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ber 1967 to June, 1968. CMA representatives at the September 25 meeting refused to comment on the data reported by BLS, except to say they consider it statistically unreliable, and prefer to use their own data. Clearly, whether statistical reliability is involved or not, their own data is much better for their public relations.

(4) Of course, there is a great deal more data to indicate that physicians in California are not suffering too much from inadequate fees, and some of it was also quoted at the September 25 meeting. However, the data on fees and the fine points about its interpretation obscures a more important question : why should a “control point" on maximum fees be set at the top of the usual and customary range (or at the 90th percentile or higher), rather than at some mid point in the range (such as the 60th percentile or lower)? The chief CMA spokesman was asked to comment on the following quote which summarizes this whole issue (from the report of the Governor's Survey on Efficiency and Cost Control) :

*Many of the physicians who charge the higher fees practice in geographical areas where there are few Medi-Cal patients. Therefore, if some of the physicians, by reason of fees charged, find the program unacceptable and discontinue their services, it would not result in any major loss to the program. Further, the processing costs being incurred in handling claims with fees above the normal range do not appear to be justifiable."

The CMA spokesman commented only that all doctors should participate, and that fee limits should not be set so that some doctors are "cut out of the program."

There was no information from the Department of Health Care Services as to whether all of Medical's needs for physicians could be met with maximum fees set at any particular percentile level. Presumably, the program has been getting all the physicians services required with the control point at the 60th percentile. According to CMA, the physicians with higher prices are performing the necessary services, billing at the higher levels, and then complaining when their claims are reduced by MediCal to the maximum levels which existed under the 60th percentile control. The doctors, of course, have complete freedom to refer the Medi-Cal patient (or have the administration refer him) to any physician who would accept the existing maximum. Therefore the relevant question really is: are there enough physicians charging the lower fees to meet all Medical needs?

I have no data to suggest an answer. CBS and CMA may have such data, but if so, they probably prefer not to discuss it. It does not appear to me that the Administration is even interested in raising the basic questions, let alone demanding the data to answer them. They appear to respond only to the threat that the doctors "may not choose to participate" in the program if fees are not adjusted upward, and they appear unwilling to ask: how many would not participate? at what control points? where do they practice? how many MediCal patients do they have? what are they charging? would their nonparticipation be a major loss to the program? or a net gain to the program?

3 The statistical reliability question is not actually an argument. CMA prices more physicians' procedures than BLS, although the BLS sample of procedures is a good one. All of CMA's pricing is done in California, while BLS prices in San Francisco and Los Angeles and in 54 other cities in the U.S. BLS does not publish separate physicians' fee indexes by separate cities. since its pricing procedure is designed to produce a national index. However, the data for San Francisco and Los Angeles is available on request.

The BLS pricing procedure relies primarily on trained field representatives who gather data in personal interviews (giving more statistical reliability). It is my understanding that the CMA procedure relies primarily on mail questionnaires (which have considerably less statistical reliability).

The medical care component in the BLS's Consumer Price Index (of which physician's fees are a part) was previously criticized for failing to measure quality improvements adequately. To correct this, a linking procedure was developed and is now use to factor out price increases based on a new or different quality. The linking procedure is now criticized as a factor tending to understate the actual amount of medical care price increases measured by the BLS.

Research on BLS pricing of medical care components (primarily by Anne Scitovský) has also established that pricing individual items and services results in a lower index than pricing the total illness. The "total illness" approach takes account of a number of factors not considered by either CMA or BLS, including the introduction of more complicated and costly types of treatment. (See Social Security Bulletin, July 1967, p. 15, for appropriate citations.)

The fine points about statistical procedure should not obscure the fact that CMA and BLS data show virtually the same price changes for the period December 1964 through December 1967. which is the only period that can be used for comparison. On the basis of this similarity. there is every reason to believe that the CMA index for June 1968, when it becomes publically available, will show an increase of much the same magnitude as that already shown by the BLS in its physician fee indexes for San Francisco and Los Angeles—an incredible 11% increase in fees in the six month period.


1, The HRPC recommended to the Health and Welfare Department that the January 1, 1967 freeze should be lifted, that the percentile control point should be moved from the 60th to the 90th, and that the individual physicians' fee history should be added as a criterion in the definition of the goth percentile. The HRPC recommended moving right now to this new definition, but also recommended placing a 5% limit on the amount of fee increases that would occur under the new definition in each of the two years following its adoption. In this recommendation, the 5% is not a limit on the amount of fee increase that will occur immediately if the new definition is adopted. (I was the only non-governmental consumer or public representative present, and mine was the only dissenting vote. It should be noted that the Council did not have an adequate explanation of what its vote meant. It should also be noted that HRPC recommends only, and the Administration is not obliged to follow its recommendations.)

2. It is still impossible to tell how big an increase in physicians' fees would result if this recommendation is carried out. There was no indication of how many claims have been denied because they were higher than the 60th percentile of charges in effect January 1, 1967. The CMA argued that “a majority of all claims" now comes in higher than the control point allows, but they don't back up this assertion with any data whatever. If it is true, there obviously would be a big jump in fees immediately. And it will obviously be bigger than the 10–12 million a year previously estimated on the basis of last year's reduction in maximum fees permitted.

On the other hand, there is no way of knowing whether the January 1, 1967 "freeze" in fee levels was ever actually enforced (see footnote 1, which casts some doubt). If it was not enforced, then a good bit of what the doctors asked for is already being paid to them, and the recommendation of the HRPC would simply legitimize present practice. In that case, there would not be such a big jump immediately.

The Department of Health Care Services itself had no meaningful analysis of the impact of the increase, either in gross cost terms or on the question of the avail of program services at different levels of controlled prices. Further, there was no analysis of what services might not be available to recipients as a result of a considerable increase in the amount of resources now to be allocated to physiicans for their particular services. (This is not surprising ans more--the recipients and their health care problems always seem to be left out of HRPC deliberations.)

My guess is that the increase will be sizable, but the only thing I have to base this on is the hard push the CMA is apparently making to get the increase estah. lished. Their attitude at the September 25 meeting seemed to be that their program was going through regardless of the fact that relevant data was not supplied to support it, and regardless of what arguments might be made in the HRPO. In short, it has all the earmarks of the old steam roller. The best guess is that it will cost plenty, and that MediCal has only begun to pay the increase.

2. Whatever amounts are involved in additional Medical expenditures for phrsicians' fees, it is obvious that there will be an immediate impact on all other physicians fees under all other programs. Administrators of major negotiated plans should advise collective bargaining representatives accordingly. The law is written so that Medical should pay on the basis of usual and customary fee experience outside the Medical program. But if the HRPC recommendation is carried, collective bargaining representatives can expect to negotiate in. creased fees for the doctors on the basis of immediae repercussions from the Mediral program-or face the unralatable alternative of cutting back the benefit levels of their negotiated programs.

It would be extremely useful if organized labor, as the largest consumer representative in the state, could supply organized, consistent, and comprehen. sire data on the coverage, costs, and utilization of their programs, to throw light on the many obscurities of the Medical program. I believe that if anyone but the doctors' own oranization now handled the responsibility of fiscal intermediary for the Medical program (including the state of California), there would be much more data availahle on sensitive questions like doctors' fees, and there would be much less possibility of conflict of interest in the gathering. handling, reporting, and analyzing of all health care data involved in the JediCal program.

Is it possible, even at this late date, to introduce some coordination in the kinds of data handling procedures used in the administration of organized labor's negotiated programs? There certainly appears to be good and sufficient reason now for some of organized labor's top policy people to start meeting with some of the administrators of the important plans to see what can be done.

4. There will be many further problems with the addition of the "individual physician fee profile" as a criterion in the determination of the percentile control point. The problems will continue whether a final control point is located at the "top of the range" (or at the 90th percentile plus), or somewhere around the middle of the range, or even at the bottom of the range.

It is my understanding that to date Blue Shield has been using its own programs to represent the “usual and customary" universe. Their programs undoubtedly constitute a very broad sample-perhaps the broadest that could be found in California. But if the reliance is on Blue Shield programs alone to establish what is usual and customary, then a vast amount of other, non-Blue Shield “usual and customary" experience is left out of the calculation. Have labor's negotiated programs ever been asked to give CBS or the state any information on their physician charge profiles? Probably not, and the whole mainstream of medical practice under negotiated health care programs has probably been left out of the determination, to date, of what usual and customary actually is.

Presumably, the use of an individual physician fee profile as a criterion in determining the maximum fee level for Medical claims, will bring into consideration that "other, non-Blue Shield" experience. It will also bring into consideration a host of new problems in gathering and interpreting data on physician's fees.

To mention only one such problem, the fiscal intermediary will have to keep track of the entire range of each individual physician's fees for each procedure, as charged to all kinds of different, non-govermental, group and individual purchasers. Presumably, this information will be gathered from all physicians who participate in the MediCal program by mail questionnaire. Of course, the respondents will know, when they get the questionnaire, that their answers are going into the determination of the price Medical will pay for similar services rendered to recipients. What kind of ojectivity, either in the gathering or in the interpretation of the fee data, will be possible in this situation ?

At every turn, the Medical program is still confronted with the need for objectire data and information, which is still not being supplied to the program.

At every turn, the program is still getting answers to its problems which are primarily in terms of the special interests of the providers of services.







Mr. Chairman and Members of this committee, my name is David R. Mosher and I appear on behalf of the American Nursing Home Association. I am a nursing home administrator and the owner of two nursing homes certified as Extended Care Facilities in St. Petersburg, Florida.

Sursing homes are playing a major role in the operation of both the Title XVIII (Medicare) and Title XIX (Medicaid) programs. The role of the nursing home in both of these programs, we are convinced, will be expanded to even greater limits in the months and years ahead.

I say this because nursing homes, whether certified as Extended Care Facilities under Medicare, or operating as skilled nursing homes under Title XIX, provide a tremendous cost-saving service for government.

Those certified as ECFs are saving the Social Security Administration, the Forderal Treasury and ultimately the American taxpayer, tens of millions of dollars.

*See statement, p. 703.

We do not know if some of these Rules and Regulations issued as State Agency Letters and Letters to Fiscal Intermediaries without regard to the Federal Administration Procedures Act and without publication of them in the Federal Register were first presented to Health Insurance Benefits Advisory Council, for we are not privy to the minutes of HIBAC. On the other hand, we do know, that many of them have been issued without prior consultation with national organizations as provided for under the Social Security Amendments of 1965 (P.L. 89-97). Let me cite a few examples : Spell of illness

Directing your attention to the definition of a “spell of illness" presently proposed by HEW in State Agency Letter No. 65. This letter will affect state Title XIX programs by increasing the costs thereto both to the individual states and to the Federal Government while working a hardship upon the patient.

In Section 1861(a), “spell of illness" is defined as commencing with the first day a patient enters a hospital, uses his hospital and extended care benefits, and ending 60 consecutive days thereafter on which he is neither an inpatient in a hospital or an extended care facility.


An "extended care facility" for the purposes of "spell of illness" is defined in Section 1861 (j) (10) as a facility "which is primarily engaged in providing to inpatients (a) skilled nursing care and related services for patients who require medical or nursing care or (b) rehabilitation services for the rehabilitation of injured, disabled or sick persons." Congress specifically defined an "extended care facility” for the purposes of “spell of illness." Now Social Security Administration has radically altered Congress definition.

The Social Security Administration defines "extended care facility" so as to prolong a “spell of illness" as a facility which is in charge of a licensed prac. tical nurse (who need not be a graduate of a state approved school) with aides, orderlies or attendants on the other two shifts. Such a facility fails in the essential element that it be primarily engaged in skilled nursing care and services for patients who require medical or nursing care. State Agency Letter No. 65 adds a great deal of confusion to the health care field. More important, however, are the results which follow. This definition denies our aged people medical benefits Congress intended them to hare.


Let's take 3 examples. Patient A who is 75 years of age and living in a custodial home. He can get around, but he needs someone to be certain to see that he eats his meals and takes his medicine. Patient A has a severe heart attack. He goes to the hospital for 90 days. He is then transferred to an "Extended Care Facility" for 100 days. He then goes back to the custodial home where he has lived for the past two years. He can never again become eligible for Medicare benefits under Letter No. 65 because there is 8 hours a day of “nursing service" available.

Two years later he falls and breaks his leg. Under Letter No. 65 he can obtain no medicare benefits because this residential care home is defined as an ECE or skilled nursing home because it has an LPV as a charge nurse. The trarestr lies in the fact that this residential care home is considered by SSA to be an ECF solely for the purpose of not breaking this "spell of illness.” SSA would never certify this residential care home as an ECF or as a skilled nursing home for participation in Title XVIII or Title XIX programs. In those instances. SSA would judge this residential care home to be below the standards required of a facility for it to be certified as an ECF or a skilled nursing home.

Patient B is 68 and lives in his own home. He is not well but is able to take care of himself. He has a serious heart attack. He is in the hospital for 90 days. He goes to an "extended care facility" where he remains for 100 days. Thereafter he is transferred to a nursing home where he remains for 60 days. He then goes home and 10 days thereafter he falls and breaks his leg. He is not eligible for Medicare.

Patient C is 70 years of age. He has a serious heart attack. He goes to a hospital for 90 days and is then transferred to an "extended care facility" for 100 days. He then goes home and during the next 60 days he exhausts bis 100 home health care visits under Part A. On his 61st day he falls and breaks his leg. He is eligible for Medicare benefits.

Patient C is eligible for Medicare because he had such resources that after being discharged from an extended care facility, he could be taken to his own home. He could receive 100 home health care visits and his new "spell of illness" would start 60 days from the date that he was discharged from the ECF. In other words, an individual is not required to have a 60 days "spell of health."

State Agency Letter Yo. 65 makes one's Medicare benefits turn on his station in life or on the circumstances under which he is living at the time that he enters the hospital. The individual who needs Medicare benefits the most is denied them.

In each of these three instances we have a new illness but because of the technical misinterpretation placed on the word "extended care facility" by SSA two of these elderly people have what amounts to a cancellable health insurance policy where it seems certain that Congress did not intend such a catastrophe to happen.

Our objections to Letter 63 are threefold. First, it nullifies the definitions of Congress and causes undue hardships to those who need medical care most. Second, it defines a "facility primarily engaged in skilled nursing care" as one that is not rendering skilled nursing care. We have fought for over 10 years to raise standards of professional care which SSA now downgrades. Third, it makes "spell of illness" turn in part on one's station in life. We thought Medic'a re did away with any kind of a means test.

"Spell of illness” should be defined in terms of a new medical illness. Accordingly, we suggest that Section 1861 (a) (2) on "spell of illness" be amended to read as follows (amendment is italic):

“(2) ending with the close of the first period of 60 consecutive days thereafter on each of which he is neither an inpatient of a hospital nor an inpatient of an extended care facility, under Title XVIII for the same medical illness."


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