square feet per patient-they had built 90 on the standard of 80. These regulations would have required Wisconsin to drastically remodel the facilities at a great cost or withdraw from the program.

At Gracewood State Hospital in Georgia these regulations would require the separation of mentally retarded children which require constant medical surveillance. Physicians have informed me that compliance with these regulations would result in the death of some of these children. I will illustrate that, Mr. Chairman, if I might. I doubt that many people who wrote these regulations have ever gone into one of the institutions that we are talking about but I did and I would just like to relate one thing.

Senator TALMADGE. Would you yield at that point?

Governor BUSBEE. Yes.

Senator TALMADGE. I am thoroughly familiar with what you are talking about. The director of the staff is now working on the matter. I think you are entirely correct, the people who wrote the regulations have not been in those institutions.

Governor BUSBEE. I don't think there is any magic in the number four which limits you to four patients per room and requires you to build a wall. It took us 18 months before we found out we could build a partial wall where we continue to have air conditioning and so forth. Where you have 275 children that are patients, of this 275 there are 252 that have seizures on the average of 30 to 60 times per month, and where half of them have tubes such as in a tracheotomy to sustain life and I am not going to describe any further the condition of these people other than to say that each time they vomit they must be resuscitated and if they are not they die.

To say that you are going to build a wall around each four beds down there, even if it can come down from the ceiling 3 feet, is something that we will not do regardless of the regulation if it is going to kill these patients.

Needless to say, I will not jeopardize their lives. Now with the cooperation of Secretary Mathews, negotiations are underway to modify these arbitrary requirements. If HEW had consulted more effectively with States and assisted in the development of plans of compliance, a great deal of cost, confusion and suffering could have been avoided.

The Governors applaud the provisions of S. 3205 which require that regulations pertaining to this act must be issued by the HEW Secretary within 13 months of passage. We waited for almost 4 years for regulations from HEW that would guide us in complying with the Federal law requiring States to reimburse nursing homes on a reasonable cost-related basis. Now after waiting 4 years we received the guidelines on July 1, 1976, the same day that the law regarding reasonable cost reimbursement was to have taken effect. It will now be another 18 months before congressional intent is fully implemented --more than 5 years after the law was passed.

On these provisions we are in general agreement. Like the principles of our resolution on medicaid reform, the answers to these problems are relatively simple and straightforward in other areas, while we are in agreement on principle as to what should be addressed, solu-tions are not so simple or straight forward.

Recognizing this, the Governors took an additional action at our last conference in support of our medicaid resolution. In order to assist in the development of specific solutions in reforming the medicaid program, Governor Cecil Andrus of Idaho, chairman of the National Governors' Conference, named an 11-member special task force. As chairman of this task force I pledge to you our full cooperation and willingness to work with you in providing ideas, gubernatorially certified accurate data, and the benefit of our experience in the day to day management of this complex program.

I believe reforms should be developed just as the medicaid program is administered-in a partnership way, by the Federal, State and local governments. Regardless of whatever legislation you have I cannot overemphasize from the regulation standpoint that the people that administer the program and have had experience under the program should be involved.

During the next several months, the Governors' task force will be addressing in considerable detail the various specific aspects of medicaid reform, many of which are addressed in S. 3205. As you know, the Governors have not taken a specific position on the bill before your committee and it would be inappropriate for me to address on behalf of all Governors the specific provisions of the bill. Nor do I wish to prejudice in any way the work that lies before our task force.

However, as Govenor of Georgia there are certain elements of the bill I would like to discuss and points I would like to bring to your

attention.

I favor the inclusion of incentives to the States and providers for superior performance in the administration of title XIX. I would suggest, however, that States will likely require more lead time than the proposed October 1977 effective date offers for complying with the many new administrative requirements included in the bill.

Second, I question the necessity or wisdom of determining medicaid eligibility semiannually for the aged, blind or disabled. I recognize you are combining this but these people who are blind or aged are not going to change as frequently as other groups and you have fewer changes in the status compared with the medically needy. Consequently, the cost of administering redetermination every 6 months is likely to be greater than the benefits.

Although I concur that we must ensure efficient administration of the program, I believe that setting error rate goals at the 50 percentile of rates reported by the States will severely penalize many States. This approach also seems to assume that States do not want to reduce errors and are not making every effort to do so. As a Governor who is faced daily with the tough budgetary and political decisions provoked by medicaid, I can unequivocally assure you that this is not true.

As an alternative, I would propose that States develop plans of compliance, in cooperation with HEW, which are aimed at reducing the error rates progressively within each State. This is not true today because a person who qualifies as an ADC family, the grandmother might move in tomorrow and today they are qualified, tomorrow they are not. They say that is an error even though they have to make this determination every 6 months.

These plans should clearly define errors and set out specific goals for reducing error rates within each State on a yearly basis. States would then be judged on their efforts in complying with these plans. If States refuse to cooperate or fail to show good faith in carrying out their plans, then I believe fiscal sanctions are necessary and appropriate. When solutions are identified, the States and HEW should make every effort to communicate these answers to other States as quickly as possible. This approach recognizes that solutions to the problems of controlling errors are not clear, while ensuring that a concerted national effort will be made to work toward the most efficient. management of the program.

Concerning the provider reimbursement provisions, the only point I would like to urge the committee to consider at this time is that States be given appropriate flexibility to demonstrate and experiment with reimbursement systems they believe may prove to be superior in efficiency and cost control to the system outlined in the bill.

Many States, like New Jersey, are well along with implementation of reimbursement systems that are proving to be effective. States have always been crucibles of change and innovation and I would hate to see this pioneering spirit stifled in any way.

There are other areas of the bill that give me concern but I have no specific positive alternatives to offer at this time. Areas which I hope to have our task force address and advise your committee on in detail and with a unified position-include:

1. The provision providing for allowable hospital cost increases tied to the increases in costs to the medical industry as a whole. Since medical industry costs are increasing at a rate much greater than the economy as a whole, perhaps some other national or regional indicator may be more appropriate as a measure of the extent that cost increase should be allowed.

I have charts that demonstrate this attached to my testimony.

2. A consensus definition of an "error rate." I believe there should be a distinction made between errors that are truly made by the State at the point of eligibility determination and errors that are subsequently discovered over which the State has no control. Surely States should not be sanctioned for mistakes for which we are not responsible, as is the case under present regulations.

That is the grandmother argument. If subsequently the family becomes ineligible, we are charged with an error.

3. Safeguards which might prevent hospital administrators from passing on increased costs in this medicaid program to other third parties in order to avoid Federal penalties which have been previously discussed.

4. The specificity of some of the provisions of the bill.

5. Possible increased State costs that may be associated with certain provisions in the bill.

In conclusion, the Nation's Governors are most encouraged by the work of this committee toward reforming the medicaid program. We, the Finance Committee and the Governors, are in concert in principle and are united in our determination to provide quality health care to our Nation's poor and afflicted at an affordable cost and through efficient businesslike administration.

As Senator Talmadge indicated in his introductory remarks on the bill, the time has come to put "our" house in order. Hard decisions will have to be made. On behalf of the Governors' Conference, I offer you our resources, data, and full cooperation in making these decisions and in putting our collective houses in order.

The bill is the first step in a long walk-one I hope we will take together.

Thank you.

I admire what you said, Senator, in your printed remarks that you read in the record about not being cast in concrete and expressing some clear fluidity in your thinking at this point in the program. [The charts referred to previously, follow:]

MEDICAID

While the purpose of medicaid is sound-medical assistance for the poor-the design and administration of the program has produced a system which is bankrupting the States and their localities.

Medicaid has become the most rapidly escalating cost of State budgets and the largest item in many local government budgets. In some States, the amount of money spent by medicaid on a person's health care is greater than that person's welfare benefits. Many governments approach a time when they will be financially unable to provide adequate assistance for the poor and medically indigent. That is unconscionable, and cannot be allowed to happen.

The spiraling costs of this program must be controlled, but we must do so without holding the poor hostage to forces beyond their control. The fundamental issues are the need for better control over both the rates paid for health services and the utilization of these services by the patent.

State government, which is responsible for the management of the medicaid program, must intensify its effort to manage the program better.

To accomplish this, the Federal Government, in cooperation with the states, must revise existing regulations and legislation which pose obstacles to effective cost control procedures States must have greater flexibility in determining appropriate costs for reimbursement, must be given incentives for cost control rather than penalties, and must be assured of adequate mechanisms to control the utilization of services.

Also, the Federal Government must reduce the duplication and conflict between medicaid programs and administrative requirements with other health and human resource programs.

Unless reasonable, strong and immediate action is taken by the Federal Government, the States cannot promise continually to supply these needed services at the requisite levels, for they will be unable to afford them.

The governors pledge to review the medicaid programs in their respective States and urge Federal action, on a priority basis, to address the problems created for State and local governments by the continuing rapid increase in medicaid costs.

It is the intent of the national governors' conference that medicaid be an item of highest priority during the next year and that the conference provide leadership in working with congress and HEW to develop needed reforms in the medicaid program.

SELECTED DATA ON THE MEDICAID PROGRAM

Source Document for Table I through VI is committee print No. 18 Data on the Medicaid Program: Eligibility, Services, Expenditures Fiscal Years 1966–76, January 1976.

Table I (Source Document Pg. 17) displays increased dollar totals of Total Federal and State Medicaid Program Payments.

Table II (Source Document Pg. 18) shows the percentage increase in Medicaid Payments.

·

Table III (Source Document Pg. 21) details the growth in the number of recipients by category of eligibility from F.Y. 1970 through F.Y. 1976. ·

Table IV (Source Document Pg. 20) shows the percentage increase in the number of recipients from F.Y. 1970 through F.Y. 1976.

Table V (Source Document Pg. 26) displays the Federal Medical Assistance Percentages in effect since enactment for selected States. The Federal share of State medical vendor payments is determined according to a statutory formula designed to provide increased Federal matching (up to 83%) to states with low per capita income, and less matching to States with higher per capita income (the minimum Federal share is 50%).

Table VI (Source Document Pg. 22) details total program expenditures for each of the major types of service from F.Y. 1967 through F.Y. 1974.

Table VII displays selected years of National Health Expenditures and the percent share bore by the public and private sectors; (Source: SSA, Social Security Bulletin, February 1975, Pg. 5).

Table VIII details selected medical care components of the Consumer Price Index; (Source: U.S. Department of Labor, Bureau of Labor Statistics).

Table IX shows the average annual index for consumer prices and medical care components, selected calendar years, 1950-74 (1967-100); (Source Consumer Price Index, Bureau of Labor Statistics).

Table 1 Medicaid (and related) Program Payments to Providers of Health Care

15,052,000

6,658,000

Fiscal Year 68

70

State Fund Expenditures

Adults in AFDC Families

Children Under 21

Blind and Disabled

Aged

Table II Annual Percent Increase in Medicaid Payments from Previous Fiscal Year