(b) Section 1842 (b) (5) of such Act is amended by adding at the end thereof the following new sentence: "Any payment for a service, which under the provisions of the preceding sentence may be made directly to the physician or other person furnishing such service, may be made to a person claiming such payment under an assignment, including a power of attorney, if (but only if): the assignment is established by or pursuant to the order of a court of competent jurisdiction from such physician or other person furnishing such service; or the assignment is in favor of an agent of the physician or other person furnishing such service (who is not related to such provider), is pursuant to an agency agreement under which compensation is paid to the agent for his services for or in connection with the billing and/or collection of any such payment, and complies in all respects with the Assignment of Claims Act (31 U.S.C. § 203 and 41 U.S.C. § 15, as amended); or the assignment is in favor of a bank, trust company, or other financing institution (within the meaning of the Assignment of Claims Act, 31 U.S.C. § 203 and 41 U.S.C. § 15, as amended), and complies in all respects with the exception provided therein, but the assignment may provide for a portion of the discount to be attributable to services of an agent who provides billing and/or collection services. For these purposes only, the provider's contract shall be deemed to provide for payments aggregating $1,000 or more and shall be deemed to permit an assignment of all amounts payable under the contract until a fixed date at least 90 days after the date of assignment or until a fixed number of days (at least 90) after notice to the payor of intention to terminate the assignment."

(c) Section 1902 (a) (32) of such Act is amended

(1) by inserting "(A)” immediately after "provide that",

(2) by redesignating clauses (A) and (B) as clauses (i) and (ii), respectively, and

(3) by adding immediately before the semicolon at the end thereof the following, ", and (B) any payment for a service, which under the provisions of subparagraph (A) may be made directly to the physician or other person furnishing such service, may be made to a person claiming such payment under an assignment, including a power of attorney, if (but only if): the assignment is established by or pursuant to the order of a court of competent jurisdiction from such physician or other person furnishing such service; or the assignment is in favor of an agent of the physician or other person furnishing such service (who is not related to such provider), is pursuant to an agency agreement under which compensation is paid to the agent for his services for or in connection with the billing and/or collection of any such payment, and complies in all respects with applicable State law relating to the assignment of claims against the State; or the assignment is in favor of a bank, trust company, or other financing institution (within the meaning of the Assignment of Claims Act, 31 U.S.C. § 203 and 41 U.S.C. § 15, as amended) and complies in all respects with applicable State law relating to the assignment of claims against the State, but the assignment may provide for a portion of the discount to be attributable to services of an agent who provides billing and/or collection services.".

(d) The amendments made by this section shall take effect on the first day of the first calendar month which begins not less than sixty days after the date of enactment.

Hon. HERMAN TALMADGE,

SIDNEY KORETZ, Falls Church, Va., August 4, 1976.

Chairman, Subcommittee on Health, Finance Committee, U.S. Senate, Washington, D.C.

DEAR SENATOR TALMADGE: Your Subcommittee on Health has held hearings to aid in the "process of developing effective and equitable means of bringing the runaway costs of Medicare and Medicaid under control." I first became involved when I was assigned in the Social Security Administration to study a University of Michigan Report on hospital and medical economics, led by Prof. Walter McNerney, who later became head of the national Blue Cross organization. I was asked to "prepare a summary analysis of those findings which might pertain to a Medicare statistical program."

The Governor of Michigan had included "cost reduction" without loss of quality as part of what should be studied but the phrase "cost reduction" appears not even once in the whole study. Because of too much concentration on what

President Roosevelt called the "foolish old dollar sign," rather than on the real economic resources, costs and benefits which matter more, this omission has by now become almost universal. The Social Security law on Medicare refers to something called "actual costs" (measured in money) but the economist is interested primarily in something called "real costs" and is distrustful of unadjusted monetary figures, speaking of the "money veil," which conceals the true picture. Isn't it strange that health economics is the area where this distinction is most neglected? Here where it really hurts should be of most interest.

My study showed that the advice given to Congress by the Social Security Administration failed to include for Medicare anything that can qualify as sound economic analysis. They looked only for "actuarial soundness" and this does not necessarily bring with it an interest in the economic problem of getting the most for Medicare money. A report to the Finance Committee by the Comptroller General, in the Appendix of that Committee's Hearings of May 25, 1966 on "Reimbursement Guidelines for Medicare," made certain distinctions between the "accounting" and the "economic" approaches of which many hospital people are not aware. Concerning the reimbursement guidelines, Senator Paul H. Douglas, who was a professional economist before he became a Senator, said "there should be a public discussion of half a dozen points involved" and the FinanceCommittee should "express its point of view, so as to be guideline for revision.” (Finance Committee Hearings, "Reimbursement Guidelines for Medicare," May 25, 1966, page 122.) I am not aware that this has ever been done.

The Chief Actuary of the Social Security Administration wrote me that "the subject of whether medical care can be furnished more economically and efficiently than at present is not one of actuarial science or economics, but is rather one of medicine and medical administration." (Letter from Robert J. Myers to me, May 25, 1964). He also said I made too much fuss over the difference between the “actuarial” and “economic" approaches. This can, also be seen, in his lumping together "actuarial science & economics." In this connection, see the speech of Senator Russell B. Long on July 9, 1965, where he says that Medicare "can better be judged by an economist than an actuary, better by a social worker than an accountant, and even better by those of us here today who have the opportunity to go among our folks back home and see the needs that are met, the fears that are dissolved, the wants that are satisfied by what we have wrought." (Congressional Record, July 9, 1965, page 15582).

My letter to Senator Harry F. Byrd, Sr., then Chairman of the Finance Committee (Hearings on H.R. 6675, "Social Security," 89th Congress, First Session, May, 1965, pages 1123-5), included criticism of the Report of the Advisory Council on Social Security of 1965, because of its failure to recognize a new dimension in Medicare. Until then the Social Security system was concerned only with transfer payments to beneficiaries who themselves chose how to spend the money they received. With Medicare, a new responsibility came to the Social Security Administration, namely, spending the beneficiary's money for him for medical and hospital services. (This difference is still concealed in the way these government expenditures are classified, erroneously, in the Commerce Department national income accounts.) Operationally, the Medicare program differs entirely from the cash benefit program. This difference was still not acknowledged in the 1971 Report of the Advisory Council on Social Security, which included an actuarial study (the so-called Milliman report) signed by two actuaries and three economists, which neglected the economic dimension. Although it discusses "economic assumptions," it assumes the main purpose to be "crystal-ball gazing." often referred to as "actuarial soundness." The only book I have found attempting to define this is Dorrance Bronson's Concepts of Actuarial Soundness in Pension Plans (1957). According to Prof. Bronson, there is no agreement on the very meaning of "actuarial soundness." An actuarial statement about the future is a probability statement based upon assumptions, a hypothetical statement, not a prediction. The assumptions always have to be changed, so that the actuarial statement can never be shown to be either true or false. Normally, economic feasibility does not require actuarial "science," why should health be an exception?

According to the July 30, 1976 Washington Star, Representative Charles A. Vanik, on the House Ways and Means Committee, says that Congress should not give the Social Security Administration any more new social programs. An interesting historical question is why did Congress, without adequate economic study, give the Medicare program to that agency?

I got no acknowledgement, or criticism, of my report on the University of Michigan study, and only a rhetorical question from the Chief of the Division of Disability Operations, then slated to administer the new baby Medicare on the way, why should he be interested in material of mine printed in the Hearings (1964) on "Medical Care for the Aged," H.R. 3920.

Instead, I was instructed in writing, that it was "inconsistent with acceptable conduct for an employee of the Social Security Administration to write to members of Congress, officials in the Executive Branch, or newspapers, criticizing specific program policies of the SSA or challenging the professional competence of officials of the SSA." I was told of "the policy governing attendance of Department employees at Congressional hearings on matters affecting programs of the Department. Employees should not attend such hearings, even on annual leave, without supervisory approval." (Memorandum to me, August 20, 1964).

On February 17, 1967, Senator Abraham Ribieoff, formerly Secretary of H.E.W., in a Senate speech, upbraided Congress for "abdication of responsibility" because it relied exclusively on the H.E. W. in formulating the Medicare program. He said this made "independent judgment" impossible. On June 28, 1967, before the National Conference of Medical Costs, H.E.W. Secretary John Gardner (whose name never appeared on any Medicare Report to Congress, although he was Secretary when this was first instituted), called for a "radical shift of emphasis" from the "financing mechanism" to the examination of "the efficiency, the productivity, and the logic of the system by which (health) care is delivered." Before the same conference, called under instruction by President Johnson, to help implement, the "cost-benefit" approach of his August, 1965 Executive Order (which, incidentally, I tried to pass along to my superiors in the SSA), Social Security Commissioner Robert M. Ball, in his address, "Problems of Cost-As Experienced in Medicare," showed no interest in cost reduction, as conceived by the economist, but only in how to "correctly reflect the cost," which is an accounting problem for the past, and an actuarial problem for the future, but not a "how to do it" problem which we must solve to make Medicare, Medicaid and other competing and complementary programs work with reasonable success with limited resources.

On November 15, 1967, Senator Ribicoff said that "there is much more that we have to do as a Finance Committee in the field of oversight. If we do not do this as a committee, I have great fears that the burdens will continue to multiply and we may be faced with tremendous costs." Senator Russell B. Long agreed with him, and added that "just as soon as we can find time to do it and assign Senators to that task, we should take a greater look in depth at the Medicare problem.” (Congressional Record, Nov. 15, 1967, p. S16499). At that time, H.E.W. Secretary Wilbur J. Cohen was denying that the Social Security Administration had authority to engage in economic studies of Medicare without further Congressional action.

As I understand it, your proposed legislation sets up a new agency in the H.E.W. Dept. "into a single Administration for Health Care Financing." I believe this is a step in the right direction, questioning, as I do, the original appropriateness of assigning health care provision, for any group, or for all groups, to the Social Security Administration. But are you going to repeat the mistakes of the SSA, in thinking you can make revolutionary changes without revolutionary effects? Social Security Commissioner Robert M. Ball (before the Group Health Institute, Group Health Association, Washington, D.C. June 2, 1971) said that "when Medicare was passed in August 1965 the general concern was that it not make basic changes in the health system. The basic concern in Congress and elsewhere was that this Government-operated program not interfere with the way the going system of medical care is organized and operated. The public emphasis was almost entirely on keeping the economic burden of illness from overwhelming old people and their sons and daughters. Its object was to prevent economic disaster and to do so without interfering in any major way with the traditional organization of the medical care system." Apparently, that was the justification for absence of planning about "program evaluation" and "cost reduc tion". both emphasized by Budget Directors, who later became Chairmen of the Health Insurance Benefits Advisory Council, Kermit Gordon and Charles Schultze. It is hard to believe that their reports as Budget Director and as Chairman of the HIBAC came from the same person in each case.

I observe the proposed termination of the Health Insurance Benefits Advisory Council. I was told that all would be well as far as Medicare economic analysis was concerned because this Council was headed by such good economists as Messrs. Gordon and Schultze. Did they do as good a job in a health economies area, in which they were not specialists, as they did in the area of their real expertise, or were they just figure-heads? What good did the Health Insurance Benefits Advisory Council do?

I asked Dr. Kermit Gordon why actuaries were being allowed to usurp the role of economists. (The former deal with how much, the latter with how well, money is spent.) My question and his answer, from the Joint Economic Committee Hearing, "Twentieth Anniversary of the Employment Act of 1946" (Feb. 23, 1966, pages 101-2) are submitted for your Hearing Record, as well as letters to two Presidents, with newspaper clippings. I do this, in the interest of helping to avoid the mistakes and omissions, when Medicare was introduced. Don't think you can have "Health Care Financing" without involvement in "the efficiency, the productivity and the logic" of health care. Especially, the logic.

Yours sincerely,

SIDNEY KORETZ.

DIALOG WITH KERMIT GORDON

Who has the next question? Will you identify yourself?

Mr. KORETZ. My name is Sidney Koretz. I am a dues-paying member of the American Economic Association.

My question follows up the question of Dr. Tobin to Dr. Gordon. As a matter of fact, I asked some people here whether I should ask this question and they said "No," since this was a session on macroeconomics, not microeconomics. My question has to do with a new program that is coming into effect next July: namely, the medicare program.

Now, just before this program was passed, Senator Russell B. Long said on the Senate floor that this "comprehensive, far-reaching, and imaginative program will be better judged by an economist than by an actuary" (p. 15582, Congressional Record, July 9, 1965).

The question that Dr. Tobin raised was about guidelines to Government programs, as well as what Government tells private business to do.

In the discussion of the medicare program, if you look through the records of the House Ways and Means Committee and the Senate Finance Committee, you will find that whenever there was consideration whether a certain measure involving costs should be adopted, a question was asked of the actuaries of the Social Security Administration, and they came up with some answer about a certain percentage of payroll or something like that. This was used as a basis for choice between adoption and rejection of any measure. Presumably, the main consideration was "actuarial soundness." According to the only book I have been able to find on the subject, Prof. Dorrance C. Bronson's Concepts of Actuarial Soundness in Pension Plans (1957), there is no agreement what the term "actuarial soundness" (or related terms) means (see ch. 2, “Concepts of Actuarial Soundness-Various Viewpoints"). It is true that "economic feasibility" hasn't been defined clearly either. Nevertheless, it is recognized that "economic feasibility" has an element in it of human activity rather than being limited to actuarial passivity.

This shouldn't be a speech, but a question. The question is for Dr. Kermit Gordon since he has been appointed Chairman of the Health Insurance Benefits Advisory Council. The question is whether up to now the economist hasn't been completely crowded out? I want to present one bit of evidence and then I will sit down. The Budget Bureau informs me that they intend to classify medicare payments for hospital and other medical services as transfer payments, not as purchases of goods and services. It seems to me that if you were only concerned with costs to funds, but not to people, this would be OK. But when you consider, as an economist, real costs to real people, you have to consider that now for the first time social security money is going to be spent for the beneficiaries and not by them. Don't we delay coming to grips with the economic problem of getting the most from limited resources by classifying this as "transfer payment” rather than a purchase of goods and services?

Dr. ENSLEY. I will toss the ball to Dr. Gordon.

Dr. GORDON. I will be very brief. I think to pursue this question very far would be a little outside the bounds of our discussion today, although I would be

happy to discuss the administration of the medicare program with the gentleman who asked the question.

I judge that the central question is whether the actuaries have elbowed the economists out. I don't think this is the real issue here. I think there are some very important actuarial issues involved in planning the medicare program, and actuaries are pretty good at analyzing actuarial issues.

If the gentleman is willing to stretch a point and accept the proposition that I am an economist, I would point out that I am chairman of the committee that advises the Secretary of HEW on the administration of the program, and I did testify on the program when it was under consideration, I think the economists have at least a foot in the door.

Dr. ENSLEY. Thank you, Dr. Gordon.

PRESIDENT JOHN F. KENNEDY,
Washington, D.C.

AUGUST 19, 1963.

DEAR MR. PRESIDENT: In July, 1957 you had an article in the Scripps-Howard newspapers, including the Washington Daily News, advocating better control by Congress of Government spending.

Congress still doesn't have it, as indicated in my Star letter, reproduced here. It seems nobody has it, not even you. It's bad enough that I shouldn't be able to get information about how much is spent for what, but it is even worse when you can't.

Yours sincerely,

[From the Washington Star, Aug. 16, 1963]

SIDNEY KORETZ.

(By Sidney Koretz)

VAGARIES OF BUDGET

Senator William Proxmire recently defied anyone to tell from the Federal budget how much we are spending in total assistance to foreign countries. He said: "It is literally impossible to determine from the budget or any other published source how much our Government is spending overseas. . . . No single figure in the budget indicates the total expenditures of the Federal budget for education. . . . Similar examples can be given for the health activities of the Federal Government, for research and development programs, and so on.”

How can Congress possibly make intelligent decisions about the appropriateness of and appropriations for Government activities when nobody knows what's up in the Government, not even the Government itself?

Senator Proxmire asks: "Do the agencies know what they are doing? If agencies are aware of the nature of the products and services that they are producing, then they should be able to associate costs with those activities. If they do not know the nature of their own output then it is certainly time for the Bureau of the Budget to force them to discover what they are doing. .. No one else, including the Congress, can learn about these activities unless the agencies present them in an understandable manner."

The first principle of economy in Government, business, or anywhere else is that you must know what good you are doing and how much it costs to do it. An attempt is being made to apply this principle in the Defense Department, where it is said to be helpful in improving efficiency and producing economy without detriment to national defense.

If it can work in the production of such an ill-defined article as “national defense" surely we can use "cost benefit" comparisons in the civilian sector, too, including social services, such as education and health.

President LYNDON B. JOHNSON,
Washington, D.C.

AUGUST 19, 1966.

DEAR MR. PRESIDENT: President Kennedy threw the ball I sent him (a letter, I wrote) exactly three years ago today, to his Budget Bureau, according to the Director Kermit Gordon's reply to it a month later.

On August 25, 1965 you sent a memorandum to all Federal department heads calling for the universal introduction of a new planning-programming budgeting system.

By coincidence, Mr. Kermit Gordon is Chairman now of the Health Insurance Benefits Advisory Council. The Medicare area needs the benefit of the cost-benefit