these services or supplies can constitute a major, necessary medical expense to an elderly person, an expense which may be simply too great to bear without medicare reimbursement. In addition, I hope you will give consideration to eliminating or reducing premiums, the deductible and the 20% co-insurance requirement. Such an in-depth review is necessary, if we are to have a medicare program which meets the health care needs of America's senior citizens.

I would like to address my comments today, to the "reasonable charge" system of reimbursement. I became aware of the "reasonable charge" problem when many of my elderly constituents complained that they were not receiving reimbursement, under part B health insurance, for a full 80% of their medical expenses. I found that, in the great majority of claims in New York and nationwide, the "reasonable charge" for a particular service is far below a physician's actual fee. As a result, most of the time medicare patients do not receive the 80% reimbursement which they are led to expect and which Congress intended that they get.

A few figures will demonstrate the severity of the problem. In 1974 in the 16 County New York Blue Shield area, the "reasonable charge" was lower than the physician's actual fee in 68% of all claims. This resulted in reduced reimbursements-underpayments-of more than $90 million-an average of $24.21 on each reduced claim. Some areas had even higher rates. In Ohio, for example, 70.7% of all claims are reduced; in Washington State, in 83.6% of claims, the "reasonable charge" is lower than the physician's fee.

The problem has grown rapidly. In 1973, 56.3% of claims nationwide were reduced below the amount claimed. In 1974, there were reductions in 63.7% of claims. As the rate of claim reductions has risen, the number of physicians willing to accept assignment of a claim-that is, willing to take the risk of a reduction themselves, rather than put it on the patient-has dropped steadily.

The impact of reduced medicare payments on the elderly, most of whom live on small, fixed incomes, can be devastating. I asked the General Accounting Office, as part of a study it conducted for me of the entire “reasonable charge” problem, to gauge this impact in Brooklyn, GAO found that 5.9% of Brooklyn medicare beneficiaries-nearly 2,500 people-experienced reductions of $50 or more during a 10-month period. Reductions amounted to $400 or more for 82 persons and according to the GAO's report, caused them to cut down on food, clothing, or furniture, to borrow from families, to spend their savings, or even to move. Surely, these harsh consequences were not intended by Congress when it set up medicare. The impact of underpayments is aggravated by the fact that medicare patients cannot easily learn in advance how much reimbursement they will receive. Only the most determined and knowledgeable senior citizens are able to go through the two or three separate steps necessary to find out a specific reasonable charge. For most elderly patients, reduced medicare reimbursement comes as a cruel surprise. Why has the "reasonable charge" method worked so badly, and how can it be changed so that medicare does in practice, pay 80% of patients' medical costs? In an effort to find the answer, I asked the General Accounting Office to study the medicare program in New York, particularly in Brooklyn. Although the GAO study is not complete, I have received a preliminary report, which I would request permission to enter into the record, which points up some problems.

Analyzing a sample of the 123,500 surgical claims submitted in New York in one quarter of 1974, GAO estimated that at least 16,000 or 13% of those claims were incorrectly coded into the Blue Cross-Blue Shield computer. According to GAO, these errors, in which, for example, one type of treatment was mistaken for another, produced incorrect reasonable charge reductions totalling $608,000. The high error rate, incidentally can also be seen from Social Security Administration figures which show that when medicare patients appeal their claims, at least half of those claims show errors and must be adjusted upward.

GAO also found two questionable carrier practices: faulty computer programs which led to the incorrect combining of different medical procedures in one payment category (lump coding"), and the failure to exclude unusually high or low charges from the computation of prevailing fee schedules. GAO noted that these practices not only result in error in individual cases, but can produce incorrect fee schedules. For example, the report said: "Failure to exclude token and extreme charges from profile developments could distort profiles and result in overpayments and underpayments." Thus, these practices also help to inflate medicare costs.

The first answer, then, is to require greater supervision of carrier practices and performance by the Bureau of Health Insurance. In other words, (A) keep kidney operations from being coded as blood tests and (B) revise computer programs.

A second remedy would be to provide medicare patients with "reasonable charge" information before they are treated. This would prevent surprise, provide patients with a way to detect errors, and most importantly, encourage them to avoid physicians whose fees are unreasonable high. I intend, shortly, to submit to the Bureau of Health Insurance, a plan for making this information available to patients in a useful, convenient manner. I would welcome the support of this committee for this simple and sensible improvement. It seems to me that if the purpose of "reasonable charge" is to keep medical costs down, allowing patients to choose among doctors on economic grounds would be of major importance in achieving the goal. Unless a doctor knows that prospective patients may decide to go elsewhere because his charges are "unreasonable" and won't be fully reimbursed, he has no incentive whatsoever to keep his fees down.

I believe—and I expect that GAO will find in its final report—that a major cause of reduced reimbursement is the time lag in updating fee information. At present, "reasonable charges" for a particular fiscal year are based on actual charges for the preceding calendar year. Thus, now and until July 1, 1976, medicare patients will be reimbursed on the basis of fees that were charged in 1974. It is no secret that medical costs have skyrocketed. This reimbursement system, however, places the major burden of the rising costs on the person who can least afford them-the elderly patient.

The inflation problem is exacerbated by the Department of Health, Education, and Welfare's recent imposition of a limit on increases in prevailing fees. The limit will be based on a national index of physicians' expenses and incomes. The inequity of this is that a nationwide index does not reflect local conditions. Thus, in some areas, actual costs may rise at a rate higher than the national average and justify fee increases at that higher rate. In other areas, however, cost may not rise as fast as the national average, and unjustified increases will be allowed.

Finally, in the long run, I would urge this committee to discard the "reasonable charge" system entirely, and seek another, more equitable basis for reimbursement. Possibilities include negotiated fee schedules or prevailing fee schedules, either with physicians required to accept no more than the listed fee or with the patient's understanding of what the additional charge would be. Such flat fee reimbursement would be cheaper and easier to administer, and considerably more simple to understand, than the present system in which prevailing fees no longer prevail, customary charges show no custom, and "reasonable charges" are usually unreasonable.

Surely we can do better.

Mr. ROSTENKOWSKI. Thank you. Representative Holtzman. You have done a great deal of work in this area, and the committee is grateful for your in-depth study of the problems we are confronted with. Mr. Corman?

Mr. CORMAN. Thank you.

If we prohibited doctors from accepting assignment billing unless they took it from all medicare patients, we might remove the problem of the surcharge. The argument is that some doctors may not treat medicare patients, but I think many of them would.

Do you have a view on that?

Ms. HOLTZMAN. After the preliminary study GAO did, if I were a doctor now, given the computer errors, I don't think I would accept it. According to the GAO preliminary report. there are so many mistakes in computing reasonable charges that a majority of charges, at least the ones that are appealed, are overturned.

I think assignment may be a better answer, once we can improve the way in which the reasonable charge is handled. You have to have much better supervision so that kidney operations don't come out as

blood tests in terms of reimbursement. In addition, the computer program should be changed to eliminate the problems that GAO pointed out in its preliminary report. That is why I am not coming down with any final recommendations at this time. I am waiting for the GAO's final report, but we have to acknowledge that there are many areas right now in which improvements can be made.

Mr. CORMAN. Thank you very much.

Mr. ROSTENKOWSKI. Mr. Duncan?

Mr. DUNCAN. I have no questions, but I would like to thank you for coming. I know your input will be of great assistance.

Mr. ROSTENKOWSKI. Mr. Burleson?

Mr. BURLESON. No questions.

Mr. ROSTENKOWSKI. Representative Pepper.

Welcome to the committee, Claude. I am sure there is no introduction necessary for you. I am very well acquainted with your efforts in this area.

STATEMENT OF HON. CLAUDE PEPPER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. PEPPER. Thank you, sir. I apologize, Mr. Chairman, that I was not here when you called my name earlier. I appreciate your giving me the privilege to make a statement now.

Mr. Chairman, I ask that my full statement may be incorporated into the record.

Mr. ROSTENKOWSKI. Without objection.

Mr. PEPPER. The bill I am appearing here on behalf of today is a bill I introduced in January of this year, which is H.R. 1354, to amend title XVIII of the Social Security Act to provide long-term carrier services as part of the supplementary medical insurance program, to encourage the creation of community long-term care centers, to assist in providing such services, and for other purposes.

The Senate committee on long-term care gave some interesting figures regarding the need for the provision of greater home-care services for the elderly. The committee report stated that 25 percent of the total aged population, or about 5 million people, require some type of care for chronic illnesses. Two million receive care in nursing homes or elsewhere. According to the committee, among the remaining 3 million requiring care, the breakdown is as follows: Nursing homes, 600,000; home health care. 1.3 million: congregate living facilities, or help in preparing their meals, another 1.1 million.

Therefore, 2.4 million, or more, elderly people do not have their needs for home health supportive services met. They are destined for the nursing home or mental institutions at a greater cost to the Federal Government than if medicare was amended to provide the supportive services under the long-term care delivery system provided for in H.R. 1354.

Now. Mr. Chairman, H.R. 1354 provides an amendment to the medicare bill. Instead of medicare simply providing skilled nursing services. it would provide a comprehensive service, which is set out under section 1883 on page 3 of the bill, for home health service, homemaker services, nutritional services, long-term institutional care services, day

care and foster home services, and community mental health center outpatient services.

Now, the design of this bill is to bring together the services rendered by the Federal Government for the elderly who are covered by part B of the medicare bill, and the services provided recipients under the SSI provisions of the social security law.

The funds for the provision of this care would be provided 75 percent by the Federal Government and 25 percent by the State. These long-term care centers would be typically focal in character. Page 11 of H.R. 1354 states that the governing board of these local long-term care centers would be made up as follows:

At least half the members, who are individually eligible under section 1882, and who reside in the service area of such center; changing the entire membership at least as often as 6 years; that is, this local board would not have members who serve more than two terms.

At least one-quarter of the governing board members would be individuals who live in such areas, have been elected, and are individually eligible under terms set up under section 1882. The remaining onequarter of the members would consist of individuals who have been appointed to such membership by locally elected governmental officials as determined by the Governor of the State in which the service area is located.

Now, the design is to have some sort of administrative procedure, or a locally characterized coverage board, which would have the responsibility of determining who is eligible to receive these services. In addition, they would see to it that the services are provided by competent authority-so if necessary, people would be transferred from one institution or agency to another, and the like.

It is an instrumentality of local character. It would provide, on a comprehensive basis, essential services to the elderly. Seventy-five percent of the cost would be paid by the Federal Government and 25 percent by the States.

Now, Mr. Chairman, and members of the subcommittee, this bill of mine is similar to the bill that was introduced by Mr. Conable. Except, in Mr. Conable's bill, the additional expense beyond that which is now paid by people covered by part B of the Medicare Act, under Mr. Conable's bill is paid by additional requirements of those people. That is, additional impositions upon the recipients.

My bill provides that all the additional costs necessary to carry on this program be paid out of the general treasury of the U.S. Government. I think these people are being required to pay all they should be required to pay.

So, Mr. Chairman, my bill amalgamates the services rendered under medicare with those rendered under medicaid. This bill covers people who are now covered by part B of medicare, and people who are now covered by SSI programs. It brings those people together under a comprehensive program for the rendition of this service.

I would like to add, Mr. Chairman, and members of the subcommittee, that my Subcommittee on Health and Long-Term Care of the House Select Committee on Aging has had a number of hearings here in Washington and in other parts of the country, and I want to pub

licly thank the Chairman of this distinguished subcommittee for permitting an able representative of your staff to participate in our Miami hearings, where we had over 60 witnesses and 4 days of testimony. Your able representative made a very important contribution, and I hope obtained some information that might be helpful to your subcommittee. I am very grateful to you for making this service available. But nothing has emerged so clearly to us as that we must provide a comprehensive system of home care services for the elderly. It will save money for the medicare program, for those who put up money for the medicare program and for the medicaid program. The average cost of nursing home care is about $600 a month. If we can provide a comprehensive system of care for people in their own homes, they will not only be healthier and happier, but it will save money for the Government of the United States. This bill provides an instrument through which I hope we might be able to accomplish this.

Mr. Chairman, before I conclude, there is a proposed regulation by HEW to allow the certification of proprietary agencies rendering home services without their having to be certified by the States as the law has previously provided. I think that is a very questionable proposed regulation.

Mr. Herbert Semmel, an able representative of the Center for Law and Social Policy-which I believe is financed by the Ford Foundation-has prepared a memorandum opposing that, and I ask that it be included following my statement.

Mr. ROSTENKOWSKI. So ordered, without objection. The committee is aware of your leadership in many areas.

[The prepared statement of Mr. Pepper and the further statement referred to follow:]

STATEMENT OF HON. CLAUDE PEPPER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. Chairman and distinguished members of the Committee, I commend you on your decision to include home health in your current hearings designed to review specific Medicare issues, and I am grateful for this opportunity to urge the Committee's consideration of my bill, H.R. 1354, the "Medicare Long-Term Care Act of 1975."

This Act provides for a system of community long-term care services for older Americans including home health services, homemaker services, nutrition services, long-term institutional care services, day care and foster home services, and community mental health center outpatient services. These services would be provided by or through community long-term care centers which would coordinate and direct the long-term care services. Such centers would be planned and developed under the aegis of the States' health and social welfare functions and the States would be eligible for Federal grants covering 75% of the cost incurred in the performance of such functions.

The Center would evaluate and certify older Americans' needs for services through a team composed of individuals with the skills necessary for such evlauation and certification. The care prescribed is based on the maintenance of an individual in an independent living arrangement which is reasonable given such individual's state of health and other circumstances at any given time. Hospitals, skilled nursing facilities, or home health agencies would be considered to have in effect a transfer agreement with a community long-term care center when such transfer is medically appropriate as determined by the attending physician. Interchange of medical and other information necessary or useful in the care and treatment of individuals transferred between such hospitals and other facilities is provided for in determining whether patients can be adequately cared for otherwise than in a hospital or skilled nursing facility.