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I think our bill is more comprehensive. It is more voluminous, it goes into a number of areas that relate to consumer complaints, goes into areas of things of that nature more specifically than any of these four bills do.

Mr. HEINZ. You probably learned from the experience they have had and your bill is relatively recent. I read in the record, the statement you provided, that it was just approved in December; is that right?

Mr. WEESE. That is right.

I would say the Florida and Pennsylvania bills go into more detail than the other two bills passed; the Tennessee and California bills are not very detailed.

Mr. HEINZ. Very good. I thank you for bringing that to our attention. I think it is important that we understand not only does your Model Health Maintenance Organization Act appear to be thoughtful but apparently also is thoughtful. I thank you very much. Mr. Chairman, I have no further questions.

Mr. ROGERS. Dr. Carter.

Mr. CARTER. Thank you very much, Mr. Chairman. I will reserve my time and read his statement.

Mr. ROGERS. What is your protection against insolvency in your bill?

Mr. WEESE. Our protection against insolvency, I think, comes about really in two or three ways, one, the insurance commissioner from the very beginning has to be satisfied that the plan is financially sound. Then, of course, he has

Mr. ROGERS. What guidelines would your insurance commissioner use, or would each commissioner make a value judgment?

Mr. WEESE. I think the concern would be, one, is there backup insurance possibly if he is concerned with the financial resources, that they may be certainly marginal but he wants to see the HMO develop, so he can ask for a suretyship arrangement where the plan would have to guarantee performance.

Mr. ROGERS. Don't we have this specific requirement in our bill?
Mr. WEESE. Yes.

Mr. ROGERS. I don't think you even make that requirement; you simply say whatever he determines. Don't you think it would be better to say you want insurance to protect people against possible insolvency? Shouldn't that be stated in the law?

Mr. WEESE. I would hope each insurance commissioner

Mr. ROGERS. I would hope so, but they may not. Shouldn't the public be protected in law? Do you have any objection to placing this in the law?

Mr. WEESE. I have no strong objection to that.

Mr. ROGERS. That is what our bill does.

Thank you.

Dr. Carter?

Mr. CARTER. I pass.

Mr. ROGERS. Thank you so much. Your testimony has been most helpful.

Mr. CARTER. With regard to this National Association of Insurance Commissions, I am pleased they have this organization and that they

do assure sound and reasonable financial structure of health providers. I hope that they really do that. It is very important that they do. We have too many fly-by-night companies, have had them throughout the years that offered much and gave little in return so I think your organization definitely has good principles and I hope you follow them out. Thank you, sir.

Mr. ROGERS. Thank you.

[The following letter was subsequently received for the record:]

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS,
Charleston, W. Va., March 16, 1973.

Hon. WILLIAM R. ROY,
U.S. House of Representatives,
Washington, D.C.

DEAR CONGRESSMAN ROY: During my appearance on behalf of the National Association of Insurance Commissioners before the Subcommittee on Public Health and Environment on March 7, 1973, to discuss health maintenance organization legislation, it was clear that the NAIC and the Subcommittee both favor flexible financial regulation of HMOs.

Prior to my testimony, the NAIC had been disturbed over the uncertain extent of the preemption of state financial regulation intended in Section 1215 (a) (4). Your comments following my statement, however, clarified the intent of the provision. My understanding is that the preemption is intended to override state law that would require health maintenance organizations to meet statutory capital and reserve requirements imposed on health insurers.

The NAIC, by adoption of its model health maintenance organization act, has recognized such standards to be inappropriate. Furthermore, I do not believe that the NAIC would consider as appropriate fixed capital and reserve requirements similar or identical to those imposed on health insurers which might be established through the vehicle of a state health maintenance organization act which did not provide the flexibility necessary for a service type organization and which was in fact a "health maintenance organization act" in name only.

We would prefer that Section 1215 (a) (4) be deleted; however, to assist in clarifying the intent of the preemption if the committee does retain 1215(a) (4), we wish to suggest possible language for inclusion in the committee report. We would greatly appreciate your consideration and would welcome the opportunity to discuss the matter further if you so desire.

Sincerely,

Enclosure.

SAMUEL H. WEESE, Insurance Commissioner.

SUGGESTED REPORT LANGUAGE

Section 1215 (a) (4) would preempt certain state statutes which would impose needless financial burdens on the organization or operation of health maintenance organizations. In the committee's view, health maintenance organizations should not be required to submit to state requirements comparable to those established for health insurers respecting initial capitalization and financial reserves against insolvency. The service nature of a health maintenance organization makes the fixed minimum capitalization and reserve requirements imposed on health insurers inappropriate. Furthermore, such requirements might prevent the organization or implementation of an otherwise viable health maintenance organization. However, where state statutes recognize the service nature of health maintenance organizations and provide appropriate flexibility for their financial supervision, such regulations would not be preempted since preemption in such a case would result in unnecessary fragmentation of regulation.

Mr. ROGERS. Our next witness is Dr. Robert S. Jaggard, president of the American Association of Physicians and Surgeons, who will be accompanied by Mr. Frank Woolley, executive director of the Association.

We welcome you and will be pleased to receive your testimony.

STATEMENT OF FRANK K. WOOLLEY, EXECUTIVE DIRECTOR, ASSOCIATION OF AMERICAN PHYSICIANS AND SURGEONS; ACCOMPANIED BY MAURICE KRAMER, WASHINGTON REPRESENTATIVE

Mr. WOOLLEY. Thank you, Mr. Chairman.

My name is Frank K. Woolley. I am speaking for Dr. Robert S. Jaggard, who is president of the AAPS. Unfortunately, he is unable to be here. He couldn't cancel all of his obligations for surgery because of the short time since acquiring knowledge that this hearing was being held.

Mr. ROGERS. That is understandable and we are pleased to have you here to present his statement.

Mr. WOOLLEY. I have with me, Mr. Kramer. We have recently employed Mr. Maurice Kramer to be our Washington representative. I hope he will be helpful to this committee. He will be here in the Washington area, and may be able to supply you with useful information. Mr. ROGERS. Thank you.

Mr. WOOLLEY. Incidentally, Dr. Jaggard is so busy taking care of patients that, like all the doctors in the United States, he often doesn't know what is going on with regard to legislation. Personally, I have been following legislation since 1933. I became a bureaucrat in 1933. I tried to help save the country with the farm program back in those days.

I have been with doctors' organizations for a number of years. First, I was with the American Medical Association. Now I am with AAPS. One thing that disturbs me about the legislation being considered by this committee at this time is that the people who are the primary parties in interest are so busily engaged in doing what they are doing that they have no idea of what is involved in this pending legislation.

We appreciate this opportunity to give you the views of this association on proposals to subsidize HMO's. We are confident that they represent the views of the overwhelming number of physicians in the practice of private medicine.

This association seeks no subsidy of any kind from the Federal Government. It opposes subsidy of any type of medical care to the disadvantage of competing types of medical care. All that our members seek is to be left alone to exercise their best judgment and skills so that they can provide their patients with the best possible medical care without interference by Government.

I think it is extremely important that there be a profound realization of the damage that is done by Government interference in Medical care. One of the primary principles of good medical care is, first, to do no harm. We think that the legislature of the United States should adopt this principle, also. There is so much legislation on the books, there is so much spending for so many programs, that it is certainly in order to consider the amount of harm that is being done in relationship to the amount of good that is achieved.

It is our view that subsidization of per capita, prepaid, closed-panel group practice is being pushed as if there were a set of facts indicating that more Government spending on yet another Government program

will not do more harm than good. We submit there are no such facts available upon which to predicate that judgment.

We oppose congressional irresponsibility-and I stress that-in driving another wedge into our medical care system that will form the basis for another monstrous raid on the Federal Treasury. Before driving this wedge, at least a reasonably respectable review should be made of all past Federal Government actions in this area.

H.R. 1, for example, was jammed through the Congress in the closing sessions last year. Senator Bennett referred to the fact the bill was only 986 pages long, and that he was disappointed it was not over a thousand pages.

They began debate on H.R. 1 in the Senate without even having the bill before the Members of the Senate. And there was a 1,285 page committee report on the bill which they did not have when they began to debate the bill. It is for such reasons that I have been so bold as to use the word "irresponsible."

The original medicare and medicaid bills were pushed through Congress with assurances that they weren't going to cost very much money, and with accusations that people in the medical profession and others were opposed to giving care to patients. This, of course, was not the issue. The issue was not whether you give care to patients, but how you give that care.

Medicare and medicaid is now costing in excess of $19 billion and it is admitted that it is driving up the cost of medical care for everyone--even though it was said in the beginning that this program would cost each person only about a dollar a month, and that it was difficult to understand why anyone would not want to permit poor people to have a program that would cost so little.

Let's move back away in our minds from the details of the legislation that you are now considering, and look at the broader picture. The Department of Health, Education, and Welfare is authorized to spend annually over $90 billion. Now that $90 billion will anesthetize anybody. I doubt if there is anybody who has the capacity to contemplate clearly what $90 billion is.

Let me give you one figure. All the profits after taxes of all the corporations in the United States, from the largest to the very smallest, amounts to only around $45 billion annually, according to estimates of the Department of Commerce.

Yet we are now considering another medical care program—even though the Federal Government, through HEW, is now spending over twice as much money as all the income after taxes of all the corporations in the United States. We think this is a very, very grievous situation.

We don't think that it is accidental that we are having difficulty with devaluation of the currency in America. We do not think it is any accident that the dollar is in trouble. We think the reason is quite obvious: the Government has been spending many billions of dollars more than it is taking in in taxes.

The HMO bills may look like minimal propositions, but they would be an opening wedge-and this is the thing that we fear.

We also fear that the advocates of tax subsidies for developing 'HMO's may be promoting the biggest get-rich-quick scheme this country has ever seen.

Imagine the possibilities that will unfold for fast buck con artists, clever and shrewd at making promises they don't intend to keep if Congress enacts H.R. 51 that picks the taxpayers' pockets for a third of a billion dollars for developing HMO's, or the more profitable Kennedy proposal to spend $5 billion for the same purpose.

Enormous possibilities will open up for the unscrupulous to set up HMO's with premeditated intent to harvest the greatest profit with the least possible service, at the highest capitation fee the traffic will bear. This is more than just a speculative possibility. The results will be poorer quality care.

I know this is not the kind of testimony you have been hearing. I mentioned the fact I was a bureaucrat. I was a bureaucrat for 18 years. I am well acquainted with how the bureaucrats manipulate Federal finances, how they build support out in the country, how they identify witnesses, have those witnesses come down here and testify, all seeing the opportunity to get on the gravy train.

Every one of you who have been here very long, and really know what is going on, know that these are facts. As we sit here today and discuss these HMO bills, the No. 1 question in America is whether or not the bureaucracy is going to so completely dominate America that the whole private sector will completely collapse. This is the No. 1 problem we are facing.

That sounds like a very strong statement. But when we consider the fact that the expenditures of the local, State, and Federal Governments are now in excess of 40 percent of the total income of everybody from every source-over 40 percent―we are in a very, very serious situation.

HEW takes the attitude-although there has been a recent change of attitude, at least at the top-"Look, we are paying out 38 percent of all the money being spent for health care, so therefore we ought to have a lot of leverage in connection with it."

There is serious question as to whether that should be true.

Anyone who is skeptical about the statements that we are making that subsidized HMO's may be get-rich-quick schemes should read a letter written by Harold M. Cohen, M.D., chief of staff of the Pacoima Memorial Lutheran Hospital, Lake View Terrace, Calif., to the California Department of Health Care Services about the misrepresentations and the poor quality care given to medical patients by North Valley Medical Group, an HMO which is a division of the Consolidated Medical Systems, Inc. Consolidated is a subsidiary of HMO International.

Dr. Cohen's letter documents cases in which representatives of the North Valley Medical Group engaged in various misrepresentations, including the false statement that it was "a new plan" replacing Medi-Cal, in order to "persuade" people to sign up. But worse, Dr. Cohen also documents cases in which the North Valley subscribers were forced to go to emergency departments of area hospitals because North Valley wasn't open- and then North Valley tried to get the patients out of the hospital, or refused to pay the bills.

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