By 1975, all States but West Virginia had either a certifi cate-of-need law or a Section 1122 agreement with HEW, or both. In addition, some commercial lenders and governmental loan programs have recently instituted the practice of requiring an "1122 approval" before agreeing to help finance a particular project. Several evaluations of the Section 1122 program have disputed its overall effectiveness in controlling total dollar investment in hospital capital plant. One study revealed that 75 percent of the sampled States had approved hospital bed supply in excess of 105 percent of their published Hill-Burton need projections five years hence. Other findings showed that, regardless of the type of controls in place, States approved more than 93 percent of all projects submitted and 90 percent of the dollar expenditures proposed. Proposals to purchase equipment or add new services were almost always approved, whereas new construction or expansion proposals had a comparatively lower approval rate. Those States which were most consistently effective in controlling hospital beds and assets had either a State rate review program or Blue Cross prospective payment system in place for hospitals. By placing institutions at risk with respect to future revenues, rate control programs apparently forced such institutions to more carefully weigh the economic and financial feasibility of capital projects. One method of controlling health expenditures is to control the utilization of health services. Some methods to accomplish this follow. 1. Utilization Review, Professional Standards Review Organizations. During the last several decades, numerous studies have shown that there are substantial differences in the use of health services among similar populations based on differences in the way health care services are organized and paid for, differences in the availability of health resources, and differences in purchasing power. Studies have shown, for example, that persons enrolled in health maintenance organizations were hospitalized less often and had considerably less surgery performed than did otherwise similar groups of persons in the same area. Rates of surgery for such procedures as tonsillectomies may vary among areas in the same State. Such findings suggest an overuse of hospitals and surgery, and have stimulated interest in eliminating unnecessary uses of health services and in finding alternatives to institutionalization of patients. The area of greatest concern is hospitalization, which is the single most expensive form of health care, with roughly 40 percent of our total health expenditures going for hospitals. There is a general concensus that (a) there is sufficient excessive health services utilization to justify action, (b) that the providers of health services have a major role in determining consumer demand for health services, and (c) physicians and hospitals, but particularly the former, should play the major role in reviewing the performance of their peers. The original Medicare program required participating hospitals and skilled nursing homes to maintain utilization review committees where physicians would review the necessity and quality of care rendered to hospitalized Medicare patients. As a result of the poor performance of hospital utilization review committees, the 1972 amendments to the Social Security Act established Professional Standards Review Organizations (PSRO's) to review the necessity and quality of care for Medicare, Medicaid, and Maternal and Child Health Program patients. PSRO's are to be established nationwide in each of some 200 designated areas and are to be composed of the physicians in the area who wish to participate. The legislation also called for the PSRO's to establish norms or benchmarks for care to be used as a basis for reviewing medical care. There is considerable controversy regarding the probable effectiveness of PSRO's, which are only now beginning to operate in some areas of the country. While some would argue that establishing norms of care are essential in evaluating care rendered, some critics contend that such benchmarks tend to err on the side of being conservative, i.e. taking all possible steps in rendering medical care, hence their impact may be to increase the number of procedures performed on individual patients. Also, the question of peer review has been questioned by some because of the historical reluctance of medical professionals to criticize and penalize their peers. Health professionals may tend to give their peers considerable latitude in determining how best to deal with their patients. While it is conceded by many that such latitude is essential, it is also recognized by many that such an approach is not likely to depress the quantity of health services provided. There is little in the way of evaluation which demonstrates that either utilization review or PSRO's, to date, have been effective in reducing hospital admissions or the cost of health care. An approach given considerable support recently has been the second consultation by a physician where another physician proposes to perform surgery. The basis for such support are recent studies done in New York where it was found that second consultations reduced the amount of surgery that was performed. Although the findings have been challenged by some members of the medical profession, a number of insurers have included this option in their health insurance policies. 2. Cost sharing. Most of the available evidence shows that increasing the out-of-pocket costs of health care for consumers reduces or alters their use of health services. Conversely, increased insurance coverage increases consumer use of health services. A major cause of the increased use and cost of hospital services, for example, has been attributed by many experts to the increasing share of hospital bills that are paid by health insurance, both public and private. The sponsors of many major national health insurance proposals have included cost sharing by consumers in the proposals not only as a means of reducing the Federal share of the health costs, but as a means of lessening consumer demand. Recently, General Motors tried unsuccessfully to persuade the United Auto Workers to include cost sharing in the form of deductibles and copayments as a method of containing costs. Consumer cost sharing is controversial, with critics claiming that it hits the poor the hardest, discourages people from seeking care when they need it, and is administratively cumbersome. They also argue that since providers are the major determiners of demand, any controls should be directed at providers rather than consumers. However, as noted above, studies do show that cost sharing may reduce costs. E. Alternative Ways of Delivering Health Care Many of the changes in the delivery of health care services which are intended to save money attempt to do so by substituting less expensive forms of treatment for more expensive ones and by changing patient and provider behavior. For example, there are attempts to provide treatment for particular medical problems on an outpatient or ambulatory care basis rather than providing them in a hospital or other institution. Efforts are being made to delegate tasks previously performed by physicians, dentists, and other health professionals to "extenders" who earn lower incomes than such health professionals. Through steps such as mergers, cooperative activities and consolidation of activities, providers attempt to avoid duplicative work and achieve greater economies of scale. In some instances, changes attempt to shift the burden of providing health care and maintaining health to a greater extent to the patient. It should be noted that many measures which promise to contain costs may not achieve this result and, in certain instances, can have the opposite effect. If the lower cost service, such as a physician extender, is used to replace a higher cost service, then a savings would take place. However, if the lower cost service is provided in addition to the higher, aggregate spending would be increased. In addition, where cost saving approaches are introduced, there is no assurance that the savings that result will be transferred to consumers, but may be retained by the health industry. The following examples of cost-saving measures, therefore, should be considered only as those which have the potential for lowering overall health care costs and of lowering costs to individual consumers. 1. Health Maintenance Organization. There is considerable evidence that care provided through HMO's can be less expensive than that provided through fee-for-service insurance plans. Unlike fee-forservice medicine, HMO physicians' compensation is fixed and does not vary according to the volume of services they perform. Dr. Theodore Cooper, Assistant Secretary of HEW for Health, noted in November 1975: "Over all, HMO's appear to achieve cost savings of 10 to 30 percent, compared with traditional health care." A California study (Roemer et al.) produced data on prepaid group practice HMO's, as compared with conventional patterns of medical care. (Such costs comparisons commonly combine out-of-pocket expenditures with premiums to obtain the total cost of medical care.) The following table shows one of the findings of the study: The National Advisory Commission on Health Manpower examined health care costs in California in 1965, comparing per capita costs for Kaiser Health Plan members with the per capita costs for all other persons in California. The Commission found: Depending upon the figure used on non-Kaiser expendi- The Social Security Administration, in a study published by Corbin and Krute, compared per capita Medicare reimbursements made to feefor-service providers and health maintenance organizations. Seven prepaid group practices were examined. Five of the seven had lower per capita costs than those experienced under the fee-for-service reimbursement system. An important consideration in measuring costs of health maintenance organizations is the type of insurance with which it is compared. Studies show, for example, that increasing health insurance coverage increases the use of health services. The cost of health services provided by health mainenance organizations is most frequently compared with the cost of care provided under other relatively comprehensive health insurance plans, for example, those plans covering Federal employees and other groups with relatively broad health coverage. There may be a need for additional studies which compare the costs of care provided where persons are enrolled in health maintenance organizations with the costs of care provided to persons with less comprehensive insurance as well. 2. Home Care and Extended Care Facilities. Home care and extended care facilities allegedly reduce costs because certain types of illness that currently result in hospitalization may be treated equally well at home or in an extended care facility. Many However, it is not known how prevalent these types of illness may be. While the need for home care and nursing home care is substantial, especially among the elderly, relatively few of those who could benefit require hospitalization. experts contend that patients for whom hospitalization is justified on medical grounds will not, as a practical matter, be placed in another appropriate setting unless the hospital is operating at near capacity, requiring a serious search for alternatives, or unless incentives are changed, notably for physicians, to cause them to look for alternatives. Moreover, home health care programs that pay for housekeeping and other non-health services may be called on to make substantial expenditures for services now provided at no cost by friends, relatives and volunteers. There is little documentation showing the impact of home and extended care on the overall costs of health care. 3. Physician Extenders. For some time it has been acknowledged that physicians can delegate a substantial number of tasks that they have traditionally performed to well trained assistants, commonly referred to as physician extenders. With adequate support from physicians, physician extenders can diagnose and treat large numbers, estimated as high as 70 to 80 percent, of health problems which physicians have traditionally dealt with themselves. A study of physician extenders, commissioned by the Health Resources Administration of the U.S. Department of Health, Education and Welfare, concluded that "given the assumed task delegations and the expected level of acceptance, the median estimate of the need of physicians in the target years (1980, 1985, and 1990) could be lowered by as much as 22 percent." In a study reported in the "New England Journal of Medicine" in January of 1974, the addition of two physician extenders enabled two family practitioners to increase the number of families under their care by 22 percent in the course of a year. There are few studies which have dealt extensively with the cost issue, although there are frequent claims that care provided by physician extenders is more economical. Obviously, their impact on health costs will depend on the effect they have on the overall supply of services and on the charges for their services. Similarly, questions remain concerning the training that should be required of physician extenders and the degree of physician supervision needed to protect the interests of the patient. 4. Surgical Centers and Ambulatory Surgery. Surgical centers are free-standing, ambulatory centers designed to perform minor, sameday surgery. Many are privately owned, frequently by physicians. Their principal benefits appear to be patient and physician convenience because of faster scheduling and cost savings. In one area studied, Phoenix, Arizona, it was found that the surgical center was charging less for similar operations and apparently had caused a reduction in prices charged for outpatient surgery by community hospitals in some instances. However, comparisons based on charges are misleading because to a large extent the hospitals are paid by third parties on the basis |