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We believe there is a need for immediate legislative action to help control hospital costs. S. 1470 takes a number of steps in the right direction. We believe the establishment of uniform financial reporting, the concept of a classification system for hospitals, comparisons between like hospitals to promote competition and efficiency, and the use of incentives and penalties all are elements which can lead to effective hospital cost control. We also strongly support the payment of funds to promote the closing or conversion of underutilized facilities. Likewise, we support tying reimbursement for capital expenditures to approval by the designated planning agency.

We would, however, offer the following observations and suggestions which we believe are crucial to the success of S. 1470 a a long-term solution to the hospital cost-control crisis.

First, the program should control hospital costs for all patients rather than applying only to medicare and medicaid reimbursement. Although the bill provides that hospitals may not increase the amounts due from others to offset reductions under this program, we believe this section is unenforceable.

Second, by limiting controls to routine operating costs and by excluding controls on ancillary services, the program only addresses 35 percent to 40 percent of hospital costs.

Senator Talmadge has, of course, already announced plans to address these first two points, and we support such changes.

Third, by using average per diem cost for routine services as a measurement of efficiency, the bill may encourage hospitals to lengthen average stay or change patient mix so as to reduce per diem costs.

Fourth, our major concern is that the bill does not provide for prospective review of hospital budgets and rates. Uniform financial reporting, classification and comparisons of hospitals, and the use of incentives and penalties, are steps which are consistent with prospective rate review. We believe review of overall budgets and rates is a crucial next step in this regulatory process. We believe prospective budget and rate review, exceptions review and many other elements of a cost control system can best be operated at the State level, subject to Federal guidelines. We urge you to include strong incentives for the establishment of State prospective reimbursement systems and to grant exemptions from Federal controls to those States which establish such programs.

Our strong endorsement of State prospective reimbursement is based primarily on three things: (1) The need for close coordination between cost control programs and the planning, certificate of need and utilization review activities now being conducted at the local level; (2) the need for adequate input into the cost control process by the parties affected-providers and insurers as well as consumers; and (3) our experience in Connecticut and with Government Research Corp. The Connecticut commission on hospitals and health care was established in 1973 and charged with the administration of the State's certificate of need law, with the review of all operations of institutional services, and with approval of hospital rates and budgets. Connecticut hospital prices had been rising at or above the national average, but in fiscal year 1975 and 1976, the Commission held the rate of increase in Connecticut hospital charges for individual services to 8.3 percent. and 9.6 percent respectively.

Because of increased utilization of services, the rate of increase in total hospital revenues in Connecticut was approximately 16 percent in fiscal 1975 and 1976. This is still below the national average of 19.5 percent in 1975 and 22.3 percent in 1976. The commission has saved Connecticut consumers an estimated $35 million since 1973, and it has done so without adversely affecting the quality of care.

Of course, Connecticut has not been without its problems. The commission has recently been concentrating its efforts on controlling total hospital revenues, recognizing that price control is not necessarily cost control. Since 1973, it has also become apparent that more procedural safeguards were needed in the rate review process, and that the commission needed the expertise of third party payers. These changes have been made under recent legislation.

Since 1973, the process of hospital cost control in Connecticut has matured from a regulatory point of view. A Federal program which sets guidelines for prospective reimbursement operated at a State level could benefit from such refinements.

Along with representatives of hospitals, employers, unions, State regulators and third party payers, we recently participated in an 8 month review and analysis of prospective reimbursement which was sponsored by Government Research Corp. Although the final work product does not represent a system which the participants as a group would necessarily recommend or support, we believe it is a workable and effective proposal, and we will submit a copy of the report for the record.1 Essentially, the proposal suggests prospective reimbursement operated under Federal standards, but run at the local levels by State commissions.

In conclusion, we urge you to enact a cost control program which applies to all patients, and which places equal emphasis on quality of care, on hospitals' need to be adequately reimbursed for all legitimate elements of cost, and on the public's need to have the rate of increase in hospital costs controlled.

State prospective reimbursement can help accomplish this goal. The concept has been put to the test in Connecticut in Maryland and in a number of other States. It offers the local expertise and knowledge with a Federal system could never achieve, is capable of a more sophisticated in-depth look at particular hospital operations than a Federal system, and offers the flexibility needed to become an extremely effective regulatory process.

We offer you and your staff any assistance we can provide.

Senator TALMADGE. Thank you, Mr. Filer. I want you to know how much we appreciate the support which you have expressed for S. 1470. I did, however, want to respond to two of the concerns expressed on page 2 of your statement.

You say that by using average per diem costs for routine services as a measure of efficiency that the bill may encourage hospitals to lengthen average stay or change patient mix so as to reduce per diem


The bill does provide where a hospital deliberately alters its patient mix to do exactly what you say, reimbursement would be adjusted to

1 The report referred to will be made a part of the official committee file.

reflect any manipulation. Insofar as length of average stay, the answer to any artificial game-playing along those lines is effective professional review.

As a practical matter, based upon our study, the differences in average stay, length of stay, do not seem to particularly affect the adjusted per diem cost.

The effect of shorter stays for a given illness is reflected more in the per diem cost of the services such as laboratory, pharmacy and X-ray. You have indicated that your major concern is that the bill does not provide for prospective review of hospital emergency rates. While we may not specifically provide for that type of review, the bill does authorize an exception where a State system, does a better job. Thus of the system in Connecticut which you refer to and Maryland which you refer to, results in less costs that would otherwise occur under the particular reimbursement mechanism, we would accept that. Senator Curtis?

Senator CURTIS. I have no questions.

Senator TALMADGE. Thank you very much for your contribution, Mr. Filer.

The next witness is Dr. Richard C. Reba, president, American College of Nuclear Physicians; accompanied by Dr. Eugene L. Saenger, chairman, governmental affairs commission and Kenneth L. Nicolas, executive staff.

It is a pleasure to see you again, Doctor.


Dr. REBA. I am Richard C. Reba, a physician and a director of the division of nuclear medicine at George Washington University, and I am currently the president of the American College of Nuclear Physicians. With me is Mr. John Dring and Mr. Kenneth Nicolas of the executive staff of our college.

The statement that we are making to you is on behalf of the American College of Nuclear Physicians which represents physicians in a new and growing specialty now recognized by various branches of the Federal Government, the Departments of HEW, DOD, as well as organized medicine.

The specialists of this discipline are certified in nuclear medicine by the American Board of Nuclear Medicine, in nuclear radiology by the American Board of Radiology and in nuclear pathology by the American Board of Pathology.

The practice of nuclear medicine includes procedures by which radiopharmaceuticals are administered to patients and images then obtained by nuclear detectors and various electronic devices. These procedures thereby provide an image of the distribution of the labeled drugs and thus aid in medical diagnosis.

In addition, there are tests of function of organs and tissues where radioactive drugs are administered and the flow of these compounds is followed to determine whether or not the organs are working nor

mally. It is also possible to analyze materials derived from the human body such as blood and excreta to study organ and system function, Furthermore, there is a large and growing field, commonly termed in vitro testing, where radioactivity is added to material removed from the human body in order to measure the concentration of important biological materials such as hormones, vitamins and drugs. The field of nuclear medicine encompasses all of these methods as well as the use of radiopharmaceuticals for certain types of therapy.

While the ACNP agrees with and supports the goals of S. 1470 we have several suggestions which we would like to offer concerning the bill.

While S. 1470 preserves the eligibility of radiologists, pathologists and anesthesiologists to be paid by medicare and medicaid on a fee-forservice basis for patient care services when certain criteria are met, the bill does not specifically include nuclear physicians. Section 12(a) (3) on page 32, line 21, should be amended to read "Laboratory diagnostic services," in lieu of "Pathology services," since the specialized in vitro procedures performed by nuclear physicians and other specialty areas involved in such procedures, frequently termed radioimmunoassay, do, in fact, represent a consultative service to individual patients within the meaning of section 12(a) (3). The performance of these tests require special competence and constant review and supervision, particularly in difficult cases, and the nuclear medicine physician is intimately engaged in consultation with both patients and their referring physicians.

The nuclear medicine physician as a consultant is required to interpret the special tests which are performed in his laboratory for the referring physician and therefore, participates directly in the care of these patients.

Over the last year, there has been considerable controversy over the use of relative value scales in determining physician reimbursement. We believe that a system of relative values can promote more effective administration of medicare and medicaid, and we support the intent of the bill to provide a means by which such scales may be developed and utilized. However, we are concerned that placing unrestricted decisionmaking authority in the hands of one person-the Secretary of HEW-may not be the best way to achieve this purpose. We would suggest, instead, that an independent board should be created to accomplish this task. This board should be directed to utilize the expertise of medical societies and colleges in developing relativevalue scales that would serve the public while maintaining the high quality of medical services which our country now provides.

Finally, the college would like to note that we oppose the concept of applying a fixed administrative cap on hospital revenue as a means to controlling the cost of Government health care programs. Prospective reimbursement is a more effective tool, since it provides the flexibility which the Government needs in dealing with different types of hospitals.

In general, the ACNP agrees with the substantive proposals of S. 1470 and wishes to commend you for its content. It is our hope that under this bill, as modified, the needs of our important specialty field of nuclear medicine and the needs of the medical profession in general will receive the consideration requested above.

Thank you for your consideration in this important matter. The American College of Nuclear Physicians stands ready to assist you or your staff in any way and we thank you for the opportunity to present our views.

Senator TALMADGE. Thank you, Dr. Reba. It seems to me that you have made a reasonable request and one that can be worked out with staff.

Senator Curtis?

Senator CURTIS. I have no questions.

Senator TALMADGE. Thank you very much.

The next witness is Dr. Thomas G. Dorrity, director of the Association of American Physicians and Surgeons; accompanied by Maurice A. Kramer, assistant executive director, Washington office. Dr. Dorrity, we are delighted to have you with us.


Dr. DORRITY. Mr. Chairman and Senator Curtis, we appreciate this opportunity to present the views of the Association of American Physicians and Surgeons on S. 1470 which, as we see it, is intended to further extend the bureaucratic grip on the Nation's hospitals. I am Thomas G. Dorrity, M.D., chairman of the AAPS legislative committee. I am a practicing surgeon in Memphis, Tenn. With me is Maurice Kramer, AAPS Washington representative.

The Association of American Physicians and Surgeons is a free, independent, nongovernmental, voluntary organization of physicians who take care of patients. We have been devoting our energies since 1943 to trying to prevent any kind of interference with the freedom of physicians to exercise their best judgment for the benefit of their patients. We may be distinguished from most other nationwide medical organizations by the fact that we are unalterably opposed to Government subsidies, which only the naive do not recognize result in suffocating and brutally destructive bureaucratic regulation and control.

We believe that Government subsidies corrupt and massive subsidies corrupt massively. Members of AAPS are against compulsory political medicine, whether called medicare, medicaid or falsely labeled national health insurance. We are for individual responsibility and freedom, which are the basis for the glorious and noble successes of mankind.

On May 27, Senator Talmadge, announcing these hearings on S. 1470 commented on the alarming report of trustees that the way things are now going, medicare will come up to $9.5 billion short every year for the next 25 years. And that was calculated on constant 1977 dollars, excluding the factor of inflation. Senator Talmadge said:

There are those who advocate transferring tax money from the Medicare trust fund to the cash-short old-age assistance and disability funds. Under the circumstances, that would be akin to the Federal Government trying to borrow money from New York City. Given the enormity of the medicare actuarial deficit, this is the time to face up to the issue and not to compound the problem.

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