That program actually wound up in the 1967-68 budget year on the basis of the figure the Governor was using with a $185 million surplus. And actually if you throw out the fluff and get that down to actual costs, it was a $135 million total gubernatorial error. And that's a pretty big error in what amounted finally to a $200 million program. As you know, in California, like many other States, we have to live within our budget. We cannot rely upon deficit financing.

Senator WILLIAMS. What was that gubernatorial accounting error$135 million?

Mr. UNRUH. Well, reduced to actual dollars, it was a total error of $135 million.

Now, the program, instead of having if you want to use the same figures that the Governor did when he utilized the $210 million, which was the total figures for the program-then it would amount to considerably more than that. It would be around a $400 million gubernatorial estimate.

But if you break it down to actual State dollars, which is what we were talking about-what we are concerned about at my level—it was a mistake of $135 million on a $208 million program.

Senator WILLIAMS. You had better get that office computer on it. Mr. UNRUH. Well, the computer still answers according to what you put into it, and if you put in something expecting to get out an answer, that is generally what the machines give you.

Now, to insure that Medi-Cal will stay within its budget, we have to develop a real program. The Governor, of course, recommended that he be allowed to reduce or eliminate services to recipients. That was his answer to the fiscal crisis that he said threatened.

CATEGORICAL ELIMINATION OF SERVICES

There are, of course, a number of problems with this approach. One is the administration's proposed elimination of services on a categorical basis so that some persons would be denied services they needed badly, while other persons would still receive other services that were not needed nearly as much.

In other words, what he wanted to do was cut out a block of recipients, totally and completely. Another is that

Senator WILLIAMS. What kind of blocks? Could we have some detail on that, Mr. Manley?

Mr. MANLEY. At one point, Senator, he threatened to completely remove from the program those people classified as medically indigent. And that amounted to-as I recall the figure-600,000 people.

That figure may be high. He never did do this. That was his threat at the time he called the legislature into session. In other words, if they didn't pass the

Senator WILLIAMS. I thought that's what Medi-Cal was all about. Mr. MANLEY. That's correct. That's what title 19 is all about. To continue the story, the result was that he did not make those cuts.

Mr. UNRUH. Well, because we refused to give him the authority. Senator WILLIAMS. But it was a cliffhanger for a while?

Mr. UNRUH. That's right.

24-798-69-pt. 3———2

The other thing that is wrong with that kind of an approach is that many of these services are also provided by the county hospitals for these people. Any decrease in Medi-Cal services just results in an increase in the county-provided services in their costs.

Still another is that such an approach may have no relation to the causes of increased costs. For example, hospital and physicians' services are very understandably among those exempt from reduction or elimination.

However, the cost of these services are the ones that have increased most rapidly, and should their costs continue to rise, other services would have to be cut to compensate for any unexpected increase. Now, we, as I said, rejected that approach and came up with one which was more nearly geared to the causes of the problem, although we don't propose that this is perfect, either.

This changed the law so that if cuts are required they must first be made in the amount of payments for services not to exceed a 10-percent cut. If this is not adequate, then the administration may postpone those services, which are elective, regardless of their category.

These measures are designed to reduce program costs until the legislature can decide to make an emergency appropriation or make other program modifications.

The legislature also required that if any one service item threatens to exceed its budgeted amount, and that's the way we budget in general areas, the amount of payment for that service, that particular service, may be reduced by 10 percent. This approach we think comes closest to meeting the problem head on. It may tend to discourage fee increases and overutilization by providers since these, if they get out of line, could result in an immediate 10 percent reduction.

If I could look back with hindsight on the results of California's manufactured crisis with its Medi-Cal program, I would say that our experience indicates what can be done to any new governmental program-which in this case has not been fully tested out-by somebody who simply does not like the program and is out to wreck public confidence in it.

It appears clear to us and to most California observers familiar with Medi-Cal that our Governor did not like this program and his disagreement with the Federal legislation which authorized it which was largely to blame for this State's crisis over the program.

Among other things, during the course of that controversy we had when we were there, we were expected to give the Governor the power to unilaterally cut this program. He had a television appearance, in which he got on television, and utilizing the Medi-Cal card, the one which goes to welfare recipients, and displayed this card and said, "If you have one of these welfare cards-" or words to that effect, "you can get better treatment" or "they can get better treatment than you can," pointing to the television audience, "than if you don't have one and you have to pay for it out of your own pocket."

In addition to being just in general disagreement with that kind of an approach to government, at this point I think that is one of the most dangerous things that can happen is when we try to put one group of our people against another. We have too much of that in our

society, already. It certainly is damaging to a program that has just been instituted for any public official to get on before the program has really had a chance to settle down-and make those kinds of charges.

The fact that we disagreed with the Governor's position on this is not really the point. The point that I would like to stress is that as a result of these pretended claims of bankruptcy, the very real methods of controlling Medi-Cal's costs were overlooked."

FEE SCHEDULES FOR PHYSICIANS

The fact is for quite a while and still to some extent, although I think it is considerably less now, due to the scrutiny they have been getting, a few irresponsible doctors have made outrageously exorbitant profits out of the operation of this program. The people really getting well under this program are the doctors-and some of them are getting awfully well indeed.

Last year a thousand California doctors collected as much as $70,000 each simply from treating Medi-Cal patients. Some of them are making as much as a hundred thousand dollars yearly off of this program. Now, I don't know that we have very definitive figures on how much of this was profit, but we have been told by people in the medical profession that this is considerably more than the average doctor makes, and we estimate that some of them are making somewhere between $35,000 and $60,000 net profit out of this program each year.

It is obvious that the most direct method of controlling costs is through the imposition of fee schedules on doctors and the other providers of medical services. Yet, despite pleas from members of the legislature, the administration which we gave the authority to has refused to set such limits, and in my opinion that refusal, or the threat of using that, is almost totally responsible for those soaring, runaway costs which have occurred.

You know, it's very interesting some of our Governor's conjectures about the use of the bomb in the Vietnamese conflict ought not to be ruled out because that gives away our plans to the enemy, and yet, at the same time, the administration has so steadfastly refused even to consider the threat of imposing a fee schedule that, quite clearly, there is no fear on the part of the people who are out of line on this, that it might be.

I don't advocate flatly at this point that a fee schedule be used but I think it clearly ought to be setting there as an alternative, and that those people who are out of line ought to understand.

Senator WILLIAMS. Are you a lawyer?

Mr. UNRUH. No, I am not.

Senator WILLIAMS. Well, in the law, at least where I used to practice, we had a schedule of fees where somebody could go beyond the schedule, but we had an ethics committee that could receive complaints. Is there anything comparable

Mr. UNRUH. Yes, there is, Senator, and I was going to add that I think the ethical, reputable doctors in the business are doing their dead-level best to try to do something in this area.

I think, to some extent, they have been successful. It may well be that the medical profession may be able to contain this themselves; if so, certainly that is a better approach to this.

Senator WILLIAMS. I am glad you raised this. I think that this would be most appropriate in our hearing-testimony-what you said. We report to the full Senate, and we will make a significant point of just what you concluded on that fee situation.

Mr. UNRUH. Yes. The one weakness of this approach that I see, Senator, is of course that usual customary fee business. So that the basis of ethics is placed upon a broad based group without too much concern for the escalation of costs. And that's a weakness of the peer group ethics question, as I see it.

As long as the overall costs escalate, there is no obligation, that I can see, to contain or to agitate more businesslike procedures-the handling of billing and other things. They are concerned with keeping the individual doctor from profiting at an exorbitant rate on an individual basis, but if the entire fee schedule escalates, there seems to me to be no obligation on the part of the profession as a whole to hold that down.

Now, I may say as a result of all this, and certainly I would not argue that all of this could have been escaped, that the additional costs of the past 2 years of this program has been in this area of $40 million. I think that the administration's refusal to at least consider or to resort to this, refutes pretty well the claim that they want to control the program costs. I think the medical profession owes it to the State to control costs, not only to restrain those few doctors who are out of line with their peer group, but to exercise some self restraint insofar as managing overall costs is concerned and the escalation of those

costs.

I don't know, Senator, whether you would like me to go--I will skip the second part of my testimony at this point, if I may, which was on a program that the legislature devised some years ago for a relatively new total approach to this program.

Senator WILLIAMS. Would you like that part to be included in our testimony?

Mr. UNRUH. I think that would be of interest to the committee. We still think it has a great deal of merit.

Senator WILLIAMS. Senator Randolph suggested that, and I think we will not object to that. It will be included.

Mr. UNRUH. I will be very happy to discuss that, and answer questions on it.

It is on the basis of getting everyone into the program on the basis of need and also on the basis of what they can afford, or when they might get into situations where, no matter how affluent they are, the medical costs could reduce them to a poverty level.

We think it is a good program, but when the cut was adopted by Congress, we did not feel that we had developed this far enough to present it as a program in which they had to pick up the principal

costs on.

THE CAL-MED PROPOSAL

Let me take several moments to outline to this committee, as you have asked me to do, the major features of the basic health care program which I suggested to the California Legislature in 1966. In keeping with the current practice of giving all new government programs catchy one-word names, we called this plan Cal-Med.

Cal-Med was suggested almost exactly 2 years ago. It was presented as an alternative to the proposal then before the legislature which was eventually to become the Medi-Cal program. It represented an attempt to break away from the past patterns of public medical care programs which were being advanced under title 19 and to avoid the copying of existing health insurance programs which were taking place under title 18. Like those programs, it was basically a method of financing health care, but unlike them, it also addressed itself to the problem of doing so as efficiently and economically as possible. It did not tackle the serious problems of health manpower, facilities or comprehensive health planning, but no financing mechanism can really do that directly.

Cal-Med would ideally include all citizens of the State within its protection although to differing degrees depending upon the basic variable of income and family size. There would not be any categories as there are under the present Medi-Cal program because of title 19 restrictions. There would be three basic classes of protection under Cal-Med.

The first would include those persons whose income is not adequate to provide health care services for them and their families. They would receive comprehensive health care services without cost as is now the case with cash grant recipients under Medi-Cal.

The second would include those persons who are now considered medically needy as well as those who are poor risks. These are persons who can pay for some but not all of their health care either because of low incomes or because their physical condition makes health care costly and insurance coverage prohibitive. These persons would have two alternatives; they could choose to make a monthly payment toward the purchase of a health care plan when they were either sick or well. This monthly payment would be supplemented by Cal-Med to the extent necessary to obtain comprehensive coverage. The other alternative would be for the person not to prepay for health care protection, but then be required to spend down a given amount when he required services, as at present.

The third class would be those persons who are able to afford complete and comprehensive health care protection but because of some catastrophic situation their coverage is exhausted and they are faced with continuing high health care costs. These three basic classes should include all the citizens of the State who would require assistance in order to have adequate health care services. It is the purpose of CalMed to provide some or all of that assistance depending upon its level of funding.