ill patients and referral of such patients from other hospitals tends to increase in times of adverse economic activity. Recognition of these facts in the legislation should help to insure the economic integrity of tertiary care centers.

Experience gained since the development and initial operation of section 223 of the 1972 medicare amendments shows the need for a viable and timely exception and appeal process. Such an appeal process does not function under the present section 223 provisions. The association recommends that this legislation include provisions for an exception and appeal process that provides: (1) That information describing the specific methodology and data utilized to derive exceptions be made available to all institutions; (2) that the identity of comparable hospitals located in each group be made available; (3) that the basis on which exceptions are granted be publicly disclosed, widely disseminated and easily accessible to all interested parties in each circumstance; and (4) that the exceptions process permit the use of "per-admission cost" determinations recognizing that compressing the length of stay may result in an increase in the hospital's routine per-diem operating cost with no change or reduction in per-admission

costs.

In the interest of brevity I have only highlighted the association's response to S. 1470. As the subcommittee and staff address these issues and others, the association would be pleased to provide constructive comments and suggestions.

Thank you for permitting me to testify before you in support of the bill. I will be happy to answer any questions.

Senator TALMADGE. Thank you very much, Dr. Thompson. We know that your hospital is one of the great teaching hospitals in the Nation. We appreciate your very helpful and very constructive suggestions. Many of them, I feel sure, the committee will consider carefully.

In your statement, you expressed extensive concern over the need to assure an adequate supply of pathologists.

I am curious as to exactly how percentage arrangements enhance the practice of clinical pathology. That is, would you not agree that most doctors are motivated toward radiology, anaesthesiology and pathology for professional reasons rather than because they get a percentage of the gross receipts?

Dr. THOMPSON. Yes, sir. I think that is correct. I think most individuals select the specialty in which they are engaged on the basis of their professional interest.

I think the manner in which the payment mechanisms developed go back in tradition. The percentage arrangement is something that seemed to work for some of the hospitals. Many of the smaller hospitals found that they were unable to recruit individuals, perhaps because they did not have a full-time need for them, and they adopted this approach.

I think everyone agrees today that this is a situation that needs to be looked at. The concern on the part of these specialty groups, I think, is that they not be put in the position where it might seem that they are second-class citizens in relation to other physicians. In other words, the fee-for-service approach which is generally utilized in most specialties, is something that is important to these individuals as well. It does

not necessarily, of course, require the fee on any percentage arrange

ment.

I would hope that the committee, and I know they are, and the staff, are working with the various associations. It is my understanding that an agreement in principle as to the approach that should be taken is being developed. I am pleased to note that.

Senator TALMADGE. How are pathologists paid in your particular hospital?

Dr. THOMPSON. In our hospital pathologists are all on a salary basis. This is by no means uniform, as you know, but it has been traditional in our hospital.

Senator TALMADGE. I think we have worked out an agreement with all three of your professional groups that they will be paid on a feefor-service basis, based upon a relative value scale. Do you agree with that?

Dr. THOMPSON. That seems to be a reasonable approach. It is not a simple issue.

Working with the societies that understand the concerns I believe will result in an equitable and reasonable approach. At least, it seems that way to me.

Senator TALMADGE. That would be an alternative. You could still be an employee on a salary basis if it is mutually agreed by the hospital and by the doctor.

Dr. THOMPSON. I believe so.

Senator TALMADGE. Thank you.

Senator Dole?

Senator DOLE. I just have a very broad question. It probably cannot be answered.

We hear all of the time that the free market does not work in the medical care arena because the patient does not pay the bill, he does not select the goods and services or the facilities in which these facilities are rendered. Of course, the patient does pay the bill through a combination of premiums, higher prices, and taxes.

What he really has are a number of agents that pay the bill on his behalf. These are the insurance companies or the Government.

Why can the free market not operate in the medical care area? Dr. THOMPSON. I think that what we are about, perhaps, basically distinguishes the situation. I do not think that ideally in the medical realm you are looking to develop a competitive industry in the sense of seeing which one can provide the product at the least cost.

I think what we are hoping to accomplish is more of a cooperative effort, that institutions working together will be able to supply the services that are needed to the public, that not all hospitals will necessarily provide the same services.

The economies that can be achieved in the industry really depend upon that cooperative approach and I think that this will be helped as the regionalization develops, as the health systems agencies become more involved and more knowledgeable about it. It seems to me that these are the ways in which the hospital industry can be shrunk so that unnecessary duplication will be avoided.

For these reasons, I do not see it in the same light as I do the automobile industry, for example.

Senator DOLE. Thank you very much.

Senator TALMADGE. Are there many unnecessary beds in New York City?

Dr. THOMPSON. Yes, sir, there are.

There have been many studies by a variety of agencies over the years and it is interesting that most of them have come up with roughly the same conclusion: that there are probably in the neighborhood of 4,000 or 5,000 excess beds. This is certainly not restricted to New York City. There are national figures that have been developed as well. I am more familiar with New York.

I think it is important to point out, for purposes of economy, a closure of beds scattered throughout all of the hospitals does not have as much savings as the closing of total institutions. That is a difficult matter to do for a lot of reasons, political and otherwise, as you know. Nonetheless, I think that it is recognized in New York in order to accomplish this objective, some hospitals will have to close.

Senator TALMADGE. That is a very significant issue, Doctor. If you have any ideas that you could share with our committee staff, we would be grateful.

Dr. THOMPSON. We would be delighted to do that.

Senator TALMADGE. Do you think it is appropriate for the burden of financing the cost of training residents, interns, and nurses in hospitals to fall upon the sick people through payments for hospital care?

Dr. THOMPSON. The issue in regard to interns and residents, as you know, Mr. Chairman, has been widely discussed. It is our view in the teaching hospitals that this is an appropriate cost. As you know, the interns and residents are students; no question about that. They are there to develop under supervision. The average individual, after receiving his medical degree, spends nearly 4 years in this postgraduate period before he is really ready to practice independently. At the same time, the individual as a student is, of course, providing significant patient services.

The interns and residents work 60 to 70 hours a week, most of them, night and day, and that is essentially for their education as well as provision of services.

In my view and from my understanding in talking to the public, they understand that this is a necessary cost to be borne to produce the next generation of physicians. Otherwise, they will not have welltrained physicians. That is terribly important to them.

So I think that it is very much justified. I think that the situation with nursing is a little different. It depends on the particular educational arrangement that one has. There are still, today, hospital schools of nursing and the students do provide significant patient services. Some of the nursing schools have gotten away from the provision of services and I think a question might be raised there whether or not it is appropriate for that to be paid out of the health care dollar.

What concerns me is that we need these people very much and some mechanism of payment needs to be provided and I do not see any substitution for that, Mr. Chairman. I think it is absolutely essential that in some form these educational programs continue to be supported.

Senator TALMADGE. Do you have any suggestions for a more equitable means of paying the necessary medical and nursing education

and training costs in hospitals rather than putting these costs on the backs of the sick?

Dr. THOMPSON. I really do not know, Mr. Chairman, of any other method. It seems to me that no matter which pocket it comes out of these costs need to be borne. It seems to me that it is essential for the future of patient care, so I think that if one does split it out of the health care dollar, there is really a serious question as to whether or not it will be supported or whether the various agencies will argue about whose responsibility it is. In this situation those institutions which are providing that education are going to suffer, and ultimately the public.

Dr. COOPER. May I add a comment here?

As the cost of medical care is spread broader and broader throughout the population on the basis of insurance, really it is not just the sick who are in the hospital who are paying the course of graduate medical education. Actually, the public generally is bearing the cost of the preparation, as Dr. Thompson has said, of the next generation of physicians. And so that it is not just the sick in the hospital that are involved, but the entire population in assuring that they have adequately trained physicians for the next generation of care.

Senator TALMADGE. As you know, that is a very serious problem. If any of you have any more equitable suggestions that the committee could consider, we would certainly be grateful for your contribution. Thank you very much.

Senator Dole?

Senator DOLE. I would just like to raise one question. Is it true that the hospital schools of nursing are on the decline?

Dr. THOMPSON. Yes, sir, it is. While the hospital schools are on the decline, the baccalaureate programs are on the increase. Actually, there has been an increase in the number of graduates.

The reason for this, Senator Dole, I think basically is as the practice of medicine has become more complex, so has the practice of nursing and the educators have found that they need to have educational programs in nursing which are somewhat longer and more extensive, more scientifically developed, than was the case in the past. So there is definitely the trend toward having a baccalaureate program.

Senator DOLE. Thank you.

Senator TALMADGE. Thank you very much, gentlemen, for your very helpful and constructive testimony.

[The prepared statement of Dr. Cooper follows:]

STATEMENT OF DR. JOHN A. D. COOPER, PRESIDENT, ASSOCIATION OF AMERICAN MEDICAL COLLEGES

Summary

I. HOSPITAL PAYMENT PROVISIONS

A. Uniform cost reporting

1. AAMC supports the provisions of Section 2 requiring uniform hospital cost reporting.

2. AAMC urges that the Committee Report state that the provisions of S. 1470 do not require or authorize the establishment of mandatory uniform hospital accounting.

B. Classification of hospitals

1. AAMC recommends more flexible legislation providing that hospitals "be classified by type and size" with specific guidance in the Committee Report. 2. AAMC recommends appointment of a "National Technical Advisory Board" to recommend and evaluate classification systems.

3. AAMC strongly recommends deleting the present provisions establishing a specific category for the "primary affiliates of accredited medical schools". 4. AAMC strongly recommends that the Secretary of HEW be directed to examine the implications for reimbursement of alternative definitions of the term "teaching/tertiary care hospitals".

C. Determining routine operating costs

1. Where cross-classification schemes for determining hospital payments are used, the AAMC supports removal of atypical and uncontrollable costs.

2. AAMC supports more flexible legislation which would permit additions to the list of excluded costs without new legislation.

3. AAMC recommends providing Executive Branch with flexibility to specify payment ceiling with guidance in the Committee Report.

4. AAMC recommends permitting wage rates to be used as the basis for an exception where a hospital can demonstrate that it had to pay atypical wage rates to recruit personnel.

5. AAMC supports case-mix provisions.

6. AAMC recommends provisions for exceptions process.

D. State rate control authority

AAMC finds state rate systems are acceptable where they meet specific organizational and operational characteristics.

II. PHYSICIAN PAYMENT PROVISIONS

A. Defining "Physicians' Services": AAMC recommends amending S. 1470 to explicitly permit "physicians' service" compensation for a physician who is simultaneously functioning as an educator and personally performing or directing identifiable patient care services.

B. Anesthesiology Services: AAMC supports broader definition of anesthesiology services.

C. Pathology Services.

1. AAMC is concerned that the proposed emphasis on fee-for-service payment for surgical pathology services and hemato-pathology services would favor these two areas over other important areas of clinical pathology.

2. AAMC is concerned about payment mechanisms which could possibly discourage the involvement of pathologists and inhibit the development of the discipline.

D. Percentage Fee Compensation.

1. AAMC is concerned that the proposal may inhibit the development of some clinically necessary disciplines by placing them at a disadvantage with others.

2. AAMC requests explicit guidelines for determining "an amount equal to the salary which would have reasonably been paid”.

E. Part A Compensation Arrangements: AAMC requests explicit guidelines for determining "an amount equal to the salary which would have reasonably been paid."

III. ADMINISTRATIVE REFORMS

A. Health Care Financing Administration.

1. AAMC supports centralization of Federal health care financing.

2. AAMC advocates Cabinet-level Department of Health.

B. State Medicaid Administration: AAMC strongly endorses more rapid payment to providers.

C. Regulations of the Secretary.

1. AAMC supports 60 day comment period.

2. AAMC requests some guidelines for defining "urgent" regulations.

D. Abolition of HIBAC: AAMC strongly recommends the maintenance of an advisory board to the Secretary of HEW which is composed of providers, practitioners, and consumers from the private sector.