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PANEL TWO, COST CONTAINMENT AND BENEFIT RESTRUCTURING-CONSISTING OF ANNE SOMERS, PROFESSOR, DEPARTMENT OF ENVIRONMENTAL AND COMMUNITY MEDICINE AND FAMILY MEDICINE, RUTGERS MEDICAL SCHOOL; FAITH GOLDSCHMIDT, HEALTH ECONOMICS SERVICES, NEW JERSEY DEPARTMENT OF HEALTH; AND WINIFRED LIVENGOOD, EXECUTIVE DIRECTOR, HOME HEALTH AGENCY ASSEMBLY OF NEW JERSEY

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STATEMENT OF ANNE SOMERS Mrs. SOMERS. Thank you, Mr. Rinaldo, and Mr. Smith, ladies and gentlemen. My name is Anne Somers. I am a professor in the Department of Environmental and Community Medicine and Family Medicine at Rutgers Medical School, which as you know is a branch of the University of Medicine and Dentistry of New Jersey. I am also a research associate, industrial relations section at Princeton University.

I have been a close observer and student of the medicare program since its inception. My husband, Herman Somers, and I served successively on the original HIBAC, the Health Insurance Benefits Advisory Council to medicare between 1968 and 1975. And we authored the first serious study of the program, "Medicare and the Hospitals”, published by the Brookings Institution in 1967. We anticipated a great many of the problems which are generally recognized today, including the cost problem.

Now, I regret to say, we have a different point of view. We are both beneficiaries. But at least it has given us a well-rounded experience, and the opportunity to view medicare from many points of view, some more advantageous than others.

My general views have been set forth in several recent articles, especially a paper entitled "Rethinking Medicare to Meet Future Needs' that I gave to the National Leadership Conference on Health Policy in June 1982.

Mr. RINALDO. If you will yield, we would like a copy of that to be included in the record if you have one.

Mrs. SOMERS. You will have it. And a second paper on “Medicare and Long-term Care," which was published in the New England Journal of Medicine, last July. I would welcome the opportunity to discuss them in greater detail with you or Mr. Smith or any members of your staff.

What I have tried to do in what was even for 10 minutes a very brief time-is boil my views down to a series of six statements. Obviously, it has to cover a lot of territory. The challenge you have thrown out to us is both imaginative and urgent.

In an effort to be both precise and comprehensive, I inevitably run the risk of sounding somewhat dogmatic. But the topic is so complex and so important, that it really must not and cannot be dealt with effectively on a piecemeal basis.

One, the original goal of the medicare program, that is, to provide needed health services of good quality to all Americans 65 or over, without a means test, was not only humane and idealistic, but feasible.

In reforming medicare, we must be very sure that we do not destroy, but instead we protect and strengthen, this original goal.

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Two, the 17-year medicare experience has been, on the whole, positive. Average life expectancy for those 65 has been extended by about 2 years in that short period of time, a very remarkable achievement.

The quality of life has improved for millions of both the elderly and seriously disabled. Health care personnel, technology, procedures, and facilities have improved both quantitatively and qualitatively.

And private health insurance has flourished, both as an administrative adjunct to, and as a supplement to, medicare.

Three, the major negatives in the medicare experience involve the unacceptable rise in costs and the precarious situation of the part A Hospital Insurance Trust Fund. I am not going to spend any time documenting these cost problems. You have already done it, Mr. Chairman, very succinctly and effectively. My husband and I have been saying this for 15 years and there is now very little disagreement.

The real disagreement, however, still involves the causes and the appropriate corrective action. In my view the cost explosion results from a combination of overlapping external and internal factors, some of which the program can address, and some of which the program has to live with but cannot directly address, but both of which should be taken into account as reform is contemplated.

The situation is far more complex than just a matter of changing financial incentives or changing the behavior of physicians or individual patients.

Externally, the principal factors include: (a) the constant improvements in and the rising costs of medical technology, resulting in what we have long called “the paradox of medical progress”. That is, the more patients we save from acute illness—from dying of a heart attack, stroke, or early cancer—the more we save, the more patients there are going to be to live longer, to require longterm care, and probably to cost more over the long run; (b) the aging of the population; (c) the shift from acute to chronic disease as the principal cause of morbidity in the United States-remember, by definition, chronic disease is never cured. It is not something you die from or get well from in 2 weeks in the hospital. You live with it the rest of your life: (d) the growing proportion of women in the population, a point Mrs. Abrams addressed very eloquently; (e) declining birth rate; and (f) the shrinking American family. All of these external factors add up to a longer lived beneficiary, with more chronic disability, with fewer family supports, more expensive medical care, and reduced financial base—both for the individual patient and the program as a whole.

Internally, medicare has suffered from two major deficiencies: an almost total lack of cost controls and overemphasis on acute inpatient care at the expense of less expensive primary and long-term care.

Four, medicare reforms should be addressed simultaneously to the two programmatic deficiencies with full appreciation of the change to external environment.

Efforts should be focussed on effective cost controls, consonant with the original and continuing goals of the program; and redesign of the benefit package to fit the new pattern of chronic disease.

Obviously there are many other relevant approaches to reform, for example, the one that you have stressed this morning, Mr. Chairman-exploring new sources of revenue, such as general revenues; or one that I feel has not been mentioned-administrative consolidation of parts A and B, which could have, not only administrative, but some other important consequences. Those obviously should be included. I cannot do it for question of time.

And, in any case, it seems to me that cost control and redesign of the benefit package are basic.

That leads me to the last two points.

Five, cost controls, should be directed at both providers and consumers. Among the specific measures needed with respect to the providers: fixed rates or prices for all provider services-all, not just hospitals, but all, both institutional and individual practitioners. I realize the word “prospective" is the “in” word today. It is a euphemism, I think. The important thing is that the rate be firmly fixed for an agreed period of time.

There are numerous acceptable methodologies for establishing such rates. The DRG or per case method is certainly one. I do not think it is applicable in all cases. There are cases—long-term care, for example-where per diem is more appropriate than the per case rate.

In the case of practitioners, sometimes fee-for-service is appropriate. It is not the only culprit in the cost rise. Salary or capitation may be better in other cases. In all cases, whatever methodology is used, it must be, fixed for a definite period of time, even if it is just 1 or 2 years. And preferably, rather than being imposed by one side or the other, the ratio should be negotiated and renegotiated in the tradition of American collective bargaining by the principal provider and payer organizations.

Assignment provisions, as you have already discussed, obviously also need tightening up.

Let us turn to consumers. Reasonable cost-sharing provisions, ranging from zero deterrence or even financial inducements for certain preventive services where societal considerations are overriding-to some degree of deterrence for certain high-technology services—which, of necessity will have to be rationed in one way or another. The artificial heart, if it ever works, is an obvious example.

Six, with respect to benefits, the existing bias toward acute inpatient care should be reversed to emphasize primary care, the latter defined to include appropriate preventive services, and long-term care-the modalities most appropriate to the new picture of chronic disease.

Specifically, the existing section 1862 prohibition on preventive and custodial-a euphemism for long-term care should be removed; the Secretary of HHS should be instructed to establish schedules of reimbursible, professionally approved periodic preventive services. Such schedules should be reviewed periodically and revised as appropriate-perhaps every 5 years.

All medicare beneficiaries should be encouraged, to undergo a health assessment by an appropriate primary care practitioner or group at the onset of medicare eligibility, and to remain in periodic contact with that practitioner or group before resorting to any specialized care.

The Secretary of HHS should be instructed to establish a schedule of reimbursible professionally approved long-term care services, both institutional and noninstitutional. Noninstitutional, of course, means primarily home care; institutional means nursing home care. Such schedules should be reviewed periodically and revised as appropriate, perhaps every 5 years. .

Existing medicaid responsibilities and Federal funds now budgeted for long-term care through medicaid should be transferred to medicare for this purpose.

Objections to this approach to medicare reform may be anticipated from many who are happy with the status quo, as well as from some who would like to demolish medicare altogether. But the status quo is, as you have pointed out, financially untenable for more than a very few years, and the real medicare wreckers have no serious political support at the present time. Too many providers, as well as nearly all elderly consumers, are too dependent on the program.

The practical question then is how to put together a reform package made up of many different components which addresses the major programatic deficiencies as fairly and as painlessly as possible.

The suggested package, I submit, provides at least a pragmatic beginning for a politically and financially viable compromise which protects the idealistic vision of the original medicare program while introducing fiscal responsibility and realining benefits in keeping with changing demographic, epidemiologic, and technological developments. Thank you very much.

[The material submitted by Mrs. Somers follows:]

RETHINKING MEDICARE TO MEET

FUTURE NEEDS*

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Anne R. Somers

Anne R. Somers is Professor of Community Medicine, University of Medicine and Dentistry of New Jersey-Rutgers Medical School

The importance and timeliness of the topic are self-evident. Not since 1964-65 and the great debates over the King-Anderson Bill and other proposals that led to enactment of Titles XVIII and XIX of the Social Security Act has American health care policy been so completely up for grabs" as it is today. What we do, or do not do, to Medicare in the next year or two, will have a lasting. perhaps irreversible, impact on both the U.S. health care economy and the health of the American people.

Not only is Medicare the principal source of health care financing for nearly 30 million of our most vulnerable Americans over 26 million elderly and about 3 million seriously disabled'-out it provides nearly 35 percent of total patientcare revenue for the nation's community hospitals and supports about 17 percent of the entire personal health care economy 'Perhaps even more important, Medicare has become the flagship for this economy-pattern-setter, quality assurer, life extender--and, of course, insatiable consumer of resources!

It is no wonder that, despite all the rhetoric, the responsible decision-makers have, in the final analysis, been slow to tamper extensively with this remarkable program. For, make no mistake about it, Medicare is a remarkable program, one of the most popular and effective governmental initiatives ever developed in this country

Now, after 15 years of unprecedented and inadequately controlled or guided expansion, Medicare has developed some serious problems which must be corrected if it is to continue to play a constructive leadership role. But this is a far cry from calling for dismantlement or even curtailment. The thrust of my presentation today is precisely the opposite: I see reform and strengthening of Medicare as the Number 1 health policy priority in the U.S. today--not only for the sake of those millions of enrollees and patients, physicians, nurses, hospitals, and others directly dependent on it, but precisely because it is our flagship and pattern-setter.

Do we want to revert to the pre-Medicare days of grossly inadequate financing, rationing on the basis of ability-to-pay, and frequently mediocre quality--the days so passionately

condemned by Dr. Alan Gregg of the Rockefeller Foundation in his remarkable little book, Challenges to Contemporary Medicine, published in 1953? Or, having taken a long step toward Dr. Gregg's goal "Great Medicine" (which includes teaching practice, and medical research, and adequate resources thereforhand having experienced some of its remarkable achievements, can we now adjust our thinking and our principal institutions to the new biochemical and demographic world that is emerging?

Most of this paper will be devoted to a brief summary of the achievements and problems associated with Medicare and related programs, followed by some suggestions for reform. But first it may be useful, before this sophisticated and prob ably somewhat cynical audience, to establish my credentials as one long-concerned with cost.

Over 20 years ago, long before Medicare, I gave a paper at the AMA in Chicago entitled "Coverage, Costs, and Controls in Voluntary Health Insurance," in which I said,

"Many experts feel that costs have become the greatest single issue facing voluntary health insurance today. ... If the price of medical care continues to rise at its current rate, and health insurance even faster as it must to keep up with the greater rise in hospital prices, the major component in insurance benefit payments, then we may find that all the additional money is absorbed in maintaining the present level of benefits. ... Health insurance, originally designed to ease problems of medical costs, has actually contributed, by its effect on utilization and on prices in a scarcity market, to intensification of the problem. This is not to deny the great good that insurance has already accomplished. However, if it is to continue to play a constructive role in the easing of medical costs for consumers and in the stabilization of income for producers, it must acknowledge, more forthrightly than heretofore, its influence on costs and be prepared to accept the corollary responsibilities." That was the last speech i delivered at AMA headquarters!

In 1967, when Medicare was less than a year old, my husband, Herman Somers, made the following statements with respect to the "reasonable costs" and "reasonable charges" provisions of Medicare:

"Even the limited knowledge we now have... is sufficient to indicate some large issues confronting not just Medicare, but the whole medical care economy, iss

demand prompt and serious attention. ... Congress, following the precedent of most Blue Cross organizations, legislated that providers should be paid 'the reasonable costs of services.

*This paper was presented by Anne R. Somers at the Government Research Corporation's Seventh Annual Leadership Conference on Health Policy. Washington, D.C., June 17, 1982.

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