paid in accordance with a fixed fee schedule from assigning or selling that claim after he has professionally completed his services; and moreover, because its adoption would impair and perhaps even destroy the operation of the medicaid program in the New York area.

When Congress enacted the Medicaid Program, it was believed that the program and fee schedules should be broad enough so as to attract the participation of 66% of all classes of providers. It is our belief that current HEW figures show that in the New York area, less than 10% of all medical professionals participate in the program. The main reasons for this failure to attract providers are:

(a) The voluminous amount of paper work that is required of a provider for him to obtain payment for his services; and

(b) The fact that payments are long delayed, sometimes for periods exceeding 6 months.

It was for these reasons that finance companies entered into the business of financing and/or factoring of these accounts receivables. The factoring company by providing the services of immediate cash payment to the provider and relief from the voluminous paper work, recordkeeping and cumbersome procedures effectively attracts providers to participate in the program. As will be later pointed out, the factoring companies provide many other services to medicaid providers which contribute to the efficient working of the program.

Factoring as practiced by members of this Association operates in the following

manner:

(1) The factoring company purchases the invoices that have been prepared, audited, completed and signed by the provider. When entering into a factoring agreement, the provider signs a designation directing the local Social Service District to mail the check to the factor. At no time is there any provision nor request that the check be made payable to the factoring organization. It should be also noted that this designation requires a notarization of the providers signature. At no time does any factoring company alter or in any way change any invoice.

It should be also noted that most factoring contracts and/or agreements are cancellable on thirty days notice by either party to the agreement.

(2) The following services are generally provided by members of the factoring association to the providers whose accounts receivables they factor.

(a) Pick up invoices at Doctor's office on a weekly schedule.

Invoices are picked up at the doctor's office to reduce his need for mailing large quantities of papers. It assures him of delivery to the factor of irreplaceable x-rays, written approvals from the Department of Social Services, patient signatures, and/or invoices.

(b) Invoices are delivered to the factor and are recorded, batched, sorted by doctor and office location and edited for clerical errors.

The work of sorting invoices by office location and identifying it by a batch number, enables the doctor that practices in many locations to know the amount of work done in each location, and later when payments are received, the doctor is able to know which invoices have been paid and which rejected.

The invoices are edited by a trained staff that not only knows the basic items to be filled out and signed, but is aware of the latest revisions in billing practice and guidelines by the local Department of Social Services. Invoices requiring correction are returned to the doctor with appropriate notations for corrections. When the auditing is completed the factor immediately pays the provider. In some instances as the providers request the monies are actually deposited in the provider's own bank account which gives him immediate dollars.

(c) The invoices are scheduled on a complete listing that includes the Doctor's Certification number, date invoices received, batch number, office code, all invoice numbers, amounts and totals, and patient information.

The listing is done in duplicate. One remains in the Factor's files and the copy is sent to the doctor with a check. Some factors also create computer files with this information.

(d) Clear and permanent records are created for the following future uses of the invoices. (Some factors use microfilming for this purpose):

(i) All unpaid invoices over six months old must be resubmitted in the seventh month with proper requests for payment and a good copy of the invoice.

(ii) If a doctor needs copies of his invoices some time after he has submitted them because he has lost his records, or they were destroyed or he has moved locations and the previous medical group refused to allow him to take his records, the factor's records are available.

(e) The invoices are hand delivered to the Department of Social Services and a receipt is obtained.

This is necessary in the instance where the Department of Social Services should ever deny payment because the invoices were not received on time, or never received, the doctor would have proof that it was delivered on time.

(f) Along with the check from the Factor for the invoices purchased the original vender statement is also sent to the doctor's office for his staff to do reclaims or for his own review of disallowances and payments against invoices. (g) A ledger file is kept for every provider.

The ledger provides a history of every provider's work and is kept for years. It stores information on the weekly, monthly and yearly billing work of the doctor; the discount taken before payment to him, and of all checks sent to him. It also records checks received by the Factor in the provider's name, the Department of Social Services' disallowances and account balances.

This information is useful in preparing yearly summaries for the providers to be used when filing tax returns.

The providers have also used this information successfully defending their tax returns.

(h) All invoices are kept on the factor's records; some factors use computers for this purpose.

The factor maintains monthly listings of all open invoices, aged to show the length of time that the invoices have been waiting for payment.

(i) There are many other small services that full service factors provide for their accounts which are done upon request. Among them might be: (i) Visit the Department of Social Services to intercede for provider on small clerical or billing problems or to get information necessary to complete billing.

(ii) Locate additional offices for doctors that would like to practice in a different group or want additional hours in another practice.

(j) Find competent staff for the doctor to help with billing or medical assistance.

Apart from the foregoing, it should be noted that the factors, by keeping detailed records of all invoices submitted to the local Social Services District, is fully aware of overpayments that have been made, and when overpayments have been made the factor has promptly refunded the overpayment directly to the Social Services Department (verification of this can readily be obtained from the New York City Department of Social Services).

It appears that the intent of the proposed legislation is to preclude the possibility of provider's bills being inflated or otherwise altered by the provider's assignee. To correct such improper practices, it is certainly not necessary to have a "total ban on assignment". All that need be done is to require that each item on an invoice be signed or initialed by a provider and that the provider draw a line from the last item to the end of the invoice form so no items can be added after he has signed it. Such a simpler requirement would cure the possible evil sought to be corrected, while leaving intact the sound, proper and necessary procedure of factoring as it is practiced in the New York area.

In addition, the members of this Association would be willing to be licensed. bonded, and be financially responsible for any impropriety done by them.

It is submitted that the charges made by factoring companies are fair and reasonable under the circumstances, taking into consideration the availability of immediate cash payments, recordkeeping and technical expertise that the provider is afforded. The alternative of a provider borrowing from a bank, using a billing service and the hiring of additional help, will be at least equal to the charges made by a factoring company who is providing all the services outlined herein.

If the legislation is enacted in its present form so as to bar factors from participation in this field, the result inevitably would be that the number of doctors in the New York area willing to participate in the medicaid program would be so drastically reduced as to make the medicaid program in this area no longer viable.

Finally, it should be noted that as factoring is done by the members of this association, all responsibility for professional services to the patient remains with the provider. All disputes and reviews of work practices, ethics, conduct, etc. are handled directly by the Local Department of Social Services with the provider and the factor or functions only to provide increased cash flow, bookkeeping, accounting, and recordkeeping services.

For all the foregoing reasons, we respectfully submit that the proposed legislation as to bar or prohibit factors should not be adopted.

PREPARED STATEMENT SUBMITTED BY JOHN B. SMITH, ESQ., CORPORATE ATTORNEY, MEDICAL PERSONNEL POOL

Mr. Chairman and members of the Committee, I am John B. Smith, Corporate Attorney for Medical Personnel Pool, a Division of Personnel Pool of America, Inc. which is a national temporary help service. Medical Personnel Pool provides hospital staff relief and home health services through one hundred offices nationwide.

We are concerned, Mr. Chairman, that S. 3205 deals primarily with fraud and abuse in the Medicare and Medicaid programs and with hospital reimbursement. In the first place, fraud and abuse is now a major effort at the federal regulatory level. Secondly, your efforts to reform hospital reimbursement seem to come too long after the fact and bear the risk of being too "unpopular" to be implemented.

We suggest that a more positive approach to Medicare and Medicaid reform would be more likely to succeed, both in terms of Congressional passage and in terms of long-range benefits for the program.

We believe the most important proposal in S. 3205 is Section 11 which provides a transitional allowance incentive to hospitals for eliminating excess beds, discontinuing underutilized services or substituting some other needed service. This allowance will free the hospital from "reimbursement detriment" and cover the debts of a non-profit hospital if it is forced to close.

Why does the bill stop there? It is the same as it was with the PSRO legislation. You have provided increments for the institution to shift its resources, but you haven't set up an alternative system that will absorb the victims of these shifts. To wit: if the PSRO determines that patients are inappropriately institutionalized and must get out of the institution, where do they go? There is no provision for that in the law. Under Section 11 you have provided money to ease the institution's pain when it must close down or trim down, but you haven't organized a place for these patients to go. The system as it is currently structured under Medicare and Medicaid cannot absorb all of the patients that you would have released from institutions. There simply are not enough providers and there is not enough emphasis on covering an appropriate level of skill to fit the patient's needs.

We refer, of course, to home health which is bound by a Medicare definition of the need for skilled services tied to prior hospitalization, a lack of coverage for homemaker services, an arbitrary division between the social and medical components of health care, and the arbitrary and discriminatory practice of keeping proprietary home health agencies out of Medicare and Medicaid. The only federally-funded health programs where this is so.

S. 3205 ignores the differing sets of standards between the Medicare and Medicaid programs and the different treatment of providers under both of those programs.

All of these issues have been thoroughly discussed in the past year or moreat HEW, in Committee hearings, in meetings on both sides of the Hill, and in industry conferences across the nation.

Medical Personnel Pool finds it very surprising that the Senate Finance Committee should lag so far behind these developments.

Most of the fraud and abuse that has been uncovered is in the Medicaid program. Most of the reasons for the fraud and abuse can be laid at the door of state administration. We wonder why you haven't proposed federalizing the Medicaid program as have several other industry representatives in order to bring the administration of it under federal control. We wonder why you haven't appropriated more funds to HEW to implement an effective fraud and abuse control unit earlier than now.

Perhaps now is the time for this Committee to consider federalizing Medicaid and providing for a broad expansion of the home health program in order to give it a chance to prove what it can do by way of cost effectiveness and appropriate quality care before national health insurance is dealt with.

While you stated, Mr. Chairman, in your June 1975 floor speech that you were drafting legislation to resolve some of the reimbursement problems in Medicare and Medicaid and “"some of the more arbitrary and inequitable regulations which have been promulgated by HEW" we don't see that you have dealt with the hard core of these issues. That is the reimbursement structure itself. In addition, you certainly haven't provided for proprietary home health providers under the Medicaid program which is one of the more arbitrary regulations promulgated by HEW. Even HEW has tried to correct that in the past year and you, yourself, have opposed their action. You have also not dealt with the issue of what is a non-profit organization. The loose definition of this in both the IRS and in state and federal laws has led to a number of abuses in the home health area in recent months.

Which brings us back to Section 11. At the minimum, Medical Personnel Pool recommends strengthening Section 11 to include an administratively streamlined home health care package for Medicare and Medicaid.

Mr. Chairman, we feel there are three major problems with the home health program as it currently operates. The first is the cost reimbursement structure which invites inefficiency and abuse as the Senate Government Operations Committee has discovered in its Florida investigations. Parenthetically, I should add that the cost reimbursement philosophy affects all of Medicare's heath programs, nursing homes and hospitals, not just the home health industry. There is certainly something wrong with a system that allows, for example, depreciation and re-depreciation on equipment which was originally donated. The cost reimbursement structure in the home heath field has encouraged high costs, visit overutilization, and agencies that serve only Medicare patients in order to have their costs 100% reimbursed. The really damaging result of cost reimbursement in the home health field is that the industry is potentially a long range, cost effective and appropriate way of taking care of people; but until the reimbursement practices are revised, home health is not going to have a chance to prove that.

Medical Personnel Pool would, therefore, like to propose some experimental reimbursement projects. We would like to see prospectively negotiated flat fees with mandatory written quality of care reports from the patient or his family and from the patient's physician. This proposal would preclude year-end cost reporting, auditing and all of the other paraphernalia which have helped to hike the cost of this program. If what we are concerned about is the delivery of quality care at a good price, it seems to me that such a simple experimental structure should be given a chance to prove its worth.

Furthermore, we would like to suggest that a procedure be implemented immediately requiring all Medicare home health providers to furnish to each patient a copy of each billing made by the provider to its intermediary. This would be a simple, inexpensive procedure through which the patient could have input into the quality and utilization review process.

The second major problem is that the home health program has not had the natural controls inherent in a competitive market. I have never understood the justification for the battle that now rages about keeping proprietaries out of the home health field. It's the only federally-supported program where this is so. We have a ten-year history of offering quality care at reasonable prices. If we're good enough for the private market, why aren't we good enough for the government? If Medicare regulations could somehow force the non-profit providers to compete in the private market so that perhaps from 30% to 50% of each nonprofit agency's business must be in the private sector, and should Medicare regulations further adopt cost reimbursement on the basis of customary charges in the private market, I believe the program would be significantly benefited through greater efficiency and lower overall costs.

In 1974, Medical Personnel Pool employed nearly 30,000 nursing and health care personnel and rendered approximately ten million hours of patient care. With offices in about 100 cities throughout the country, Medical Personnel Pool could become an effective additional source of quality home health services under federal licensure standards which would apply to all agencies regardless of sponsorship.

Almost daily, we receive calls from prospective clients who lack sufficient resources to afford home health care, and whom we are unable to serve due to present limitations on provider eligibility and funding. In some cases, we are able to successfully refer these persons to an appropriate community or private non-profit agency. However, we are convinced that the needs of a substantial number of these persons for home health care are not being adequately met or are not being met at all. This may be due to a number of factors such as excessive case loads, inadequate manpower resources, maldistribution of home health agencies, excessively strict and confusing eligibility requirements, burdensome administrative procedures and delays, and inadequate funding. Nevertheless, we believe that it is evident that a significant segment of the community, and particularly the senior citizen, has been denied access to a readily available, quality, low-cost source of home health care.

Most discussions of the proprietary organization's role in the home health care delivery system center around the question of cost containment, quality of service, and the suggestion that proprietary organizations are "skimming the cream" by accepting only cases that can afford to pay for services and forcing the non-profit sector to provide free service. We believe that a careful examination of the true facts would place these questions in their proper perspective. In the first place, a careful examination of some of the executive salaries of some of the so-called private non-profit agencies might lead one to question whether some of these agencies are in fact proprietary agencies in disguise. We must also remember that there is really no such thing as free medical service. The cost of such service must have some ultimate source of support whether it be profits generated by proprietaries, tax dollars, or private or charitable donations. Of course, proprietaries do not have access to the source of private or charitable dollars and, in fact, contribute to the tax dollars which are used to support the non-profit agencies; and since they do contribute to these tax dollars, and since they have demonstrated their ability to provide quality home health care to low cost, we believe that proprietary organizations should have access to Medicare and Medicaid funding mechanisms.

Adoption of the Social & Rehabilitation Service's proposed regulations which you have opposed, Mr. Chairman, would give state Medicaid agencies access to a substantially greater supply of home health service personnel, yet under conditions and standards regulating utilization and quality of care.

It is important to note that those proposed regulations authorizing certification of proprietary agencies under Medicaid will not directly increase Medicaid program costs, since the regulations do not create or broaden existing services or require expenditure of additional funds. There merely enlarge the source from which home health services can be obtained, and eliminate unfair discriminatory conditions presently imposed on proprietary providers.

In fact, we submit that adoption of the proposed regulations may, in fact, result in a reduction in Medicaid program costs, or at least result in a reduction of unit costs for equivalent levels of service.

Someone should be brought up to date on the real issue: "How will this nation's elderly ever receive home services provided appropriately, accessively and at a price that people and government can afford under the present uncontrolled, unregulated cottage industry? I use the term "cottage industry" because it is a small and declining industry—from 2,248 certified agencies in December, 1974 to 2,209 agencies a year later.

The third major problem with the home health program as currently structured under Medicare and by inference under Medicaid is that eligibility for the service is tied to the need for acute care and the history of prior hospitalization. This has mandated utilization of registered nurses to provide in-home care which has also increased the cost of the program. We believe it is not necessary to have a registered nurse go into the home to give a bath or change the sheets. There is no question, however, that the home health aide who does go into the home to perform these tasks should have supervision. She should also have training. We also believe that homemakers' services ought to be covered under the Medicare program since in many cases if there were just someone in the home to prepare the elderly patient's meals, this one simple service would keep the patient from going into an institution.

I know that both the Congress and the individual state Medicaid agencies are concerned that an expanded home health benefit will greatly increase health costs. But what is at issue is, if the Professional Standards Review Organiza