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cost savings only to the Government. The actual cost of services does not change, and the difference between actual cost and reimbursed cost usually is made up by higher prices on services to nongovernment patients or in increased cost to the program beneficiary.

It is unrealistic to expect that physicians and institutions can provide services to Federal beneficiaries within the mainstream of medical care if continually reimbursed at inadequate levels.

Mr. Chairman, at this time, we would be pleased to respond to questions from the subcommittee.

Senator TALMADGE. Thank you very much, gentlemen, for a very thoughtful statement.

As you may know, we have had constructive discussions with the college of pathologists concerning alternatives to percentage arrangements. The AMA statement, on page 19, still argues for retention of the percentage arrangements by hospital-paid specialists. You are chairman of the council on legislation. It is not true that the council on legislation has twice voted in the last 3 months, both times by 8 to 1. recommending that the AMA adopt a policy opposing the percentage arrangements?

Dr. BEDDINGFIELD. That statement is not totally accurate. Let me amplify it, if I may; in general, it is an accurate statement.

I think you have to consider the structure of the American Medical Association and the development of its policies. The governing body that sets policies for the AMA is a house of delegates, where the doctor members are elected democratically from the various States on the basis of physician representation. That body convenes at least twice a year to determine the association policy.

The interim governing authority is the board of trustees, chaired by Dr. Holden. There is a system of committees in the AMA, one of which is the council on legislation, which I do chair.

The council on legislation acts in an advisory capacity to the board of trustees and to the house of delegates. Any action that we take does not become association policy until it is favorably acted upon by the board of trustees or house of delegates. In fact, I am reminded very much of the similarity between this great deliberative body here. I understand occasionally recommendations come from the committees of the Senate that are changed somewhat when they get before the entire deliberative body.

The council on legislation has made a continuing study on the issues raised in the medicare and medicaid programs; certainly percentage contracts are one of them. We have made recommendations to the board.

We have appeared before the board. We have discussed this with legal counsel.

We believe that the thrust of this is not so much the structure of payment-whether it is a contract, a percentage contract, a fee for service type thing, the type of revision suggested in your previous bill-what is important is the bottom line, and we have reason to believe now that there are many hospitals, many physicians, many hospital boards of trustees who are perfectly happy with the existing contracts. We do not believe that anybody ought to profit exorbitantly, unnecessarily, off of any type of percentage arrangement.

It is the results that count, not the form that enables you to arrive at those results.

The matter is under continuing study. As a matter of fact, our board of trustees has recently taken some firm action which will be submitted to our ultimate governing body, the house of delegates, later this month in San Francisco which speaks to this issue.

Senator TALMADGE, Your council has recommended against it? Dr. BEDDINGFIELD. We have submitted recommendations. We have discussed this with the board. It has been sent back to the council. It is under continuing study.

Senator TALMADGE. My question is for Dr. Holden. I recognize that the cost of medical practice increased significantly in the past few years. Are doctors' incomes before taxes declining as a result?

Dr. HOLDEN. Off the top of my head, Mr. Chairman, I would have to say I do not believe so.

Senator TALMADGE. Could you submit a more complete answer for the record?

Dr. HOLDEN. I could not give you a dollar and cents figure on that. Senator TALMADGE. Do you have any information?

Dr. HOLDEN. If you wish we can submit a written answer.

Senator TALMADGE. I would be delighted. What I would like for you to do, if you can, is submit to this committee any information you can provide as to changes in physicians' pretax income by specialty, urban or rural location, time in practice, over, say the last 5 or 10 years.

Dr. HOLDEN. We will be glad to see that this information is given to the committee.

[The following was subsequently received for the record:]

Chicago, Ill., July 6, 1977.

Chairman, Subcommittee on Health, Committee on Finance, U.S. Senate, Wash-

ington, D.C.

DEAR SENATOR TALMADGE: Enclosed please find a series of tables showing physicians' net income after expenses from 1970-1974, the latest years for which our figures have been compiled. This information is collected by the AMA's Center for Health Services Research and Development through periodic surveys of physicians.

Net income from medical practice depends on various factors, fees being only one of these. Besides the fees charged by physicians, net income depends upon the quantity of services provided and the expenses incurred in delivering the services. Increases in fees or the quantity of services provided do not, in themselves, ensure that physicians will realize higher net incomes if the costs of conducting medical practice rise more rapidly than either fees or quantity of services provided, or both.

Variations in net income and expenses among specialties and geographical regions cannot be explained on the basis of simple generalizations. The nature of medical practice, control of expenses, regional wage and price levels, and a number of independent factors undoubtedly help to explain the relative levels of expense incurred in the conduct of medical practice. Similarly, the demand for varying services and additional independent factors must be considered in any explanation of net income variations. The data presented here should demonstrate the diversities inherent in any profile of physicians' net income and expenses.

92-202-77- -16

Please contact us if we may be of further service to the Subcommittee. We request that this data be made part of the hearings records.





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General practice.
Internal medicine.




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48, 936

41, 846

42, 188


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44, 864
49, 963

39, 583

$42, 612

49, 042

50, 067


$44,463 48, 521 51, 911

39, 895

48, 912

25, 500

40, 789

39, 357

49, 414

49, 171

32, 276 43, 852

27, 889

29, 250

37, 438


1 In 1970, averages were determined for all metropolitan areas over 50,000.

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Senator TALMADGE. One other question, Dr. Holden.

The participating physician concept has been used in many Blue Shield plans-there is nothing new or radical about it.

You are opposed to this provision because you say that nothing less than increases in reimbursement levels would encourage acceptance of assignments.

Based upon discussions with many physicians, we believe that the provision will, in fact, increase their net incomes without necessarily increasing the payment levels. My bill of last year, as you know, S. 4205, contained a section requirng that medicaid pay not less than 80 percent of medicare payment levels for physicians' services. That provision would have established a minimum level. You opposed that section in your testimony last year, yet many physicians and physician organizations have since expressed their surprise at your position. In fact, they stated adoption of last year's provision would have resulted in substantial increases in payments under medicaid in many States and would increase physician's participation.

I think your position on the participating physician provision in this year's bill may also misread the intentions and concerns of many doctors. Would you comment on that?

Dr. HOLDEN. May I ask Dr. Beddingfield, who has been more conversant with the details of this bill, to comment?

Senator TALMADGE. Yes.

Dr. BEDDINGFIELD. Mr. Chairman, as we point out in our statement, we think that the present bill certainly represents a considerable improvement. The reason that we oppose the tying together of medicare and medicaid reimbursement in the last bill was that we realized the intent of the author of the legislation in trying to establish this as a floor for medicaid reimbursement and encourage participation by physicians. We have the feeling, and I think that this is a valid concern, that this would actually become a ceiling.

There is already a reduction in all governmental programs. First of all, you have the somewhat skewed definition of what the usual, customary and reasonable was, as in the original medicare law. That has been further curtailed by the imposition of the economic index.

Now there is a proposal in the bill to further regulate this by the mechanism in the present bill which would tend, over the long run, to equate fees, or narrow the gap between various fee areas.

Actually, I believe in the previous legislation that one really had two choices under medicare. You either participated as a physician, or you were a nonparticipating physician. You had to be either way, one way or the other.

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