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tation from the professions of Social Work, Nursing, Medicine and Law; should have a built-in research function for continuing self-analysis and evaluation; and should be capable of establishing close working relationship with all other ongoing services of the community.

This new agency should continue to experiment with ways of improving and meeting unmet needs.


Detroit, Mich., June 17, 1967.

Chairman, Subcommittee on Health of the Elderly, Special Committee on Aging, U.S. Senate Building, Washington, D.C.

HONORABLE And Dear SenATOR: This letter is written in behalf of the petition made to the Federal Government to assist in the work done by the Well-Being Project, a program initiated by the Metropolitan Committee on Aging here in Metropolitan Detroit.

I am a parish priest in the Inner-City of Detroit and have followed the work of the Well-Being Project with great interest over the years of it's existence. I could enumerate many case histories in which their work is illustrated, but I cite only two. Their work seems to be most effective because it is not work that stays in an office and requires aged people to come to them. They are constantly seeking out those who are in the greatest need and their effectiveness has been very good.

The first case is one of an old woman, quite intensive alcholic, living in a horrible old house in squalor. By reason of the team work; the nurse, the social worker, and the secretary by repeated visits convinced the woman of her illness and her ability to live in better circumstances where she would have a fine room in a hotel designed for the aged, and good food. After visits to her that were friendly and gracious she saw the wisdom of this and left her house. The things she wanted were carefully picked up and packed for her. Whether she has surmounted the alcholic problem I do not know, but certainly she was very happy in her move and this was a most difficult thing. Other people had tried to get her to move without success.

The second case involves a very neurotic woman living in an extremely noisy apartment, crowded and unkept. Repeated visits to this woman convinced her that her health required a quiet place. The social worker then worked hard to get her aid budget moved up so that she could move to a fine campus living quarters called Kundig Center for the Aged. She is very happy there, her health has improved, and her outlook on the world has helped her conquer her neurosis. There are similar cases but primarily the effect of this team work is most interesting because they constantly are in poor neighborhoods.

They have established a wonderful esteem for their agency and the word-ofmouth gives them so much attention and so much work that they really could benefit a great deal if your esteemed agency would help them establish more teams, not only in this town but in every Metropolitan Center where the aged are in such large numbers.

Respectfully submitted,


Mr ORIOL. The subcommittee will hold future hearings on the subject, but we don't have a date at this time.

(Whereupon, at 12:55 p.m., the subcommittee recessed, to reconvene at the call of the Chair.)






NOTE-A Report to the President on medical care prices by the Department of Health, Education, and Welfare, dated February 1967, is printed in full beginning on p. 319 as appendix 3. A memorandum updating that report to June 22, 1967 was submitted by the Department of Health, Education, and Welfare at the request of the Special Committee on Aging, U.S. Senate as follows:

Now then, what effect has Medicare had on the costs of health care? It might be said that the Medicare and Medicaid programs are helping the elderly to avoid the difficulties others of our population are facing. Medicare is most effective in the areas where costs have been rising more rapidly-inpatient hospital care and physicians' services.

Recent Price Rises to December 1966

Between 1960 and 1965, medical care prices rose at a rate of between two and three percent per year. In 1966, however, the Medical Care Index increased 6.6 percent-the largest annual increase in 18 years.

The 1966 acceleration in medical care prices was largely accounted for by substantial increases in the prices of both major objects of medical care expenditures-hospital and physicians' services.

Hospital daily charges, which had been rising about 6 percent per year between 1960 and 1965, went up 16.5 percent in 1966-the largest annual increase in 18 years, since the post World War II inflationary period. The increase in hospital daily charges was particularly sharp in the second half of 1966-11.5 percent as compared with 4.5 percent for the first six months.

In contrast, physicians' fees, which had been rising about 3 percent per year in the period 1960-65, went up 7.8 percent in 1966. This was the largest annual increase since 1927. Physicians' fees increased 3.8 percent in each half of 1966. Drug prices have not been a major factor in rising medical prices. There has been no appreciable change in the drug component of the Consumer Price Index during the six-year period ending March 1967. The prices of prescription drug items in the CPI actually declined by almost 12.0 percent in the past six years. Drug industry sources give a slightly different picture than the Consumer Price Index. The average retail price per prescription, as reported in the American Druggist, increased at an annual rate of slightly less than one percent per year between 1960 and 1966.

The average prescription price reflects the use of new drug products, and changes in the quantities of drugs prescribed. In contrast, the Consumer Price Index reflects changes in the unit price of the same or similar drug items over periods of time.


In the first quarter of 1967, the rate of increase in medical care prices continued at about the same pace as in the last quarter of 1966. They rose 2.0 percent in the first quarter of 1967. While physicians' fees continued to rise at about the same rate as in 1966 (1.9 percent increase for the first three months of 1967), hospital daily room rates have continued to rise at a rapid rate, up 6.1 percent in the first quarter of 1967.


Price increases of this magnitude impose a major burden upon many Americans. In 1965, per capita expenditures on health care were 6.0 percent of personal income after taxes. Nearly 60 percent of these expenditures were on hospital and physicians' services.

The impact of the rise in hospital charges upon the elderly has been largely mitigated by the advent of Medicare, since most hospital bills for the elderly would have exceeded the $40 inpatient hospital deductible in the absence of these price rises. However, these increases will, of course, substantially increase the costs of Part A of Title 18 of the Social Security Act.

The recent acceleration of the rate of increase in physicians' fees has not significantly affected the elderly. The coinsurance provisions of Medicare have blunted the impact of these price rises.

However, this conclusion relates to physicians' customary charges-the fees the physician charges to most of his patients for his services. As of July 1, the average fees of physicians, and their incomes, have increased because of the payments of customary charges under Medicare. Many elderly persons previously were paying charges lower than the customary charges of physicians.

Therefore, many aged persons, although the exact number is not known, will now find that they are being charged more for a given service, since their physician is now charging them the same fee he charges to the majority of his patients. This anticipated development will primarily affect those elderly persons who spend less than $50 on the medical and other health services covered by Part B of Medicare.

Although the price of drugs has not risen significantly in recent years, there are a number of reasons for concern about the cost of drugs. Before Medicare, average per capita drug expenditures by the elderly were about twice as high as the average for all persons in the population. Thus, the cost of drugs imposes a major financial burden upon many elderly Americans.

A large proportion of the total drug expenditures by the elderly are incurred by aged persons who are high users of medical care. For example, in 1962, 10 percent of these persons over the age of 65 incurred 40 percent of the expenditures on drugs by all persons over the age of 65. But out-of-hospital drug costs are generally not covered by health insurance.


The available evidence suggests that Medicare has not had a significant effect upon the recent acceleration of the rate of increase in physicians' fees. Although Medicare will increase the use of physicians' services by the elderly, the impact of Medicare upon the total demand for physicians' services is likely to be on the order of 2 percent.

In the past, physicians' fees have tended to increase faster when other prices in the economy were increasing rapidly-as they did in 1966.

If anticipation of Medicare was a major factor underlying fee increases, it would be expected that fees charged the elderly would move up faster than fees charged younger patients in the period before July 1, 1966. A special analysis by the Social Security Administration showed, however, that the price indexes for child and adult care moved up more rapidly during the six-month period before Medicare went into effect, than the five special indexes of surgical and medical procedures particularly applicable to aged persons.

In the absence of Medicare, the 1966 acceleration in hospital costs would not have been surprising. Rising wages in tight labor markets were bound to exert pressure on hospital costs. Further, collective action upon the part of nurses became more predominant in 1966. Several nurses strikes took place in major cities throughout the country. Thus, hospital payroll per employee went up 9.0 percent in 1966, in contrast to an average of 4.7 percent per year between 1960 and 1965.

The influence of Medicare upon hospital charges probably came primarily through the impetus it provided hospitals to reexamine their costs and charges. It is likely that many hospitals decided to increase their charges sooner than they otherwise would have in the obsence of Medicare.

The total occupancy rate in hospitals was four percent higher in August 1966 than in August 1965. However, after an initial upsurge in hospital admissions in July and August of 1966, the number of hospital admissions for the balance of 1966 was not significantly different from the number for the comparable months in 1965.

Higher occupancy rates and numbers of admissions to hospitals would be expected to lower, not raise, hospital costs per patient day. Information from the American Hospital Association indicates that hospital costs per patient day actually declined slightly during the period from June to November 1966.

In contrast, average hospital costs per patient day increased from about $45 in January 1966 to $52 in June 1966. Therefore, the increase in the demand for hospital services attributable to Medicare was probably not the most important causal factor influencing the recent acceleration in hospital charges.

Thus, although anticipation of Medicare may have resulted in higher medical costs, the recent acceleration in medical care prices seems to reflect the more general rapid price increase in 1966.

Mr. Chairman, I should like at this point to call to your attention a National Conference on Medical Care Costs which is to be held at the Washington-Hilton Hotel on June 27-28.

This conference, called by Secretary Gardner, will bring together physicians, hospital planners, hospital administrators, health insurance experts, drug manufacturers, economists, representatives of consumer groups, and others to discuss the factors which influence medical costs and ways to improve the delivery and quality of medical services.

The discussions will be divided into five panels, each to consider a different aspect of medical costs.

The panel on “Hospital Costs" will consider such issues as increased productivity and better use of personnel, extension of health services outside the hospital, and improved coordination of all community health services.

The panel on "Community Health Systems, the Costs of Underdevelopment," is expected to discuss the following types of questions: What is the community's responsibility for developing health facilities and manpower?

Will community planning for health services be effective in containing costs? What should be the community's role in planning its health care system?

The third panel will focus on the costs of physicians' services. The panel will discuss ways of increasing physician productivity, the efficacy of group practice, the role of the physician in family health management, and the organization of medical practice in rural areas.

The panel on "The Costs of Pharmaceutical Services" will discuss the likely impact of prescription reimbursement plans on the cost of drugs to the consumer. Discussion is also expected to include the relation between prescription practices and drug costs, the functions of the pharmacist in drug control and distribution, and the professional fee system as opposed to the traditional "mark-up" system. The fifth panel will discuss "The Impact of Third-Party Payment." The panel will consider such problems as the effects of present prepayment mechanisms on rising costs, the gaps in present coverage by private insurance plans and Medicare, and the standards for minimum coverage.

In addition to the panel discussions, several speeches will be delivered to emphasize the need to provide high quality medical care in an efficient manner to all Americans.

As you may judge from the conference program, we are concerned that Medicare will take part in the effort to prevent undue increases in health care costs.


Claims for reimbursement of part of the cost of hospital and medical services under the health insurance program for the aged are recorded in the central

"Division of Health Insurance Studies, Office of Research and Statistics.

records of the Social Security Administration. The data on these claims provide a means of measuring the extent of utilization of covered services, as well as information on the total charges and amounts reimbursed for these services. The January 1967 issue of the Bulletin presented data on inpatient hospital claims for the first 3 months of the operation of the health insurance program · for the aged. More complete inpatient claims data covering the first 6 months of the program's operation are now available and are presented here. Also included are the first available figures on the bills reimbursed and recorded in the Social Security Administration central records during the first 8 months of the medical insurance program.


For July-December 1966, approximately 1.7 million inpatient hospital claims were reported by intermediaries as approved for payment under the hospital insurance program as of February 24, 1967. Claims approved are reported in table 1 according to the specific month of intermediary approval and include those recorded in the central utilization record as of the February date.

Because of lags in the reporting and processing of claims under the hospital insurance program, the number of monthly claims reported here probably do not represent all the claims for services approved in any given month. As more time elapses, claims data for the earlier months will become more nearly complete. For example, claims approved for payment during the first 3 months of the program and recorded in the Social Security Administration tape record as of February 24, 1967, totaled 629,833, or about three-fifths more than the number recorded for the same period 4 months earlier.1

The number of claims approved by intermediaries and recorded in the tape record each month only partially reflects actual inpatient hospital utilization under the program. Delays in submission of claims by hospitals, in claims processing by intermediaries, and in recording the data in the central utilization record result in understating the number of cases receiving inpatient hospital care during the month.

Distribution of the 1.7 million claims by month approved shows only 2 percent recorded in July, a sharp increase in the following month, a continued monthly upward trend to a peak of 381,355 in November, followed by an 8-percent drop in December. The small number reported for July reflects the delay in transmittal of forms and claims at the beginning of the program. The drop in December from the previous month may be the result of the lag in reporting and recording the data as of February 24, 1967, the date of summarization.

The 1.7 million claims account for 21.8 million days of care covered under the hospital insurance program, or an average of 12.6 days per claim. A claim is defined here as the submission of a bill requesting reimbursement for inpatient hospital care. Claims are generally submitted after a person is discharged from the hospital. Interim bills or claims requesting payment for part of an inpatient hospital stay may, however, be submitted. The average length of stay per claim is therefore less than the average per discharge, especially for long-stay hospitals, which are more likely to submit interim bills when the stay covers an extended period.

The average number of days of covered care increased monthly from 7.0 days in July to 13.6 in December. Claims approved and processed during the early months included a considerable number of stays for persons who were in hospitals on July 1 so that only the part of these stays after June 30 is reflected in the number of days that were covered under the program and for which reimbursement was requested.

1 See Howard West, "Health Insurance for the Aged: The Statistical Program," Social Security Bulletin, January 1967, page 13, table 6. (Reprinted on p. 167-182.)

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