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tation, the problems of providing health care services for the elderly are much the same as for the rest of the population, the major difference being that the elderly require more services. In the broader use of the term health, there are fairly significant differences in the life styles of the elderly which must be taken into consideration in developing a program of comprehensive health care for them.

HEALTH Cost ESCALATION A SYMPTOM My second comment is that the recent rapid increase in health-care costs is merely a symptom of much deeper problems of health care. It is for this reason that the actions of both our Governor here and to some extent the Congress have been irresponsible. Because those actions have been aimed at control of the symptoms by reducing expenditures at the governmental level they are trying to protect. These actions have been in the form of either service cuts as here in California or recipient cuts by the Congress. In neither case has there or will there be any meaningful effect upon the total costs of health care; there will merely be a shift of costs to some other governmental levelin California, to the counties.

All of this activity in an attempt to cut costs has tended to belie the official position of HEW that medicare and medicaid have not been a cause of recent spiraling increases in the cost of health care. Two examples from the Medi-Cal program in California should suffice to illustrate what a basically open-ended program will produce.

Prior to Medi-Cal, the public assistance medical care, PAMC, paid for physician services on the basis of a fee schedule using a conversion factor of $4. Two years later, allowing billing on the basis of usual and customary charges, the average conversion factor is $6, an increase of 50 percent. If we had remained on the old fee schedule, our costs would have been $40 million per year less and a 25-percent increase to a conversion factor of $5 would have cost us $20 million a year less than the present system.

The second example involves county hospitals. Part of the financing for Medi-Cal involved a guarantee by the State to county governments that if they chose an optional method of contributing to Medi-Cal, they would not have to spend any more on their county hospitals than they did in 1964–65, except as adjusted for population increases.

Most large counties chose the option method and this year it will cost the State about $50 million more even though there has been no appreciable increase in the number of persons served in county hospitals, and even a decrease in some cases.

This committee has asked for a summary of the conflicting arguments made over the Medi-Cal program late in 1967 and early this year. That comprises, I think, one of the most astonishing episodes of governmental incompetence and medical irresponsibility. It illustrates two very important points. The first is the extent to which the State administration can and did manipulate dollar figures in an attempt to undermine a medical care program for the people of California. The second is the ability of an independent and well-staffed legislative branch to thwart such an attempt by obtaining the facts before acting and then acting on the facts instead of on propaganda.

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The story is fairly complex. It involves a great number of varying, and I quote "official," estimates of the program's cost as well as various legal opinions of provisions of the basic law which affected those estimates. It also involves the fact, which is hardly a secret to anyone, that our Governor is out of sympathy with programs like Medi-Cal which attempt to meet the health care needs of the needy citizens of California. Thus, when the Governor was presented with estimates which indicated originally, although those estimates were very sketchy and based on a very short experience span, he jumped at the chance to ask for a major cutback

Senator RANDOLPH. In Medi-Cal?
Mr. UNRUH. In Medi-Cal.

Senator WILLIAMS. Well, now, could we pause? I won't interrupt you again.

Mrs. Russell said that your budget was—what was it?

Mrs. RUSSELL. I am speaking of the older Americans budget at this point. The older Americans emphasis is different.

Mr. UNRUH. Well, this is the
Senator WILLIAMS. Say that again?
Mrs. RUSSELL. I am speaking of the older Americans program.
Senator WILLIAMS. I asked about the budget on Medi-Cal.
Mrs. RUSSELL. I am sorry, I misunderstood you.

Senator WILLIAMS. But it is your position, Mr. Speaker, that it is inadequately budgeted, and without an adequate budget, you certainly aren't going to get the appropriation; is that it?

BACKGROUND OF MEDI-CAL CONTROVERSY

Mr. UNRUH. No. What I am trying to relate now, Senator, is the entire background of the raging controversy over the whole Medi-Cal program in California, which always involves medicare because, in general, in the public mind the programs are relatively indistinguishable.

So when there is an attack launched upon the Medi-Cal provisions, title 19 provisions of this program, it invariably slops over and causes the same kind of resentment that generally takes place in these programs against the medicare portion of the program.

And we had, as you may remember, last year, about a year ago now, a special session of the legislature which was called by the Governor. We were already there on another matter, but the Governor added the Medi-Cal question to that special call.

When he got some preliminary figures which indicated there might be a deficit in the Medi-Cal program, he called a special session. He first of all tried to shift that program, as the money had been appropriated by the legislature. After a court case which indicated he could not make those cuts unilaterally, he then called us into special session to give him the right to make those cuts, so that he could meet what he said was, at that point, an original $210 million deficit in the entire program.

Now, the $210 million deficit—we got varying estimates along the way reducing that, and as a consequence, we eventually after we got all the facts together, we put a bipartisan, two-house committee of the legislature into that, and hired actuaries to check the estimates.

That program actually wound up in the 1967–68 budget year on the basis of the figure the Governor was using with a $185 million surplus. And actually if you throw out the flutf and get that down to actual costs, it was a $135 million total gubernatorial error. And that's a pretty big error in what amounted finally to a $200 million program.

As you know, in California, like many other States, we have to live within our budget. We cannot rely upon deficit financing.

Senator WILLIAMS. What was that gubernatorial accounting error$135 million?

Mr. UNRUH. Well, reduced to actual dollars, it was a total error of $135 million.

Now, the program, instead of having-if you want to use the same figures that the Governor did when he utilized the $210 million, which was the total figures for the program--then it would amount to considerably more than that. It would be around a $400 million gubernatorial estimate.

But if you break it down to actual State dollars, which is what we were talking about what we are concerned about at my level-it was a mistake of $135 million on a $208 million program.

Senator WILLIAMS. You had better get that office computer on it.

Mr. UNRUH. Well, the computer still answers according to what you put into it, and if you put in something expecting to get out an answer, that is generally what the machines give you.

Now, to insure that Medi-Cal will stay within its budget, we have to develop a real program. The Governor, of course, recommended that he be allowed to reduce or eliminate services to recipients. That was his answer to the fiscal crisis that he said threatened.

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CATEGORICAL ELIMINATION OF SERVICES There are, of course, a number of problems with this approach. One is the administration's proposed elimination of services on a categorical basis so that some persons would be denied services they needed badly, while other persons would still receive other services that were not needed nearly as much.

In other words, what he wanted to do was cut out a block of recipients, totally and completely. Another is that

Senator WILLIAMS. What kind of blocks ? Could we have some detail on that, Mr. Manley?

Mr. MANLEY. At one point, Senator, he threatened to completely remove from the program those people classified as medically indigent. And that amounted to—as I recall the figure—600,000 people.

That figure may be high. He never did do this. That was his threat at the time he called the legislature into session. In other words, if they didn't pass the

Senator WILLIAMS. I thought that's what Medi-Cal was all about. Mr. MANLEY. That’s correct. That's what title 19 is all about.

To continue the story, the result was that he did not make those cuts.

Mr. UNRUH. Well, because we refused to give him the authority. Senator WILLIAMS. But it was a cliffhanger for a while?

a Mr. UNRUH. That's right.

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The other thing that is wrong with that kind of an approach is that many of these services are also provided by the county hospitals for these people. Any decrease in Medi-Cal services just results in an increase in the county-provided services in their costs.

Still another is that such an approach may have no relation to the causes of increased costs. For example, hospital and physicians' services are very understandably among those exempt from reduction or elimination.

However, the cost of these services are the ones that have increased most rapidly, and should their costs continue to rise, other services would have to be cut to compensate for any unexpected increase.

Now, we, as I said, rejected that approach and came up with one which was more nearly geared to the causes of the problem, although we don't propose that this is perfect, either.

This changed the law so that if cuts are required they must first be made in the amount of payments for services not to exceed a 10-percent cut. If this is not adequate, then the administration may pa those services, which are elective, regardless of their category.

These measures are designed to reduce program costs until the legislature can decide to make an emergency appropriation or make other program modifications.

The legislature also required that if any one service item threatens to exceed its budgeted amount, and that's the way we budget in general areas, the amount of payment for that service, that particular service, may be reduced by 10 percent. This approach we think comes closest to meeting the problem head on. It may tend to discourage fee increases and overutilization by providers since these, if they get out of line, could result in an immediate 10 percent reduction.

If I could look back with hindsight on the results of California's manufactured crisis with its Medi-Cal program, I would say that our experience indicates what can be done to any new governmental program-which in this case has not been fully tested out—by somebody who simply does not like the program and is out to wreck public confidence in it.

It appears clear to us and to most California observers familiar with Medi-Cal that our Governor did not like this program and his disagreement with the Federal legislation which authorized it which was largely to blame for this State's crisis over the program.

Among other things, during the course of that controversy we had when we were there, we were expected to give the Governor the power to unilaterally cut this program. He had a television appearance, in which he got on television, and utilizing the Medi-Cal card, the one which goes to welfare recipients, and displayed this card and said, "If

you have one of these welfare cards—" or words to that effect, "you can get better treatment"-or "they can get better treatment than you can," pointing to the television audience, “than if you don't have one and you have to pay for it out of your own pocket.”

In addition to being just in general disagreement with that kind of an approach to government, at this point I think that is one of the most dangerous things that can happen is when we try to put one group of our people against another. We have too much of that in our

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society, already. It certainly is damaging to a program that has just been instituted for any public official to get on before the program has really had a chance to settle down and make those kinds of charges.

The fact that we disagreed with the Governor's position on this is not really the point. The point that I would like to stress is that as a result of these pretended claims of bankruptcy, the very real methods of controlling Medi-Cal's costs were overlooked.

FEE SCHEDULES FOR PHYSICIANS

The fact is for quite a while and still to some extent, although I think it is considerably less now, due to the scrutiny they have been getting, a few irresponsible doctors have made outrageously exorbitant profits out of the operation of this program. The people really getting well under this program are the doctors and some of them are getting awfully well indeed.

Last year a thousand California doctors collected as much as $70,000 each simply from treating Medi-Cal patients. Some of them are making as much as a hundred thousand dollars yearly off of this program.

Now, I don't know that we have very definitive figures on how much of this was profit, but we have been told by people in the medical profession that this is considerably more than the average doctor makes, and we estimate that some of them are making somewhere between $35,000 and $60,000 net profit out of this program each year.

It is obvious that the most direct method of controlling costs is through the imposition of fee schedules on doctors and the other providers of medical services. Yet, despite pleas from members of the legislature, the administration which we gave the authority to has refused to set such limits, and in my opinion that refusal, or the threat of using that, is almost totally responsible for those soaring, runaway costs which have occurred.

You know, it's very interesting some of our Governor's conjectures about the use of the bomb in the Vietnamese conflict ought not to be ruled out because that gives away our plans to the enemy, and yet, at the same time, the administration has so steadfastly refused even to consider the threat of imposing a fee schedule that, quite clearly, there is no fear on the part of the people who are out of line on this, that it might be.

I don't advocate flatly at this point that a fee schedule be used but I think it clearly ought to be setting there as an alternative, and that those people who are out of line ought to understand.

Senator WILLIAMS. Are you a lawyer?
Mr. UNRUH. No, I am not.

Senator WILLIAMS. Well, in the law, at least where I used to practice, we had a schedule of fees where somebody could go beyond the schedule, but we had an ethics committee that could receive complaints. Is there anything comparable

Mr. UNRUH. Yes, there is, Senator, and I was going to add that I think the ethical, reputable doctors in the business are doing their dead-level best to try to do something in this area.

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