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APPENDIX 2

LETTERS AND STATEMENTS FROM INDIVIDUALS AND

ORGANIZATIONS

ITEM 1: STATEMENT FROM MARK BERKE, EXECUTIVE DIRECTOR, AND DR. HARRY WEINSTEIN, DIRECTOR OF MEDICAL EDUCATION; MOUNT ZION HOSPITAL AND MEDICAL CENTER

EXHIBIT A. STATEMENT OF THE U.S. SENATE SPECIAL COMMITTEE ON AGING The practices which have the greatest potential for reducing the cost of medical care also have the greatest potential for improving the quality of care.

The cost reduction can be achieved by utilizing the least costly facility or service appropriate to the patient's need (and by preventing illness or the advance of illness or by providing restorative services which enable the patient to be served by a less costly facility).

The improvement in quality of care stems from developing the full constellation of facilities necessary to supply appropriate care at lower cost. The over-utilization of high cost facilities such as the acute hospital represents not only wasted dollars but poor care because of the inappropriateness of the facility for the patient's need.

Efforts to reduce the number of individuals in need of expensive services have been advocated by many and we do not wish to be trite by joining sanctimoniously in such advocacy. Nevertheless, there is no broad-based, consistent, effective program of prevention and early diagnosis for the aged in this country and such programs must be established to serve the ends of lower cost and higher quality. Facilities which must be available in addition to the acute hospital include:

Intensive Rehabilitation Unit.
Extended Care Facility.
Long Term Care Facility :

Nursing Homes.

Homes for Aged.
Coordinated Home Care.
Individual Home Services : i.e., Nurse, Physical Therapist, Medical Doctor,

etc.
Day Centers :

Outpatient Department.

Private Office. Substitute Homes. Multi-disciplined patient care planning teams must be involved early after hospital admission in order to shorten hospital stays and choose the appropriate alternative to hospitalization. Such teams can also participate in planning which prevents hospitalization.

The greater the success we have in using appropriate alternatives to hospitalization, the more the cost of care per patient day in the acute hospital must go up, since only the sickest patients requiring the most service and use of the most elaborate "hardware" will be served in such institutions.

Ultimately, then, we must arrive at a true assessment of health costs in terms of total community expenditure per 1,000 persons over age 6.5. Of the two costs involved, the one expressed by the per diem rate in the hospital must go up. Our only hope there is to stabilize the rise, i.e. to diminish the speed of rise. The other cost expressed as communal cost can go down by coordinated community effort. The community can make certain that its dollars are effectively spent and that it gets more for its money through avoidance of unnecessary duplication and of over-utilization of expensive services and facilities.

ADDITIONAL COMMENTS

1. Medicaid should switch to reimbursement on a cost basis because the current negotiated basis is leading to provision of inadequate levels of care.

2. Incentives to reduction in cost are difficult to devise because we have not found ways of measuring our product.

3. The intermittent services of a homemaker or home health aide for as little as 8–12 hours per week may keep an older person out of a hospital or a long-term care facility. Therefore, in establishing the criteria for eligibility for such "covered” services, the term “custodial" should be discarded. Eligibility should be based upon the existence of an active medical care program for the aged person. In all instances, such services should be provided if, in the opinion of a competent professional, they will enable the person to avoid institutionalization and remain with safety at home.

4. The great success enjoyed in upgrading the quality of care in acute hospitals through the Joint Commission on Accreditation of Hospitals should be extended to Long Term Care Facilities including Homes for the Aged. Licensure is not enough.

5. The barriers to the establishment of meaningful relationships between proprietary and non-profit institutions are almost insurmountable. After several years of trying, we have not been able to establish any relationship beyond a relatively unimportant transfer agreement. Great support should, therefore, be given hospitals for the development of their own geographically proximate Extended Care and Long Term Care Facilities.

ITEM 2: LETTER FROM PHILIP E. BROWN, CHIEF ADMINISTRATOR,

CALIFORNIA CHIROPRACTIC ASSOCIATION HEALTH SERVICE FOI'NDATION

OCTOBER 17, 1968, DEAR SENATOR WILLIAMS: In compliance your request, we are submitting pertinent information which we believe has a direct bearing upon the purpose of the investigation of the United States Senate Special Committee On Aging of which you are a member. Unfortunately, we were not given any time on your program to present facts relating to costs for the care of the elderly when administered by doctors of chiropractic.

In depth statisties compiled by Dr. H. G. Higley, who is head of the Department of Research and Statistics for the American Chiropractic Association reveal some interesting facts. Dr. Higley is a qualified statistician and his conclusions can be buttressed by data which he has compiled. The most pertinent information. which we feel would have a direct bearing upon your search for lower costs in health care of the aged comes directly from the statistics compiled during a two year period (July, 1962–June, 1961) of treatment of patients under the Public Assistance Medical Care Program in California. Number of patients treated by chiropractic doctors during this period. 43, 279

The expected cost on the basis of "Medical Care Expenditures" for all three services (M.D., D.C. and D..)----

$3, 449, 177 The startling fact was that the actual cost of the treatment of the abore patients under chiropractic care was only-

1, 474, 027

The difference between the expected cost based on the Medical

Care Expenditures and the actual cost of chiropractic aid.- 1.975), 1.32

The average cost per case under chiropractic management.--

31. 06 The average cost per case under medical care, all professions (M.D., D.C. and D.O.)--

79. 70 From the above it can readily be seen that the inclusion of chiropractic care does not represent increased costs to any program, but rathor represents a savings, which should be apparent from the above. Please keep in mind that the bulk of the conditions being treated were musculo-skeletal problems, which are treated by all the hearing professions. Consequently, the difference in cost as noted above, would be predicated primarily on a difference in approach to therapy. The California Chiropractic Association has been dedicated for many years to providing the highest quality health care to the public, while at the same time curbing spiraling costs. Toward that end, we have instituted educational symposia and local review committees which have been most effective and beneficial to the public and profession alike.

We would welcome an opportunity to appear before your august body, or to submit further information if it should be desired. Very truly yours,

PHILIP E. BROWN, D. C., Chicf Administrator, CC I-IISF.

ITEM 3: LETTER AND STATEMENT FROM JOSEPH W. EHRENEICH,

DIRECTOR, UNIVERSITY OF SOUTHERN CALIFORNIA RESEARCH
INSTITUTE OF BUSINESS AND ECONOMICS

November 11, 1968.

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DEAR SENATOR WILLIAMS: A point which is major, in my opinion, but which does not emerge clearly is that the health care problems of the elderly are but a reflection of a bigger underlying problem. This is the fact that our health care system is so structured that its prices must continue to rise inordinately, while its amenities continue to decrease. Physicians are in a position to set their fees almost by whim; as a group, because of increasing demand for their services and a small increase in the supply of physicians, they enjoy a protected monopolistic position. This is enhanced each year by the relatively small number of annual graduates from medical schools. There are now fewer practising physicians per 1000 people than there were in 1950. The other major source of health care costs— hospitals are similarly insensitive to consumer economic needs. Operating largely on a cost reimbursable basis and as non-profit institutions, they have no real incentives to effect major, radical economies.

Put another way, the health care industry is basically non-competitive and accordingly, lacks the normal business incentive to keep its costs and its prices as low as possible.

To introduce the benefits of competition into the industry, major institutional change is necessary. I have elaborated on this theme in a presentation to the 1967 National Conference on Private Health Insurance, a copy of which is attached. In this presentation a number of possible changes are described.

The economic impacts of what might be called non-market oriented biasesin the health care system are particularly severe upon the many elderly who have to live on relatively fixed incomes. With a high incidence of expensive acute and chronic ailments, with other living costs rising regularly, with their other special costs, the rapidly rising prices that they must pay for health care becomes a most severe burden. Certainly Medica re and Medicaid help tremendously, enabling many of the elderly to obtain care heretofore impossible for them. For the individual, these plans make the personal cost in most cases. However, for society as a whole, the total cost must rise for two reasons. First, more people with more care simply means more dollars spent for health care; and, of course, these extra dollars come from society. Second, the resultant increased demand puts additional upward pressures upon medical fees and hospital prices. Since these mpward pressures are not being relieved by concomitant supply increases, prices will tend to rise.

You also asked me to comment upon deficiencies in the organization of health services for the elderly, and about the relationship of federal programs to the broad scale development of prepaid medical centers.

I believe the organizational deficiencies have been well noted in the Hearings. I am not an expert in this field and I have nothing but personal prejudices to adid. I would like to stress the danger however, of not considering such deficiencies in the context of larger wholes: namely; the organizational deficiencies of health care generally: and, for another, in the context of the elderly person's total social and psychological health. It is in this later regard that so many nursing homes and extended care facilities seem to fail completely.

As for government participation, my personal view is that it would be far better for the so-called third parties, or for labor-management groups to take the lead in developing the new institutional arrangements that are needed if incentives

for efficiency and low prices are to be effective. However, the federal government can play a significant role in bringing appropriate people together from these groups and working with them to start such activities. The government has done this successfully in the past and I hope it can again for this important social problem.

For the immediate future and some time to come, however, the government is in the best position to alleviate the health care problems of the elderly. Certainly something more needs to be done about substandard Medicaid plans, about high drug costs to the elderly, about better enforcement to avoid abuse by the vendors of medical care (note attached clipping from November 8. 1968 L.A. Times), about the problem of chronic illness care. Medicare represents a big step forward for acute health problems; the costs of chronic illness still represent a most formidable threat.

An area in which the federal government can improve its activities in order to help alleviate the health care problems of the elderly as well as other health care problems relates to its research grants procedures. Under the current system, millions of dollars are being spent on various studies of health care organization and delivery. However, because of procedures followed, most funded studies tend to be very specific and actually prevent the investigator from doing the sort of broad study and general casting about that is essential for the creation of new break-throughs. Thus, while many specific, narrow studies of health care and of the elderly exist, no really comprehensive scientific view nor tested set of recommendations exist. Largely because of the grants procedures, the information we have on the health policy question is fragmented, full of gaps and generally inadequate. This deficiency is not the fault of the researchers, or the research organizations, but rather stems directly from the philosophy and practice of the research grant system. Yours sincerely,

JOSEPH W. EHRENREICH. (Enclosure)

EXHIBIT A. CREATING COMPETITION IN THE HEALTH-CARE INDUSTRY: Some REFLEC

TIONS ON POSSIBLE IMPACTS OF MAJOR GROUP PURCHASERS ON Costs AND QUALITY OF HEALTH CARE

Among the thousands of studies prepared in recent years on the health-care industry in the United States, there are virtually none concerning the potential effects of major group purchasers upon the system. This is strange, in that all the other participants in the industry have been reported upon in exhaustive detail. The providers of care, the so-called third parties, and the governments have been studied both in general terms and in great detail. However, the major group purchasers--the single largest source of the funds that flow into the system-have received scant attention.

Accordingly, I was most pleased when the Department of Health, Education, and Welfare asked me to prepare a background paper for the National Conference on Private Health Insurance on the question of how management and labor might act to restrain the soaring prices of health services while their quality was, at least, maintained. The Medical Care Price Index. based on 1957 to 1959 as 100, was 122.3 in 1965, 127.7 in 1966, and up to 135.7 by May of this year. In the last twelve months alone, it has risen almost .742 percent.

It is always stimulating to be connected with a pioneering effort, and that is what this paper is. It is not designed to be comprehensive, or convincing, or in any way conclusive. It is rather designed to expand understanding, to present some possibly new views, and to be a basis for discussion, argument, and dialogue. From these and from the refinement and extension of this work, it is hoped that some advances in our nation's capacity to cope with the problems of the health-care market may ultimately result.

While, as usual, the author of this paper must take full blame for all errors and inanities, I have been uniquely fortunate in the advice I have had. Vot wanting the paper to be limited by my own ideas and prejudices, I invited distinguished Los Angeles representatives of management and labor to discussion meetings in which many of the thoughts herein presented were developed. As a measure of the tremendous interest and concern with which such people view the health-price problem, it is noteworthy that of thirteen people invited, eleren attended or sent alternates. The twelfth, a union executive, had to cancel at the last minute because of a strike problem; the thirteenth, an insurance-company official, could not attend because of a death in his family.

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