recipients, the unemployed, underemployed and low-income residents of the target area. The second purpose was to create a pool of supervised and certified homemakers not employed by the agency, but working directly for the client in need of home care.

TRAINING ACT OFFERS FREE PLACEMENT TO CLIENT

The program, as it is now operating, is funded by the Comprehensive Employment and Training Act. Because we are a funded program, we can provide training placement services and supporting services to our participants without any cost to the client requiring in-home care. Consequently, we are able to furnish homemaker services to aged, blind, disabled, or chronically ill persons at very low and reasonable rates. Our homemaker fees are based on the source of payment for the service. In the case of supplemental security income recipients and other persons eligible for a services grant under title 20 of the Social Security Act, as amended, we base our homemaker rates on that rate the county of Los Angeles provides-namely $2.73 per hour.

The figure of $2.73 per hour includes a 16-cent employer's social security contribution resulting in a net hourly wage of $2.57 an hour. From this figure of $2.57, the homemaker must also contribute 16 cents to social security. It is important to remember that the 32 cents goes to the homemaker's social security account. A client evaluated by the Los Angeles County Department of Public Social Services, at a need of service equalling 100 hours per month, would have the following calculations in effect: 100 hours times $2.73 equals $273 minus $31.94 employer and employee SSA contributions resulting in a net of $241.06. The entire cost of service in this case would be taken care of by the homemaker service grant.

For a private client not eligible for a grant, the computation is as follows: 100 hours times $2.73 equals $273. In this case the employer's social security contribution of 5.85 percent is added to the $273 so that the homemaker's social security deduction is taken from a figure of $288.97 leaving a net of $273. In addition, we ask that the private client furnish the cost of transportation for the homemaker up to a maximum of $1 per day.

Should the client require a live-in homemaker, the calculations are no longer done on an hourly basis. The maximum provided under the homemaker's services grant for a live-in provider is $505 per month including room and board. We have not yet placed a privately employed live-in homemaker, but we have placed homemakers for clients having county grants.

We base our homemaker rates on the amount of money available to purchase service with homemaker services from the county of Los Angeles. The key to adequate home care lies in the creation and support of community based nonprofit homemaker programs to provide meaningful and quality training coupled with services, without additional charge, to the client already burdened with old age, blindness, chronic illness or disability. I thank you for the opportunity to supply this information. Should you require further information on our program, the problems with homemakers services, or the need that exists for such services, please do not hesitate to contact me.

Mr. HAWES. I have dealt almost exclusively in my presentation today with the abuses in the proprietary or third sector. This is not to imply that there are no abuses in the nonprofit or public sector. We have seen poorly managed public sector programs staffed by persons inadequate for the job, but never in my 9 years of performance auditing and program evaluation have I seen abuses of the magnitude of those I have mentioned as occurring in the proprietary sector. At the same time, I do not want to imply that a for-profit organization is inherently inferior or corrupt. What I am saying is that there is a desperate need for controls-controls relating to both quality of service and fiscal integrity.

If the executive branch is not responsive to this need, then Congress must fill the void with specific legislative requirements.

Senator Moss. Thank you, Mr. Hawes, for an excellent statement, and one that raised a lot of questions, which, I am sure, we would want to ask of

you.

Dr. Warner has now arrived, and we are glad to have you, sir. We were going to hear from each of the members of the panel on their statement, and then have questions of the members of the panel.

We are asking the panel to keep their oral statements as brief as possible; we do have many people to hear.

Our next witness is George Warner, M.D., special assistant, Health Facilities, Economics, and Preventive Health Services, New York State Health Department, Albany, N.Y.

STATEMENT OF DR. GEORGE WARNER, SPECIAL ASSISTANT, HEALTH FACILITIES, ECONOMICS, AND PREVENTIVE HEALTH SERVICES, NEW YORK STATE HEALTH DEPARTMENT, ALBANY, N.Y.

Dr. WARNER. Thank you, Mr. Chairman.

Public health law in New Lork State delegates certain policy and rulemaking responsibilities in the health field to the State Public Health Council. This august body, affiliated with the New York State Department of Health, includes in its membership distinguished representatives of the consumer sector and the health professions. This council has some functions not unlike those of the boards of health in some other States.

Among its many responsibilities, the Public Health Council has the, perhaps, unique function of making final decisions on whothat is, what person, partnership, corporation, or governmental agency, whether for profit, not-for-profit, or public in natureshould own and operate health facilities and health services. The council has final authority whenever new health facilities or services are proposed or whenever changes in existing ownerships are contemplated.

State law decrees that the Public Health Council must consider at least three factors in arriving at its decisions regarding the establishment of new providers of health services or changes in the ownerships "establishment" of existing ones. These three criteria are:

First: Public need for the health facility or service-at the time, in the geographic location and under the circumstances in which it is proposed.

Second: The character, competence, and standing in the community of the person or persons applying to operate the proposed health facility or service, and

Third: The financial resources of the proposed institution and its future sources of revenue.

The council, in arriving at its decision, considers advice and recommendations from areawide and statewide health planning organizations, department of health staff, and other sources. These input sources also examine, each to the extent of its own expertise, one or more of the three aforementioned criteria: public need, competence, and financial feasibility of the proposed new health facility or change in ownership of the existing provider of health service. The council's reviews and decisions are applicable to nearly all types of organized

providers of health services-hospitals, skilled nursing facilities, intermediate care facilities, independent clinics-but not to individual practitioners in the health field.

STATE LAW OPENS DOOR TO BUSINESS CORPORATIONS

Changes in State law some 5 years ago permitted business corporations to become for-profit providers of institutional long-term care services, subject, of course, to public health council approval. Previously only natural persons or partnership of natural persons could operate proprietary facilities. These changes in State statutes were followed by increases in the numbers and kinds of proposals by existing individual and partnership providers to convert to corporate entities and by existing or new corporations, from within and outside New York State, to become established by the council. Coincidentally, there was increasing presence on the scene nationally of business corporations engaging in or intending to engage in the business of providing hospital, nursing home, and other kinds of health services. Surprising flurries of activity were occurring in the stock market as sizable numbers of such corporations expanded or attempted to expand holdings and registered or proposed to register their stocks. At that point, nearly 5 years ago, members of the public health council sought additional information about corporate, syndicate, and chain ownership of health services. Staff of the department of health were requested to furnish background information on these matters. The product of staff deliberations was a paper entitled: "An Outline of Changing Trends in the Ownership and Operation of Health Facilities and Services." Copies of that paper were furnished to the public health council, the State hospital review and planning council, and many other interested parties, including Federal agencies and State and Federal legislative bodies. An additional copy* is herewith made available.

In this paper, departmental staff attempted to identify major issues raised by the increasing presence of business ventures in the health scene. Such pros and cons as seemed obvious at the time were mentioned. No attempt was made to develop or even suggest what public policy, if any, there should be about proprietarism in the health field.

In early 1971, five kinds of issues or problems were identified. Each had its pros and cons.

On review now, in 1975, the same five issues are reidentified. Each poses advantages and disadvantages for consumers of health services, local and larger communities, legislative bodies, other providers of health services, and interested parties.

As in 1971, there is no attempt, actual or intended, to suggest what public policy should be on the matter of profitmaking ventures in the health field. There is intent, however, to identify some of the problems and issues involved. How they should be resolved, or even whether any solutions are needed, are matters for persons far wiser than I-indeed, far wiser than most of us who function at governmental staff levels and so close to the health care scene.

*Retained in subcommittee files.

"GAMESMANSHIP" PROBLEMS

in

The five issues or problems can be identified readily and simply, my mind at least, in the context of "gamesmanship." These, then, are the five games that occur and that, in some ways, have been or have to be played.

The first might be called the shell game. This describes the situation in which the established provider of health services can or does operate a health facility as though it consisted largely of four walls and a roof. Within this shell, a series of independent providers, practitioners, and vendors furnish health care and support services on contract or through some other kind of arrangements-whether or not at arms length with the licensed overall provider.

There are many examples of contract laundries, food services, housekeeping, security, building maintenance, and other support services. There also are examples of contracted-for professional services such as nursing care, clinical laboratory and pathology, radiology, the various rehabilitation therapies, and others.

Certain efficiencies and economies are possible and achievable from some of these arrangements. Quality of care problems can and do occur unless the overall operations of the facility exerts tight controls and is backed by appropriate Federal or State quality standards. Coordination of patient care services often is difficult in such circumstances.

Second, in days prior to almost universal homogenization of milk, it was relatively easy to skim the rich cream off the milk. This second game might be likened to the process of skimming the cream. Some have called it the skin game.

CANNOT AFFORD MONEY-LOSING OPERATIONS

For-profit business ventures in health must at least break even or reap some limited financial rewards from their operations. Most businesses cannot afford money-losing operations over prolonged periods of time. Yet, in health care, especially in hospital care and in care of the sick, disadvantaged elderly, certain kinds of health services basically are or must be deficit financed. The cost of certain extremely expensive inpatient services such as open heart surgery and organ transplants must be off-loaded on other, more routine, less costly services. Outpatient clinics usually operate on the debit ride. Obstetrics and pediatric services are costly ventures, even when not grossly underutilized.

Certain users are actual or potential loss items for providers of health care. Those with inadequate insurance protection, incomes insufficient to make full private payments and those with illness conditions requiring stays prolonged beyond their insurance or private pay limitations are in these categories.

In a multifacility or multiservice community in which proprietary providers compete with voluntary nonprofit and governmental providers, it is necessary for the for-profit providers to limit its roles in furnishing high-cost services and in accepting low-pay users. In such situations, an imbalance in services can and does occur, with the voluntary and public providers having to accept the responsibility

for meeting community needs for care of the disadvantaged poor and elderly and for furnishing certain less used, more complex, or moneylosing services.

Third, conflict-of-interest situations are not rare in the health field. Witness the physicians who used to dispense their own pharmaceuticals for the good purposes of convenience and savings for patients, but who, tempted by financial gains, overprescribed unnecessary medications. Witness today the overutilization of elective surgical procedures, rehabilitation therapies, and other professional health services. Involvement of practitioner providers in the ownership and operation of health facilities and services in which they practice leaves the door ajar for irregularities in and abuse of their professional skills. This is the conflict-of-interest game. It is controllable.

The fourth game is the remote control or robot game. In this the large corporate entity, especially those that operate regionally and across State lines, should and does exert certain central controls over its local units, whether directly operated or franchised. Certain central controls are vitally necessary to assure the efficiencies and economies that should accrue from multilocation large scale operations. And most would not question seriously the need for more efficient, economic, and effective delivery of health services. Thus centralized, computerized handling of the business matters-such as payroll, billing, collections, et cetera and of food purchasing, provision of equipment, and professional consultation and controls offer many advantages.

REMOTE ADMINISTRATION CAUSES PROBLEMS

Problems can and do occur when central policy, dictated from distant or even remote out-of-State locations, conflicts with local community needs and local community customs, ethnics, and desires. In a test of whether local or central forces shall prevail, it may be the local needs and traditions that lose. Whether this disadvantages health services at the local level is the key question in this robot game.

The fifth and last game is closely allied to the fourth and may be called the power game. Large corporate entities admittedly do have some power and influence on the national scene-perhaps even in the health services arena. Whether they choose to exert their muscle in determining what the present and future patterns of health services should be is one question. Whether they exert their influence for the public good or the corporate good is a closely related question. Whether they will trade off risky or money-losing activities in the health field for other more feasible ventures is yet another. Is there a corporate conscience in the use of power in the health field and does it coincide with the community conscience at local level in efforts to meet the health needs of the chronically ill, disadvantaged elderly, whatever setting they are in, is the final question.

In this report I have attempted only to identify some of the leading issues. Other, more important ones may have escaped attention. I have not attempted, and will not attempt, to furnish answers. Thank you for the privilege of appearing at this hearing today. Senator Moss. Thank you, Dr. Warner, for your good statement. We appreciate it. We will probably have some questions.