And fourth, we have utilization review organizations which are supposed to be monitoring us just to insure that detrimental discharge does not occur.

Mr. RINALDO. You do have that in place now?

Ms. GOLDSCHMIDT. Utilization review, yes.

Mr. RINALDO. And have they come up with any evidence whatsoever of premature discharges?

Ms. GOLDSCHMIDT. I have not seen any hard evidence.

Mr. RINALDO. Mrs. Livengood, since it was your agency that made these charges, the New Jersey Home Health Agency Assembly, would you care to comment on them? And if you could document them to the greatest extent possible.

Mrs. LIVENGOOD. The headline does not represent the context of the article, I do not think, because when I read "Nurse organization accuses," I said, "What crazy group is that?" Then I read it and found out it was myself.

Within the body of the article it says that we are currently doing a survey to document whether or not these cases are frequent and

extreme.

It very often happens, as in anything, that one or two extreme cases make it seem statewide. Therefore, we brought any kind of thing forward to the DRG system, we have a survey out now and are getting material in, case histories as well as numbers.

And I am not free to comment on that survey. It is far from complete. And I think the article does point that out. And I agree with Faith that there is not enough documentation to make the accusation.

In my testimony, however, I do say we have early discharge and too early discharge. I think that distinction has to be made. An early discharge is not something we are opposed to provided it is done in an orderly fashion with good discharge planning and all the equipment in place, and that there is a safe habitation to refer to. I think that is the difference. And the article talks about a lot of patients who were able to be taken care of. That is early. But it is the too early that we are documenting. We take care of very, very sick patients at home, much sicker than we did before cost containment.

Mr. RINALDO. Would you please submit for the record a copy of the survey when it is completed, so that our committee can look into this matter?

Mrs. LIVENGOOD. I would be very happy to.

Mr. RINALDO. Thank you. Mrs. Somers, you mentioned that the 17 year history of medicare is positive. I want to quote what the 1981 trustees said. They said that "since its inception in 1965, the financial experience of the HI program has been unfavorable, in that the estimates of costs have repeatedly fallen short of projected actual experience." The trustees of the trust fund have reported that "on a long range basis, the program has been in deficit condition during 13 of the last 14 years." Do you agree with that assessment? It seems to be the facts.

Mrs. SOMERS. Yes. I have no quarrel with that. I am not familiar with the precise financial details but I agree on the unacceptable cost increases and the precarious position of the part A fund. But you have to set those negatives over against the positives-the in

crease in life expectancy, the increase in the quality of life, the increase in the quantity and quality of health care facilities and professionals in this country. I think there are many, many positives which actually outweigh the negatives.

However, I agree that, if we do not correct the cost problem and some of the other related problems, the whole thing can collapse. I have been saying for almost 17 years, that this "blank check," the "reasonable costs" and "reasonable charges" approach to provider reimbursement, which medicare did not invent, but wrote into legislative concrete were time bombs that had to explode. Now we have to correct those deficiencies. But in the effort to correct, let us not throw out the baby with the bath water.

Mr. RINALDO. You also mentioned, and I believe it is in your article, "Rethinking Medicare to Meet Future Needs," the emphasis in medicare on acute care rather than on prevention. Would you explain to us how we would pay for the added factor of prevention and long-term maintenance under medicare, particularly in light of the impending funding gap? And what are your solutions to this funding problem?

Mrs. SOMERS. Well, I did suggest several things. One, no question that fixed rates have to be established in one way or another. I would hope not unilaterally, but through negotiations. Of course, in establishing the new prospective rates for hospitals, a great deal of informal bargaining has gone on between the Federal Government and the American Hospital Association and related organizations. I would like to see that bargaining actually formalized, and done in public view, so we would know where exactly both parties stand. But, one way or another, provider rates have to be fixed. Since you pointed out, quite correctly, that price inflation is the biggest single factor in the runaway costs, that would help to address that. It will not correct it altogether, but it is a very important beginning.

Second, I have no quarrel with a reasonable amount of patient cost-sharing. I think that has to be used very carefully, selectively, and it should be used, I think, rather deliberately in order to correct the current tilt toward acute care and toward institutional care, as Mrs. Livengood and others have mentioned.

Mr. RINALDO. Could you give us some percentages?

Mrs. SOMERS. I cannot give precise percentages partly because it is a matter of definition. What exactly is acute care? What exactly is chronic care? When a person, who has had a long history of progressive heart failure or coronary heart disease, suddenly gets a heart attack, is that acute or is that chronic? It is actually an acute exacerbation of a chronic condition, but it is hard to be completely precise. What is curative? What is prevention? But we do know that section 1862 of the medicare law specifically prohibits payment for anything which is not diagnostic or treatment, that is, anything which is strictly preventive. We know that a little bit of prevention is reimbursable. Not much, but a little bit. The internist may figure out a way to get his patient with diabetes a little bit of counseling. But in general I guess that about 90 percent of medicare payments go for diagnosis and treatment and only 10 percent at most for prevention.

On the other side, we know the prohibition against "custodial" care. Custodial simply means long-term care. So again a little bit gets into that, one way or another. A little rehabilitation may be done for patients with stabilized stroke conditions. But this is miniscule compared to what we are spending on acute care in the hospital situation. So I would say that 90 percent, 90 percent of medicare benefit expenditures are going to acute care or acute exacerbations of chronic conditions, which are, at least theoretically, preventable.

You asked how would we pay for it. I made two suggestions. A third one, an immediate source, would be to transfer from medicaid, and perhaps other Government programs, to medicare a substantial portion of the $15 billion or so public dollars which are now being spent for long-term care.

Mr. RINALDO. Thank you. I want to get back to Ms. Goldschmidt. I have been looking over the Star Ledger story, and there are a number of cases in which there has been testimony at other hearings, and statements, that I consider rather persuasive.

For example, according to Dr. Harold Slobodien, the president of the medical society of New Jersey, "Physicians are being pressured by hospitals to get their patients out of the hospital as soon as possible. Yes, they are being pressured. It is, Doctor, get your patient out. And if you say the patient still needs care, the patient cannot be treated at home, it is still Doctor, get your patient out." I think that is a pretty strong statement by a person in an extremely responsible position. And yet the attitude seems to be, well, the reporter did a bad job or the headline writer did a bad job, the statements have not been proven. It seems to me that the people who wrote this article in a number of instances have documented exactly what led to the conclusions that they have drawn. Do you care to comment on that?

Ms. GOLDSCHMIDT. Yes, I would. As you know, there is an incentive for hospitals to reduce expenditures and to reduce length of stay under the DRG system. I believe historically there has been no such incentive, so that now that we are under DRG's, yes, physicians are becoming aware that they should get their patients out, but only when medically feasible, not ahead of time.

A decrease in the length of stay is not necessarily a bad thing. As Mrs. Livengood said, it is those cases where the patients are discharged too early, where they are not medically ready to go home, that could be a problem. The cases where they can go home, then I do not feel that they should be in the hospital having to pay for acute care.

Mr. RINALDO. We are talking about people who are not medically able to go home. We have testimony here before the Senate Special Committee on Aging where Rosemary Caccera, the executive director of Visiting Nurse and Health Care of Union County, testified before Senator Bradley that "Certainly the very acutely ill, some of them do not even make it home in the ambulance, Senator." That does not indicate to me that that person is cured when they do not even make it home in the ambulance. That indicates to me a very, very serious situation, and a situation that perhaps this committee should look into.

Ms. GOLDSCHMIDT. I would like to comment on that one. In order for us to make a really valid judgment, I would have to go back and look at the evidence that they had and find out if this had been a practice prior to DRG's or if that hospital was on DRG's at the time. In other words, what was the actual reason that incident happened.

Mr. RINALDO. So what you are saying then is right now, the fact of the matter is, you do not know whether people are being prematurely discharged or not.

Ms. GOLDSCHMIDT. We have no hard evidence right now.

Mr. RINALDO. We can then say that everything in the article could be absolutely true and the situation could even be worse or it could be better.

Ms. GOLDSCHMIDT. Right.

Mr. RINALDO. Thank you. I have no further questions. Mr. Smith. Mr. SMITH. Thank you, Mr. Chairman. This is for Faith Goldschmidt. Just a couple of questions.

The New Jersey DRG system applies to all payers, thereby reducing the effect of cost shifting. How serious do you feel cost shifting would be under prospective payment of medicare hospital coverage, and what additional measures do you recommend to the committee to diminish it in all the other States?

Ms. GOLDSCHMIDT. I think that based upon what we saw in New Jersey before we had all payers on, the potential is quite large. It is the balloon effect, where you have a ceiling and then the rest go up. So I think the potential is quite large for cost shifting. And one thing that could be done is to eventually have all payers under the prospective payment system.

Mr. SMITH. That is the key then?

Ms. GOLDSCHMIDT. I think so, yes.

Mr. SMITH. Can you think of some recommendations you can make to this committee as to how we could encourage other States to follow suit and to make it mandatory?

Ms. GOLDSCHMIDT. You can make it mandatory, but I think if other States take a look at what happened in New Jersey pre- and post-DRG's, it is quite dramatic.

Mr. SMITH. Do you think their best interests will prevail, in other words, look at the facts and probably follow suit?

Ms. GOLDSCHMIDT. I hope so.

Mr. SMITH. Mrs. Somers, I want to thank you for your statement, also, all three witnesses. In part of your testimony, you mentioned consolidation of parts A and B. As you probably know, the Advisory Council on Social Security has that under advisement right now and they have not come up with any specific recommendation. Perhaps you could share any thoughts you might have along those lines, as to how much perhaps could be saved, and why that would be better for administrative purposes, as well as for beneficiaries. Mrs. SOMERS. I do not know how much would be saved. The administrative costs of medicare are remarkably low now. That is one of the big positives. For part A I think it is a little over 2 percent of total costs. And for part B, where, of course, you have so many more smaller claims, it is a little over 6 percent. Maybe you could bring the entire administrative costs down to something like 3 percent. Obviously there would have to be some savings by avoiding

the duplication of having so many different carriers, so many different intermediaries.

It could also provide a psychological lift to the beneficiaries, who are now confused by the complexities of medicare; and maybe also to some of the providers. Some providers would oppose it, of course. I think probably many physicians would oppose it.

There would be other benefits. It might facilitate the use of general revenues, which are already dominant in part B, so you have precedent there. If the two parts were merged, it would make it quite logical to have a certain proportion coming from general revenues. I would hate to see this proportion ever exceed 50 percent. Something like a third might be appropriate, not the 75 percent you have now with part B or the 5 percent-or whatever it isunder part A. Perhaps a third for the combined program would help to ease the immediate deficit problem.

Finally, a merger of part A and B, while it does not make medicare into one big HMO, does have some of the characteristics in that the physicians would be a little more tied in with the institutions, instead of totally separate as they are now. Even the DRG system, although it indirectly impacts on physicians as the quote from Dr. Slobodien shows, does not touch them directly.

And it seems to me a little inconsistent for the same administration which is pushing the HMO—not just this administration, but administrations for the past 10 or 15 years-or the idea of tying hospital and physician reimbursement more closely together to continue to sanction and encourage a total separation of the two as the present separation into parts A and B tends to do.

Mr. SMITH. Thank you. Mr. Chairman, I would like to just read into the record for those members of the committee who will read this record, the Advisory Council on Social Security's statement regarding the combination, and it goes like this.

"Combining part A and B would potentially contribute to improved beneficiary understanding, simplify the more effective administration and improve monitoring of the utilization of health care services. Potential problems to be evaluated would include financing considerations for combining benefits with distinct funding sources and complexities of merging different reimbursement systems under part A and B."

It is kind of a summation of what you just said, so I do appreciate your comments.

Finally, I just want to thank you, Mrs. Somers, for again reminding the committee, as you did in your testimony, of the intent of medicare. You know sometimes you have to get back to the basics. And as you said, in reforming medicare, we must be very sure that we do not destroy, but rather protect and strengthen its original goal of providing medical care to the elderly and disabled. So I want to thank you all for your testimony.

Mr. RINALDO. Thank you, Mr. Smith. Do any members of the panel have any suggestion about encouraging assignment among doctors? We have heard quite a bit about that this morning, and I was wondering if anyone had any ideas they would like to put forth at this time in that regard.

Mrs. SOMERS. Nothing definitive, but one of the problems with these surveys that were referred to earlier is that apparently what