HOSPITAL BASED PHYSICIAN REIMBURSEMENT

Insofar as control of physician reimbursement is concerned, we can understand the desire to discourage potential abuse or excessive payments by limiting the reimbursement for certain hospital based physicians. However, we believe that the actual method of payment—be it fixed fee, or percentage, lease, or direct billing arrangements-should be left to the discretion of hospital management. By restricting payments to a fixed fee, many rural areas might be unable to attract the services of these specialists.

We would not, however, be opposed to screens being applied to the final result of the hospital physician negotiations using a technique similar to the 75th percentile of the prevailing payment levels in the area.

Finally, there should be a "grandfather" clause covering all contracts made prior to enactment of S. 1470 between hospitals and hospital based physicians.

HOSPITAL CONTRACTS

We are pleased to note that Section 40 has been modified substantially, deleting last year's requirement that all contracts of $10,000 or more be approved in advance by the Secretary. This modification reflects an awareness of the chaos that such a provision would have caused in the daily administration of a facility.

However, Section 40 still provides that no cost or charge will be considered reasonable for purposes of reimbursement under Titles XVIII or XIX if it represents a commission or finder's fee or an amount payable under rental or lease arrangement where payment is based on a percentage arrangement. The Federation objects to this provision which covers consulting and management contracts for the same reasons it rejects the restrictions imposed on contracts with hospital based physicians. We believe that these are matters properly left to the discretion of the hospital's administrator and Board of Trustees.

Section 2 of the bill precludes the need for the kind of line-by-line budget examination proposed in Section 40. Under the proposed target rate, the concern is properly with the total costs, not with all the individual components that go into that final figure. Hospitals are given incentives to come in under the target rate, or at the very least make sure that their per diem routine operating costs do not exceed 120% of the average rate determined for their category. This factor in itself serves to prohibit the negotiation of contracts that are excessive. We, therefore, recommend that Section 40 be deleted altogether from S. 1470.

HOSPITAL PROVIDERS OF LONG-TERM CARE SERVICES

We believe that the stated purpose of Section 20 of S. 1470—to make better and more flexible use of underutilized hospital beds in rural areas by permitting their conversion to long-term care beds with appropriate reimbursement-is an excellent one. We would suggest, however, that this provision be amended to delete the requirement that limits the section to hospitals with less than fifty beds. Since a certificate of need would be required prior to conversion, planning authorities would not be faced with a surplus of long-term care beds. Therefore, we do not think that the potential success of this provision should be blunted by the currently suggested fifty bed limitation.

ADMINISTRATIVE REFORMS

Turning lastly to the area of administrative reforms, the Federation shares Senator Talmadge's concern that the new Health Care Financing Administration may be guilty of furthering, rather than alleviating, the bureaucratic superstructure controlling the health sector.

We would suggest that in re-examining the purpose and proposed organization of such an Administration under Section 30 of S. 1470, that consideration be given to placing it under the direct supervision of the Assistant Secretary for Health or creating an Under Secretary for Health, rather than an Assistant Secretary for Health Care Financing. With the exception of the Secretary himself, the Assistant Secretary-or Under Secretary-for Health, should be the top spokesman and policy maker for departmental health policy. The position of Assistant Secretary for Health Care Financing could serve to undermine this authority.

In addition to weakening the basic powers of the Assistant Secretary for Health, establishment of an Assistant Secretary for Health Care Fiancing separates cost and quality issues, and places even more authority in the hands of health economists. We, too, support cost-consciousness, but we are concerned by the increasing preoccupation with budget that has come to characterize departmental thinking and regulation. Issues of cost and quality of care are appropriately addressed jointly. For this reason, we believe that the Assistant Secretary for Health should have jurisdiction over the new agency.

SIXTY DAY COMMENT PERIOD

With few exceptions, a thirty day comment period is presently provided for public comment on proposed regulations. In order to assure that regulations affecting health care are representative of sound public policy, it is mandatory that the public and the health sector as a whole be given the time to respond with comments and constructive recommendations. However, as matters now stand, by the time that the proposed regulations reach our hospitals, particularly those in western regions, we are left with considerably less than thirty days in which to evaluate regulations that are often complex and lengthy. There is often not sufficient time available to study the regulations, gather information on their possible and probable effect, and then formulate and forward a response to the Department of Health, Education, and Welfare officials. Therefore, we strongly support the provision to extend the period for public comment on proposed regulations to sixty days except in those cases where the urgent nature of the regulations demands otherwise.

HEALTH INSURANCE BENEFITS ADVISORY COUNCIL

The effective administration of Title XVIII depends in part on the cooperation-not confrontation-between government and the health industry. HIBAC was created by Congress when Medicare was first passed as a means for affirming Congressional intent that industry advice and cooperation be sought by the department. Instead of abolishing HIBAC, as proposed in S. 1470, we recommend that the Council's role in the regulatory process be clarified and where appropriate, broadened.

We recommend that HIBAC be reconstituted as a ten member advisory body, broadly representative of health providers, consumers, and third party payors, a more workable size than the present nineteen members. HIBAC should be an advisory body of the legislative as well as the executive branch. It should meet more frequently and all proposed regulations under Title XVIII should be submitted to HIBAC thirty days prior to initial publication in the FEDERAL REGISTER. Any regulation which HIBAC determines to be contrary to the public interest or inconsistent with sound administration of the Medicare program, should be reconsidered by the Secretary prior to initial publication.

These recommendations, if adopted, would help restore confidence and trust in the system by assuring a real dialogue between the payor and provider of program benefits.

CONCLUSION

S. 1470 is the result of a great deal of well thought out labor on the part of the Subcommittee Chairman, the Members, and the Committee staff. On its own it may be considered a bill with a great deal of merit; compared to arbitrary cost control schemes, it is particularly commendable.

These attempts to place arbitrary limits on hospital revenues ignore the causes of rising health costs, and fail to provide incentives to counter this trend.

The impact of S. 1470 on reducing the rate of inflation in cost reimbursement under Medicare and Medicaid should automatically impact non-government program costs. Charges to private patients, for example, should rise less sharply because actual costs will be rising at a slower pace.

For this reason, together with our opposition to any government price controls over a single industry, we urge you to limit application of S. 1470 to government programs.

With regard to non-government patients, we recommend use of the President's general economic policy of jawboning to hospital rate increases in excess of an

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agreed upon percentage. The threat of adverse publicity from findings of local insurers and the President's Council on Wage-Price Stability would certainly create a climate in which most hospitals would attempt to hold down spending increases.

For example, all hospitals seeking charge increases in excess of 80% of the hospital service charge component of the CPI could be required to disclose and justify their budgets to their local Blue Cross plan and commercial insurance companies.

A national guideline for hospital price increases could be established with review of increases above that level by the President's Council on Wage-Price Stability, utilizing publicity as a disincentive to unrestrained price increases. We commend the Committee for taking the lead in revitalzing and reforming Titles XVIII and XIX of the Social Security Act, and thank you for this opportunity to present our views.

Senator TALMADGE. Our next witness is Mr. John F. Horty, president, National Council of Community Hospitals.

You may insert your statement in full in the record and summarize it in 10 minutes, if you will.

STATEMENT OF JOHN F. HORTY, PRESIDENT, NATIONAL COUNCIL OF COMMUNITY HOSPITALS, ACCOMPANIED BY JOHN HUFF, COUNSEL

Mr. HORTY. Thank you, Mr. Chairman, for the opportunity to appear here this morning. I have with me Mr. John Huff, legal counsel for the National Council of Community Hospitals. I will not read our statement to you, but rather attempt to summarize what we have said in our prepared statement, which we ask to be inserted in the record. We have taken the position that the approach taken by this committee is a very constructive approach in an attempt to enact and formulate long-term reform in the health care system and we would welcome working with the committee in this effort. We do, however, urge the committee to consider postponement of the enactment of this kind of long-term reform because of our feeling that the present situation with respect to hospital costs is one which requires drastic action and also one which requires us to examine not merely the inequities in the present system, but also the possibility of total reform of the entire concept of the way in which hospitals are paid for their services. Not only the way in which hospitals are paid, but the way in which all sectors of the health care field are paid, physicians, and others.

In fact, it is our belief that the philosophy of reasonable cost reimbursement as such no longer provides the kind of incentives that this field needs, and therefore that the very excellently conceived and stated reforms of this bill would find the reasonable cost reimbursement systems do not get at the root problems of the entire industry at this point in time.

We therefore, in a sense, join with the administration in their concern with the immediate cost problem in the hospital field. However, as other witnesses have stated, we do not believe that the vehicle that the administration has adopted is a satisfactory vehicle. We have stated so in our testimony in detail. I will not go back over the litany of reasons that other witnesses have provided and which the committee already understands.

It is our belief that another action is necessary and we have proposed that action in our prepared testimony and propose it now. What we are suggesting is that this committee consider a freeze on hospital capital construction, on capital construction in this entire field-that includes nursing homes, governmental hospitals, and doctors offices, for not only equipment and facilities but across the board for 24 months.

That the committee also consider a freeze on full-time equivalents per patient day which would, in effect, have a dampening effect upon the rise of the intensity of services in the hospital field.

Several other proposals are a part of this package which we have made. We stated in our testimony that we ask that this freeze be applied for 24 months. The purpose of, the limitation that the freeze would end at the end of 24 months, is to use that period of time to consider real long-term and radical reform of the entire system, including the possibility of building in meaningful free enterprise incentives into the structure of payment, not into the structure of "reimbursement," a term which, in itself, characterizes certain philosophical concepts that perhaps are outmoded.

I think that the bill that you are considering today is one of the alternative methods of reforming the system. We would like to see it go much further than it does. We would be happy to provide technical amendments and changes and to work with the subcommittee and its staff, but it is our feeling at present that it is time to not only call a halt to what is going on, but to do so in such a manner that gets the issues out on the table-that is, to determine whether in fact the American public wants a growth system in this field; whether the American public wants a no-growth system.

The hospitals, I believe, have been unfairly accused of fostering unlimited and unrestrained growth. It may well be that that is precisely what the American public desires and that the trustees and other members of hospital boards and members of the hospital management and leadership are doing precisely what the country wants, or that may not be so. Let's see!

If the country wants a very modified or no-growth industry, it is my view that the hospital trustees and administrators could provide that service as well, without any new or increased intensity or increased services.

In short, Mr. Chairman, what we ask is a consideration of a very tough concept of going beyond the reasonable cost reimbursement system that was put in place 10 years ago for medicare and medicaid, and really looking at what other possibilities there are.

In that regard, I would like to make one or two statements with respect to the testimony that the Secretary of HEW made yesterday. I believe for the record there should be a couple of comments made with respect to his so-called fat list which unfortunately, because of the term, tends to excite media interest, which the actual facts do not justify. The $1 billon profits which the Secretary characterized, involves the entire hospital industry; not as the Secretary implied, solely to nonprofit community hospitals, whom I represent; I think the Secretary's discussion of profit deserves response.

In the first place, generating a cash surplus is a traditional way of raising capital in this field. It has been used traditionally and the hospital boards have a tendency, in many instances, to practice pay as you go plans, despite the availability of easy loans capital over the past 10 years in this field.

I think, it is not imprudent to have accumulated these kinds of surpluses, it is eminently prudent to have done so.

I think the characterization of surpluses of $1 billion in the community hospital field and $250 billion pay-out of this $1 billion in the profitmaking field amply puts the situation into perspective. One is not unreasonable, compared to the other.

It seems to me to cut out this surplus, to get your savings, as the administration suggests, out of this kind of money, is likely to convert community hospitals into welfare hospitals.

It seems to me that the Secretary already has sufficient problems with welfare reform without moving the hospitals into that category. Secondly, questions of unnecessary therapy, unnecessary surgery, unnecessary hospitalization has been stated again and again by the Secretary in testimony and in the media. This is a very serious charge. If, in fact, there is this much, an awful lot of patients ought to be suing doctors, not hospitals, because hospitals do not admit them and do not order the therapy and should not be blamed. I do not believe that there are facts to support these charges.

It is very difficult, obviously, to prove this type of thing. I just do not believe that 100,000 patients are in hospitals at this very minute unnecessarily, as the Secretary states. Hospitals do not order therapy, do not give therapy. I think it is unfortunate to state that hospitals somehow force physicians to raise hospital charges by this kind of unnecessary practice.

It will come as a very grave shock to the dedicated trustees in 3,000 community hospitals around this country to know that what the Secretary charges is a widespread practice. I do not believe it is.

I think that the same is true of hospital's wasting energy. If ever there is a place that businessmen on hospital boards would attempt to save money, this is an area where they would move as rapidly as anybody else including HEW. I question whether the savings are as easy, as facile as the Secretary states.

Senator TALMADGE. How many hospitals does your organization represent, Mr. Horty?

Mr. HORTY. Fifty hospitals scattered in 21 States, all of them community hospitals one of them a very fine institution in the State of Georgia, Memorial Medical Center in Savannah.

Senator TALMADGE. It is very fine.

Your freeze on employment is an interesting one in view of your criticism of the administration's 9-percent cap as being inequitable. Mr. HORTY. Yes.

Senator TALMADGE. Would not a freeze on employment also be inequitable inasmuch as the efficiently staffed hospitals would go along with the inefficiently staffed hospitals?

Mr. HORTY. No. Our membership which-I should expand somewhat on what I said-includes hospitals that range from 700 beds