities offered were similar to others in the teaching hospital in academic medicine and specialty training. Vista program for physicians might also have appeal.

Now our last witness this morning, and not least of course, is Dr. David Thompson, the medical director of the New York Hospital.

STATEMENT BY DR. THOMPSON

Senator KENNEDY. I have some questions relative to hospital care. Would you rather I waited until you've made your statement? Could I take perhaps 5 minutes to raise some questions directed not to Dr. Sheps but to the others of you, and then you can give your statement, Dr. Thompson.

We have talked about the fact that the fees for doctors have increased and some of the problems connected with that. But it is also true, as Dr. Cherkasky has said, that hospital charges have also gone up. I wonder, first, if you would describe these increases in a little bit more detail.

Secondly, can you make some specific suggestions as to what could be done about them or indicate whether you think that we are moving in the right direction on this problem?

First if you could, give us any information about whether hospital costs to the patient have, in fact, increased over the period of the last 18 months, and whether the increases are due to medicare and medicaid.

Dr. Thompson. Perhaps, Senator Kennedy, each of us might wish to address ourselves to that question. I think we need to separate here the matter of the hospital cost from those of the physicians' fees. We spent a good deal of time this morning talking about the question whether physicians' fees have risen too rapidly and for what reasons and what can be done.

As far as hospital costs are concerned, they have indeed, as you know, gone up very rapidly. As others have pointed out before me this morning, I think that we did and still do have a lot of catching up. In other words, the personnel at our hospitals have been traditionally underpaid, and we are now, I think, getting to a point where we are much more competitive with the labor market; then in addition to this, your professionals, your nurses and the allied health personnel. The nurses have always been underpaid, so that the rise in hospital cost is not simply a matter of the introduction of medicare and medicaid; this has made it easier for us to catch up. We have a long way to go and we are now able to do it. I would say that medicare and medicaid have made it possible for us to bring the salaries up more competitively.

Perhaps the others would like to comment.

Senator KENNEDY. Well, it is true that the employees of hospitals have not been adequately paid and also that nurses have not been adequately paid. I am pleased that there is some progress being made in that field. But on the basis of information that I have received from around this State and from across the country, I wonder whether all of the increases in hospital charges are the result solely of efforts to rectify past injustices or whether there are some costs that have gone up rather considerably because of other facts.

Dr. CHERKASKY. I think when we talk about costs at hospitals, at Montefiore it is $90 a day, very close to $100, I think it would be foolish to say that our businesses are all run so well and so tightly that we could not do better. I think that there is much we need to do in the introduction of more automation. Our problem is that in a service industry like ours, most of our dollars go to payment of people and not supplies.

I would also point out that one of the problems that we have, Senator Kennedy, in this cost, is that a very large, significant part of that cost represents other than medical care for patients. It is the cost of education; we have a house debt of 300 at Montefiore Hospital; we pay them an average of $5,000 or $6.000 a year; it costs, in addition, at least $5,000 a year more because of the effort we have put into their education. Three million dollars of our costs annually is an educational cost.

In other words, the educational costs for doctors and for nurses and for other people are loaded into that patient-care bill and they don't belong there. This is the situation in our best and highest cost teaching hospitals.

I think Dr. Thompson is absolutely right: We have not paid nurses sufficiently; and our other workers are just beginning to catch up.

I would make an estimate at Montefiore Hospital, $10, $15 a day may be costs which are borne by the sick patient which are really educational costs which should be borne in some other manner.

Senator KENNEDY. You could stay at the best hotel in the United States for $100 a day.

Dr. CHERKASKY. In the best hotel in the United States, you don't get 60 percent special diets delivered to crotchety patients.

Senator KENNEDY. Maybe you could for $100 a day. I think for $50 and $60 a day you could make an arrangement down at the Waldorf Astoria to get very lean hamburger and no butter with your bread. I think you could.

Dr. CHERKASKY. Senator, I think we need to pursue this business of internal hospital cost, but I want you to know you are not going to strike paydirt there. The paydirt is going to be in reexamining how the hospital is used. Everybody wants to find the answer within the hospital's costs. I think we should look at that very carefully, but that is not the solution to the problem.

Senator KENNEDY. Doctor, we've talked about other things for 2 hours; it is now 12 o'clock. But I think that this is a matter of legitimate concern. Dr. CHERKASKY. Absolutely.

Senator KENNEDY. And I think we should at least discuss it so that we can learn about some of the problems you are facing. You know, I think it is generally accepted in the city of New York and across the State and perhaps across the country that you are one of the great administrators of hospitals; so I am not speaking officially at all.

Dr. CHERKASKY. I understand.

Senator KENNEDY. Now, just what direction should we move in? It is simply impossible for a person to stay in a hospital when it costs $100 a day.

To REDUCE HOSPITAL COSTS

Dr. CHERKASKY. Senator, I think we could help resolve the problem, if we could cut down the total community hospital bill by different kinds of practice; for example, in the city of New York, where we have something like 50,000 general hospital beds, if we could put that whole system together in an integrated fashion, I am willing to say to you that we could do it with 40,000 beds; but do you know what that would require ?

It would be necessary for Montefiore not to be a separate hospital from Mount Sinai or Beth Israel. We would have to stop duplicating what we do, we would have to stop competing, which we do.

We have in the city of New York, for example, 15 cardiac surgery programs. Cardiac surgery is very expensive. Seven of those programs do 83 percent of the surgery; eight of them do 17 percent. A case a month some of these eight do. That means it costs them a fortune in equipment and personnel; they don't do it well because you cannot do it well if you do cardiac surgery infrequently,

These are the things we do. In other words, it is not by focusing on the individual hospital but by focusing on the communities total hospital program and methods of medical practice that we can solve the problem.

Senator KENNEDY. Is anything being done, for instance, in this community, in the city of New York, to coordinate services as you suggest ? Everybody finds fault with the Federal Government, and I am sure that there are parts of the legislation that could be strengthened and changed, but should not a great deal more also be done here in the State?

Dr. CHERKASKY. Absolutely.
Senator KENNEDY. In all our States and local communities.

Dr. CHERKASKY. I agree it has to be done on some kind of a local level. As a matter of fact you know, one of the things the Federal Government could do is in some way tie its payments or it could tie its grants for construction to implement this kind of planning. In other words, Montefiore Hospital has to give up its autonomy in the community interest and I think what has to happen is that the hospital has to be pushed to do that. If we could integrate hospitals, I have no question that we could do the job with a much less hospital bill than we now spend.

Senator KENNEDY. I have introduced an amendment dealing generally with this subject which I would like to ask you about briefly to see if you have some thoughts on it. In one part, it provides that payments to hospitals and nursing homes for in-patient care should be limited to the amount paid for comparable services by either the Blue

8 See p. 497 for explanation of proposed amendments

Cross plan or under title 18, whichever is less, while authorizing incentive payments to hospitals and nursing homes for efficient operation based upon their demonstrated ability to develop new management procedures and discharge patients promptly.

Secondly, for outpatient care, it directs that an outpatient visit must be defined and must include seeing a physician, and it puts a ceiling on payments for such visits of 18 percent of the per diem payment for inpatient care.

Third, as to payments for the services of physicians and other professionals, it directs that fee schedules shall be based upon the average level of fees charged in the area over the previous 10 years and it allows for the development of special reimbursement methods for group-practice plans.

I don't want to take the committee's time by going into this in great detail, but would you have some comment to make on it?

Dr. THOMPSON. Each of us may wish to comment on that, Senator Kennedy. I think one of the problems in terms of the ceiling arrangements or some sort of incentive plan in terms of more efficient care is that the end product of the hospital, which is the well patient, the quality of care is a very difficult think to judge. I know of no way as yet that one can really identify what is the best quality care in an institution when you compare institutions.

We have this problem. I think that you are going to run into this all the time when you try to consider whether or not you are getting your money's worth, whether one hospital is being paid too much versus the other. In the last analysis, what you want is the highest quality of care, and what is the evidence for that? I think that is a very difficult thing to judge.

Dr. SHEPs. Sir, I don't like to disagree with my colleague Dr. Thompson, but I must disagree. I think he has a point but I think it is not as difficult as he believes it is. In this matter of quality of care we are not dealing with the academic question of trying to decide how to measure the difference between 96.5 and 97 percent of their performance against a standard of perfection.

If we think of achievement and performance in terms of a spectrum with the very best at one end and the worst at the other, evaluation is

asy and has been done many times; that is, to delineate that portion of care which is really quite unacceptable to any of our peers in medicine.

This can be done, and if we are thinking in terms of social policy performance on behalf of the public, then I am deeply convinced that we don't have an esoteric problem in delineating and finding poor care as distinguished from good care.

I would like to say that I thought I had something to add on this question of cost until Dr. Cherkasky made his final comment. I think that it is important to recognize that in genesis of hospitals, city hospitals, and other government hospitals were clearly developed to meet the medical care needs of a designated population.

The general voluntary hospitals of this country had a number of additional objectives; such as to provide a place where the private physician could get treatment for his patients. This does not do anything to provide treatment for those people who are not his patients or are not anybody's patients.

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