tals, whose goal is to use the right number and mix of health professionals in hospitals related to work loads, which do fluctuate. But hospital workers, be they professionals or unskilled labor, need incentives to perform more efficiently. The same type of incentives that will attract superior management capacity into this field. The setting of standards by itself is not likely to increase productivity, but there is an enormous potential for innovative compensation programs in hospitals tied to productivity factors, as has been demonstrated in more than one progressive California institution. This requires enlightened reimbursement programs as well as enlightened management.

FEDERAL LICENSING OF PARAMEDICALS

Another necessary change to increase productivity in the hospital is to open job mobility, to provide workers who have reached the top step in their current jobs an opportunity to move into a new career demanding higher skills and responsibilities. It would seem that national health insurance for the entire population would make it necessary to transfer licensing, certification and accrediting agencies from states to the federal level. This would present an opportunity to define uniform functions and standards for each of the 73-odd paramedical groups working in hospitals and formulate means to enable more health professionals to advance within the system. Why, for example, does the licensed vocational nurse with a year of training and several years of experience in a hospital, interested in becoming a registered nurse, start at the same place as other students without this background. Lack of career mobility and dead-end jobs today are costing hospitals millions of dollars in frustrated employees and personnel turnover. Consequently, we would hope that legislation complementing national health insurance will take an active stance in the matter of effective health manpower utilization, including a downward transfer of functions, so that that person least capable, but adequately capable, is allowed to perform a task. This is of priority concern, and will require some restructuring, not only of certification and licensure standards, but of educational curricula as well, for each of the professions.

CAPITAL FINANCING

There is one final factor behind low productivity of hospitals, and this is that hospitals have been "capital-poor institutions" for years. Professor Eli Ginsburg put the matter succinctly 12 years ago at the Joint Economic Committee hearings on economic growth (86th Congress):

"... Partly because we have so many non-profit institutions, which tend to be capital poor, productivity tends to be low. . . The kinds of supporting personnel that even a broken-down business organization would have on the payroll to economize the use of more expensive personnel are scarce in non-profit institutions. Being capital poor, these institutions squeeze their dollars and try to make them go as far as they can. From a productivity point of view, I think you have an under-investment in capital, with corresponding under-utilization of personnel, which unbalance gives you a bad result.'

Along this line, may I supplement Professor Ginsburg in saying that there is an over-utilization of capital in the structure and an under-utilization of capital in the acquisition of labor-reductive equipment. This is the direct result of the archaic construction standards of the Hill-Burton program with regards to the structure and of cost reimbursement programs, which encouraged utilization of immediately reimburseable personnel, rather than the acquisition of equipment which could have a long-range economic benefit but which created a short-range capital problem. However, more and more capital injected into the creation of hospital facilities is hardly the solution, without the coherent and responsible utilization of these sums. The federal government has been injecting money into the creation of private hospitals for 21⁄2 decades through the HillBurton program, without really getting its money's worth. The money was given to an industry led by men who really did not know what to do with it, and still do not. However, since they had that money, they spent billions on marbelized steel and concrete monuments that will endure for years after their functional utility has disappeared. With construction costs in this nation out of sight, I respectfully suggest that we need frugality in our construction and design techniques.

A recent issue of Modern Hospital noted the State of Massachusetts is taking a serious look at “turnkey” hospital development, and modular construction.

The article states.

"We are building monuments based upon what we think we will be doing 20 years from now. We may trap ourselves." We have been doing so for years. But what can we expect from trustees and administrators who may undertake one hospital project in the course of a lifetime. We need, and would have, in the multi-facility organization, inhouse experience to control the architects, contractors, and equipment vendors. If there is one area in which I am in total agreement with President Nixon it is in his veto of the Hill-Burton program, at least until such time as standards can be developed which will inhibit the creation of facilities of unnecessarily exhorbitant cost and design. I do believe the reason the President vetoed the Hill-Burton program was his belief that borrowers are more frugal than donees. Perhaps, along this line, architects who have too often cruelly influenced inexperienced boards of trustees should be prohibited from receiving compensation based upon a percentage of the cost of the project. Experienced management, knowledgeable in the devlopment of facilities, would not be so naive in the expenditure of precious capital funds.

We believe that any effective national health insurance legislation is going to have to include some way for the system to capitalize itself, and I do not mean by governmental grant. General inefficiency should not be offset by governmental subsidy. Capital accumulation should flow from efficient operations. The use of capital can be regulated by comprehensive planning agencies, but they should confine themselves to major construction and the unnecessary duplication of facilities, a task which the comprehensive planning agencies are now doing very poorly. Dominated by providers, mainly non-profit representatives, with conflicts of interest, and by consumers who do not presently have adequate knowledge and skills, these agencies are, for the most part, simply stifling competition and innovation, rather than engaging in true, long-range planning.

MULTI-FACILITY ORGANIZATIONS

As you can ascertain by my comments, tied inevitably into the problem of lack of management is the insulary, unitary organizational setup of this nation's average general hospital. There is a definite and progressive trend towards the development of the multi-facility organization, both in the non-profit and in the proprietary hospital field. It is readily apparent that there are growing numbers of non-profit organizations acquiring and developing chains of hospitals and nursing homes, and although I believe the non-profit system has and will always have the inherent defects of not attracting superior innovative personnel, a lack of adequate capital, and a massive dependence upon governmental subsidies, I believe that the trend is affirmative.

The larger and more comprehensive the multi-facility organization is, so long as it is more than just a simple paper merger of facilities, the stronger the chances are that this organization will engage in those activities that are commonplace in modern industrial management, not the least of which is in-depth comparative statistical retrieval from various components of the institutional organization, which will enable centralized management to observe and evaluate true departmental economies. The unitary isolation of the average hospital in this country gives it no base with which to compare itself. Allow me to assure you that while most hospitals are unique in some ways, within a significant number of the operational departments there are very adequate common denominators to achieve significant cost control. Through the use of statistical information available to them, centralized management can do all of the following: Reduce costly duplication of equipment, share services between facilities, sharpen and evaluate techniques and practices, do aroup buuing, reduce inventories based on statistical analysis, develop standards for cost, staffing and productivity, put budget planning and controls procedures into operation and, because of size and scope, increase upward mobility of lower echelon employees, attract superior personnel and reduce personnel turnover through incentives, advancement and training.

To control hospital operational costs and achieve internal efficiency, we need full-time centralized management, opearting a cohesive network of health facilities in a structure that has all the advantages, incentives and advancement potential to attract top personnel, and which is above all responsive to consumer demands. And where does this all come from? All the plans that I see before Congress seem to ignore, at least they do not articulate the need for or invite the

participation by, the largest existing single source of potential solutions to these problems-America's private enterprise.

The second category which affects health care costs is utilization control, most of which is largely outside of the control of the health facility and the administrator. Most of the major proposals before Congress for national health insurance attempt to deal with the hospital cost problem by striving to control utilization, through measures such as peer review, health maintenance organizations, capitation reimbursement, the restructuring of prepayment plans and insurance plans to emphasize out-of-institution alternatives for care, a push towards group practice (which statistically has lower hospital utilization than the fee-for-service practitioners).

What needs to be done is rather simple, once the verbiage has been stripped away. Accomplishment is more difficult, but any form of national health insurance must include the following:

(1) Insistence that the doctor be more efficient in seeing patients, get more coverage per hour out of his time. To abet in this goal, the various bills encourage the use of the HMO, the HSO, group practice, and paramedical employees. It seems to be generally felt that the solo practitioner with a fee-for-service practice is not an efficient man. He probably is not, but while there are statistics that would indicate that group practice increases the average physician's productivity, this may be the result of increased use of paramedical personnel and the partial freedom from administrative responsibility of the physician. One of the problems that many of the capitation prepaid groups face is diminished productivity among the primary physicians within the service groups, due to a lack of incentive. I suggest that this Committee undertake a study of alternative incentives, including a reduction in the clogging paper work required of the average practitioner today, and perhaps a partial respite from the progressive income tax, which dilutes many physicians' work incentives. There may be ways to achieve productivity in manners other than the herding together of the physicians into a group practice.

(2) Cover areas where there are insufficient primary physicians and facilities-the ghettos, the barrios, the rural poverty areas; to care for the 30 million Americans who today receive little or no care. I submit that no form of national health insurance per se will solve the problem of inadequate availability of primary health care services to certain segments of the population. There simply are not enough primary physicians to do the job now or in the foreseeable future, unless there is substantial incentive for many of the specialists to return to primary practice. Medical schools continue to preach specialism and to demean general practice; although there are an increasing number of family practice residency programs, the great majority of today's medical students are headed for specialties. It is true that medical science is expanding at such a rate that the prospect of practicing a general and relatively superficial form of medicine seems unattractive to the student, intern or resident who has spent most of his training in big hospitals, organized by specialty. But they also know that the biggest incomes belong to the specialist, and if the national health insurance program desires to create more primary physicians there is no better way than direct economic incentive.

One of the stiffest tests of any national health insurance plan is how well it will bring services to people who do not have ready access to those services. The crux of the "access" problem is in bringing doctors to inner city ghettos and into rural areas. Today there is not much incentive for the doctor to move his practice and his family into these locations. The basic deterrents for the physician to move into the high-need areas are rather simple-he thinks his income will suffer, he does not want his family to live there, his children to be educated in that particular environment and he is in some cases, personally frightened for his own physical security. These things will continue to be true with or without national health insurance. It would seem to me that the encouragement of group practices to settle on the outskirts of the ghetto, with omnbudsmen, trained paramedical personnel combing the ghetto, trained in symptomnology, encouraging utilization of these fringe clinics and practices, would solve at least the personal fear aspect. The physician could live generally where he desired, as long as he had reasonable access to his place of work. It is up to Congress to create those economic incentives to induce the physician to engage in this type of practice, and I am sorry to say that I think that small measures such as medical school loan forgiveness will be a meaningless approach. Such forgiveness potential

will simply set the going rate of acquiring a graduate for the non-ghettos physicians and institutions. Again may I recommend the changing of licensing laws to a federal system, so that the physicians' assistants, public health nurses, psychologists and others can do more health screening, problem finding and treatment-within the constraints of their training and under defined medical supervision. We have too many cases where allied health professionals are prevented from achieving their full potential by various state boards that are acting like guides, seemingly trying to "keep the others off the reservation," the upshot being that professional groups become self-serving institutions, raising standards for certification and acting more like bargaining agents to justify pay raises.

(3) Force physicians to educate themselves in the economics of health care in all aspects, not just in their individual practices or group practices, but in the economics of hospital operations and convalescent facilities, in the cost of pharmaceuticals, supplies and equipment and the efficient utilization of all of these. In this area, one very important fact stands out. There are two very important people holding the keys to the success of utilization control. Foremost, and the one most readily available is the physician, who must be given incentives to keep utilization of costly facilities and services to a minimum and only to those persons definitely in need of them. Peer review must be the answer to utilization control in concert with other similar programs. It is obvious that peer review in some form or another, is becoming effective. In-patient utilization of hospital facilities is down on a national basis, and in some geographical areas, down sharply. While some of this is attributable to concentrated governmental restrictions on eligibility under the various programs, much of it is due to the educational processes that have evolved in the last year encouraging voluntary reduced in-patient utilization.

The consumer needs to be educated. He must learn what he can and should expect from his visit to the physician, when to go to the doctor, how to use paramedical professionals-basic symptomology. Until the consumer is educated to seek the appropriate kind of care, until he stops believing that the best care consists of daily visits in a private hospital room by a specialist, then we, in this age of consumerism, will not be able to use scarce resources effectively. Then only consumer and provider education and the understanding of what health care is, its scope and limitations, will solve the problems of potential massive overutilization.

HEALTH MAINTENANCE ORGANIZATION

The Health Maintenance Organization concept appears to offer hope for the future in redefining and restructuring incentives to both physician and provider within certain limited areas. When the physician has an economic stake in the cost of the patient's care, the history of group prepaid practice proves, for example, that institutional utilization is far lower than other comparable population groups who are not treated through capitation programs. Prepayment groups, such as Kaiser-Permanente, also indicate that a much higher incidence of primary physicians may have something to do with lower institutional utilization. 67% of Kaiser-Permanente physicians are in primary practice. The whole thrust is to emphasize ambulatory and out-patient medical services; conversely, there is far less hospital utilization and a similarly large reduction in surgical admission rates. One result is that there is far less need for surgeons and surgical subspecialties.

However, the HMO has potential limiting problems, particularly if it has a monopoly in a given area. Whatever the system of national health insurance, each individual covered under the program must have some choice between providers. Medical care is both an art and a science, and we know that good care requires patient-physician rapport; hence, there must be alternatives available to the patient who is not satisfied. The Kaiser Foundation Health Plan, for example, has always insisted that each individual in a group contract decides whether or not he wants to join Kaiser to begin with; Kaiser takes real efforts to match the individual to the family doctor of his liking, and if for some reason, the individual is still not satisfied, he can go outside of Kaiser-at his own expense. To attempt to give exclusive franchises to providers or health care organizations, as is implied in the American Hospital Association Ameriplan, severely restricts choice. More importantly, it eliminates or restricts competition between providers and provider organizations. While conceding there is a need for area-wide comprehensive health planning agencies to control unnecessary duplication of facilities and services, I cannot imagine anything more likely

to encourage high costs and inefficiency than to grant exclusive franchises to provider organizations.

The major thrust behind the HMO concept, as enunciated by Dr. Paul Ellwood, is to give consumers and big buyers of health care benefits more choice between providers as to services and rates. This is competition, and there should be more of it. In the historically subsidized environment of the health care delivery system, with its cost reimbursement, its uneven distribution of resources, its lack of concernment with cost and the requirements of the consumer, there has been altogether too little competition. It is our opinion that for any national health insurance program to succeed, it must have a mechanism to create competition, to encourage satisfying the consumer demands, to adequately capitalize the industry and to create incentives which will encourage and reward productivity. Affirmative steps to accomplish these goals will create affirmative answers to the three questions posted in the Committee's Print.

Thank you for your time and attention.

Mr. EAMER. Rather than address comments to specific legislative proposals for national health insurance now before this committee, I would like to set forth what I regard as important considerations in formulating legislation. In doing so, I will address most of my remarks to three questions raised in the introduction to a committee print issued June 28, 1971, entitled "Basic Facts on the Health Care Industry":

1. Can efficiency in the health care industry be improved to slow down the rise in costs?

2. Can innovations in organization and delivery of health care services be developed to promote economy in the health care industry and discourage price inflation?

3. Can financing methods be devised to encourage cost consciousness in the decisions made by patients, doctors, and hospital administrators?

EFFICIENCY IN THE HEALTH CARE INDUSTRY

When we talk about containing or slowing down the rise in health care costs, what we are really talking about (given the present system) is the cost of hospitalization, which not only has accounted for the largest rise in costs, but also represents in absolute terms the largest slice of the health care pie. For fiscal year 1970, the total national health expenditure was in excess of $67 billion, of which $58 billion was for personal health care. Hospitals and nursing homes received over $28 billion of these moneys, or just under one-half of all moneys spent for personal health expenditures.

By way of contrast, physicians received just under $13 billion, or 22.5 percent of this personal health expenditure, dentists $4 billion, drugs $6.7 billion. Thus, it is to be noted that the preponderant bulk of moneys spent on personal health expenditures goes to our Nation's hospitals and nursing homes, and the percentage is increasing each year. Since the advent of medicare, hospital expenditures have been increasing at the rate of 14.5 percent per annum, compared to 8.5 percent for physicians' fees and 6 percent for drugs. It is readily apparent that it is the hospitals that are eating us out of house and home. But why?

Any analysis of effort to control hospital costs will essentially be broken down into two broad categories (1) internal efficiency, and (2) utilization control.

No one can deny that much of the increase in hospital expenditures comes from increased services and a "catching up" in salaries by a