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not necessarily, of course, require the fee on any percentage arrange


I would hope that the committee, and I know they are, and the staff, are working with the various associations. It is my understanding that an agreement in principle as to the approach that should be taken is being developed. I am pleased to note that.

Senator TALMADGE. How are pathologists paid in your particular hospital?

Dr. THOMPSON. In our hospital pathologists are all on a salary basis. This is by no means uniform, as you know, but it has been traditional in our hospital.

Senator TALMADGE. I think we have worked out an agreement with all three of your professional groups that they will be paid on a feefor-service basis, based upon a relative value scale. Do you agree with


Dr. THOMPSON. That seems to be a reasonable approach. It is not a simple issue.

Working with the societies that understand the concerns I believe will result in an equitable and reasonable approach. At least, it seems that way to me.

Senator TALMADGE. That would be an alternative. You could still be an employee on a salary basis if it is mutually agreed by the hospital and by the doctor.

Dr. THOMPSON. I believe so.

Senator TALMADGE. Thank you.

Senator Dole?

Senator DOLE. I just have a very broad question. It probably cannot be answered.

We hear all of the time that the free market does not work in the medical care arena because the patient does not pay the bill, he does not select the goods and services or the facilities in which these facilities are rendered. Of course, the patient does pay the bill through a combination of premiums, higher prices, and taxes.

What he really has are a number of agents that pay the bill on his behalf. These are the insurance companies or the Government.

Why can the free market not operate in the medical care area? Dr. THOMPSON. I think that what we are about, perhaps, basically distinguishes the situation. I do not think that ideally in the medical realm you are looking to develop a competitive industry in the sense of seeing which one can provide the product at the least cost.

I think what we are hoping to accomplish is more of a cooperative effort, that institutions working together will be able to supply the services that are needed to the public, that not all hospitals will necessarily provide the same services.

The economies that can be achieved in the industry really depend upon that cooperative approach and I think that this will be helped as the regionalization develops, as the health systems agencies become more involved and more knowledgeable about it. It seems to me that these are the ways in which the hospital industry can be shrunk so that unnecessary duplication will be avoided.

For these reasons, I do not see it in the same light as I do the automobile industry, for example.

Senator DOLE. Thank you very much.

Senator TALMADGE. Are there many unnecessary beds in New York City?

Dr. THOMPSON. Yes, sir, there are.

There have been many studies by a variety of agencies over the years and it is interesting that most of them have come up with roughly the same conclusion: that there are probably in the neighborhood of 4,000 or 5,000 excess beds. This is certainly not restricted to New York City. There are national figures that have been developed as well. I am more familiar with New York.

I think it is important to point out, for purposes of economy, a closure of beds scattered throughout all of the hospitals does not have as much savings as the closing of total institutions. That is a difficult matter to do for a lot of reasons, political and otherwise, as you know. Nonetheless, I think that it is recognized in New York in order to accomplish this objective, some hospitals will have to close.

Senator TALMADGE. That is a very significant issue, Doctor. If you have any ideas that you could share with our committee staff, we would be grateful.

Dr. THOMPSON. We would be delighted to do that.

Senator TALMADGE. Do you think it is appropriate for the burden of financing the cost of training residents, interns, and nurses in hospitals to fall upon the sick people through payments for hospital care?

Dr. THOMPSON. The issue in regard to interns and residents, as you know, Mr. Chairman, has been widely discussed. It is our view in the teaching hospitals that this is an appropriate cost. As you know, the interns and residents are students; no question about that. They are there to develop under supervision. The average individual, after receiving his medical degree, spends nearly 4 years in this postgraduate period before he is really ready to practice independently. At the same time, the individual as a student is, of course, providing significant patient services.

The interns and residents work 60 to 70 hours a week, most of them, night and day, and that is essentially for their education as well as provision of services.

In my view and from my understanding in talking to the public, they understand that this is a necessary cost to be borne to produce the next generation of physicians. Otherwise, they will not have welltrained physicians. That is terribly important to them.

So I think that it is very much justified. I think that the situation with nursing is a little different. It depends on the particular educational arrangement that one has. There are still, today, hospital schools of nursing and the students do provide significant patient services. Some of the nursing schools have gotten away from the provision of services and I think a question might be raised there whether or not it is appropriate for that to be paid out of the health care dollar.

What concerns me is that we need these people very much and some mechanism of payment needs to be provided and I do not see any substitution for that, Mr. Chairman. I think it is absolutely essential that in some form these educational programs continue to be supported.

Senator TALMADGE. Do you have any suggestions for a more equitable means of paying the necessary medical and nursing education

and training costs in hospitals rather than putting these costs on the backs of the sick?

Dr. THOMPSON. I really do not know, Mr. Chairman, of any other method. It seems to me that no matter which pocket it comes out of these costs need to be borne. It seems to me that it is essential for the future of patient care, so I think that if one does split it out of the health care dollar, there is really a serious question as to whether or not it will be supported or whether the various agencies will argue about whose responsibility it is. In this situation those institutions which are providing that education are going to suffer, and ultimately the public.

Dr. COOPER. May I add a comment here?

As the cost of medical care is spread broader and broader throughout the population on the basis of insurance, really it is not just the sick who are in the hospital who are paying the course of graduate medical education. Actually, the public generally is bearing the cost of the preparation, as Dr. Thompson has said, of the next generation of physicians. And so that it is not just the sick in the hospital that are involved, but the entire population in assuring that they have adequately trained physicians for the next generation of care.

Senator TALMADGE. As you know, that is a very serious problem. If any of you have any more equitable suggestions that the committee could consider, we would certainly be grateful for your contribution. Thank you very much.

Senator Dole?

Senator DOLE. I would just like to raise one question. Is it true that the hospital schools of nursing are on the decline?

Dr. THOMPSON. Yes, sir, it is. While the hospital schools are on the decline, the baccalaureate programs are on the increase. Actually, there has been an increase in the number of graduates.

The reason for this, Senator Dole, I think basically is as the practice of medicine has become more complex, so has the practice of nursing and the educators have found that they need to have educational programs in nursing which are somewhat longer and more extensive, more scientifically developed, than was the case in the past. So there is definitely the trend toward having a baccalaureate program.

Senator DOLE. Thank you.

Senator TALMADGE. Thank you very much, gentlemen, for your very helpful and constructive testimony.

[The prepared statement of Dr. Cooper follows:]




A. Uniform cost reporting

1. AAMC supports the provisions of Section 2 requiring uniform hospital cost reporting.

2. AAMC urges that the Committee Report state that the provisions of S. 1470 do not require or authorize the establishment of mandatory uniform hospital accounting.

B. Classification of hospitals

1. AAMC recommends more flexible legislation providing that hospitals "be classified by type and size" with specific guidance in the Committee Report. 2. AAMC recommends appointment of a "National Technical Advisory Board" to recommend and evaluate classification systems.

3. AAMC strongly recommends deleting the present provisions establishing a specific category for the "primary affiliates of accredited medical schools". 4. AAMC strongly recommends that the Secretary of HEW be directed to examine the implications for reimbursement of alternative definitions of the term "teaching/tertiary care hospitals".

C. Determining routine operating costs

1. Where cross-classification schemes for determining hospital payments are used, the AAMC supports removal of atypical and uncontrollable costs.

2. AAMC supports more flexible legislation which would permit additions to the list of excluded costs without new legislation.

3. AAMC recommends providing Executive Branch with flexibility to specify payment ceiling with guidance in the Committee Report.

4. AAMC recommends permitting wage rates to be used as the basis for an exception where a hospital can demonstrate that it had to pay atypical wage rates to recruit personnel.

5. AAMC supports case-mix provisions.

6. AAMC recommends provisions for exceptions process.

D. State rate control authority

AAMC finds state rate systems are acceptable where they meet specific organizational and operational characteristics.


A. Defining "Physicians' Services": AAMC recommends amending S. 1470 to explicitly permit "physicians' service" compensation for a physician who is simultaneously functioning as an educator and personally performing or directing identifiable patient care services.

B. Anesthesiology Services: AAMC supports broader definition of anesthesiology services.

C. Pathology Services.

1. AAMC is concerned that the proposed emphasis on fee-for-service payment for surgical pathology services and hemato-pathology services would favor these two areas over other important areas of clinical pathology.

2. AAMC is concerned about payment mechanisms which could possibly discourage the involvement of pathologists and inhibit the development of the discipline.

D. Percentage Fee Compensation.

1. AAMC is concerned that the proposal may inhibit the development of some clinically necessary disciplines by placing them at a disadvantage with others.

2. AAMC requests explicit guidelines for determining "an amount equal to the salary which would have reasonably been paid".

E. Part A Compensation Arrangements: AAMC requests explicit guidelines for determining "an amount equal to the salary which would have reasonably been paid."


A. Health Care Financing Administration.

1. AAMC supports centralization of Federal health care financing.

2. AAMC advocates Cabinet-level Department of Health.

B. State Medicaid Administration: AAMC strongly endorses more rapid payment to providers.

C. Regulations of the Secretary.

1. AAMC supports 60 day comment period.

2. AAMC requests some guidelines for defining "urgent" regulations.

D. Abolition of HIBAC: AAMC strongly recommends the maintenance of an advisory board to the Secretary of HEW which is composed of providers, practitioners, and consumers from the private sector.


The Association of American Medical Colleges (AAMC) is pleased to have this opportunity to testify on the "Medicare-Medicaid Administrative and Reimbursement Act," S. 1470. In addition to representing all of the nation's medical schools and sixty academic societies, the Association's Council of Teaching Hospitals includes over 400 major teaching hospitals. These hospitals: account for approximately sixteen percent of the admissions, almost nineteen percent of the emergency room visits, and twenty-nine percent of the outpatient visits provided by non-Federal, short-term hospitals; provide a comprehensive range of patient services, including the most complex tertiary services; and are responsible for a majority of the nation's graduate medical education programs. Thus, the Medicare and Medicaid amendments proposed in S. 1470 concerning hospital and physician payments and program administration—are of direct interest and vital concern to the Association's members.

A review of S. 1470 clearly shows that the Subcommittee and its staff have given careful consideration to suggestions made by witnesses during past hearings on possible Medicare and Medicaid amendments. Several improvements have been made in these proposed amendments including increased flexibility in the classification of hospitals, the addition of malpractice insurance costs to the list of expenses excluded from routine operating costs, and the establishment of provisions for relative value scales for physicians' services. For these modifications and for the staff's willingness to discuss general concepts and tentative provisions of S. 1470, the AAMC expresses its appreciation to the Subcommittee and its Chairman.

The Association is well aware of the fact that spending for health careas a result of general economic inflation, increased service availability, improvements in service quality, growth and changes in population, and increased per capita utilization-has increased more rapidly in the past two decades than have most other segments of the economy. This fact has focused consumer, industrial, governmental, and provider attention of the nation's health acre expenditures. In recent legislation-such as P.L. 92-603 and P.L. 93-641-the Congress has attempted to establish programs and policies which will help stimulate a more efficient and effective health industry.

It should be emphasized that the present levels of hospital costs have developed over a long period of time and as a result of hospital responses to national and state legislation, to prevailing economic and social conditions, and to public demands. Thus, the Association is pleased that Senator Talmadge, in introducing S. 1470, described it as ". a long-term basic structural answer to

the problem of rising hospital costs. . ." To reduce the increase in hospital costs, the AAMC supports the position that a long-term approach is needed, and critical comments made in this testimony are submitted with the intention of strengthening the proposed legislation.

Amendments concerning hospital payments

Uniform cost reporting

A most important prerequisite for the proper measurement, evaluation, and comparison of hospital costs is the development and implementation of a system of uniform cost reporting. Therefore, the Association supports the provisions of Section 2 of S. 1470 requiring uniform hospital cost reporting.

Some organizations and government officials have argued that uniform reporting requires mandatory uniform accounting. The Association does not support this contention. That uniform reporting data can be provided without mandatory uniform accounting has been demonstrated by several state rate control agencies and by non-hospital industries. Therefore, the Association urges that the Committee Report accompanying this bill clearly state that the uniform reporting provisions of S. 1470 do not require or authorize the establishment of mandatory uniform hospital accounting.

Classification of hospitals

A fundamental concern of the Association is the criteria used to establish any hospital classification system used to calculate hospital payments. While the Association is pleased that S. 1470 provides the Executive Branch with increased flexibility in implementing the Congressional intent, the AAMC remains concerned that some specific grouping criteria-such as bed size categories-are initially designated in the bill. Recognizing that there is a lack of data available for analyzing the impact of these grouping criteria, the AAMC believes a more

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