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There is a new edition of the book which just came out in paperback this spring that tries to bring things up to date since it was published in 1974 and focuses particularly on efforts that have gone on in various States to attempt to control hospital costs.

Mr. STARK. Has the BCA written another hundred-or-so page critique of the new edition?

Professor Law. No. I haven't seen any response. The new paperback edition hasn't been as widely or favorably reviewed. It hasn't been reviewed at all. So, I think that it may be that they have determined that it is better to let sleeping dogs lie on this new one.

Mr. STARK. I am sure you can find a better characterization than that. Do you have any comments on the critique of the BCA critique of your book?

Professor Law. It is a very interesting document. There are few places where they found out and out mistakes on my part. But in a book with 750 footnotes, I don't feel ashamed that I referred to Mr. Tierney once as Robert Ball. They are mistakes of that level.

Then apart from those things, the nature of the critique is criticizing me for things that are perfectly apparent on the face of the page.

For example, when I say, “Here is an example of an abusive practice," I don't know the degree to which it is universally true, but at least it raises interesting questions.

They criticized me for reasoning on the basis of insufficient data. It is a very interesting document. I think primarily because they don't take issue with any of the fundamental points that I make.

They don't take issue of any of the fundamental points but rather by quibbling away sentence by sentence and word by word they give an overall impression that there is something fundămentally wrong here without ever taking me on with the merits. It gave me a sense that I must have been fairly ballpark close to right on the merits.

Mr. STARK. You are being very kind. You defended the Blue Cross as being more than billpayer and said they have this utilization process.

In your opinion, how well do you think the Blue Cross programsthe Blues, I guess, I should refer to them-provide this utilization review?

How effective are they?

Professor Law. Utilization reviews is a very difficult area because some plans provide more aggressive utilization review and have an impact of shifting costs for services that should never have been provided in the first place from the Blue Cross plan to the individual. So, on some scale those plans do an effective job. Other plans don't do that. So, consequently, the plan bears the cost of unnecessary services.

I know of no plan that provides the individual with any kind of process for challenging the utilization review judgment. I know of no plan that mandates any kind of contemporaneous review of the necessity of the services or advanced

review of the necessity of services. The New York plan in a Blue Cross experiment is now allowing their experience rated subscribers reimbursement for second opinions on elective surgery. It will be interesting to see how that works out. They expect that in only about 5 percent of the operations recommended by a surgeon will subscribers go and get a second opinion.

The reasons for that, I think, are fairly clear, doctors are enormously defensive about second opinions. I know of case after case where a patient, upon informing a physician that she plans to seek a second opinion, is told, "If you get a second opinion you get a second doctor, because if you don't trust me, I can't proceed with this operation.?

One way to deal with that is to just change the expectation. If Blue Cross says, “We don't reimburse for elective surgery unless the patient has gone out and gotten a second opinion,” then the onus is taken off the patient to say to the doctor, “I don't trust you," rather than the system is just saying you shouldn't trust anybody. No one should trust any single opinion in that situation. A doctor shouldn't trust himself in that situation. It is appropriate to have someone check.

Mr. STARK. We talked today about rating the plans or ranking them.

I know your quarrel is that we should do more than get them to zero. We should get them into the positive column.

Do you think that there is enough information available for the Federal Government or HEW to do some ranking among the plans, which is the information we have now?

Professor Law. Certainly it is useful to do ranking, just to know where to ask questions, but I am very skeptical about ranking. For example, I think the New York City plan has the highest administrative costs of any plan in the Nation. I also think that the New York City plan has probably done better than most plans in terms of instituting utilization review programs that actually go into hospitals and try to teach doctors to review each other's work.

I am very skeptical that you can take that kind of broad data and draw much in the way of a conclusion from it. Certainly, it would be possible to break that kind of data down further and look at salaries, for example. I think that is more revealing.

Mr. STARK. You are making a stronger case for an effective BCA, although you probably don't like them, than any witness I have heard.

Probably the BCA could. In other words, you make the first case that I have heard that the Blues could do something of a positive nature in improving the system.

As you have just indicated, in New York if they turned their attention to that instead of lobbying for one particular form of national health policy or other, if they would, as an industry association, push for that type of study, rather than the aggrandizement in competing for the better, the lower cost enrollees, I think they would have a better response here.

Professor Law. Sure. BCA is in an impossible situation, particularly now that the Federal Government is talking about contracting directly with the local plans.

BCA is wholly dependent on local plans for its existence. So, BCA can hardly go to a local plan and say, Get your act together, because the local plan will say—and does--and they say it all the time, even in situations like the Richmond situation-Don't bother us. You are a trade association. It is not your role to come and tell us how to run our business.

I think the local plans resent and resist BCA efforts to tell them how to run their business more even than they resist and resent that effort on the part of the Federal Government.

At least the Government has some authority and has some existence independent of the goodwill of the local Blue Cross plan, which is not true in the case of the BCA.

Mr. STARK. Thank you really very much. I find your approach to this very refreshing.

I appreciate your taking the time to be with us today.

For the record, are you still with the New York University Law School?

Professor Law. Yes. I am an associate professor.
Mr. STARK. Thank you very much.
Professor Law. Thank you.

Mr. STARK. We will be having further hearings on this tentatively now planned for early August, the week of August 23.

Our hope is that at that time we will be hearing from the Blue Cross Association and others interested in this subject matter.

Until that time, subject to the call of Chairman Vanik, we will adjourn.

[The following was submitted for the record:) STATEMENT OF HON. LES ASPIN, A REPRESENTATIVE IN CONGRESS FROM THE

STATE OF WISCONSIN Mr. Chairman, I appreciate the opportunity to submit testimony in this hearing on the administrative costs of Medicare contractors. I have followed the course of this investigation particularly closely because of the charges made against Blue Cross of Wisconsin.

As often happens in oversight hearings, the witnesses' testimony and the ensuing discussion raised as many new questions as they answered. I am especially concerned about the uncertainties surrounding Blue Cross of Wisconsin, and about the need to reconsider the appropriate role and level of federal oversight.

Regarding Blue Cross of Wisconsin, I would like to see a number of issues clarified. As Congressman Stark suggests, the auditors may only have hit the tip of an iceberg with respect to irregularities in the administration of Medicare. Blue Cross of Wisconsin may well be guilty of more serious abuses. But it is also possible that the auditors have uncovered the full extent of Blue Cross' error, and thus their reputation may be unfairly damaged if the charges are simply left hanging.

Accordingly, to clear the air, a deeper investigation of the charges is called for. During this hearing, comparisons of Wisconsin were made to other states, particularly Maryland. These comparisons should be carefully evaluated. There appear to be several contradictions in terms of information on numbers of providers involved, geographic distinctions, and the extent of benefits which may influence administrative expenditures. Blue Cross of Wisconsin has also said that administrative costs per claim have steadily dropped over recent years and that its costs are actually less than the national and commercial average. The subcommittee has an obligation to further investigate these claims and publicize the results, or to ask the GAO or HEW audit agency for such an investigation.

A second area meriting additional investigation is the role of federal oversight. I hope that the subcommittee will try to further clarify the questions which the GAO and the HEW audit agency should be answering in their reviews of Medicare contractors. Mr. Tierney's point about the extent to which the federal government should intervene in the operations of private businesses is well taken. Somehow, public pressure for accountability of federal funds must be balanced against the simultaneous public concern for creativi and control at the local level. Since an oft-mentioned solution to "big government” is contracting out various government services to the private sector, standards for monitoring such contracts will need to be defined and strengthened.

I would like to conclude by again commending the subcommittee for raising a number of extremely important issues and urge both a further investigation of Wisconsin Blue Cross and serious consideration of the types of audits we need to be conducting on contracted services.

[Whereupon, at 12:45 p.m., the subcommittee adjourned, subject to the call of the Chair.]

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Washington, D.C. The subcommittee met at 10:10 a.m., pursuant to notice, in the committee hearing room, Longworth House Office Building, Hon. Fortney

H. Stark presiding. Mr. STARK. This is the second in our hearings on medicare administrative costs, and in particular, the role of private generally, tax-exempt intermediaries in managing the $15.5 billion medicare program. This issue is of double interest to the committee, since we are concerned with the efficient administration of medicare and with the laws governing tax-exempt organizations.

The administration of our medicare system is an unusual blend of public and private activities. Currently, there are 130 medicare contractors, including 74 Blue Cross organizations, 32 Blue Shield plans, 23 commercial insurance companies, and one State agency. In fiscal year 1976, these organizations made payments of $16.8 million for medical services provided to beneficiaries. Together, they had medicare reimbursable administrative costs totaling $461 million.

First, let me say that by all the standards of measurement we have available to us, most intermediaries do a very good job and their performance has been steadily improving over the 10 years of the medicare program. Having said that, the fact remains that some intermediaries do not perform well, that there is enormous public concern about intermediary health insurance premium increases; and that congressional offices receive a constant stream of constituent mail complaining about delays and unexplained actions by intermediaries in the processing of medicare bills.

Earlier this year and at my request, the Ways and Means Oversight Subcommittee staff collected information about certain medicare administrative expenses. With almost no searching at all, we have found medicare intermediaries running up huge bills for executive luxuries such as limousines, private aircraft, and luxurious, vacationlike conventions, and billing portions of those costs to medicare.

As a result of our inquiries, Social Security is questioning a number of claims and is recovering thousands of dollars improperly billed to the medicare trust funds.

I am deeply concerned, however, that in the 11th year of medicare these types of improper billings would still be occurring.

As the GAO testified at the August 2 hearing, "numerous HEW audit reports contain findings of improper auto expenses and commercial and private aircraft expense." The HEW Audit Agency testified


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