knows exactly what H.I.P. will cost ($9.95 every three months) for all out-patient care. One can consult a doctor as often as needed, or go to the hospital-no charge. One is given extensive examinations at the outset, just so the doctor can know the initial condition and not to exclude one as a patient (as private insurance companies do). One chooses the center which is most convenient for the patient, and this can be changed when or if desired. One chooses one's own "family physician" from a list of those available, and the doctor also can be changed at will. One makes appointments in advance, as in any other case, but the doctor will see the patient at once in case of emergency or if an emergency is feared. Preventive medicine is free. So also are the services of specialists, such as the ophthalmologist. Your doctor will prefer frequent consultations rather than letting troubles slide, and on routine visits check up tests are often made. H.I.P. owns no hospitals on which to make money so they prefer to keep you well if possible. Waiting time in the doctor's office is usually less than that in the office of most private physicians, in fact, these are private physicinas, who work full-time or part time for H.I.P. Best of all, there is no more hassle with either Blue Cross or Medicare or doctors' fees. The latter are non-existent for the patient, and HIP does the arguing with the others.

I want to close by quoting Professor Frank van Dyke, Chairman of the Community Council's Health Task Force, and Professor of Administrative Medicine at the Columbia University School of Public Health, who said to me the other day, "the Medicare law must be changed so that no doctor can charge a patient above what the program provides either through 100% reimbursement or through a fixed fee schedule. Otherwise Medicare is nothing but insurance for the doctors rather than insurance for the patients!"

Mr. ROSTENKOWSKI. Thank you, Mrs. Bagger.

Mr. Lipitz?

Will you identify yourself and the group you represent?

STATEMENT OF DAVE MacDONALD, EXECUTIVE VICE PRESIDENT, NATIONAL COUNCIL OF HEALTH CARE SERVICES

Mr. MACDONALD. I am Dave MacDonald, executive vice president for the National Council of Health Care Services. Mr. Lipitz had an emergency and had to go back to Maryland.

If it would please you, we will simply dispense with any reading of our statement and ask that it be submitted in the record.

We did have one item that was not attached to the statement that I will be happy to furnish to the committee concerning the reimbursement item.

Mr. ROSTENKOWSKI. Without objection, it is so ordered.

Mr. MACDONALD. Thank you.

[The prepared statement and attachment follow:]

STATEMENT OF ROGER C. LIPITZ ON BEHALF OF THE NATIONAL COUNCIL OF HEALTH CARE SERVICES

Mr. Chairman, members of the Subcommittee, on behalf of the members of the National Council of Health Care Services, I appreciate this opportunity to appear before you today.

The National Council of Health Care Services represents a select group of proprietary multifacility health care companies owning and/or managing nursing homes, hospitals, psychiatric facilities, clinics, consulting services, rehabilitation centers and day care centers. As a condition of membership, the National Council's nursing home facilities are required to be accredited by the Joint Commission on Accreditation of Hospitals in addition to meeting State and Federal licensure or certification requirements.

Each member of the National Council is dedicated to seeking innovative approaches to the provision of quality patient care in the appropriate cost-effective setting.

My statement today will cover the following four points:

1. Utilization review requirements for institutions participating in Medicare. 2. Revisions in Professional Standards Review Organization provisions.

3. Revisions in Home Health Care provisions.

4. Institutional Services reimbursement-possible basic changes from the present retroactive reasonable cost reimbursement.

Before examining each of these four topics, I would like to preface my comments with a brief overview of the Medicare program from the perspective of the long-term care provider.

If there is an example of a totally regulated industry in terms of the total number of applicable regulations, it is the health industry and the long-term care sector in particular. To in anyway infer that our current industry is a free market system, is a gross mistake. It is far from laissez faire. It is our firm opinion that the original intended coverage and benefit structure of the Medicare program insofar as long-term care benefits are concerned has been subverted by misadministration. We would submit that regulations have too frequently been developed, written and administrated without a proper assessment of their impact on the beneficiaries, providers and the Medicare program itself. This is particularly true in terms of the fiscal impact of regulations. As a result, there have been innumerable law suits filed by both beneficiaries, consumer advocates, and providers at a tremendous expense to providers, patients, and taxpayers. We would submit that the apparent cost of the alledged misadministration in the Supplemental Security Income program is minuscule in comparison to that experienced by the patients, providers and the public in the ten year history of the Medicare regulatory process.

We commend this Subcommittee for its recent efforts to review the administration of the Medicare program and particularly for its efforts to attempt to correct those deficiencies. The fact that such hearings are necessary, as well as the recent confrontations over various regulations between the Department of HEW and Medicare providers is further evidence of the breakdown in the administration of the program. This situation has done little to increase the quality or the availability of benefits to the public, nor contain their costs. Judicial and Congressional review are, of course, fundamental rights, which must be closely guarded by all within our society, however, during recent months they have to some extent replaced proper administrative procedures.

We would recommend that Congress reaffirm the Congressional intent expressed at the time of the passage of the Medicare Act in 1965, that the industry's advice and cooperation be sought by the Department of HEW. That was the basis for the creation of the Health Insurance Benefits Advisory Council by Congress and we feel strongly that efforts to abolish that advisory group should be firmly resisted. Instead it should be strengthened and serve as a formal part of the regulatory process within the Department of HEW. Specifically, we would support the concept whereby all proposed regulations under Title XVIII would be submitted to HIBAC 30 days before initial publication in the Federal Register. Any regulation which HIBAC would then determine to be contradictory to the public interest or to the integrity of the Medicare program, should be reconsidered by the Secretary prior to initial publication. Wherever the Secretary refuses the advice of the HIBAC, we would recommend that the proposed regulation provide for a 60 day rather than a 30 day comment period to provide careful examination of the regulation by Congress, consumers, and providers in the health field. We feel that this process would greatly assist in the renewal of a dialogue and confidence in the Medicare program by patients, providers and the public.

I would now like to turn to the four previously outlined topics.

1. UTILIZATION REVIEW

We have been encouraged by the recent action of the new Secretary of HEW in announcing his plans to revise the previously published Utilization Review regulations. However, we are somewhat dismayed, first, that this action occurred only after a law suit had been filed against the Department and second, that the revision would cover only those issues immediately enjoined in that suit. We would hope that the other portions of the regulations would be reviewed for purposes of possible revisions. There is one area where statutory changes are necessary. We would recommend the modification of the prohibition against the performance of utilization review functions by persons employed or finan

cially interested in an institution. The amendment we would propose would apply to Section 1903 (g) (1) (C) of the Social Security Act by striking the word "any" and substituting “a significant” in regard to the preclusion of a physician from having a financial interest in a facility where the utilization review functions are to be conducted.

This recommendation is based on the fact that in many areas, not just rural, it is extremely difficult to find physicians to serve on Utilization Review Committees with any knowledge of Geriatric Medicine, who are not in anyway whatsoever connected to the facility in a financial manner or to the practice of medicine within the facility. At the same time, we also feel that it should not be considered bad or illegal per se that a physician shows enough interest in the delivery of long-term care services to the elderly that he wishes to invest or administratively participate in the practice of medicine in a nursing home. There are sufficient means and methods for a determination to be made as to whether or not a physician is acting in an inappropriate manner without this particular prohibition.

2. PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS

The National Council is particularly concerned about the assurance of quality care for all of the patients of its member facilities. In the past we have had a tripartite system of reviewing the quality of services under the Medicare program. The Social Security Amendments of 1972 inserted two new authorities into this process: (A) Utilization Review and (B) Professional Standard Review Organizations. Since their enactment, their functional relationships to each other, as well as to their predecessors, has greatly confused providers, patients and government officials.

We would strongly recommend that the Subcommittee give serious consideration to the unification of these quality of care authorities into a single uniformed structure. One which all participating health providers will recognize and whose functions will be understood.

In addition we recommend that the membership of Statewide Professional Standards Review council (Sec. 1162 (b) (2) P.L. 92-603) be amended to include one physician practicing in a skilled nursing facility. There are 3,977 skilled nursing facilities with 287,606 beds in the country participating in the Medicare program. Each participating facility is further required to have a medical director as of December 2, 1975, as well as assuring that attending physicians visit their patients within prescribed time periods.

Is not the monitoring of the quality and the determination of the necessity of these prescribed services in a skilled nursing facility just as important as in a hospital? To accomplish that, we submit that it is necessary to have a physician on the Statewide Professional Standards Review Councils who is familiar with the requirements and the provision of health care services in skilled nursing facilities.

3. PROVISION FOR HOME HEALTH CARE

The National Council was pleased to see that the recently proposed regulations under the Medicaid Title XIX program would allow non-profit and proprietary nursing homes and hospitals to provide home health care. We would strongly recommend that this regulatory change be applied to Medicare. There has been some question as to whether or not there is sufficient statutory authority to allow this under the Medicare program, except in extremely restricted instances. Therefore, we would suggest that the Subcommittee consider the possibility of a specific statutory amendment on this issue.

There is, of course, a great deal of concern about the government's ability to control the cost and utilization of home health services. We do not, however, feel that this fear need prohibit this expansion of services from taking place. I would recommend that the Subcommittee consider a section of Representative Koch's bill HR 4772. Congressman Koch's provision would link the approved home health services to a requirement that they be approved only where they are a direct alternative to institutional care. It would also most importantly limit the payment to an amount not in excess of the payment made for the same or comparable service, as if they were provided as a part of institutional care. On this basis you would be assuring that the Government would avoid paying for costly excessive services while increasing the availability of providers and services to program beneficiaries.

We would also recommend that the Subcommittee consider requiring that providers of home health services have a formal transfer agreement with both a skilled nursing facility and a hospital participating in the Medicare program. This would facilitate the transfer of patients in emergency situations on the same basis as presently exist between participating skilled nursing facilities and hospitals.

4. REIMBURSEMENT

Mr. Chairman, the most glaring administrative problem with the Medicare program since its enactment has been its method of payment for services rendered to its beneficiaries. The system used by Medicare of retrospective cost reimbursement has caused program and health care costs to dramatically increase and yet has failed to correspondingly promote or assure quality care.

Retropective reimbursement by its very nature eliminates any necessity for a provider to exercise restraint in determining whether expenditures or the delivery of services are conducted as efficiently as possible. The natural incentives are missing. Medicare has as a result attempted to replace those incentives with a myriad of penalties and highly restrictive regulations.

This has only further increased the inflation of all health care costs. Medicare has simply, not paid its fair share of the costs incurred by facilities to provide services to Medicare beneficiaries as a result of their retroactive adjustments. Some of these adjustments have been applied retroactively for as many as six years. Private patients and other government programs have had to provide the necessary funds for providers to continue their participation in Medicare.

Congress recognized these shortcomings in Medicare's payment system and provided in the Social Security Amendments of 1972 in Section 222 of P.L. 92-603 for experiments in alternative methods of payment. I am sorry to say that nearly three years later, we are unaware of any experiments funded under that section by the Department of HEW for skilled nursing facilities. We strongly recommend that the Subcommittee reaffirm the intent of Congress that exepriments be conducted on the payment for Medicare services.

In order for there to be a proper evaluation we would recommend that the experiments include several different prospective systems developed by third party payors, providers, and other interested groups. It is our feeling that several different experiments need to be conducted on regional and statewide basis before a new single system is mandated nationally for Medicare.

We would suggest that an experimental payment system should meet seven general principles:

1. Establish quality levels which encourage efficiencies in the delivery of services.

2. Provide incentives for the patient to seek the cost effective provider.

3. Reward efficiencies.

4. Encourage orderly growth.

5. Be administratively simple.

6. Allow for the opportunity of a profit.

7. Establish payments prospectively on a cost related basis. Any payment system based on these principles will ultimately promote quality care at a reasonable cost. In turn this will answer the criticisms that "there is little incentive to contain costs or to produce the services in the most efficient and effective manner," as noted about the present Medicare system in House Committee Report 92-931 on P.L. 92-603.

The National Council has developed a proposed prospective payment system which incorporates those above stated principles. With your permission Mr. Chairman, I would like to submit it for the record.

Mr. Chairman, while we are highly critical of the present regulations and policies of the Medicare program, the situation is not hopeless. Corrective action can be taken which will alleviate many of these present problems.

It will, however, require the support and cooperation of everyone involved to develop the solutions and assure their implementation. Mr. Chairman, you and your colleague on this Subcommittee are to be complimented for your efforts to identify the problems and at the stame time solicit possible solutions to them.

We appreciate this opportunity to appear before you today and pledge our cooperation in this effort.