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Finally, I would like to comment on the idea of providing preventive health services for the elderly. Of course, many of their health problems stem from the fact that they failed to receive preventive services when they were younger. The provision of such services may in fact be too late for many of them to suffer from chronic diseases that could have been prevented. Nevertheless, for those who's health can still be protected, I would suggest that the federal government establish a differential reimbursement rate for health facilities and physicians who participate in the establishment and operation of a community health screening facility for those covered by Medicare and Medicaid. This may be difficult to do, but I think it is worth the effort. Such a health screening facility should not only provide regular multiphasic health examinations for the aged, but should include a wide range of health education services designed to reach into the community and to help integrate medical care services that are now covered so that they may be used to preserve health. There is a great difference in my mind between adding health care screening on the one hand as another item on the medical "smorgasbord," and on the other, as a service that is organized to integrate for individuals the health services that are available to them in the community. I have serious reservations about multiphasic testing unless it is based on the integrated approach.

I offer these thoughts for what they may be worth, and regret that I have not had the time to prepare a statement for submission into the record. Thank you for giving me this opportunity to submit these comments.


DON VIAL, Chairman.



Today, in this age of crises, we find it difficult to talk about health care without referring to a crisis in connection with skyrocketing medical costs. The statistics, indeed, are of crisis proportions. During the two year period, June 1966 to June 1968, when the general Consumer Price Index was rising by an inflationary 7%, the medical care index of the BLS rose 14%, twice as fast, and the index of hospital daily service charges rose 37%, over 5 times faster than the general Consumer Price Index. The projections for the future which we have heard many times are even gloomier .

Yet, we would be making a tragic mistake were we to focus only on costs, for this extraordinary rate of cost inflation in health care is merely a symptom of the real crisis.

The real crisis in health care is that while we are spending some $50 billion a year for health services in America (about 6% of GNP), millions of Americans are still effectively removed from the essential services required to maintain good health.

In a more immediate sense, the real crisis is that the billions being poured into the mainstream of health care to reach these millions are actually feeding the inflationary fires and providing very little in the way of incentives to finding more effective ways of organizing and delivering health services.

This, then, is the real crises-the sluggishness and unresponsiveness of our health care system to unmet needs, regardless of how much money we manage to pump into it.

We know this crisis only too well in the labor movement. We are up to our ears in it.

For years we have been "sweating out" of our employers, in lieu of wage increases, ever-larger amounts of money to purchase health care benefits for our members and their families through third party, group-purchases, arrangements. For years we have been pouring this money (now about $700 million annually in California) into the so-called mainstream and in the process, we have contributed more to the rate of health care inflation than to the improvement of the benefit structures of our programs. More importantly, quality considerations have consistently eluded us, and we have spent our dollars over the years without affecting a more efficient use of medical resources or better ways of organizing and delivering services to maintain the health of our members.

We have worked primarily through third-party intermediaries to come to grips with our mounting problems-and they have failed us. We are now prepared to abandon them, if necessary.

As we told the CHA committee that met with us recently to discuss our problems, the Council for Health Plan Alternatives seeks a fundamental reorganization of health care. Our object is to pool the collective bargaining power of a million and three-quarters organized workers in the state to insure the greatest return for our health dollar, to secure an effective voice for the consumer in providing and planning for health, and to establish the machinery for monitoring the cost and quality of health care services and preventing abuse.

In order to accomplish these far-reaching objectives, we have made the decision to become active participants in solving the problems in planning and organizing health care services. We have taken the steps necessary, as in the case of the CHP and the CMA, to establish direct lines of communications with the providers of health care services, rather than continuing to rely primarily on insurance companies and other vendors to act as our intermediaries. At the same time, we are not closing the door to constructive help from the insurance companies or other vendors.

We are under no delusion that the job we have cut out for ourselves is going to be easy to accomplish. For example, economists are prone to tell us, in connection with the current run-away inflation in health care, that we are bucking a classical situation where the demand for health services is running way ahead of the supply of resources needed to meet the demand. Inflation, we are told, is inevitable under these circumstances, and will continue until the supply side catches up with demand.

We wish it were possible to be even this optimistic. The prospects of supply catching up with demand doesn't even appear on the horizon at this time. We are in a sellers market in the health industry, and it's going to continue that way for a long time for some obvious reasons, the main one being that the health industry appears to be well sheltered from the pressures of demand to use resources in short supply more efficiently and effectively, while more resources are being developed. We do not see these classical economic pressures at work. In connection with hospitals specifically, we are inclined to believe, until proven false, what the Somers' pointed out in their book Medicare and the Hospitals: "In no other realm of economic life today are payments guaranteed for costs that are neither controlled by competition nor regulated by public authority, and in which no incentive for economy can be discerned." (Somers and Somers, Medicare and the Hospitals, 1967, p. 192.)

Negotiated programs have also taken a great deal of the risk out of collections for hospitals, and for doctors and other providers as well. Doctors are undoubtedly even more immune from incentives to economy than hospitals.


In a very real sense it can be said that the economic chips are on the side of the providers. But the Council knows things really aren't quite that bright on the provider's side either. The Government isn't adding its billions to the purchasing power stream for health care without attempting to exercise some responsibility to protect consumers from the forces working against them. And, as indicated, it is the intent of CCHPA, as an organization of group purchasers, to develop all the bargaining power it can pull together for the purpose of developing a direct buyer-seller relationship with providers of health services. Like the government, we have become very interested not only in removing financial barriers, but also in making sure that when negotiated dollars are spent, maximum pressure is exerted on providers to utilize resources as efficiently as possible, and to organize them so that our members obtain the right health service at the right time in the right place. We are going to try to use our dollars to get the quality we are paying for and to develop health care delivery systems that will maintain health as well as treat the sick. That is the thrust of government policy these days; it is our main thrust also.

The exercise of "power" these days has become something of a scare word, even though it is the basis of economic action in our free society. We use it in the sense that the Council is seeking to exercise power that goes with "consumer sovereignty" in our economy-the sovereignty that too often falls prey to producers and providers of goods and services. Just how much consumer power it will be necessary for the Council to attempt to muster will depend on the

response we receive to our pleas for help from the providers. We would much prefer to work with you on our mutual problems, rather than in opposition to policies and practices which we believe no longer have any validity.

Let me therefore explain how our Council members look at some of the responsibilities of hospitals.


The staggering increase in hospital costs experiences over the long run, and the acceleration of the increases since Medicare and MediCal, is an urgent matter that group purchasers who are responsive to their members cannot ignore. Out-of-pocket costs of covered members are going up as fast as the value of hospital benefits declines. Yet we know what costs cannot be discussed in a vacuum without relating them to quality considerations, advancements in the health and medical sciences, and related technological changes. CCHPA is not looking for "bargain basement" health services. That is why we have asked CHA to make all the facts available that will help to explain the sharp rise in hospital charges since Medicare.

In this connection we know wages alone could not begin to explain increases of the magnitude experienced. In fact, we have no tolerance whatsoever for the viewpoint that singles out rising labor costs in hospitals as the chief culprit. Apart from what appears to be the case that hospital charges are going up faster than unit labor costs, it should be recognized that labor costs are in fact going up in hospitals because they should be going up. It is intolerable to think that a nation spending $50 billion a year on health care should require, at the same time, a public subsidy from low-income hospital workers through the acceptance of substandard wages and conditions. From the viewpoint of thinking consumers, substandard wages and conditions are incompatible with the high quality of services demanded by consumers.

It's that simple to us. Hospitals can't score any public relations points by blaming low-income hospital workers and other underpaid persons, while ignoring a host of other considerations relating to the way services are planned and organized-considerations that vitally affect what the consumer is getting for his


What is important to the consumer in connection with hospital labor costs is how hospital administrators respond to the new set of economic considerations which come into play as labor costs go up. In a sellers market, like the one that exists for providers of health care services, the easiest and most irresponsible thing to do is simply pass the increases on to consumers. It would be considerably more responsible, although more troublesome, to explore ways of making offsetting adjustments, as for example:

-by introducing more efficient administrative practices.

-by introducing labor saving measures and finding ways of organizing work so that professionals and para-medical personnel are regularly employed at their highest skill levels, consistent with quality considerations. -by abandoning under-utilized, high cost services which can be provided just as effectively and more efficiently in the community through other facilities.

To the extent that hospitals take the easier path of charging what the traffic will bear, while simultaneously denying consumers full access to financial data and information on how costs are allocated for rate setting purposes, they are simply helping to build a case against themselves for regulation as public utilities. It would be wise policy for hospitals to recognize that the days are limited in the future when they will be able to increase rates without being fully accountable to the public. Whether or not it comes through public utility regulations, group purchasers will increasingly demand accountability.

These observations are not intended to imply that we cannot see the inevitability of some substantial cost increases in the future, apart from the questions of wage costs. The Council can appreciate the fact that hospitals have historically been institutions for those who are seriously ill, and the fact that the cost of medical care has gone up as medical knowledge has advanced and as treatment procedures in hospitals have become more elaborate. It does not follow, however, that hospitals are now powerless to do anything about rising labor costs associated with medical progress.

As I have already indicated, CCHPA is also concerned about hospital costs in the context in which hospital services are organized in the community to meet the health needs of the community. Our over-riding concerns are (1) that hospital facilities and services of highest quality be available to all persons;

(2) that they be organized so that they are readily accessible to all persons; (3) that they be made available and accessible without wasteful duplication and undesirable proliferation of services; and (4) that hospital facilities and services be provided in balance with other health facilities and services to meet the total health needs of the population.

In short, CCHPA looks at hospitals costs in relation to how hospital services are organized in the community and how hospitals are used in the community. We see no hope for keeping hospital costs in check outside of a framework for effective planning of hospital and related facilities and services at the local and regional levels. Hospitals must not only accept the necessity of planning; they must actively participate in the voluntary planning process to help make it fully effective. Health planning is essentially a local and regional responsibility that simply cannot be passed upward to higher levels of government or community organization. Planning at the local level must be compatible, in its values and in its planning criteria, with planning at higher levels of community organization all the way up to the federal government.

Today, we know that the experience with voluntary health facilities and services planning in California has been very uneven and that it leaves a great deal to be desired. Much of the hospital planning has hardly gotten beyond the "bricks and mortar" stage. Well defined planning criteria are largely nonexistent. Wasteful duplication of facilities, equipment, and services is not the rare exception-it is still a common occurrence. More importantly, much of the hospital planning is going forward without adequate consideration being given to planning for other health facilities and services, such as extended care facilities, home health services, diagnostic centers and other out-patient services.

Hospitals have a special responsibility, not to try to dominate health facilities and services planning, but to participate in it and to put an end to costly duplication and undesirable proliferation of services wherever they exist. Too often decisions on expansion, renovation, the purchase of expensive equipment, and the addition of new services are made not on the basis of community needsthe availability, the accessability and the quality of the facilities and services to be provided-but on the basis of convenience to doctors who practice in the hospital and on the basis of their desire to have everything available to them in the hospital regardless of utilization experience or availability of services elsewhere in the community. Too often, also, hospitals have a tendency to want everything other hospitals have in the way of facilities, equipment and services, regardless of whether the community needs them.

Voluntary planning must stop this kind of wasteful and senseless competition. The inevitable rise in hospital costs related to advances in medical knowledge and the use of more complicated procedures is enough to be borne by consumers, without the toleration of wasteful practices. Voluntary planning, if is is to be effective in controlling costs, must make hospitals truly responsive to community needs, and at the same time strengthen the hand of hospitals so that they may withstand those pressures of doctors which may run contrary to community needs in the planning and development of hospital facilities and services. It follows that this can be achieved only if informed consumers are effectively involved in the planning process and become the domiant voice in the direction of the voluntary planning process.

CCHPA should be able to count on hospitals to take the lead among providers in developing the consumer role in the planning process. In recent years, we have come a long way in our acceptance of consumer participation. We have progressed from no representation to token representation, and now to the requirement that consumers be in the majority on all health planning bodies. This majority, however, too often functions as a facade for continued domination of the planning process by providers. We must find ways of moving beyond this facade.

In our effort to strengthen the concept of voluntary planning for hospital and related facilities and services, we must give special attention to breaking down the barriers that separate large groups of consumers from effective participation in the planning process, particularly in regard to the participation of minority and disadvantaged groups whose unmet health needs should be given high priority in the planning process. CCHPA urges your support in this effort.

We do not delude ourselves that the development of active consumer interest in the planning process can be achieved without a great exercise of responsibility on the part of consumers themselves and those who represent them as group purchasers, including organized labor. Apathy is not our only problem

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Our foremost problem is overcoming ignorance concerning the planning process and its vital importance to cost and quality problems of interests to labor and other consumers. Because of the importance of consumer participation, the state, our universities, and providers should make a special effort to develop educational programs which will help all consumers involved in the planning process to identify health planning issues and problems as they relate to the total health needs of the population, especially the unmet needs of the underprivileged.


We have learned many additional lessons from our experience with health facilities and services planning in California during this decade. One of the most important is that the voluntary planning process cannot move forward unless existing facilities assume responsibility for planning their own future in reference to the health needs of the community. We have come to accept planning as a process-not some kind of master plan-a process which starts with how facilities perceive their roles in the community in which they are located. It is at this level that local and regional planning agencies can help existing facilities evaluate community needs and adapt their planning to those needs, without the duplication and proliferation of services and facilities that push up costs to the consumer.

The essence of such planning is not alone that it be done, but that the plans themselves should be made public through local and regional planning agencies along with all the supporting information used in developing them. Without this kind of planning and full disclosure of information, it is virtually impossible for consumers who sit on planning agencies to give direction to the planning process so that steps may be taken to take care of community needs that are unaccounted for in the planning of existing facilities.

One of the major responsibilities of the consumer in the planning process is not only to encourage innovations among existing facilities and to experiment with new ways of providing health services more effectively, but to make sure innovation and experimentation is stimulated in the community when the plans of existing facilities fall short of community needs or fail to come to grips with the problems encountered by consumers in obtaining quality health care. In keeping with these expressed views, our Council members agree with the recommendation adopted recently by the State Hospital and Related Health Facilities and Services Planning Committee (the so-called "543" Committee) in its report to the state legislature. The recommendation, in part, reads as follows:

"In cooperation with regional and local health facilities and services planning groups, each health facility in California should develop both a current and a 5-year program for capital expenditure, for replacement, modernization, and expansion. Such programs should be kept up to date and on file with the local and regional planning agencies, through the development of continuing cooperative relationships between the facilities and the planning agencies. They should include a statement of the facility's responsibility to the community in at least the following areas: the people to be served; the area to be covered; the services to be provided; the facility's relationship with other facilities; and the timing and costs of implementing the program."

To repeat, it is crucial that these programs and all the information developed to support them be handled as public information. This means specifically that they should be available not only to the planners, but to the public at large, especially anyone initiating new facilities and those contemplating expenditures for the replacement, modernization and expansion of other health facilities and services.

We share the view that voluntarism seems to work best when government provides a few financial incentives in support of the process. In this connection the "543" Committee has suggested that in the administration of MediCal, the State Health and Welfare Agency should not include in its reimbursement formula for costs any allowance for depreciation to facilities that do not cooperate with regional and local planning agencies in the development and disclosure of their plans. We heartily agree with this viewpoint. But the Council would go further and suggest that facilities unwilling to assume their planning responsibilities toward the public, and unwilling to stand behind their planning with health planning groups, should not be allowed to participate in health care programs financed by the public. Labor organizations and other group purchasers would

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