I trust the report-we submitted a report of several hundred pageswill be made public.

Dr. JAMES. I would like to comment on this matter of cost because it is a very difficult item to play with. If you wait until people come for medical care, and if you make medical care difficult enough for them to receive as it was difficult for the old man that I described, then costs are low. On the other hand, if you invite people in routinely for medical care, even if they are not feeling sick and you uncover a large number of conditions and give the proper care for them, the costs may well go up.

If you look at costs in a "cross section right-here-now concept" this is true. But if you look in terms of the tremendous cost of putting the old man and his wife in a nursing home for 5 or 10 years and the tremendous cost of repeated hospitalizations, if you look at the problem over a long term, you get a different idea.

So one cannot be too quick about assessing the cost. If in New York City I test 100,000 adults, I will find a thousand with diabetes, and the cost of treating those 1,000 heretofore unknown cases of diabetes is appreciable.

If I had waited until they got sick enough to go to a doctor for symptoms, then I would have saved the money in between, but what about the huge amounts of money it is going to cost from now on?

Mr. NORMAN. Is it going to cost much more money in the long run? Dr. JAMES. I believe so, although enough careful studies have not been done. The advantage of picking up diseases early is incontrovertible. If you want to say we cannot as a nation afford to be healthy, this is a strong statement.

Mr. NORMAN. Pursuing a little further this line of questioning about group medical practice, one of our subcommittees of this committee, our Subcommittee on Employment and Retirement Incomes, has recommended very strongly that professional service corporations be recognized by the Treasury Department and that the Internal Revenue Code be amended to clarify the right of doctors to incorporate and to receive the tax advantages of incorporation.

Do you think this might be an appropriate means of stimulating group medical practice? That is to say by statute that if they will group themselves together in an approved fashion, that they can organize corporations and be recognized as such for tax purposes?

Dr. ROEMER. This is a very complex legal question on which I don't presume to be an expert. There are, however, a good many States that prohibit the incorporation of doctors.

Mr. NORMAN. I know but this would be only if the State permits incorporation.

Dr. ROEMER. I was about to say that that prohibition has actually

Mr. NORMAN. More and more States are permitting professionals to incorporate.

Dr. ROEMER. Yes. The history of these prohibitions, I think, is a case of a justification having existed some years ago that ceases to exist now. There was an objection to a large corporation, such as a mining company, hiring doctors and perhaps even profiteering on the doctor's work, and this was one of the reasons that the laws in many States banned the corporate practice of medicine as it was called.

Well, the situation has changed and when we think of incorporation of a group practice clinic or, for example, the hiring of doctors by a hospital, pathologists or radiologists, this has a totally different meaning in the context of the corporation law.

So I would tend to think that any Federal law which would permit incorporation of medical practice with appropriate controls would probably promote group practice organization.

Mr. NORMAN. Just one followup question. Then you would say that permitting doctors to incorporate for Federal tax purposes would probably further this highly desirable objective of stimulating group medical practice and that it would be an appropriate means of doing so?

Dr. ROEMER. I am not aware of all the detailed implications, but my first reaction would be yes, that it would be helpful.

Mr. NORMAN. Do you have an opinion on that, Dr. James?

Dr. JAMES. I am in favor of anything that would stimulate group practices as long as it means we stimulate the ones we are proud of. I am just not competent to judge the economics and legal aspects of the solution you suggest.

Mr. NORMAN. Thank you very much, Gentlemen.

Mr. ORIOL. If I could interrupt we have a statement from Walter J. McNerney, president of the Blue Cross Association. I don't believe there is a Blue Cross Association representative here.

His statement will be put into the record but it includes a section on the need for organized medical practice, either a group practice plan or, as this is, methods.

That will be inserted in the record and will send a copy to you for whatever comment you make.

(The statement referred to follows-testimony resumes on p. 107.) STATEMENT OF WALTER J. MONERNEY, PRESIDENT, BLUE CROSS ASSOCIATION

Mr. Chairman, it is a privilege to offer this testimony to the Subcommitte on Health of the Elderly of the Senate Special Committee on Aging, discussing the delivery of health services to older Americans, Blue Cross has a strong and continuing interest in this subject, having written over five million contracts for senior citizens before the advent of Medicare, and now being so actively involved as an intermediary under Medicare as well as a carrier for complementary coverage.

In the capacity of intermediary and carrier, in regard to elderly persons, and, in fact, to all age groups of the population, we have a strong interest in seeing that health services are effectively rendered at a reasonable cost. Health care costs are rising at a rate which is measurably greater than the increase in wages and earnings. If this disparity were to continue at the present rate, the ability of several groups in our population to afford care would be jeopardized. Those elderly persons with relatively fixed incomes would have to be classified among these groups.

Because the health economy lacks a number of the checks and balances of a free market, it is necessary for all of us involved in the health field to formulate incentives and develop sensitive controls which effectively allocate resources into the most productive channels. Many important controls exist today, in the form of self-imposed professional controls, fiscal or legal controls. Some of these are wide-spread, others must become more wide-spread to be effective. Still others are yet to be fashioned.

Two major challenges are: 1) To affect favorably the cost of health services without jeopardy to quality, and 2) to merge or adjust some of the various controls so that they are mutually reinforcing rather than overlapping or contradictory.

The first suggests the need for added benchmarks on quality to assure the public that as costs are affected, quality will remain high. The second suggests that we need to have a more conscious relationship among standards and other controls such as that, for example, between State agency certification of hospitals under Medicare and accreditation by the Joint Commission on Accreditation of Hospitals.

THE EXPANDING ROLE OF HEALTH PREPAYMENT

In its early years, health prepayment focused to a great extent on making medical services available to people who otherwise would not be able to purchase them, and correspondingly making it possible for providers of care to render service by insuring a stable financial basis. These objectives are still valid. However, if there has been a major change in the role of health prepayment plans, it is that they must increasingly accept a responsibility to participate in affecting the way service is rendered. That is to say they must participate in the development of visible instruments in the health care system which demonstrate to the public that health care dollars are being effectively spent.

With this in mind those of us who are involved in health prepayment have given and are continuing to give increasing attention to such programs as the following:

(1) Participation in areawide planning. Most Blue Cross Plans participate in this important community-wide activity. A few Blue Cross Plans have experimented with relating participating status of institutions to their status in an area wide plan.

(2) Accreditation and licensure. Among some Blue Cross Plans reference is made to these as a condition for full participating status as a Blue Cross member hospital. In nursing home coverage Plans are considering voluntary accreditation and Medicare certification as important criteria.

(3) Utilization review. Inside and outside Medicare there is growing insistence on the need for the hospital to monitor its use from an economic as well as a clinical point of view and a growing determination by Plans to provide data and other assists to make this possible.

(4) Claims administration. The claims review process provides information that makes it possible to develop parameters of use to select cases falling outside these parameters for discussion with physicians and other providers of care.

(5) Reimbursement. Ways are being sought to make the payment in itself an incentive for more efficient care. This can come about through spirited negotiations on the cost formula or built-in incentives of an economic nature. Let me say here that I feel that such devices as deductibles and co-payment, intended to serve as consumer-related incentives for ap propriate use of services, have very little application in the payment of health care expenses. They are particularly inappropriate among the elderly, where their potential effectiveness in deterring overuse is overweighed by their potential promotion of underuse. These are devices which should be reserved in prepayment for the small repetitive expenses where the cost of administration could otherwise become excessive.

(6) Breadth of benefits. Yearly, the range of benefits available to all segments of the population is growing significantly. This growth increasingly serves to protect individuals, among them elderly persons, against financial hazards of illness. Also, broader benefit patterns that include coverage for services outside the hospital take the pressure off the physician to concern himself with his patient's personal financial situation before prescribing desirable although expensive services. Therefore, such patterns act as an encouragement to early diagnosis and treatment at the same time providing alternatives and other reasonable approaches to post acute care. Here, I should like to take special note of drugs. They are a considerable expense to the average older pension. Fortunately, they are now beginning to be covered under Title XIX programs where such exist. What is needed immediately is more activity in the drug benefit area in the private sector. Here again, however, we must face up to the problem of control. What about the pros and cons of generic vs. brand name drugs? Can exploitations of various kinds be dealt with effectively? There are many hard decisions to be made. Most importantly, however, we should make the benefits available, and then address ourselves on a continuing basis to the issue of professional, fiscal or legal controls in the public interest.

ORGANIZATION OF HEALTH SERVICES

While it is important that prepayment agencies continue to pursue these objectives and to enlarge their role, other areas must also be taken into consideration. There remain some problems outside the scope of what I have discussed thus far that need the attention of our health statesmen and our legislative bodies. Too many health care facilities dealing with chronic illness are anachronistic and geographically remote. There is a significant need to update the capacities of nursing homes, certain chronic disease hospitals and rehabilitation institutes, and to relate them more effectively to the general hospital and the balance of the health community. Whereas the purchasing power of private prepayment and government programs is reaching out in these directions, special appropriations are needed to stimulate the proper capital growth of the structures required. The total result is important on a community-wide basis. If we are to achieve the proper relationship of private practice to hospitals, to health departments, to post-acute care, etc., there must be in each State an overall planning mechanism concerned with program and facilities. Thus the sensitive implementation of PL 89-749, with proper roles and representation for community health services and organizations, becomes important.

A major need is for prepayment agencies among others to evaluate various organizational forms of rendering health services. At the present time, there exists a wide band of practices in the provision of personal health services. For example, one finds physicians practicing in a solo capacity; others in solo practice but sharing joint office facilities; still others sharing income as well as office facilities; some groups constituting a hospital staff such as at Henry Ford Hospital in Detroit; and others in groups some of which are related and others not directly related to a hospital.

Further, one finds a wide range of payment mechanisms employed in paying for physicians' services. Some of the various patterns mentioned above receive payments on a traditional fee for service basis. Some are paid through a prepayment mechanism tied directly to the group of physicians and their services such as HIP in New York, and some represent combinations or variations of each.

There are those who feel that a comprehensive prepaid group practice pattern is highly productive and effective. Others feel that more informal organization and more traditional methods of financing are desirable. In all probability, some practitioners will always prefer one type of practice to another. Some may be better suited to one type of organization than to another. However, in a decade when the need for productivity is so compelling, it is extremely desirable to weigh the advantages and disadvantages of various prototypes. What are, in fact, the use, cost and professional strengths and weaknesses of various organizational patterns of medical practice? If there are quantitative or qualitative advantages to any given form, the public has a right to know about it. I have called previously for objective studies of the situation by leading associations such as the American Medical Association and the American Hospital Association. I call for them again. Further, I think any laws which artificially prohibit associated practice on the part of physicians, wherever it may be along the scale, should be struck down unless they can be directly related to either moral or ethical considerations inimicable to the best interests of the public.

At the moment, we are in a position where the whole topic of associated action by physicians is overcharged emotionally. This bears in turn upon a lack of definitive information. With costs and delivery of health services now a matter of major public policy, such information is essential if we are to avoid precipitous actions or pursuit of avenues which could lead to underfinancing or under

care.

PROGRAMS FOR THE ELDERLY

Specifically in regard to the elderly, I feel that Medicare is performing a great service. Title XIX programs, as they develop, stand to add considerably more assistance. With complementary coverage in the private sector for those with adequate purchasing power, the capacity of Titles XVIII and XIX, properly administered and implemented, can solve most of the major financing problems of older persons. We must change Public Law 89-97 on the basis of experience. I have testified elsewhere regarding the need to simplify the benefit structure under Title XVIII and various administrative considerations under Title XIX, and I feel these changes will take place if not this year, next. Many carriers

are offering highly useful benefits on a complementary basis and the enrollment has been impressive. For example, under Blue Cross, we have already enrolled almost 90% of the number of senior citizens that were enrolled before Medicare began. However, we see again some grandiose claims made by a minority of carriers regarding benefits which are not as substantive at the time of illness as one may have believed.

Finally, I think that we find the elderly in a better situation than before July 1, 1966. In fact, encouragingly so. We need, however, to push forward along the lines I described if we are to avoid losing the gains made for them as well as for the rest of the population.

Mr. MILLER. I have one question of Dr. Roemer related to this question of group practice and the need for Federal subsidy through grants for the establishment of group practices.

Is there any evidence of serious inability of physicians who desire to enter together in a group practice to obtain loans and financing? Dr. ROEMER. There is evidence of an extremely slow growth of multispecialty group practice. I have seen data from the American Medical Association which give the latest counts on group practices organized throughout the country, since the last previous national survey which was in 1959.

The trend of the last 8 years has been one in which a great many partnership groups of doctors in the same specialty have been formed-for example, three or four radiologists coming together or two or three obstetricians coming together. This has occurred at an impressive rate.

This is convenient for the doctor, but it makes little advantage for the patient. The multispecialty groups have hardly grown at all, as a rate, over the last 8 years and this would suggest that some assistance might accelerate the growth of multispecialty groups.

Mr. MILLER. My question, however, is directed to the need for such assistance taking the form of loans or grants to the physicians. It would appear to me that a group of physicians would be regarded by most lending institutions and other private sources of money as a preferred risk.

Dr. ROEMER. Yes; I think that is true. I did not say the loans or grants should go to the physicians. I said they should go to assist in the organization of group practice and prepayment.

Mr. MILLER. The combination?

Dr. ROEMER. The combination, I think, is most important, but even perhaps group practice alone could be facilitated by the availability of an administrative person to help in working out the very thorny details of bringing together a group of specialists under one roof. There are problems of professional relationships, of real estate, equipment, and so on. This has become almost a technical specialty, the task of administering and organizing a group practice organization. Mr. MILLER. With relation to the prepayment aspect I would gather your point might be a little different from that of Mr. McNerney in view of Mr. McNerney's role for the Blue Cross and Blue Shield type of prepayment approach.

Dr. ROEMER. I have not seen the statement but I believe the combination of prepayment with group practice provides still greater advantages than group practice alone.

Dr. JAMES. Actually, these groups work in some areas, with Blue Cross, the health plan in New York. Kaiser, of course, has its own hospital program.