E. Calculation of Maximum Reimbursement Cost of Inpatient Service—Con. 3. Total amount of operating expenses for computing maximum reimbursable cost (E-1 plus E-2). 4. Number of inpatient days (Item B-6). 5. Average computed per diem cost (E-3 divided by E-4). 6. Supplementary allowance (5% of Item E-5). 7. Total maximum reimbursable cost of inpatient service per F. Form of Certification by Officer of Hospital 13 (Name of Hospital) do hereby certify that I have examined the accompanying statement of total expenses, the allocation thereof between inpatient and outpatient services, and the calculation of reimbursable cost of inpatient service per patient-day for the Hospital for the year ended 19_, and that to the best of my knowledge and belief it is a true and correct statement prepared from the books and records of the Hospital in accordance with instructions as contained in this statement. 111) A certification by a public accountant of the correctness of the amount entered in Item C-1 is (is not) attached. I certify that the Hospital could not obtain the services of a public accountant to make an audit to determine the total expenses of the Hospital during the period.* *Delete this sentence if certification by public accountant is attached. I further certify that the records of the Hospital for the period covered by the Operating Statement were maintained on the basis. accrual, cash, or modified cash Officer or Superintendent of Hospital G. Form of Certification by Public Accountant I hereby certify that the amount of $__. accompanying statement of total expenses of (City) 13 (State) shown in Item C-1 of the (Name of Hospital) for the year ended 19, is correct in accordance with my audit of the books and records of the Hospital after giving effect to all adjustments resulting from my examination of the books of the Hospital, and to the instructions contained in this statement. My examination was made in accordance with generally accepted auditing standards applicable in the circumstances and it included all procedures that I consider necessary (except as qualified below). The amount entered in Item C-1 includes (excludes) items listed under Item C-2. The records of the Hospital for the period covered by the operating statement were maintained on the___ __basis. accrual, cash, or modified cash (Signature of Public Accountant) (Whereupon, at 4 p. m., the hearing was recessed until 10 a. m., Wednesday, February 3. 1954.) 13 The Hospital will furnish a copy of the Hospital Statement of Reimbursable Cost covering the Hospital's operations during each fiscal year, and such form must be certified by an officer of the Hospital in Schedule F. If the Hospital's accounts are audited as of the close of the fiscal year by an independent public accountant or accountants, then said accountant or accountants should also fill in and sign Section G of this form. HEALTH INQUIRY (VOLUNTARY HEALTH INSURANCE) WEDNESDAY, FEBRUARY 3, 1954 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The committee met at 10 a. m., pursuant to adjournment, in room 1334, New House Office Building, Hon. Charles A. Wolverton (Chairman) presiding. The CHAIRMAN. The committee will come to order. The witness this morning is Dr. Charles G. Hayden. Dr. Hayden is executive director of the Massachusetts Medical Service, the Blue Shield plan of that State. He is a member of the house of delegates of the American Medical Association, and he also is a member of the American Hospital Association and the American Public Health Association. Dr. Hayden is chairman of the advisory committee to the Institute of Administrative Medicine of Columbia University, and a member of the advisory committee of the Health Information Foundation. By 1943, 1 million persons had enrolled in prepayment programs for medical services sponsored by State or local medical societies. In 1943, the American Medical Association established a council on medical service to facilitate the collection and distribution of accurate information on these prepayment plans. Three years later, the Associated Medical Care Plans, Inc., now called the Blue Shield Commission, was formed under the sponsorship of the American Medical Association. It is the function of the commission to approve plans which meet the standards established by the American Medical Association for such plans. Plans meeting the council's standards are now known as the Blue Shield plans. Dr. Hayden is a member of the Government relations committee of the Blue Shield Commission, and I understand that today he is speaking as a representative of that commission. Dr. Hayden, will you proceed? STATEMENT OF DR. CHARLES G. HAYDEN, EXECUTIVE DIRECTOR OF THE MASSACHUSETTS MEDICAL SERVICE Dr. HAYDEN. Mr. Chairman and members of the committee: I am Dr. Charles G. Hayden, the full-time executive director of Massachusetts Medical Service, one of the oldest and largest Blue Shield plans in the country. I am a physician licensed to practice medicine in Minnesota and registered to practice medicine in Massachusetts. I am a graduate of the University of Minnesota where prior to my medical training I spent several years in the social sciences, particularly anthropology and sociology. I appear here today along with Mr. Frank Smith as the representative of Blue Shield Medical Care plans which is a voluntary association of the 77 Blue Shield plans in the United States, Hawaii, Puerto Rico, the District of Columbia, and Canada. All of these plans have basic chatracteristics, but they vary to a large extent in many details. I believe you will agree with me that during the few short years that they have been in operation, Blue Shield plans have made tremendous progress. However, to my mind, this progress is merely an indication of the fact that they are now in possession of the fundamental knowledge and techniques necessary to permit them to do any job that the public may reasonably expect of them. It goes without saying that Blue Shield plans would have accomplished nothing without the support of the practicing physicians of this country and I wish here to pay them the compliment that is their due. The following presentation is something of an elaboration of the material that I had the privilege of presenting to the President's Commission on the Health Needs of the Nation. You will note that I have limited myself to brief discussions of the major characteristics of Blue Shield plans and that where expedient I have brought into the discussion certain concepts that bear upon the subject of prepayment as a whole. I should like to add at this point that I use my own experience with the Massachusetts plan generously, simply because I know it so well. During the past several years Blue Shield plans have been subjected to criticism because they are directly or indirectly under the control of State or local medical societies. In my opinion, such criticism is unrealistic. Practically without exception professional and trade organizations in this country have been formed for the purpose of advancing the public interest through development of what they consider to be the enlightened self-interest of their members. Labor unions are a good example of this type of organization and thousands of others could be cited including those of the medical profession. In the scientific field there exist measuring sticks and evaluators the accuracy of which is not open to serious question. Anyone who would argue that there are 13 inches in a foot or 3 quarts in a gallon would be branded immediately as a dolt. In the field of human relations, however, general agreement on measuring sticks and evaluators is not always easy to obtain. It is for this reason that the interests of labor unions and the interests of the medical profession might be in conflict. Labor unions are opposed to the Taft-Hartley Act. They call it a slave-labor law. At the same time they favor a Federal compulsory health insurance law, which in the eyes of the medical profession would be a slave-labor law for physicians. The American Legion is also opposed to Federal compulsory health insurance but it favors Federal aid for medical education which is opposed by the American Medical Association. Perhaps some day we shall have measuring sticks and evaluators in the field of human relations that will pass inexorably upon the validity of conflicting claims but that day is not now. In the meantime, we should try to understand the other fellow's viewpoint and ascertain his motives for only with complete understanding and honorable motives on the part of all groups concerned can we build the kind of structure that will adequately serve the health needs of all the people. Most Blue Shield plans undertake to provide services of physicians instead of cash with which a patient may purchase such services. Now this is an exceedingly important distinction because any agency that makes services available must of necessity exercise some control over those who render the services. This is one of the reasons why the medical profession is opposed to Federal compulsory health insurance. Under the old age and survivor's insurance program the Federal Government collects money from people and then, if certain conditions are met, it gives money back to them. Basically this is a simple cash transaction and the recipient can do what he pleases with the money. Under Federal compulsory health insurance, however, the Federal Government also proposes to collect the money but instead of returning money to patients requiring medical care, it would undertake to provide the personal services of physicians. How this could be done without imposing controls on the medical profession I, as the administrator of a medical care plan, cannot understand. Because most Blue Shield plans make available the services of physicians, it is only natural that the medical profession should be greatly concerned with the question of where the ultimate control of such an undertaking should reside. Even during the early days of the Blue Shield movement there were physicians who, while grappling with organizational problems, sensed that they were dealing with forces capable of generating unprecedented momentum. In October, 1941, Dr. James C. McCann, then chairman of the committee on prepaid medical costs insurance of the Massachusetts Medical Society stated in a report to the council of the society: With reference to the establishment of a corporate structure, we must give serious attention to the constitution or corporate structure and to the medicoeconomic significance of practicing medicine under a contract with a legal entity known as a corporation. The corporation that we envision may be potentially a most powerful organization. If it should bring in a large portion of the 7,000 resident physicians of Massachusetts, if it should bring in somewhere around 50 percent of the 4 million residents of the State, and if it should bring in all the funds that are turned over at present in the distribution of medical services between these groups, it could be one of the most powerful corporate structures in Massachusetts. Dr. McCann was prophetic. Blue Shield in Massachusetts now covers 1,543,688 persons and in 1953 paid out $16,680,030 for physicians' services. It is no wonder, therefore, that Dr. McCann was concerned over the impact that such an undertaking might make upon the practice of medicine in Massachusetts. He continues: The most important thing to keep in mind is the question wherein will control of the corporation reside? By what means will the physicians maintain their control of this corporate structure. *** 39087-54-pt. 7- -36 The physicians of the State, who are in complete control of the profession of medicine, are planning to place a large part of their practice under the control of a corporation by the medium of contract. There is no stock ownership so that we cannot control this corporation through the medium of stock ownership. We have to adopt other measures of control if we are to protect our inalienable interests. * The inalienable interests referred to above are described by Dr. McCann as follows: I think we must insist that the contribution of the physician transcends the the contribution represented by the premiums of the subscribers, which are only a lien or claim for completion of the contract. The subscriber contribution is not so-called risk capital, any more than your premiums to a stock life-insurance company represent risk capital or an ownership claim. We are contributing the body of knowledge possessed by the whole medical profession, and the acquisition and use of that knowledge and skill by the individual physician. This knowledge, skill and practice represent, we should insist, capital knowledge that is of major importance in the operation of any medical-service corporation. Certainly, our knowledge is patentable-consider insulin and viosterol; however, our ideals do not permit universal patenting, and our progress is a universal gift to mankind. *** So that as your committee tried to preform the character of this corporation, it seemed equitable to us that, on the basis of business practices, the right of physicians to control judiciously the corporation should not be questioned. I have cited the above quotations because they epitomize the hopes and fears of those pioneers whose idealistic efforts were largely responsible for launching what has turned out to be a most significant instrument in the field of medical care. These men were sailing on an uncharted sea; consequently, they did what they thought best to assure a successful voyage. Under similar circumstances it is hard for me to understand how any group would have acted otherwise in the establishment of a corporation or similar agency designed to make the services of its members available to a large segment of the population. În Massachusetts the board of directors is composed of 15 members who serve without financial compensation. Only 5 of the 15 are physicians. All of the directors are elected by the executive committee of the council of the Massachusetts Medical Society which is composed of 1 member from each of the 19 districts of the society and of the 5 officers of the State society. It is required that the State society nominate at least a majority of directors. The five physicians on the board plus one nonphysician constitute a central professional service committee which has jurisdiction over matters vitally affecting the practice of medicine. Policy regarding such matters, when voted by the board, must be submitted to the executive committee of the council of the Massachusetts Medical Society 30 days prior to implementation, except that establishment of income limits, and I shall talk about those later, is reserved to the council itself. Currently, the board is composed of 2 major State officials, 2 personnel officers, 2 labor representatives, 3 industrialists, 1 banker, and 5 physicians. Blue Cross and Blue Shield plans are a unique development in the field of medical care. Here, for the first time in history, the major sources of medical care-hospitals and physicians-have taken it upon themselves to make their services available to essentially the entire population without the interposition of a third party imbued with |