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Third, if the healthful effects of a competitive market are to be introduced in the medical marketplace, a continuing countervailing force that does not now exist will be needed.

Fourth, hospitals are unlikely, of their own volition, to relinquish some of their socially disfunctional high levels of autonomy and independence.

Fifth, the labor and/or management groups have one of the biggest stakes in the game, but have been sitting relatively quietly for a long time. As prices continue to go up and as the Government focuses increasingly on the problem, this group will be increasingly heard from in one or more of the ways described above.

Sixth, there is no shortage of ideas about what should be done. There is, however, a shortage of well-tested ideas and, most important, there is a shortage of ideas of how to get change started, how to get the ideas implemented.

These beliefs, in turn, lead me to the following conclusions: Fundamentally, there is a need for reinstitutionalizing the health-care industry to place the phy. sicians and the hospitals in a posture vis-a-vis the consumer that is more typical of buyers and sellers in other markets.

As prices continue to rise, stronger pressures will build toward change. While this paper has concentrated on possible actions by labor and/or management, it is obvious that the sparkplug role may be taken anywhere in the system by the vendors, by the third parties, by the Government. But, based on current trends and present orientations, the major group purchasers may well emerge as the major stimulant toward change. Possible approaches to a competitive environment

What form will this change take? It is hard to say, of course. The situation is complex, and there are many social and political considerations. In this paper we have already mentioned several possibilities. The following discussion concerns these and additional possibilities :

Broad-scale development of prepayment medical centers.- Imagine the effect on the organization of health care and on costs if, in each urban area, there were prepayment community health centers, similar to the Kaiser Plan, available as an alternative to the public. Other hospitals, independent physicians, and drug suppliers would be faced with adequate, but not overwhelming, competition.

Massive self-insurance indemnity programs.—The expansion, by major group purchasers, of their self-insurance indemnity programs is not a likely occurrence; among the major unions, at least, there is a strong preference for nonindemnitytype coverages.

Management-labor coalitions.-Regional coalitions of management and/or labor could bargain and negotiate directly with the vendors of health care, stimulate effectiveness in community health planning groups, institute improved claimcontrol systems, and in general assume the role of the consumers' representative. There is reason to believe that this type of coalition may be more than a dream. Recently, the California Health Plans Alternatives Committee was established by the Teamsters, Steelworkers, Carpenters, and Longshoremen in the State for this very purpose. It plans invite members of industry shortly. There are several interesting elements to be observed. First, despite the fact that each of these unions already has advanced health plans, they still feel the need for a more forceful combination. Second, despite differences in philosophy, values, and pay rates, and despite continuing jurisdictional disputes, the unions can cooperate with each other on common problems. Third, despite geographical differences in their organizations and differing relationships with their national unions, these unions can overcome problems of regional autonomy when necessary.

Much of industry is no less concerned about the problem than is labor. It would seem, therefore, that, if a catalytic agent could be found that would bring the major labor and management groups together, it might be possible to form regional combinations that would be large enough to be effective.

A variation of this would be a regional coalition of management, labor, and Government to accomplish these purposes. In some areas, Government may be needed as the sparkplug to get things going. This may be the eventual shape of the comprehensive regional planning activities created under the Comprehensive Health Planning and Public Health Amendments of 1966.

Private-company operation of medical facilities.-A new private company, patterned after the American Telephone and Telegraph Company in State-by-State organization and after the Communications Satellite Corporation in ownership arrangements, could operate the nation's voluntary, nonreligious hospitals and extended-care facilities on a for-profit basis. Owned by public shareholders, with prices and quality regulated by State agencies, such a company would provide the overall planning, direction, and control that are now lacking among hospitals.

With the additional stimulation of the profit motive, and of a size to permit economies of scale and command top-grade management, such a company should be expected to:

1) Remove duplication and fill in gaps of service
2) Eliminate or convert noneconomic hospital plants
3) Purchase centrally
4) Create specialized centers for health care as needed

5) Engage in continuous research and development, leading to improved technologies and new economies of management

6) Find ways to reduce hospital construction costs

7) Find better ways to serve professional staffs—physicians, researchers, dentists

8) In general, operate on a rational, coherent, cost-effective basis.

This company would not be granted a monopoly. Anyone could establish a forprofit hospital. Thus, a competitive element and additional stimulus to efficient management would exist.

Establishment of such a company would be fraught with difficulties and unanswered questions. How would hospitals be induced to join? How would physicians be treated? How would proprietary hospitals fit into the system? Can urgent human health needs be handled in a way that is compatible with profit maximization? Can costs really be restrained if there is a guaranteed maximumprofit rate? These are a few of the serious questions that need discussion and exploration. The difficulties may be more apparent than real, and the potential advantages of this system may be sufficient to justify such further exploration.

Third parties as agents of major group purchasers.-Less drastic, and simpler in some ways to accomplish, would be a new relationship between major purchasers and third parties. It is doubtful that major purchasers are anxious to undertake radical new roles and responsibilities. Third parties, too, would certainly not be enthusiastic about their doing so. This suggests that there is substantial room for a revision of roles wherein the third parties—principally the Blues and the private carriers—would explore new approaches together with management-labor groups. This, in itself, is not new; what is suggested is that it be done with a new “psychological set”. The third parties would regard themselves as the agents of the major group purchasers rather than merely as financial conduits. They would, as agents, develop new bargaining relationships with the vendors of care; negotiate contracts with them; encourage competitive buying behaviour by consumers; if warranted, move into service benefits; insist on more effective regional hospital planning; and actually be the countervailing force. The need for evaluation

In reflecting upon the health-care-cost problem, I have been struck by the lack of conclusive data that can be used for decision-making. In this regard, many people have pointed to the need to experiment with the many ideas that have been promulgated. Actually, experiments of a noncontrolled sort are already in process all over our country. This paper has only briefly touched on a few of these ; there are many more. We should think of these as experiments, and we should organize efforts to document what each is doing, to ascertain results, and to evaluate the experiences. It is too bad that such noble ideas as Health Insurance Plan of Greater New York, the San Joaquin Foundation for Medical Care, the program for hospital planning in Allegheny County, Kennicott Coppers' health program in Utah, the food industry's program in Los Angeles, and on and on, are not systematically studied by economists and management specialists so that the needed lessons could be learned.

With the Medicare program coming up for review by Congress within the next twelve months, it would seem in order to undertake an impartial, scholarly study, adequately staffed and funded, to evaluate its effects on health costs and develop recommendations for ameliorating the negative ones. It seems clear that the effects so far have been massive. To the extent that people who would otherwise not have received care did expand the demand, this is good. But any negative effects also need to be identified and evaluated with a view toward their elimination or reduction. Conclusion

I believe that those who argue for allowing the consumer a substantial number of health-care choices are correct. Tastes and values differ and these differences should be respected.

There are no villains responsible for the soaring costs. What we have are responses to the forces of supply and demand, operating in a unique economic marketplace. What we therefore should seek to do is reduce the differences in this market through improvements in its organization and productivity.

The sounder social programs are those that evolve because they are right for the time and place rather than those that are superimposed extraneously.

Ordinarily, the best way to create a competitive-market environment where one does not exist is by eliminating the barriers to competition. In the case at hand, however, I have been unable to find or think of any practicable way to put hospitals in a competitive framework, or to set physicians to competing with their associates.

Through regional health planning, it is possible to effect some significant economies among hospitals. But it is doubtful to me that such an approach is a substitute for the sort of buyer-seller price-and quality negotiating that is the essence of a competitive system.

Accordingly, I suggest in this paper that new, countervailing power arrangements be considered and, if deemed worthy, stimulated and nurtured. Through these, the effective, competitive conditions can be developed that are necessary, in my opinion, if health-care prices are to become market-responsive.

Several ideas of what these countervailing power arrangements might be have been presented. The one that seems the best for all, in my opinion, is that in which third parties adopt a new role that of “agent” for the major group purchasers. In this role, the third parties would maintain their functions of risk control and health-care-money transfer, but in addition would act as negotiators and bargainers with the providers of health care. This would entail major changes in their product, their methods or procedure, and their perception of themselves.

As we look to the future, it seems inevitable that some, if not all, of the participants in the health-care model will have to change their viewpoints and behavior. Current positions are incompatible with our societal and economic values, and now the winds of change are blowing. Some will be actors, and some, reactors. It is difficult to say which group will be which ; but certainly the third parties' group would seem from many viewpoints the best candidate for leadership if it can organize. If it doesn't, the task will devolve upon management and labor, or upon the Government.


OCTOBER 16, 1968. DEAR SENATOR KENNEDY: The concise summary that appeared in the Democrat and Chronicle of a local study has some relevance to the Congress, I believe. It points to the fact that we need many more facilities and services which will keep persons independent. Specifically we need, as a community, a system of patient evaluation to prevent unnecessary placements in general hospitals, state mental hospitals, and nursing homes. If we are to stop misplacing these elderly people, we, in Monroe County, would require roughly 2,000 apartment units with supportive services, and 2,500 congregate living facilities.

Hopefully, we will be able to move on these problems under the Comprehensive Health Planning Act of 1966 (89–749) and the 1967 Partnership for Health Amendments. I hope there will be opportunity for consultation among the localities, the State, and the Federal government on local-State priorities and action, William J. Curran, Professor of Health Law, Harvard, comments in the American Journal of Public Health, June 1968, in an article entitled “Public Health and the Law: Comprehensive Health Planning : Audacious Law-Making," that "The legislation actually gives the local (areawide) planning agencies no power or authority."

Beyond this, comprehensive planning seems to be inadequately funded, and the responsibility for comprehensive planning is placed well below the Secretary's office in the Department of Health. Education, and Welfare.

We would be glad to send you a copy of the Health Care of the Aged Study if you or your staff would wish one. Sincerely,

MARION B. FOLSOM. [Enclosure]

[From the Rochester Democrat and Chronicle, Sept. 23, 1968)


(By Don Byington) A community study group said yesterday that 41 per cent of the elderly people in Monroe County who need health care are “either receiving no care or the wrong type of care."

It said, for instance, that there are 5,000 persons in the county who are senilebut that most homes for the aged and nursing homes have a policy against admitting these people.

The group, headed by Marion B. Folsom, former secretary of health education and welfare, was composed of leaders in the health field and was generally self-critical. It put the blame for the current situation on two factors:

An "unsystematic and piecemeal growth of care facilities and service.”

A change in emphasis by existing institutions, with resulting gaps. The five-year study noted that homes for the aged have tended to become nursing homes and that there is now a scarcity of "custodial care” facilities for older individuals who cannot get along by themselves but who do not need all of the health services of a nursing home.

It said that about 20 per cent of the people now in nursing homes fall into this category. They could just as well be in some type of “congregate living facility"--if such a facility were available.

The five-year study of health care for the 61,832 persons in the county over 65 was supported by the Ford Foundation. It was conducted by the University of Rochester's department of preventive medicine and community health, the Health Council of Monroe County and the Council of Social Agencies. A report by the group also said :

For every elderly person receiving public health nursing service at home, there were four others judged to need it, but not getting it.

Between one-half and two-thirds of older patients were judged to be “misplaced” in terms of the kinds of health facilities and services they were receiving.

There is a need to include mental health services at all levels of care for the aged, as more than half of those in need of care have some kind of mental impairment.

That "sheer chance," such as the action of an ambulance driver, an emergency department attendant, or an admitting clerk, can decide the kind of care an elderly person ultimately receives. These “temporary misplacements,” awaiting openings in the appropriate facility, have a way of becoming permanent misplacements.


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DEAR SENATOR WILLIAMS: The main problems confronting our population with respect to dental care are the shortage of personnel and allocated funds, the lack of organized programs for the direct provision of care, and the absence of qualitative standards and administrative controls. These problems apply across the board for all segments of the population. There is little prospect for their resolution in the near future without massive governmental assistance. This assistance will not be forthcoming until the federal government establishes dental health as a major priority among its goals. With these "givens” in mind, I shall comment on your questions.

1. "What, if any, Medicare coverage should there be for dental care?” Complete dental care should be included along with medical care. Dentistry is, after all, a specialty of medicine. The separation of dentistry from medicine is arbitrary but one cannot arbitrarily separate the oral cavity from the human body.

2. “What advantages and/or disadvantages do you see with regard to coverage of dental care under Medicare?” The major advantage is, of course, the compulsory allocation of funds for this specific purpose to assist the aged in receiving a needed health service they might not otherwise be able to afford. When these programs are attempted on a voluntary basis, there is always the risk of "adverse selection" of participants. But unless well-defined standards are established and adequate administrative controls applied, the surge in demand for dental care can endanger the fiscal soundness of the entire health care program, as happened recently in New York State's Medicaid. The main problem here is to overcome the dental society's traditional opposition to responsible controls—both qualitative and economic. In this latter respect, governmental programs should be based on fired-fee schedules rather than the “usual and customary" fees currently advocated by the dental society.

3. “What, if any, Federal legislation on dental problems and opportunities of the elderly would you recommend?" I tend to feel that the need is not for special legislation directed towards the elderly but rather for the population as a whole. The dental problems afflicting the aged do not differ substantially from those of younger persons. If we were to decide, nonetheless, that programs were to be established for the elderly, then I would like to see the establishment of federally sponsored health centers for the aged based on the principles of group practice and including a dental component. Though not specifically related to the dental problems of the aged, the anachronism of state dental licensing should be eliminated in favor of national licensure to allow dentists greater mobility. Some parts of the country attract more elderly persons. They therefore have greater need for dentists who should not be hampered in their movement by protectionist policies of state professional organizations.

4. “What, if any, Federal programs to prevent dental difficulties in old age would you recommend ?" Dental difficulties of the aged have their origins in youth. The major preventive achievement in dentistry is fluoridation of public water supplies. Federal legislation should be developed to require fluoridation of all public water supplies to reduce the incidence of dental decay. This single procedure would be more effective and less costly than any programs of repairing teeth once the damage is done. Since the major problems of the aged are related to tooth-loss, it is the prevention of premature tooth loss that is most important.


5. "What, if any, legislative or administrative actions by the Federal government would you recommend to stimulate and encourage greater use of dental auxiliaries ?" Again, we need to eliminate the archaic state restrictive controls by developing rational national enabling legislation to permit more sophisticated use of dental auxiliaries. The main concern is that the average private, solo practitioner may himself not be sophisticated enough or trustworthy enough to pass on the economic advantages of auxiliaries to the consumer. More important, however, is that greater controls are necessary to assure quality. But it is extremely difficult to exercise controls over solo practitioners. Also private solo practice is very inefficient. In a detailed study of a group dental practice in Los Angeles I have found the group practice to be 50 to 90 percent more efficient than the average private dentists. I feel it is extremely important that the Federal government assist in the organization and financing of group dental practices no only for its economic advantages but also for its potential of greater production of servires, i.e., more care for more people. These groups could be even more produrtive if they were allowed to expand the functions of auxiliary personnel.

A very important area for investigation is the training and utilization of dental hygienists. These persons, mainly women, are in the main grossly overtrained for the services they provide. This field should be opened up to men as well as women. There is need for a large number of lesser skilled persons to do routine prophylaxis (cleaning) and for more highly trained dental hygienists who would really be periodontal therapists. The Federal government should actively promote developments along these lines.

6. “Is there a shortage of dental auxiliary personnel, and, if so, what Federal action would you recommend to cure this shortage?” I have already commented on some aspects of this question. Given adequate numbers and utilization of auxiliaries it is possible that there are almost as many dentists as are required.

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