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exclusion. Among the best reasons are: (1) nursing home per diem costs have risen relatively modestly ; indeed a 9% cap would be almost completely superfluous; (2) there is no surplus of long-term care beds nationwide, hence an overall capital expenditure limit without regard to need would be very unwise; and (3) utilization, not inflation, has been the primary force behind the rapidly increasing Medicaid expenditures for nursing home care. (Medicare expenditures for extended care are currently less than they were in 1969 in real dollars).

For these reasons, AHCA would be strongly opposed to any Congressional decision to broaden the President's plan to include long-term care facilities. On the contrary, we would urge greater incentives for the use of long-term care facilities, HMO's, home health care and other alternatives to hospitalization where appropriate.

CONCLUSION In summary, AHCA urges this subcommittee to proceed expeditiously on the mark-up and reporting of S. 1470. I would also like to thank the Chairman for eliciting the cooperation of the many groups affected by this legislation. The results of this process are evident. S. 1470 is realistic and constructive legislation which recognizes that our present programs must be put in order before any attempt to expand benefits can be seriously contemplated.

Senator TALMADGE. The next, and final, witness today is Mr. Harry Asmus, president, National Council of Health Care Services, accompanied by Jack MacDonald, executive vice president.

Mr. Asmus, you may insert your statement in full in the record and summarize it in 10 minutes, if you will.

STATEMENT OF HARRY ASMUS, PRESIDENT, NATIONAL COUNCIL

OF HEALTH CARE SERVICES, ACCOMPANIED BY JACK MacDONALD, EXECUTIVE VICE PRESIDENT

Mr. Asmus. Mr. Chairman and members of the subcommittee, my name is Harry Asmus. I am the president of the National Council of Health Care Services which represents a select group of proprietary multifacility nursing home firms. Members of the national council own and/or administer more than 80,000 beds in long-term care facilities throughout the country.

We appreciate this opportunity to appear before you today and submit a brief statement concerning s. 1470. The national council commends you, Senator Talmadge and the committee members, for taking the initiative in this bill to correct, and hopefully reform, the medicare and medicaid programs.

We strongly support the intent of S. 1470 as reflected in the title of the bill, “Medicare and Medicaid Administrative and Reimbursement Reform Act." That title effectively delineates the two areas that are the cause of the major problems of the medicare and medicaid programs.

The present diffusion and confusion in the administration of the medicare and medicaid programs has created a regulatory quagmire that has prevented the effective operation of the two programs. It has also created problems in the enforcement of standards which, in many instances, have led to the abuses noted by various critics of the health industry. These problems involve eligibility criteria for beneficiaries, the delivery of services, certification of providers, and payment for services rendered under the program.

A more effective administration is required if this situation is to be corrected. This can only result, however, if a single authority has the overall responsibility and accountability for determining the acceptable scope and levels of services and monitoring and assuring that the budgetary constraints are met for services rendered to beneficiaries.

Although one may argue that medicaid is significantly different from medicare because it is administered by the States, nevertheless, the States are administering the medicaid program under federally mandated regulations. These regulations presently leave the States with little flexibility once they have determined the beneficiary's eligibility and that individual's need for services under the medicaid program.

For these reasons, the proposed consolidation and restructuring of the responsible Federal agencies under a single authority, the Assistant Secretary for Health Care Financing as set forth in S. 1470 would greatly assist in resolving the confusion in the administration of the medicare and medicaid programs.

We are of the firm opinion that this type of massive restructuring of the administrative bureaucracy of HEW requires the "advice and consent” of the legislative process. Therefore, we firmly support section 20 in S. 1470. While there is a strong need to restructure the administrative system of the two programs, there is a counterbalancing need to stabilize the medicare and medicaid payment standards for longterm care providers. The changes made as a result of the Social Security Amendments of 1972, Public Law 92-603, need to be evaluated as to their impact before any major revisions, such as instituting percentage caps on revenues are made involving the skilled nursing and intermediate care facilities. Mr. Chairman, in our opinion, this can best be achieved under the format proposed by S. 1470.

Based on that view, the national council offers specific comments and recommendations concerning the following sections of S. 1470.

In our summary on page 3 of our statement with regard to section 2 criteria for determining reasonable cost of hospital services—it is our understanding that this section, as proposed in S. 1470, only pertains to hospitals. As a result, it would not preclude the use of meclicaid payment systems for nursing home services which have been developed by States pursuant to section 249 of Public Law 92-603. These systems we feel should not be encumbered by the system outlined in section 2 of S. 1470 or the concept of revenue caps which has been introduced in other legislation currently pending in Congress.

It is our recommendation that the Secretary should be strongly encouraged to utilize section 249 of Public Law 92–603 as a means to develop "improved methods” for establishing prospective payment systems which contain costs for nursing home services for both the medicaid and medicare programs.

On pages 5 and 6 in our statement, section 3, payments to promote closing and conversion of underutilized facilities, the National Council would acknowledge the fact that there may be at the present time, an excess of hospital beds in some parts of the countrv. However, we are concerned with the possible long-range results of these sections of S. 1470.

It should be noted that the shifting of excess hospital beds to another

purpose could easily result in an excess of beds in that latter area. At the same time, it might be necessary at a later date to switch the

hospital beds back to their original purpose which could result in a shortage in the alternative service area.

Senator Dole. If I may interrupt there, do you represent any rural areas? . Mr. Asmus. Yes. I personally am from Colorado.

Senator Dole. Very small hospitals, that we think this section may be very helpful to?

Mr. Asmus. In very remote areas—it would have to be very remote areas,

Senator. Senator DOLE. I understand the problem you raise. I just wonder what the alternatives may be in some of the small towns like Russell, Kans., where we have a very small hospital. I am not sure what the utilization rate is.

Mr. Asmus. I would say it would have to be very remote areas where the hospitals are maybe 15 to 20 beds or less, and this is very remote.

On pages 6 and 7 of our statement, section 20, hospital providers for long-term care service. It is our understanding that this section would require parity in payments between free standing skilled nursing facilities and hospital skilled nursing units on the basis of "an average rate per patient-day paid for routine services." The National Council strongly endorses the payment provisions set forth in this section for the payment for skilled nursing services furnished by a hospital.

On page 8 and 9 of our statement, section 21, reimbursement rates under medicaid for skilled nursing facilities and intermediate care facilities, we strongly support this provision. It is our opinion that this section would clarify the intent to allow State medicaid agencies the discretionary authority to include a “reasonable profit” in cost-related payment systems and rates developed pursuant to section 249 of Public Law 92-603.

We would urge the committee to reaffirm its original intent of this subsection as expressed in the committee's report on the Social Security Amendments of 1972.

On page 10 and 11 of our statement, section 22, medicaid certification and approval of skilled nursing and intermediate care facilities, Mr. Chairman, the problem in the area of certification and enforcement of standards is not one of who should be certifying, inspecting, and enforcing, but rather one of unifying the standards and surveys under a single authority. There is presently no one authority empowered to say “yes” or “no” on a timely basis in response to a certification finding.

As a result, this process can often be dragged out for an extended period of time.

In regards to section 32, regulations of the Secretary, Mr. Chairman, this provision is long overdue. It would directly address the type of situation that has occurred under section 249 of Public Law 92-603 where the Department of HEW delayed implementing that section for 512 years.

The lack of timely implementation of provisions of the Social Security Act has plagued the medicare and medicaid programs since their inception. The damage which has occurred as a direct result should not be underestimated.

On page 14 and 15 of our statement, section 46, rate of return on net equity for for-profit hospitals, we support the percentage change in the rate of return on net equity for proprietary hospitals and skilled nursing facilities prescribed in this section. We do so in the context of the present medicare payment system in that we do not feel that medicare's current rate of return, after taxes, is competitive with that of other service industries.

Mr. Chairman, at this time we would like to express our concern about the manner in which professional standards review organizations have approached skilled nursing and intermediate care services and patients. It is not the type of a situation which this committee intended when it approved enabling legislation in the Social Security Amendments in 1972.

Very few PSRO's have implemented programs for skilled nursing and intermediate care patients, and very little functional guidance has been provided to the facilities in this regard.

As a result, rather than PSRO's functioning in a manner that would alleviate much of the confusion in the review of services and the need for them by patients, they have only added to the mysteries of the utilization and quality review process.

We would recommend that the committee consider an amendment to S. 1470 which first would clearly delineate the functional relationships of the PSRO's for both skilled nursing and intermediate care services under the medicare and medicaid programs. Second, we would urge that all other medical utilization review authorities established for purposes of the medicare and medicaid programs be immediately consolidated and assumed by the PSRO's.

Third, that it be specified that a PSRO's authority is related to the determination of the medical appropriateness of a given service and that the appropriate medicaid or medicare authority retains the ultimate jurisdiction over program eligibility criteria of their beneficiaries.

Mr. Chairman, while we feel there are problems in the manner in which PSRO's are functioning in the long-term care area, we do not support their piecemeal elimination. They can be effective and beneficial to everyone concerned, including the patient, provider, government and the public.

Mr. Chairman, in conclusion, again, we appreciate the initiative which you have taken in holding these hearings and shown by introducing S. 1470. The need for reforming the administrative structure of the Medicare and Medicaid programs is clear. The National Council of Health Care Services feels that S. 1470 represents a large step in that direction and on that basis, we concur with the scope of the reform proposed in the bill.

Thank you.

Senator TALMADGE. Thank you very much for your very constructive testimony, Mr. Asmus.

Do you have any questions, Senator Dole?

Senator DOLE. No. I think it is an excellent statement. You raised a number of good points; it is very helpful.

[The prepared statement of Mr. Asmus follows:]

STATEMENT OF HARRY ASMUS ON BEHALF OF THE NATIONAL COUNCIL OF HEALTH

CARE SERVICES

The National Council commends Senator Talmadge and the Committee members for taking the initiative reflected in this bill to correct, and hopefully, reform

the Medicare and Medicaid programs. We strongly support the intent of S. 1470 as reflected in the title of the bill “Medicare-Medicaid Administrative and Reimbursement Reform Act”. That title effectively delineates the two areas which are the cause of the major problems of the Medicare and Medicaid programs.

The present diffusion and confusion in the administration of the Medicare and Medicaid programs has created a regulatory quagmire which has prevented the effective operation of the two programs. It has also created problems in the enforcement of standards which in many instances have led to the abuses noted by various critics of the health industry.

These problems involve eligibilty criteria for beneficiaries, the delivery of services, certification of providers, and payment for services rendered under the programs.

A more effective administration is required if this situation is to be corrected. This can only result, however, if a single authority has the overall responsibility and accountability for

(1) determining the acceptable scope and levels of services, and

(2) monitoring and assuring that the budgetary constraints are met for services rendered to beneficiaries. Though one might argue that Medicaid is significantly different from Medicare because it is administered by the States, nevertheless, the States are administering the Medicaid program under Federally mandated regulations. These regulations presently leave the States with little flexibility once they have determined the beneficiary's eligibility and that individual's need for services under the Medicaid program. For these reasons, the proposed consolidation and restructing of the responsible Federal agencies under a single authority, the Assistant Secretary for Health Care Financing, as set forth in S. 1470, would greatly assist in resolving the confusion in the administration of the Medicare and Medicaid programs.

The National Council applauds the initiative shown by the Secretary of HEW, Joseph Califano in administratively establishing the “Health Care Financing Administration”, this has, in effect, resulted in the conceptualized reorganization which is described in Section 30.

However, we are of the firm opinion that this type of massive restructuring of the administrative bureacuracy of HEW requires the "advice and consent" of the legislative process. Therefore, we firmly support Section 20 in S. 1470.

While there is a strong need to restructure the administration systems of the two programs, there is a counter-balancing need to stabilize the Medicare and Medicaid payment standards for long term care providers. The changes made as a result of the Social Security Amendments of 1972, Public Law 92–603, need to be evaluated as to their impact before any major revisions such as instituting percentage caps on revenues are made involving the skilled nursing and intermediate care facilities. Mr. Chairman, in our opinion, this can best be achieved under the format proposed by S. 1470.

Based on that view, the National Council offers specific comments and recommendations concerning the following sections of S. 1470. SEC. 2. Criteria for determining reasonable cost of hospital services

It is our understanding that this section, as proposed in S. 1470, only pertains to hospitals. As a result, it would not preclude the use of Medicaid payment systems for nursing home services which have been developed by States pursuant to section 249 of Public Law 92-603. These systems we feel should not be encumbered by the system outlined in Section 2 of S. 1470 or the concept of revenue caps which has been introduced in other legislation currently pending in Congress.

It is our recommendation that the Secretary should be strongly encouraged to utilize section 249 of Public Law 92–603 as the means to develop “improved methods" for establishing prospective payment systems which contain costs for nursing home services for both the Medicaid and Medicare programs. SEC. 3. Payments to promote closing and conversion of underutilized facilities

The National Council would acknowledge the fact that there may be, at the present time, an excess of hospital beds in some parts of the country. However, we are concerned with the possible long-range results of these sections of S. 1470.

It should be noted that the shifting of excess hospital beds to another purpose could easily result in an excess of beds in that latter area. At the same time, it might be necessary at a later date to switch the hospital beds back to their original purpose, which could result in a shortage in the alternative service area.

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