38 1 XVIII, or XIX with respect to services furnished in a 2 health care facility located in a State which has a certificate 3 of need program, approved by the Secretary for purposes 4 of this section, which applies to capital expenditures for 5 hospitals and with respect to which such capital expendi6 tures meet the requirements of section 1527 of the Public 7 Health Service Act.". 8 (2) Subsection (e) of such section 1122 is amended 9 by striking out "subsection (d)" and inserting in lieu thereof 10 "subsection (d) or (j)". 11 (3) Subsection (b) of such section 1122 is amended 12 by inserting before the period at the end thereof the follow13 ing: "or does not meet any applicable requirement of sub14 section (a) (4), (b), or (c) of section 1527 of the Public 15 Health Service Act". 16 (4) Subsection (d) (1) of such section 1122 is amended 17 by striking out "any amount" in the matter following sub18 paragraph (B) of the first sentence of such section and in19 serting in lieu thereof "an amount equal to ten times any 20 amount". 21 (b) The amendments made by subsection (a) shall 22 apply with respect to capital expenditures made after Sep23 tember 30, 1977. 24 SEC. 203. (a) Section 103 of the Internal Revenue 25 Code of 1954 (relating to exclusion from gross income of 39 1 interest on certain governmental obligations) is amended by 2 redesignating subsection (f) as subsection (g), and by in3 serting after subsection (e) the following new subsection: 4 "(f) OBLIGATIONS SUPPORTING INCREASES IN ACUTE 5 CARE HOSPITAL BEDS.-Any obligation issued by a State 6 or territory for an institutional health service, health care 7 facility, or health maintenance organization 8 9 10 11 12 23 13 14 45 15 "(1) the development of which would result in a number of hospital beds within a health service area which number is in excess of the applicable supply ceil ing for such area promulgated under section 1504 (b) (1) (A) of the Public Health Service Act, or "(2) for which a certificate of need has not been issued under a certificate of need program approved under title XV of the Public Health Service Act, 16 shall be treated as an obligation not described in subsection 17 (a) (1).". 18 19 (b) The amendments made by subsection (a) shall apply with respect to taxable years beginning after the date 20 of the enactment of this Act. This is in response to your request of May 6, 1977 for the views of this Office on H.R. 6575, a bill entitled the "Hospital Cost Containment Act of 1977." H.R. 6575 is identical to legislation submitted by the President to the Congress on April 25, 1977. The bill is a major Administration initiative to hold down the growth of the most significant component of health cost increases--rising hospital expenditures. It is designed to limit increases in the reimbursements which hospitals receive from all sources: Medicare, Medicaid, Blue Cross, commercial insurers, and individuals. Based on current trends, the limit for fiscal year 1978 will be approximately nine percent. X In his message to Congress on April 25, 1977, the President urged enactment of the proposed Hospital Cost Containment Act of 1977 as an important step in bringing soaring medical costs under control. For the reasons stated by the President, we recommend that the Committee give favorable consideration to the bill. Enactment of H.R. 6575 would be in accord with the program of the President. Sincerely, (Signed) James M. Frey' James M. Frey Assistant Director for Mr. ROGERS. Today the subcommittee will receive testimony from several organizations which have timely and knowledgeable perspectives. Because we have severely limited time for the hearings, the number of witnesses invited has been restricted. I hope that other persons and organizations will submit written testimony so that the subcommittee may benefit from their knowledge and expertise. Our first witnesses this morning are Dr. Karen Davis, who is Deputy Assistant Secretary for Health Planning and Evaluation, and Mr. Grant Spaeth, Deputy Assistant Secretary for Legislation (Health), Department of Health, Education, and Welfare. I believe Dr. Ronald M. Klar and Mr. Robert P. O'Connor are here also. We welcome you to the committee and are pleased to have your testimony. STATEMENT OF KAREN DAVIS, PH.D., DEPUTY ASSISTANT SECRETARY FOR HEALTH PLANNING & EVALUATION, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, ACCOMPANIED BY GRANT SPAETH, DEPUTY ASSISTANT SECRETARY FOR LEGISLATION (HEALTH); ROBERT P. O'CONNOR, ACTING ASSISTANT ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION; AND RONALD M. KLAR, M.D., ACTING DIRECTOR, OFFICE OF POLICY DEVELOPMENT AND PLANNING, OFFICE OF THE ASSISTANT SECRETARY FOR HEALTH Dr. Davis. I would like to have my statement entered into the record. Mr. ROGERS. Without objection, it will be made a part of the record [see p. 107]. Dr. DAVIS. We particularly appreciate the leadership role you have played in the development and continued refinement of H.R. 6575 the Hospital Cost Containment Act of 1977. Your staff has been particularly helpful to us in going over H.R. 8121 very carefully and pointing out areas where there was need for substantial changes and improvement. We feel the result will be a stronger, more effective cost containment bill. It is a pleasure to appear before you today to offer the Department's comments on H.R. 8121, which includes several additions to the Hospital Cost Containment Act of 1977. We all share your deep concern that a workable, equitable way of dealing with rapidly inflating hospital costs depends on modifications of the reimbursement system to encourage hospitals to operate more efficiently, to halt the duplication of costly technology and facilities, and to substitute less costly ambulatory care for inpatient care. Further, we all recognize the important role of health planning in reducing the pressures for ever-increasing numbers of facilities and services while existing facilities and services remain underutilized. Mr. Chairman, what we are discussing here today are additions to an emergency cost containment program which must be established to buy time while more permanent solutions are developed and implemented. As we developed H.R. 6575 we examined a large number of proposals that ultimately were not included. Many of these represented good ideas, but could not be implemented quickly or without a major administrative burden. They would require more time to refine, and would destroy the simplicity that is an absolute necessity in such an emergency program. However, in a cooperative spirit, I would like to comment on the specific new provisions of H.R. 8121. H.R. 8121 provides that a hospital may apply for an incentive payment if during an accounting year covered by the program its increase in cost per inpatient admission is less than the inpatient hospital revenue increase limit. These incentive payments are intended to be used to reduce deficits in the hospital's outpatient department. However, I am not convinced that this provision will achieve your objective. While I agree that it might be a good idea to allow cost reimbursers to offer an incentive payment to hospitals that do not spend their full allowance-since normally only actual costs are reimbursed-H.R. 8121 also extends that provision to charge payers. In effect, if a hospital keeps its cost increases below its charge increases, it gets a double profit. First, it is allowed to keep all the surplus charges it has generated. Second, H.R. 8121 provides an additional profit of up to one-third of the first surplus. Thus, if this were to be done, it would be preferable to restrict the incentive to cost payers. There are also a number of administrative issues which would have to be addressed. For example, the term "cost" per admission as applied to charge payers would have to be defined carefully enough so that a new reporting system is not required for this incentive program. Further, a new mechanism would be required to assure that hospitals continue to attempt to collect outpatient receivables, rather than calling them all bad debts. A definition would be required to determine when accounts receivable in the outpatient departments become operating deficits or bad debts. There would also be administrative complications created by the requirement that hospitals that have received funds under the Hill-Burton program must provide some free care. This free care would have to be deducted from the outpatient deficits to which the incentive payments could apply. Mr. Chairman, I believe that the provisions of H.R. 6575 are already adequate to deal with the need for positive incentives, even in this transitional program. First, by limiting increases in total revenues, hospitals are encouraged to reduce patient loads in order to maximize the increase in revenues available for the remaining patients. Second, by limiting the constraints only to revenues from inpatient services we encourage hospitals to shift patients to outpatient settings. Third, hospitals that eliminate unneeded services may keep the allowable revenues in the base-any savings may be redirected into improvements in other patients services. Finally, a hospital is allowed to carry forward any unused portions of its allowance-the first major departure from the spend more, get more atmosphere fostered by retrospective cost reimbursement. The purchase of major medical equipment by physicians and other non-hospital providers not now subject to Certificate of Need |