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SEC. 43. Any requirements of title II of Public Law

4 93-348 otherwise beld applicable are hereby waived with

5 respect to programs established under titles XVIII and XIX

6 of the Social Security Act.




SEC. 44. Section 1106 of the Social Security Act is

9 amended by adding:


“(f) The Secretary shall not make available, nor shall

11 the State title XIX agency be required to make available 12 to the public information relating to the amounts that have

13 been paid to individual doctors of medicine or osteopathy 14 by or on behalf of beneficiaries of the health programs estal)15 lished by titles XVIII or XIX, as the case may be, except

16 as may be necessary to carry out the purposes of those titles

17 or as may be specifically required by the provisions of other

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Sec. 45. Section 1904 of the Social Security Act is

23 amended by adding the following sentence: “The Secretary 24 shall not find that a State has failed to comply with the re

25 quirements of this title solely because it denies medical as


1 sistance to an individual who would be ineligible for such

2 assistance if, in determining whether he is eligible for bene3 fits under title XVI of this Act, there were included in his

4 resources any property owned by him within the preceding

5 twelve months to the extent that he gave or sold that prop

6 erty to a relative for less than its fair market value.".



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9 SEC. 46. (a) Section 1861 (v) (1) (13) of the Social 10 Security Act is amended


(1) in the first sentence thereof, by inserting "hospital or” immediately after “Such regulations in



the case of”,


(2) in the second sentence thereof, by striking


out "one and one-half times" and inserting in lieu


thereof “the percentages, specified in the next sentence,

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(3) by inserting after the last sentence of subparagraph (13) the following sentence: "For hospital and skilled nursing facility fiscal periods beginning before the month following the month of enactment of the




Medicare-Medicaid Administrative and Reimbursement


Reform Act, the percentage referred to in the previous sentence is 150 per cent and for subsequent fiscal years,



the percentage is 200 per cent: Proviled, howcrcr,



That no payments will be made under this subpara


graph, in the case of a hospital, for October 1980 or any

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Senator TALMADGE. Many constructive changes in the present bill, S. 1470, were included as a direct result of the testimony received on S. 3205. I believe we have made a good bill better.

Another proposal now receiving active consideration in the House of Representatives, H.R. 3, might well be regarded as the offspring of S. 3205. H.R. 3 is the “antifraud and antiabuse” bill which includes among its key provisions important sections taken from S. 3205. House passage of H.R. 3 is anticipated this month.

It is my intention to move promptly in committee as soon as the House version of my antifraud and antiabuse legislation is referred to us. The need for basic reform of medicare and medicaid is urgent. The two programs will cost Federal and State taxpayers more than $47 billion in fiscal 1978—some $9 billion more than in fiscal 1977 and $15 billion more than the $32 billion cost in fiscal 1976. The increasing costs of these programs continually outstrip the rate of rise in Federal revenue.

The choice is a simple one—either we make medicare and medicaid more efficient and economical or we reduce benefits. Indeed, many States are already cutting back on their medicaid programs. But, there is an overriding need to get a handle on medicare and medicaid costs apart from the Federal, State and local budget effects.

There is no question but that the way we pay for care under our programs serves to inflate health care costs for all Americans. That situation needs correction now. There is an absolute need for Federal and State government to effectively manage the existing health care programs. It would be difficult, if not foolhardy, to extend health insurance coverage to other segments of the population until we are satisfied that we can properly manage what we now have.

This hearing, of course, is not on the subject of the administration's hospital cost containment proposal. While that bill must ultimately come before this committee, it is currently being considered by the Senate Human Resources Committee, which has jurisdiction over a part of the bill, and the Ways and Means and Interstate and Foreign Commerce Committees in the House of Representatives. At such time as the House completes action on the administration bill, or when the Human Resources Committee reports out a bill, we will of course give prompt attention to the proposal in the Finance Committee.

With respect to the hospital reimbursement provisions contained in S. 1470, support has been expressed based upon it being an equitable means of rewarding efficient hospitals and penalizing only inefficient institutions. The thrust of section 2 of S. 1470 is that the reasonableness of a given hospital's costs is to be determined by comparing those costs with similar costs in similar hospitals.

But at the hearing last year on S. 3205 and in discussion elsewhere this year, three principal criticisms have been made of the hospital provision in both S. 3205 and the counterpart in the present bill, S. 1470. I think it is important that each of these points be addressed at the outset of this hearing.

The first argument is that section 2 of the bill applies only to the hospital care provided to medicare and medicaid patients—that it does not extend to the balance of hospital care. I indicated when introducing S. 1470 that, if a consensus developed to apply similar rewards and penalties across the board, I would not be averse to extending the provision to cover all hospitals. That is still my view and the staff of the committee has been working at my direction on possible approaches which could be considered if the decision is made to extend section 2 across the board.

The second argument is that the bill covers only adjusted routine hospital costs and does not apply to other hospital costs. The reason for this limited initial approach is simple. We did not believe that we had the expertise to make reasonable comparisons of costs other than adjusted routine at the outset of the program, but the bill specifically provides that, just as soon as that expertise becomes available, the scope would be broadened to include other hospital cost centers. In response to this particular concern, I have had the staff working and consulting to see whether the methodology in section 2 could be applied to more than just routine costs at the outset.

The staff now advises me that they believe it might be feasible to extend section 2 in such a way as to apply to something like 75 or 80 percent of hospital costs when it becomes effective. Assuming that the staff suggestion is reasonably workable and reasonably equitable, and if it includes appropriate appeals procedures to avoid unfair treatment, I would certainly be agreeable to modifying S. 1470. The staff advised me that they will have an outline for possible expansion of hospital costs initially covered by S. 1470 by the time markup on the bill begins.

The third criticism of the Talmadge bill is that its penalties and incentives would not apply until fiscal 1981 and that without something in between, hospital costs will continue to soar. I think that a careful reading of S. 1470 reveals that it will have a positive impact on hospital costs well before fiscal 1981. While, in fact, the penalties would be applied and the incentive payments made in fiscal 1981, those amounts would be based upon fiscal 1979 performance by the hospitals; that is, in the year beginning October 1, 1978.

The way it works is this—following the close of fiscal 1979, the Secretary has 6 months to gather and compare hospital cost data. By April 1, based upon that data, he announces that, effective October 1, 1980, 6 months later, hospitals will be paid on the basis of their 1979 costs performance adjusted for the average of any inflation occurring between the end of fiscal year 1979 and the beginning of fiscal 1981.

The point here is that hospitals which are high cost or otherwise inefficient will have every incentive to moderate their operations in the year beginning October 1978, if not earlier, because that will determine whether they are penalized or rewarded in fiscal 1981. It is reasonable to assume that many hospitals will act in fiscal 1979 to moderate costs, where they can, in hope of gaining an incentive payment or avoiding penalty.

As a matter of fact, under the bill, the Secretary, in 1978, publishes advisory information showing hospitals where they would rank if the program had been in operation. The purpose of this is to give high-cost hospitals more time to adjust or moderate their operations.

I seriously doubt that in the relatively short time between now and October 1, 1978, that hospitals would indiscriminately allow their costs to go up. If they did so—and remembering that fiscal 1979 is the base year-those hospitals would run serious risk of having costs determined to be excessive or disallowed. I also think it important to stress

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