their own program as long as such states meet the Federal criteria. However, the provisions in the Federal law which are designed to provide for free collective bargaining are not included as one of the requisites for such state administration. In addition, other states could opt out of the Federal program in future years thereby emasculating uniform and effective administration.

The AFL-CIO strongly favors a Federal program with uniform standards and uniform administration. If, however, states are allowed to administer their own program, one criterion that should be required of the states would be that they adopt the Federal standard which would exclude nonsupervisory wages from the cost containment formula. This is implied in President Carter's health message but it is not specifically included in the bill.

Highly objectionable to the AFL-CIO is the provision in the bill which provides that the Secretary of the Department of Health, Education and Welfare would have the authority to review but one aspect of the program-the provisions relating to wages-and subsequently be able to modify or eliminate the exclusion of nonsupervisory wages. It is the position of the AFL-CIO that the Secretary should report to the Congress as to how the entire program is working within eighteen months so that Congress can take whatever action it deems appropriate. S. 1391 cannot be more than a temporary program since the regulation of a single industry involves many complexities and potentially serious distortions. The entire program, therefore, should be reviewed by March 31, 1979.

The disclosure requirements of the bill are completely inadequate. As stated by AFL-CIO President George Meany, "for too long, hospitals have operated under a veil of secrecy despite the fact that tax dollars are a major source of hospital income. Taxpayers have a right to know how these funds are expended." Public disclosure of each hospital's total receipts, expenses, assets and liabilities should be required. Hospitals should disclose the salaries of all highly paid employees including their fringe benefits. Detailed conflict-of-interest statements should be required of highly paid administrators and hospital trustees. In particular, the total receipts of a hospital's pathology and radiology departments should be disclosed. If anesthesiologists, pathologists and radiologists bill separately for their services, all such physicians should disclose their gross and net incomes. Additional information that the public should know would be hospital charges and whether the hospital has a preadmission certification program, whether the hospital requires a second opinion for elective surgery and whether the hospital shares services with other hospitals to avoid duplication of services.

Voluntary nonprofit and for-profit hospitals should not be allowed to transfer their expensive and nonpaying patients onto the public hospitals. The provisions of S. 1391 intended to deal with this problem need to be strengthened.

The AFL-CIO favors the proposed limitation on hospital capital expenditures but would suggest prepaid group practice plans to be given a priority for such capital expenditures as HMO hospitals reduce the total need for hospital beds.

In conclusion, Mr. Chairman, we approve the basic thrust of this bill which would establish a ceiling on hospital cost increases but the burden of cost containment must not be borne by low-paid hospital employees. We strongly urge that the improvements we have suggested be incorporated into the final bill that is reported out and passed by the Senate.

Senator TALMADGE. All too often we do not give enough recognition to those outstanding Federal employees who do a really good job. The health staff of the Education and Public Welfare Division of the Congressional Research Service typifies what good public service should be. The health staff has just produced an outstanding document entitled "Health Care Expenditures and their Controls." In one place, we can find virtually all of the information necessary to evaluate the present health care picture in the country. I commend the publication to all those interested in health care and its financing.

I ask, without objection, that the document be made a part of the record at this point.*

*See app. B, p. 588.

The next witness is Dr. Raymond T. Holden, chairman of the Board of Trustees of the American Medical Association; accompanied by, Edgar T. Beddingfield, Jr., chairman, council on legislation.

We are delighted to have you gentlemen. You may insert your statement in the record in full and summarize in 10 minutes, if you will.

STATEMENT OF RAYMOND T. HOLDEN, M.D., CHAIRMAN, BOARD

OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION; ACCOMPANIED BY EDGAR T. BEDDINGFIELD, JR., M.D., CHAIRMAN, COUNCIL ON LEGISLATION

Dr. HOLDEN. Mr. Chairman, Senator Dole, we are pleased to present to this subcommittee the views of the American Medical Association on the important legislation, S. 1470, before you.

We have reviewed S. 1470 extensively and we commend the sponsors of this legislation for its broad coverage of a variety of issues in the medicare and medicaid programs. While we find that there are some provisions that we do not support, there are many others which we believe would be beneficial and for which we urge your favorable consideration.

One of the initial issues addressed in the bill relates to hospital costs. The intent of the hospital cost provisions is to provide a mechanism for controlling rising hospital costs. In any approach to this problem, it is important that solutions are not imposed that will adversely affect the quality of care available to beneficiaries of the Federal programs. As a matter of fact, it is important to note that attempts to curtail costs in those programs do in fact have a direct and substantial spillover effect upon all patients.

It is important that any cost containment measures be equitable for institutions, for patients and for third party payers while at the same time not compromising essential and desirable services and allowing for continued advances in hospital services incorporating the latest in technological developments.

One approach, Mr. Chairman, that of the administration, would impose an arbitrary ceiling or "cap" on total hospital revenues. We have opposed this approach because we feel it lacks appropriate flexibility, provides disincentives for efficiency and in fact would reward inefficiency. Most importantly that proposal would impact unfavorably most directly upon the continued provision of quality care.

On the other hand, S. 1470 contains provisions which attempt to meet the hospital cost problem in a more positive and equitable manner. Mr. Chairman, notwithstanding our belief that S. 1470 is a more realistic program, we also believe that adoption of the program in the manner presently proposed could have uncertain and perhaps even undesirable effects. Risks of any single new program imposed nationally are not warranted at this time especially when there are other potential alternatives which merit similar consideration. Experiments with various reimbursement methods have not been fully implemented and evaluated.

We would recommend that the cost containment incentive program of S. 1470 be the subject of experiment and demonstration in a limited

geographic area before being considered for nationwide application. We feel that all interested parties would benefit from such a procedure.

Another provision addresses hospital costs by encouraging the vol untary elimination of underutilized beds and the closing of facilities or parts thereof. We think this approach in the bill can be beneficial and we support this. We do raise a question as to whether the supporting funds should be taken from patient care funds. This is one of the questions which need to be determined, and the fact that a new program has uncertainties emphasizes the advantages to be gained by initiating the program on a limited or experimental basis, as is the case here.

Mr. Chairman, we also have recognized the problem of increasing health costs and are seeking solutions. I wish I could tell you now that we have the answers, but we do not. The problems are complex as you know, and we do not believe anybody has complete answers. In an attempt to find solutions, however, we have established our national commission on the costs of medical care. That commission is broadly based and draws its membership from leadership of all sectors: Economics, government, labor, insurance, business, and the public. That commission, which has been meeting since early last year, has been charged with the responsibility to provide the AMA's Board of Trustees with a final report by January 1978, to contain:

One, a description of the health care delivery system;

Two, identification of the factors underlying the rising costs of medical care;

Three, a review and evaluation of existing research of the causes of medical care cost inflation;

Four, an evaluation of the impact of pending or future health care programs on the health care delivery system and medical care costs;

Five, recommendations on policies that will contribute to containment of medical expenditures while providing quality medical care to the public; and

Six, recommendations and direction for future research programs. We note, also, that many State medical societies have expressed their concern about rising costs. Some are participating in the formation of local cost commissions.

Now, Mr. Chairman, Dr. Beddingfield will continue with our presentation.

Dr. BEDDINGFIELD. Mr. Chairman, among the changes proposed in S. 1470, there are several applying to physician reimbursement that we believe could have a detrimental effect on the availability and quality of care under these programs.

The first relates to the creation of a special class of practitioners, designated "participating physicians," and we note the beneficial change made in this provision from the earlier provision in S. 3205. Nevertheless, "participating physicians" would still be those who agreed to accept all medicare reimbursement for their services on the basis of assignments. Inducements, such as simplified claims procedures and an "administrative cost savings allowance" of $1 per patient, would be offered to encourage physicians to become "participating physicians."

This proposal is designed to increase the assignment rate by physicians, yet it does not reach the issue of why assignments are not widely accepted. The major deterrent to assignments is the insufficient reimbursement rate under medicare and this proposal does not correct this problem.

Increasing the acceptance of assignments can only be achieved by raising the level of reimbursement to reflect accurately the costs of the service provided. By perpetuating arbitrarily low reimbursement, physician acceptance of assignment in the medicare program will be discouraged. This can only lead to a reduction in the availability of care to the intended beneficiaries.

If simplified billing procedures can be made available, and we think they can be even without legislation, they should be introduced into the program now and be available to all physicians. It is disheartening to think that administrative aids might be available but are not used. Mr. Chairman, section 10 should be deleted.

Our second area of concern relates to the proposed criteria for determining medicare reasonable charges for physicians' services. Under section 11 of S. 1470, the Secretary would determine statewide prevailing charge levels for each State, based on 50 percent of the charges made for similar services in the State. Prevailing charge levels in a locality would continue to be subject to an economic index, but any increase in the prevailing charge level could not exceed the statewide prevailing charge by more than one-third.

The real effect of this change would be a further restriction on reimbursement levels in the State achieved primarily through a reduction in the already limited increases which would otherwise be allowed under the medicare economic index. We believe that this stifling of proper fee recognition for all physicians would be detrimental to maintaining a proper level of care under the program. This limitation could further aggravate the shifting to program beneficiaries and to private patients of those expenses which should be reimbursed by medicare. Section 11 should not be adopted.

S. 1470 also limits certain physician/hospital arrangements in a manner which we believe would also be detrimental to quality patient care. Those provisions in sections 12 and 40 should not be adopted.

Another area of concern relates to the redefinition of "physician's services" which would exclude those services the physician performs as an educator, an executive, or a researcher and would exclude even patient care services unless "personally performed by or personally directed by a physician" for the benefit of the patient and unless the service is of such a nature that its performance "by a physician is customary and appropriate." This new limitation would apply to all physicians' services under medicare.

We object strongly to this modification. All activities of physicians customarily recognized as part of the physicians' practice should be reimbursable as "physicians' services." A strict application of this language would have dire consequences for proper recognition of, and payment for, all services of physicians under medicare and would attempt to allow HEW to determine what the practice of medicine is. In fact, other provisions of this same section specifically and, in our

opinion, inappropriately delineate specific specialty practice for purposes of medicare. Section 12 should not be adopted.

S. 1470 would also authorize the development by HEW of a system of uniform procedural terminology and of a relative value schedule. We believe this provision is laudable in recognizing and attempting to ameliorate unfavorable restrictions upon the use of such schedules.

The RVS, as a guide to recognizing reimbursement, is a beneficial tool when developed by physicians for use in a locality. Several physicians' organizations in fact have sought to develop and use a RVS but have been prevented from doing so by Federal restrictions.

While the RVS as found in S. 1470 attempts to overcome restrictions, we believe it would do so in an undesirable manner. For example, the provision would not recognize any schedule unless developed and approved by the Secretary; medical organization participation is limited; adoption of the RVS by the Secretary would require use only in Federal programs and use in nonfederal programs would be approved but only of that RVS as used in Federal programs and approved by the Secretary. Any RVS would be subject to modification by the Secretary at any time, and there is no requirement that any RVS even be developed. We believe that this provison in S. 1470 is too restrictive. It could lead to increasing difficulty of beneficiaries in obtainng quality care.

As to its provision for developing and establishing a uniform procedural terminology, we believe this too is restrictive and does not properly recognize the widespread acceptability of the system adopted by the profession-current procedural terminology (CPT). Legislation should recognize and provide for use of terminology and relative value schedules as developed by the profession.

Section 15 should be modified to reflect our comments.

A number of proposed amendments are, in our opinion, necessary and proper as changes in medicare-medicaid. Among these are the payment under part B of medicare for certain antigens prepared by an allergist; allowing a return on equity for proprietary hospitals; facilitating payment after the death of a medicare beneficiary for services furnished; and allowing a profit factor under medicaid for skilled nursing and intermediate care facilities.

We are also pleased to see changes that would allow certain rural hospitals to be reimbursed under medicare for the provision of extended care services through the use of inpatient hospital facilities. Patient absences would also be allowed from skilled nursing or intermediate care facilities-allowing flexibility in treatment of extended care patients.

Changes in medicaid administration to allow more timely payment are also salutary. Other beneficial changes relate to reimbursement for ambulance services under medicare and to permissible cost-sharing under medicaid law. We are also gratified to see that restrictions would be placed on the release of confidential financial information on physicians under medicare and medicaid programs.

Notwithstanding these needed changes, the overall thrust of S. 1470 is cost control through curtailment of reimbursement. We again remind the committee that a lowering of reimbursement levels represents