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We would also point out that there is a difference in physical plant standards between hospitals and nursing homes. Nursing facilities are now being required to have more floor space available than hospitals for patients outside, as well as inside their rooms, for what the regulations define as general "activities of daily living".

It is, therefore, our recommendation that the Committee should carefully weigh and consider the possible ramifications of the conversion of excess hospital beds on other segments of the industry. To put it simply, we are concerned that the suggested cure might be worse than the disease.

SEC. 20. Hospital providers for long-term care services

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. SEC. 4. Federal participation in hospital capital expenditures

In regard to subsection (d) of this section we would like to call to the attention of the Committee the problems created by the interpretation and resulting regulations implementing the existing Section 1122 (g) of the Social Security Act. The Department of Health, Education, and Welfare issued regulation (42 CFR 100.103 (a) (1)) on November 9, 1973, which require that the purchaser of an existing facility must obtain approval for that purchase from the appropriate comprehensive health planning agency.

We would urge the Committee to give consideration to clarifying the intent of the existing section as well as subsection (d) of S. 1470 in regard to the simple acquisition of existing facilities. We would urge that such simple acquisitions be exempted when there is no increase in the size of the facility or a change in the services which they provide.

SEC. 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 also like to draw the Committee's attention to the fact that subsection (b) of section 249 of Public Law 92-603 has still not been implemented by the Department of Health, Education, and Welfare. Subsection (b) would provide an excellent opportunity to simplify the payment structure faced by nursing facilities participating in the Medicare and Medicaid program. This would be accomplished under subsection (b) in that the Secretary of HEW is permitted to utilize a State's Medicaid payment method developed in accordance with subsection (a) for purposes of the Medicare programs.

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

SEC. 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.

Based on our experience, this process can be accomplished most expeditiously at the local level. However. as the Committee is aware, this has in the past resulted in a general lack of uniformity in the application of standards in nursing facilities. Therefore, the consolidation of this authority in the Secretary may be appropriate. We would offer a word of caution though that this will require a very streamlined administrative process at the Federal level if we are to avoid a massive log jam of administrative delays in the certification process.

SEC. 23. Visits away from institution by patients of skilled nursing or intermediate care facilities

The concept reflected in this section is extremely important to both the nursing home patient and the facility. Patients should be encouraged to make visits to their families and not discouraged. The latter has been the practice, we are sorry to say, of the Department in the past. Even though they have recently liberalized their policy, we commend Senator Talmadge for clarifying the statute in regard to this issue.

SEC. 30. Establishment of Health Care Financing Administration

We support the proposed consolidation of agencies, as well as the administrative and policy responsibilities set forth by this section. An effective administration of the Federal Government's participation in the Medicare and Medicaid programs can only evolve if a single agency has the overall responsibility and authority to fully administer the programs. Anything less is both duplicative and cumbersome.

SEC. 31. State Medicaid Administration

We strongly endorse this section in that it clarifies the relationship between the State Medicaid agencies and the Federal Government. This is particularly true in regard to the areas of the accountability and the responsibility of the Medicaid program to patients and providers.

SEC. 32. Regulations of the Secretary

Mr. Chairman, this provision is long overdue. It would directly address the type of situation which has occurred under section 249 of Public Law 92-603 where the Department of Health, Education and Welfare delayed implementing that section for five-and-a-half 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.

SEC. 33. Repeal of Section 1867

We would like to recommend that the Committee consider carefully the impact of this section which would abolish the Health Insurance Benefits Advisory Council. This proposal would cut off one of the few formal inputs that the public, as well as the health industry, have into the agencies which govern and regulate them.

While the Health Insurance Benefits Advisory Council has not always functioned effectively, it could be a valuable source in the formalization of objectives for the Department's Health programs. We urge the Committee to consider revising it in terms of possibly its membership makeup and its stated purpose, but not eliminating it at this time.

SEC. 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 Medicare's current rate of return, after taxes, is competitive with that of other service industries.

Senator TALMADGE. The committee will stand in recess until 8:30 tomorrow morning when we will hear from Bert Seidman, the AFL-CIO representative as the first witness; Raymond T. Holden, the chairman of the board of trustees of the American Medical Association; Anthony G. Weinlein, the secretary-treasurer of the Service Employees International Union; Neil Hollander, vice president for Health Care Services, Blue Cross Association; A. B. Davis, Jr., executive vice president, chairman of the board of directors, Kansas Hospital Association; Morton D. Miller, the vice chairman of Equitable Life Assurance Society of the United States; and Tom Greene III, vice president of Paine, Webber, Jackson & Curtis, Inc., on behalf of the Hospital Financing Study Group.

The committee will stand in recess until 8:30 a.m.

[Thereupon, at 10:30 a.m., the hearing in the above-entitled matter was recessed to reconvene at 8:30 a.m. on Thursday, June 9, 1977.]







Washington, D.C.

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

Present: Senators Talmadge, Dole, and Danforth.

Senator TALMADGE. The subcommittee will please be in order.

The first witness this morning is Mr. Bert Seidman, director, Social Security Department, AFL-CIO. We are delighted to have you, Mr. Seidman. You may insert your full statement into the record and summarize it in 10 minutes.


Mr. SEIDMAN. Thank you, Mr. Chairman.

With me this morning are, to my left, Robert McGlotten, member of the legislative department of the AFL-CIO and to my right, Richard Shoemaker, member of the social security department of the AFL-CIO.

Senator TALMADGE. I am delighted to have your gentlemen.

Mr. SEIDMAN. The AFL-CIO appreciates the opportunity to appear before the Health Subcommittee with respect to the Medicare-Medicaid Administrative and Reimbursement Act.

Medical care costs continue to escalate at about twice the rate of all goods and services as measured by the Consumer Price Index. The impact of these rising costs on the Federal budget is substantial. In fiscal year 1976, 42 percent of health expenditures came from public funds. Federal payments for medicare, medicaid, and other health programs totaled about $40 billion.

The combination of direct and indirect Federal, State, and local government payments to the health industry makes the health industry one of the most heavily subsidized industries in the country. This subsidy amounts to over $64 billion.

There is no way to control these escalating costs until Congress enacts a comprehensive national health insurance program such as the health security bill (S. 3). Under health security the Congress would establish a budget for health services and provide the financial resources to pay for these services. Medical societies would be obligated to negotiate realistic fee schedules so that the budget for physician services could not be exceeded.

Likewise, hospitals and other health institutions would have to negotiate their budgets so that total expenditures for hospitalization could not exceed the amount of funds allocated for institutional care. A budgeting system of cost control is far more flexible than regulation and is less costly as well.

Over the long run, the health security program is the least costly of all national health insurance proposals that have been introduced into the Congress. Under health security, and only under health security, could health care costs be held to a constant percentage of the gross national product which is, currently, 8.6 percent of the GNP. Other national health insurance bills split up the funding of NHI between the Government and the private sector. The private sector is divided between Blue Cross-Blue Shield and about 2,000 private insurance carriers. Under such proposals, the providers of health care would continue to dictate their remuneration. There would be no outside limits to the amount of money the health industry could absorb.

The bill introduced by the distinguished chairman of this subcommittee is a step in the right direction but does not go far enough. There are two main thrusts in the bill:

One, it would establish a single prospective reimbursement system for hospitals;

Two, it would attempt to induce physicians to accept usual and customary fees under medicare.

If a prospective hospital reimbursement program is to control hospital costs, it must deal with three elements: One, intensity of care; two, utilization; and three, routine operating costs.

Intensity of care is the primary cause of hospital cost inflation. Excessive utilization of hospital beds is the second most important cause of escalating costs. But S. 1470 deals only with routine operating costs which have contributed to only a minor degree to this inflation. We conclude, therefore, that S. 1470 will not significantly contain the escalation of hospital and medical care costs.

We find particularly objectionable the provisions of S. 1470 which would, in effect, establish a system of wage control. Hospital wages are too low in most communities and average less for the Nation as a whole than those of workers generally or even service workers. They have played almost no role in generating the inordinate escalation of hospital costs. Yet, S. 1470, in effect, would place a ceiling on hospital wages keeping them permanently below general wage levels. These provisions are unacceptable to us as an infringement of the rights of hospital workers to negotiate their wages with hospital management through the process of free collective bargaining.

We believe that a negotiated budget is a far more effective and flexible tool for controlling hospital costs than the complicated system pro

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