plementation-physician acceptance of PSRO-appears to have been met. The issues of coordinating procedures between the Medicare and Medicaid programs and the development of appropriate regulatory policies will continue to receive considerable attention and effort to assure smooth and rapid implementation. The Department has examined many proposed bills to amend the PSRO law. One amendment would direct the Secretary of HEW to establish or revise areas after consultation with professional organizations, such as State and County medical associations and specialty societies located in the areas affected and provide opportunity for public hearing. We would note that professional organizations were consulted prior to designation of PSRO areas. The Notice of Proposed Rulemaking for proposed area designations allowed 45 days for public comment. The Department has now provided for modification of PSRO areas if operating experience changing conditions indicate the need.

Another amendment would authorize the Secretary to enter into contracts with State medical societies or private, non-profit organizations designated by them to provide technical assistance in the creation and operation of PSROS. We feel that PSRO Statewide Support Centers funded by HEW do serve this objective. Several State medical societies and other groups are presently providing technical assistance to local PSROS in their respective areas.

In addition, the Department feels that we must now examine how PSROS operate in order to determine the best approach to any amendment of the statute. Until further operating experience with PSROS has been gained, we believe that the PSRO law should be implemented as enacted, although changes will undoubtedly be necessary at a later date. I would like to assure you that the Department remains firmly committed to the continued and rapid implementation of the PSRO program as the most effective and appropriate means for assuring both the quality of care and the effective utilization of health care facilities and resources.

HEMODIALYSIS AND KIDNEY TRANSPLANT PROVISION

Representative Vanik of this Subcommittee and Chairman of the Ways and Means Oversight Subcommittee, recently held hearings on Section 2991 of the Social Security Amendments of 1972, which made dialysis and transplant services available to virtually all patients suffering from end-stage renal disease. The Congress authorized the Secretary of Health, Education, and Welfare to develop mechanisms to assure that ESRD care was both of high quality and cost-effective. Concurrent with implementation of the interim program in June of 1973, the Department began to develop long-term ESRD program policies which were designed to assure that the program would: provide for the total health care needs associated with treatment of end-stage renal disease; maintain and encourage the conditions insuring the availability and reasonable access to needed resources and service; assure quality through effective review; promote effective utilization of resources through the establishment of minimum utilization rates and contain the costs of covered services.

The Department published a Notice of Proposed Rulemaking in the Federal Register on July 1, 1975, which would establish conditions of coverage that a facility would have to meet to receive Medicare reimbursement for the delivery of ESRD services. The proposed regulations require ESRD treatment facilities to join together into "networks." The network must organize itself through the establishment of a Network Coordinating Council which will serve as liaison between the Federal government and available community resources. Each network would also establish a Medical Review Board to review the appropriateness of ESRD patient care and service. The proposed regulations would also establish a medical information system and all ESRD facilities participating in the program will be required to supply data to this system.

To date, there are a number of identical bills pending before Congress to modify both the eligibility and cost-sharing provisions of the ESRD program. These provisions would:

(1) begin eligibility for dialysis patients with the month in which the patient begins training for self-dialysis in an approved program;

(2) began eligibility for transplant patients with the month in which the patient is admitted to a hospital for transplant evaluation, provided that the transplant surgery takes place within the next two months;

(3) extend the final month of eligibility for transplant patients to the 36th month after the month of transplant;

(4) remove the cost-sharing provisions of the Medicare law, making the program responsible for 100 percent of the reasonable charge or reasonable charge for covered services or supplies, for those patients who are participating in an approved self-dialysis program or who are self-dialyzing.

(H.R. 7708 by Congressman Carter, H.R. 7618 by Congressman Quillen, and H.R. 8786 by Congressman Perkins.)

The Department favors efforts to encourage the use of home dialysis and early transplantation under the renal disease program. We have consistently supported these as preferred treatment modes, from the standpoint of both therapeutic benefit and cost savings. While we do support certain portions of these bills, in general we do not think that the incentives embodied in the bills are appropriate for encouraging home dialysis.

Because transplantation should be encouraged as early as medically and technically feasible for those patients suited for this form of treatment, the Department does not oppose allowing Medicare eligibility for renal transplantation to begin within the month in which the patient is admitted to a hospital for transplant evaluation, provided that surgery takes place within the next two months. Extending full patients' benefits to 36 months following transplantation would also have long-term medical and cost-savings justification and we are not opposed to this provision.

Our most serious concern with H.R. 7708 et al. is with the provisions to remove the normal Part B cost sharing for all expenses incurred in connection with "home dialysis." When maintenance dialysis is appropriate and/or preferred, home dialysis is clearly preferable for reasons of treatment flexibility and convenience, decreased complications, and cost savings. Home dialysis is not without serious limitations, however, and there are some considerable barriers to its greater utilization. These include: medical suitability; the patient's psychological strength and sense of motivation; imminence of transplant; family support; space and utility requirements of the physical setting; accessibility of home training programs; the financial constraint of uncovered services and supplies required for the installation and operation of a home dialysis unit. including such medical supplies incident to dialysis for which reimbursement is now denied ; patient ignorance of the various treatment options; the individual physician preference, practice patterns and decisions and the limitations imposed by the available technology. Altering patient reimbursement policy will not affect many of the elements influencing the therapeutic decision, which are not subject to manipulation by financial incentives or disincentives.

The Department agrees that a more liberal reimbursement of items, services or supplies would be desirable to reduce patient expenditures and that better coverage might serve to induce greater utilization of home dialysis. We therefore would support expanding coverage to include all supplies and equipment necessary for home dialysis, subject to the coinsurance provisions which affect all Medicare beneficiaries.

H.R. 7708 further draws the distinction between patients as participating in facility dialysis or home dialysis, while experience shows that there is a great deal of fluctuation between those foci of care. Severe administrative difficulties would be created if the Social Security Administration would be required to identify patients seeking reimbursement by treatment setting. It is estimated that a six-month lead time would be required to develop the appropriate tracking capability; considerable administrative costs would be associated with such a requirement.

In addition, the provisions of the bill applicable to "self-dialysis" facilities raise serious concern in the Department. Because there are very few facilities which permit patients to self-dialyze, this provision invites potential disruption in the delivery of dialysis services. A facility would be granted an incentive to reduce or remove the present professional staffing, call itself a self-dialysis facility, and command 100 percent of reasonable costs.

Congress has under consideration-as part of an integrated cost-sharing proposal-a bill. H.R. 4820, submitted by the Department on behalf of the Administration, which would place a cost-sharing liability limit in 1975 of $750 per spell of illness under Part A, with a similar limit on Part B expenses. Inclusion of such a maximum annual liability would provide financial protection not only to endstage renal disease patients but to all Medicare beneficiaries who incur large medical bills. This approach to limiting financial liability, we believe, is far more equitable to all Medicare recipients.

The Department believes that the waiving of all Part B cost sharing for home dialysis is medically undesirable and would give the beneficiary population, already categorically eligible, a further categorical benefit denied to the rest of the Medicare population. Removing the cost-sharing provisions for home dialysis might set a dangerous precedent, thereby raising serious questions of equity, considering that there are patients with other diseases with equally appropriate and technically available therapeutic alternatives who are categorically excluded from receiving the same benefits.

On the basis of the above, we recommend that H.R. 7708, et al., not be favorably considered as currently written. Amended, as we propose, the bill when enacted will result in costs of $16.0 million.

HOME HEALTH CARE

The Department of Health, Education, and Welfare is making an extensive review of the broad spectrum of long-term care, with a view to developing a comprehensive approach to provision of adequate long-term care services for persons of all ages. Home health services will be an integral part of this program, and I would like to review briefly the Department's efforts to expand these services.

Under Section 222 of the Social Security Amendments (P.L. 92-603), the Department is funding research and demonstration projects using, when medically appropriate, certain day care and homemaker services as alternative options to institutionalization in hospitals and skilled nursing facilities. Through these experiments we hope to determine whether such coverage would provide quality and effectively lower long-range costs by reducing the demand for higher cost institutional care. We also hope to ascertain the costs of providing various types and groupings of alternative services and to evaluate alternative eligibility regulations.

The 1972 Amendments should also improve overall administration of home health benefits in that we are authorized to establish in advance specific minimum numbers of home health visits, under Part A, which a patient would be presumed to require following hospitalization. On July 9, 1975, the implementing regulations were promulgated for a 30-day public comment period (later extended) and drew a large number of responses. I would like to re-emphasize that the limits set forth in these regulations are only guaranteed minimums and that other services and additional periods of coverage may be approved and reimbursed. Implementation of this authority should reduce uncertainty on the part of physicians and patients as to whether or not home health care services would be covered, thereby encouraging prompt discharge from institutional care to the home care setting.

Another significant new regulation was proposed in the June 9 Federal Register which would greatly expand the ability of home health agencies to provide a large range of services by allowing such agencies to contract with a proprietary provider of home health services.

A further change in the rules governing proprietary home health care providers has been included as part of the Administration's proposed “Social Security Amendments of 1975," transmitted to the Congress as draft legislation. Section 302 of this proposal would repeal the requirement that proprietary agencies be licensed under State law and subject them to the same licensure requirements as public and private nonprofit agencies. In this way we hope to increase the number of participating home health agencies and make home health services more accessible.

A number of bills have been introduced in the House which would expand the scope of the Medicare home health benefit. Most, such as H.R. 4869, introduced by Representative Pike, seek to encourage the use of home health services by making these services available to patients who require less intensive treatment and by providing an expanded number of home health visits and services to beneficiaries. We share the concerns of the sponsors of this and similar legislation that the costs of hospital and other institutional services are high and could be reduced in part by the substitution of appropriate high quality home health services. We would caution, however, that such substitutions can be effective only if they are professionally controlled to prevent misutilization.

We are hopeful that the preliminary results of the experiments now underway under Section 222 will provide a basis for identifying additional, more definitive

research which will provide a sound basis for any proposed changes in the present home health benefit package.

PROSPECTIVE REIMBURSEMENT

The current reasonable cost system of payment for institutional services under Medicare under which the amount of reimbursement is determined retroactively on the basis of incurred costs-has been criticized for failing to provide incentives for cost containment and therefore contributing to the recent rapid increase in hospital costs. Prospective, rather than retrospective, establishment of reimbursement levels appears to have the potential to restrain hospital costs increases. Prospective reimbursement facilitates intelligent financial planning by hospital administrators, and could have long-range, real impacts on hospital costs.

The Social Security Administration is currently engaged in a broad and comprehensive research and experimentation program designed to test several prospective reimbursement methods.

Preliminary results of our studies indicate that prospective rate setting systems developed at the State level may offer a feasible method of moving toward a full-scale prospective reimbursement system. Since we are currently dealing with a multiplicity of systems in various States are basically in the developmental and experimental stages of the program, we do not yet have the empirical evidence to demonstrate that any single system is superior. Rather, it seems clear that any system which might be developed for general use at this time must include a high degree of flexibility. We are intensifying our review and evaluation of various prospective rate setting provisions in two areas: (1) a general provision which would, in the short range, address the problem of excessive escalation in hospital costs which has occurred nationwide; and (2) systems which could be implemented at the State level.

PHYSICIANS' SERVICES REIMBURSEMENT

Reimbursement under the supplementary medical insurance program (Medicare Part B) for physicians' services is based on the reasonable charges for such services. The Medicare carrier is responsible for determining the reasonable charge for a particular service by taking into consideration the physician's customary charge, the prevailing charge in the locality for similar services, and the payment made by the carrier under its own health insurance plan for comparable services provided under comparable circumstances to the carrier's own policy holders and subscribers. Thus, in effect, Medicare payments are limited to an amount based on the lower of the physician's customary charge or a recognized prevailing charge for a given service in the area in which the physician practices. As you know, beginning in FY 1976, the prevailing charge for a particular service may increase only to the extent justified by an economic index.

A Medicare beneficiary may assign Part B benefits to the physician performing the services who, in voluntarily accepting an assignment, must agree to accept the "reasonable charge" as determined by the Medicare carrier as payment in full for his service (i.e., he must agree to accept the Medicare payment from the carrier and bill the beneficiary no more than the deductible and coinsurance amounts related to that charge). The physician's acceptance of assignment is not a one-time decision, but, rather, a decision that can be made with respect to each separate Medicare claim. Program experience indicates that in cases. where the bill is particularly high or where the beneficiary's income is low, the physician generally accepts assignment. When an assignment is not accepted, the beneficiary is responsible for making up the difference between the charge recognized by the program and any higher amount the doctor charges.

The rate of physician acceptance of assignment has steadily declined from 61 percent of bills in FY 1969 and FY 1970 to slightly less than 52 percent in FY 1975.

The Department is studying alternative reimbursement methods to determine how the curernt system might be changed to provide greater protection to beneficiaries against excessive out-of-pocket costs and at the same time to assure fair compensation to the physician.

COVERAGE OF PAP TESTS

Several bills currently pending before this Committee, including H.R. 2764, introduced by Repersentative Corman, would expend Medicare coverage to in

clude routine periodic papanicolaou tests a (pap smears). In enacting the Medicare program, Congressional intent was that it be an insurance program designed to provide protection against the costs of "medically necessary" health services. These are the costs which are unpredictable and, hence, difficult to plan for. As a result, Medicare does not generally cover preventive services. However, pap smears are fully covered when they are medically necessary in the diagnosis and treatment of a medical condition.

PAYMENT FOR PHYSICIANS' SERVICES WHEN THE BENEFICIARY IS DECEASED Representative Burke has introduced a bill, H.R. 6022, which would change the present procedures for disposing of Medicare claims for payment for physicians' services after the death of the beneficiary. Under the Social Security Act, where the physician's bill has been paid, payment is made to the person who paid the bill, or where the beneficiary paid the bill, to the representative of the estate, or to the beneficiary's survivors. Where the bill has not been paid, the Medicare payment may be made only to the physician if the physician has accepted assignment of the claim-that is, he agrees to accept the reasonable charge as the full charge for services. H.R. 6022 would require the Medicare program to pay the physician ahead of all other creditors, without an agreement to accept the reasonable charge as payment in full.

We would not favor a change in the law which would permit payments to be made directly to a beneficiary's estate on the basis of an itemized, unassigned claim where a physician's bill has not been paid.

ADMINISTRATIVE AND JUDICIAL REVIEW UNDER SMI

Several bills pending before this Subcommittee would provide for administrative appeal and judicial review of Medicare supplementary medical insurance (Part B) claims in certain cases. Under present Medicare law, a beneficiary who disagrees with the determination made on his Part B claim may request a review of that claim by the carrier. If, after the review, he is still dissatisfied with the carrier's determination regarding his claim and the amount in controversy is $100 or more, he may request a fair hearing by the carrier. There is no provision in the law for an appeal beyond the decision of the carrier's hearing officer on a supplementary medical insurance claim, nor is there a statutory right to judicial review of the disallowance of a Part B claim.

Prior to the enactment of the Social Security Amendments of 1972 (P.L. 92-603), hearings were held on all Part B claims in controversy, regardless of the amount. Data show that during that time approximately 45 percent of the hearings involved an amount of less than $100 and that the cost of hearings in cases involving claims as small as $5 and $10 usually exceeded $100. The imposition of the $100 minimum on the amount in controversy in order to be eligible for a hearing recognized that such costly procedures were unwarranted where very small claims were at issue. We believe that current review and hearing procedures adequately protect the rights of program beneficiaries and eliminate unwarranted program costs.

AMBULANCE SERVICES

From time to time proposals are introduced which would expand current coverage of ambulance services. Presently, reimbursement for these services under Medicare is limited to situations where the use of normal transportation would endanger the health of the patient and where the individual is transported to the nearest hospital with appropriate facilities or to one in the same locality. Under similar restrictions, reimbursement can be made when the patient is transported from one hospital to another, to his home, or to an extended care facility. The regulations which set forth these conditions were developed in accordance with the clear intent of the Congress. We feel that the current regulations provide an adequate level of coverage for those beneficiaries in need of ambulance services.

MEDICARE REIMBURSEMENT FOR PROVIDER MALPRACTICE INSURANCE

In general, the Medicare law requires that all payments to providers be based on the reasonable cost of services covered by the program and related to the patient care of Medicare beneficiaries. It is Congressional intent that