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With regard to the provisions of S. 1470 which are designed to impact on reimbursement principles we are strongly supportive of the principles contained in a number of provisions.

We support section 2 which calls for both an accounting and uniform functional cost reporting system as well as the classification of hospitals for purposes of limiting reimbursement. Additionally, we support the provisions which prohibits hospitals from increasing other charges to compensate for reduced medicaid and medicare reimbursement. Private patients should not be the victims of the regulatory process.

Moreover, we are pleased with the role of planning agencies in determining whether the adjusted per diem payment rate should apply to the portion of a hospital's routine operating costs attributable to the underutilized capacity, as well as the waiver provided to State ratesetting programs under section 222 of Public Law 92-603 and 1233 of the Public Health Services Act. However, we believe that individual planning agencies could be given a role in suggesting criteria for the hospital classification described in section 2.

We also specifically support section 10 of the bill which encourages physicians to accept assignments under medicare, Section 11 dealing with limitations on prevailing charges under medicare, and section 15 which authorizes the development of relative value schedules to be used in reimbursement.

These provisions are important in our view because they begin to give legislative recognition to the fact that comprehensive policy and planning cannot occur without addressing physician remuneration in a more rational fashion.

Nevertheless, we should not lose sight of the fact that such remuneration is substantially less important than the other medical costs which are controlled, but not received, by physicians. We must, therefore, also intensify our efforts to reduce unnecessary utilization of facilities and services and develop effective alternatives to inpatient facilities and services.

Finally, we would like to lend our support to the provisions in the bill relating to the streamlining of the administration of medicaid. We believe these provisions will help eliminate the second-class medical care which has all too often been the unhappy fate of those who require medicaid assistance.

Mr. Chairman and members of the subcommittee, this concludes our remarks. We reiterate our support for the principles involved in S. 1470. We believe that they merit consideration not only in relation to medicare and medicaid but as a model for desired changes across the entire health care system.

We look forward to working with you on the enactment of the bill as well as on other key issues of mutual concern.

Senator TALMADGE. Ms. Hansen, I believe you are the chairman of the board of directors, Mid-American Systems Agency?

Ms. HANSEN. Yes.
Senator TALMADGE. How many members do you have?

Ms. HANSEN. We are a 30-member board made up of 51 percent consumers, 29 percent providers. I am a consumer member of the board.

Senator TALMADGE. How many States?

Thank you.

Ms. HANSEN. We are in two States, a five-State agency. We represent five Missouri counties, three Kansas counties in the statistical area of Kansas City, Mo.

Senator ŤALMADGE. Do you think this bill is a step in the right direction to try to control the very rapid escalation of medicare and medicaid?

Ms. HANSEN. I do, Senator, partly because it has in it provisions for the utilization of the already existing health planning network, although it is a network, as you well know, in a developmental stage and a planning stage, I think it is an appropriate means by which health care costs can be controlled.

Senator TALMADGE. If you have any further recommendations to improve the bill, we would appreciate your submitting them in writing.

Ms. HANSEN. Thank you.
Senator TALMADGE. Senator Dole?

Senator DOLE. I have only one question, based on paragraph No. 2 on page 4 that ends on page 5, with reference to the four beds per 1,000 and the 80-percent occupancy requirement.

What has been your experience in the eight counties that you are active in as far as occupancy? Does that cover any rural counties?

Ms. HANSEN. Partially rural, Senator. We have part of Platray, some parts of Cass and Clare are considered rural and other parts of Leavenworth are considered rural. We are a mixed region in that way.

We do not approach that kind of occupancy in the eight county metropolitan area. I would be naming the number. I guess overall, considering the 29 inpatient facilities in the region, somewhere about 72 to 75 overall. Senator DOLE. Is it lower in the rural areas, the occupancy rate!

? Ms. HANSEN. I think not. I think it is lower in the central city area where we have clusters of facilities. They are uneven in their occupancy. Some are very much full most of the time. Others are finding it less easy to provide the same quality of service and obviously it has resulted in some lessened demand.

We are an overbedded area, however, in terms of the needs.
Senator DOLE. You support the provision.

In rural areas I think there is some flexibility. We have the swing bed provision that indicates that you can use some of those beds for long-term care. Do you see that as a satisfactory provision?

Ms. HANSEN. I think again, in my experience, being a local experience, I would have to view it on a case-by-case situation. In our region, I think it is certainly a reasonable alternative rather than allowing a capital expenditure that already has been made to be put to no function while over here, a long-term care institution is being constructed.

I think it is a rational alternative to be considered.

Senator DOLE. That is the way Senator Talmadge views it, and I think that is the way others of us view it.

If you have the facility, it makes little sense to go out and build another.

Ms. HANSEN. It is true.

However, Senator, sometimes you do find in an inpatient facility that it is inappropriate for long-term care because of the building. That comes down to specifics. But in general, it is an excellent principle.

Senator Dole. I appreciate very much your testimony.

Senator Talmadge has indicated if you have any plans, or if you have an opportunity to read the testimony of the witnesses that will be here the rest of this week and have any suggestions or comments on that testimony, it will be helpful.

Senator TALMADGE. Thank you very much, Mrs. Hansen and Mr. Mott. We appreciate your contribution to the committee's deliberations.

Tomorrow we will hear from representatives of the Nation's hospitals.

The subcommittee will stand in recess until 8:30 tomorrow morning

[Thereupon, at 11:20 a.m. the subcommittee recessed to reconvene at 8:30 a.m. Wednesday, June 8, 1977.]

92-202-7710

MEDICARE AND MEDICAID ADMINISTRATION AND

REIMBURSEMENT REFORM ACT

WEDNESDAY, JUNE 8, 1977

U.S. SENATE,
SUBCOMMITTEE ON HEALTH
OF THE COMMITTEE ON FINANCE,

Washington, D.C. The subcommittee met, pursuant to notice, at 8:30 a.m. in room 2221, Dirksen Senate Office Building, Hon. Herman Talmadge (chairman of the subcommittee) presiding.

Present: Senators Talmadge, Matsunaga, and Dole.
Senator TALMADGE. The subcommittee will come to order.

The first witness this morning is Mr. John Alexander McMahon, president, American Hospital Association, accompanied by Mr. Alan Manzano, vice president and Leo J. Gehrig, senior vice president.

Gentlemen, we are delighted to have you. Your entire statement will be inserted into the record and, if you will summarize it in 10 minutes, we would appreciate it.

STATEMENT OF JOHN ALEXANDER MCMAHON, PRESIDENT, AMER

ICAN HOSPITAL ASSOCIATION, ACCOMPANIED BY ALAN MANZANO, VICE PRESIDENT AND LEO J. GEHRIG, M.D., SENIOR VICE PRESIDENT

Mr. McMahon. Thank you, Mr. Chairman.

As you noted, I am Alex McMahon, president of the American Hospital Association, accompanied by Dr. Leo Gehrig and Mr. Allan Manzano.

The AHA represents more than 6,500 member institutions, including most of the hospitals in the country, extended and long-term care institutions, mental health facilities, hospital schools of nursing, and over 24,000 personal members. We appreciate the opportunity to present our views and recommendations on S. 1470, the Medicare Medicaid Administrative and Reimbursement Reform Act.

The AHA believes that your bill, S. 1470, Mr. Chairman, identifies and constructively addresses a number of critical issues important to the public, providers, and Government in the provision of health care services. Central among these issues is the rapidly increasing cost of health care services.

Hospitals are concerned and are working actively to restrain health care cost increases within their control. Health care cost increases are a complex problem; to address the issue requires the combined efforts

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