ability. Thus, if such alternatives were implemented, it would not be necessary even in the face of spiraling costs in the open medical market place to retreat from the goal of comprehensive health services for substantially all the poor. Since the latter part of the 1930's several organized practice arrangements have emerged that have demonstrated the capacity to control medical care costs, provide effective services, and render high quality care. What types of organized practice arrangements are they?

1. Prepaid Group Practice Programs where medical personnel are located in one site and where there is a use of common resources such as laboratory and x-ray equipment and clerical staff. Group practice projects either provide for directly or arrange for in-patient hospital services as well as rendering ambulatory care.

2. The Foundation for Medical Care Plans, best represented by the San Joaquin Foundation in California. Foundations provide direct peer review of costs and quality of services rendered by participating Foundation physicians, the vast majority of whom practice in individual office. Foundations can contract directly with insurance carriers to perform line peer review or can assume part of the carrier function of collecting the prepaid premiums as well as reviewing the price and quality of services rendered by participating physicians. Most Foundations, at the present time, only have administrative control over physician services and not hospital care, extended care facility services, home health services and pharmaceutical services.

3. The Physicians Association of Clackamas County (PACC). Fashioned similarly to the Foundation for Medical Care Plans, the Physicians Association is a non-profit physician sponsored prepaid medical service plan. The physicians assume the underwriting risks rather than other insuring organizations such as commercial health insurance carriers or Blue Cross-Blue Shield. The vast majority of plans offered by PACC provide for inpatient, outpatient, and physician services.

4. Neighborhood Health Centers which are group practice operations located in the community providing, in addition to basic medical care, a variety of health related services. In some instances, in-hospital care is also provided either directly or indirectly by contract.

In the above cited organized practice arrangements, five characteristics emerge representing programmatic aspects which can be objectives for Title XIX programs. Several of these characteristics are common to all five programs.

1. Two basic services are offered or provided by private or public contract: ambulatory and hospital care that are administratively integrated. These comprehensive services are provided in such a fashion as to emphasize utilization of ambulatory care and de-emphasize the use of in-hospital activities.

2. Defined population: Individuals are enrolled on a prospective basis by place of residence, employment, relationship to an insurance carrier or by means of a number of other factors.

3. Prepayment: The cost of the health services is arranged over a specified period of time between the consumer or his agent and the provider organization. 4. Integrated management which does the following:

a. Negotiates what services are to be covered (insurance companies call this "the benefit package") and its cost between the provider and potential enrollees or their agents.

b. Designs and executes policies of management that either affect or has the potential to affect the activities of the provider. Management policies can vary in content; they can be rather stringent, even to the point of determining what options the physician is allowed in treating various disease states, to rather loose policies which fix charges for medical services. But in all cases there are management policies which are recognized as such and are agreed upon prior to participation by the provider, be that provider an individual or institution.

5. Peer and utilization review: Provides within the framework of the organization peer and utilization review of the cost and quality of services. Peer and utilization review occurs on a regular basis and form part of the back-drop for establishing and executing medical policy.

But what do these characteristics lead to? What, if anything, indicates that these "loose" or "tight" systems are more effective, more efficient, than the ordinary mechanism by which medical care is rendered in this country today. 1. Utilization of Ambulatory Care in Prepaid Group Practices. In a recent

study 13 Old Age Assistance (OAA) recipients who used a prepaid group practice program (HIP) were compared to other OAA recipients using the traditional, fee-for-service welfare system. Among other parameters, ambulatory care utilization rates of these two similar groups were studied.

It was found that for the HIP/OAA group, the percentage of non-users decreased from 37% to 30% during the study year. The non-HIP/OAA non-user group remained the same at 45%.

Although 42% of the non-HIP/OAA group received services in their homes and 58% went to the medical office, only 19% of the HIP/OAA group were seen in the home; 81% of their visits were in the physician's office.

Aggregate figures are even more striking. Of the HIP/OAA group, those who didn't receive any services whatsoever, prior to enrollment, averaged at the end of the year 3.1 visits. Those who began the program by using more than 10 visits per annum, were averaging 9.1 visits at the end of the year. The experience of the non-HIP/OAA was quite different. At the end of the study year, non-users were engaging with the physician 1.3 times. Frequent users (more than 10 contracts per year) increased their usage to 14.7 times per annum. Displayed against the experience of the non-HIP/OAA group, the low utilizer OAA recipients in HIP appear to have increased their usage pattern beyond the non-HIP/OAA users and the high utilizer OAA recipients decreased their utilization characteristics, both in terms of their past experience and the experience of the non-HIP group.

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15 16 17

2. Utilization of Ambulatory Care in Neighborhood Health Centers (NHC). In the most recent experience of the OEO health programs, ambulatory utilization averaged at 4-5 visits per enrolled person per annum. A recent in-depth study of six NHC's confirms this experience. Research dealing with prepaid group practice, of which the NHC can be an example (although method of capitation [annual budget] and characteristics of plan membership [poor and nearpoor] are quite different than the privately offered prepaid group practices), found no significant utilization abuse of the services offered in a prepaid group practice setting.

3. Utilization of Hospital Care in Prepaid Group Practices. Perhaps more than any other dimension, it is in the area of hospital utilization where differences between the several modes of organization can be noted. Donabedian,18 in an excellent review of the literature dealing with prepaid group practices, summarized seven studies dealing with hospital utilization.

Donabedian and others have found the utilization of in-patient hospital services decreased by at least thirty per cent in prepaid group practice programs. The tremendous savings of such a reduction are obvious immediately in terms of national expenditures for health care. In a recent report 19 the Kaiser Foundation Health Plan (a prepaid group practice) hospital experience was displayed against the overall California hospital experience.

It would appear that there is less use of hospital beds for Kaiser enrollees than other Californians, even after adjustments for age are made. Again, the sizable reductions appear to be due to lower admission rates.

13 Shapiro, S.; Williams. J. J.; Yerby. A. S. Densen, P. M.; and Rosner, H., "Patterns of Medical Use by the Indigent Aged Under Two Systems of Medical Care", AJPH 57: 784-790. 1967.

14 Cost Study of Six Selected Neighborhood Health Centers, O.E.O. unpublished data.

15 Anderson, O. W. and Sheatsley, P. B., Comp. Medical Insurance: A Study of Costs, Use and Attitudes Under Two Plans, Research Series No. 9, (N.Y.: Health Info. Foundation, 1959).

16 Family Medical Care Under Three Types of Health Insurance, School of Public Health and Administrative Medicine, Columbia University, (N.Y.: Foundation on Employee Health, Medical Care and Welfare, Inc., 1962).

17 Committee for the Special Research Project in the HIP of Greater N.Y. Health and Medical Care in N.Y.C. (Cambridge: Harvard University Press, 1957).

18 Donabedian, A.. “An Evaluation of Prepaid Group Practice," Inquiry, VI. Sept. 3. 1969. 19 Report of the National Advisory Commission on Health Manpower, Vol. II, November 1967.

But what causes lower admission and/or average length of stay rates that lower so dramatically patient day rates in organized systems of care? Some would argue that it is a lessening of the quality of care, postponement of services to a later point in time. According to the report of the National Advisory Commission on Health Manpower,20 this did not appear to be the case. The major cause for reduction rests with the marginal reasons for hospitalizing patients— elective surgery, admissions due to upper respiratory infections, and hospitalization for diagnostic procedures that could be handled on an ambulatory basis. Perrott reviewed the experience of the Federal employees who participated in the Federal Employees Health Benefit Program. He discovered that rates for surgical procedures consistently have been lower for those who opt into an organized system than those who do not, even though there appear to be no medical/surgical differences between patients in group practices and non-group practices.

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4. Utilization of Hospital Services in a Neighborhood Health Center. (NHC). Three studies have been done that have looked at this aspect. Two have been published; the third is in press. The first study," published in the New England Journal of Medicine, analyzed the effect the operation of a Neighborhood Health Center had on the uses of in-patient hospital services in the city of Boston. Although the study can be criticized on two accounts (that of small sample size and difficulty in tracking patients referred from the NHC to all available hospitals), the direction that the organized primary health care program had on hospital utilization is important. Essentially what was found was that the demand for hospital services was reduced dramatically over a three year period. The second study 23 dealt with a defined population using hospitals in only one system-the Kaiser Foundation Medical Care Plan in Portland, Oregon. The under-65 annualized hospital utilization rate for the OEO population was 472 days per 1,000 persons compared with 415 days per 1,000 for the general health plan membership. After an age and sex adjustment for the OEO group was made, the bed-days were approximately 620, which is considerably less than the experience of welfare recipients nationally. One must keep in mind the larger percentage of women in the child bearing ages in the OEO population which probably increased the use of hospital obstetrical services, thus contributing to the 620 bed days. The third study, yet unpublished, is the experience of the Mile Square Health Center in Chicago, Illinois. Through the organized system of primary (ambulatory) care in a NHC in the city of Chicago, the utilization of the hospital was decreased by some 30%.

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5. Summary of the Effect of Organized Practice Arrangements on the Utilization of Ambulatory and Hospital Services.

a. There appears to be no abuse, either in terms of over or under utilization, of ambulatory services in the organized practice arrangements.

b. There is, however, a redistribution of the demand for ambulatory services: low utilizers tend to increase their demand characteristics; high utilizers tend to decrease their usage.

20 Ibid., pp. 222-224.

21 Perrott, G. S. and Chase. J. C., "The Federal Employees Health Benefits Program: Sixth Term Coverage and Utilization," Group Health and Welfare News, Special Supplement, (October 1968).

22 Bellin, S. S.; Geiger, H. J.; and Gibson, C. D., "Impact of Ambulatory-Health-Care Services on the Demand for Hospital Beds," NEJM, Vol. 280, No. 15, Apr. 10, 1969, pp. 808-812.

23 Colombo, T. J.; Saward, E. W.; and Greenlick, M. R.. "The Integration of an OEO Health Program into a Prepaid Comprehensive Group Practice Plan", AJPH, Vol. 59, No. 4, April 1969. Additional information supplied by Mr. Colombo on May 8, 1970.

24 Personal conversation with Mr. Gerald Sparer, Chief, Office of Program, Planning, and Evaluation, OEO, Office of Health Affairs.

c. There appears to be a significant reduction in the use of hospital beds in organized systems which in the afore cited studies ranged around 30%. Costs of providing health care are, of course, a major concern of the National Legal Program, as well as of Government.

1. Cost of Care in Group Practices. Donabedian 5 has combined several studies dealing with the costs of providing health services in a variety of systems. It can be gleaned from his study that costs are less across the board for services offered in a prepaid group practice than the fee-for-service, solo practice arrangement. In some instances the service package for organized systems provides more service benefits than the competitor; never are the organized system's service benefits fewer.

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2. Cost of Care in Foundation for Medical Care Systems. Recently, a study was published that described the costs of rendering services to a Title XIX eligible population through a Foundation for Medical Care Program in California (San Joaquin Foundation). The State of California had arranged prepayment for ambulatory physician services for three categories of Title XIX eligibles. The experience of the Foundation was then compared to the experience of a similar population (of both recipients and providers) and in a county in southern California somewhat identical to San Joaquin but without a Foundation activity.

AVERAGE COSTS PER PATIENT: ALL PHYSICIANS, PARTNERSHIPS, AND GROUPS

The costs for rendering services through the structure of a Foundation was considerably less (26.1% less to be exact) than fee-for-services, solo medical practice. However, if total costs are compared, the story is quite different. Although medical services were less in San Joaquin (ostensibly because of the operation of the Foundation) than in the comparison county, when prescription drugs and services, private hospital care, home health agency services and nursing home activities were included, the cost profiles somewhat changed. For all services, San Joaquin averaged $147.94 per person as opposed to Ventura County which averaged $143.36 per person. This still does not, however, mitigate the apparent savings incurred when ambulatory services are provided within the context of an organized, self-regulated system.

3. Costs of Services Offered in the Neighborhood Health Center. One difficulty that constantly besets an economic analysis of the NHC's is how to break down costs. Physician and other medical personnel salaries, cost and amortization of facilities, and medical supplies expenses can all be included in the expenses of delivering medical services. But what of the training programs and other support services such as out-reach and community organizations so important to the Health Center? Where are they placed in the budget? Factoring out just the components that are responsible for delivering medical care and all the support functions that are necessary to that end, it appears that an average medical visit (physician, nurse, facility, equipment, medical supplies, drugs, laboratory, and X-ray) is approximately $20 to $25 per visit." This is not unreasonable when compared to the costs of producing personal health services in the open market place.

It is not the intent of the National Legal Program on Health Problems of the Poor to identify only one way in which health care services can be organized to generate personal health care. We believe, as many do, that there are many alternatives that must be tested and supported. But that there are viable alternatives is a relevant point to make. And the active implementation of those

25 Donabedian, op. cit.

26 Gartside, F. E. and Procter, D. M., "Medicaid Services in California Under Different Organization Modes, Physician Participation in the San Joaquin Prepayment Project,” School of Public Health, UCLA, Report No. 1. January 1970.

27 Personal conversation with Mr. Gerald Sparer, O.E.O.

options will foster an environment in which it will not be necessary to preclude many of the poor from participation in Medicaid or eliminate certain health services because of skyrocketing costs. It is our position that costs can be controlled through organized practice arrangement, and that should be the salient concern of Congress, not the elimination of the primary goal and thrust of Title XIX.

It may be that those who drafted H.R. 17550, noting that the application of Section 1903 (e) has been suspended, concluded that it served no purpose and therefore decided to delete it from the Act. As attorneys working in the area of health problems of the poor, we can assure you that the presence of the Section in the Act, together with the present H.E.W. regulations, has served a very important purpose. We therefore urge Congress not to repeal Section 1903 (e). The CHAIRMAN. Thank you very much.

The next witness will be Mrs. Elizabeth Boggs, chairman of the Governmental Affairs Committee, National Association for Retarded Children.

Is Mrs. Boggs here?

(No response.)

The CHAIRMAN. Then we will call the next witness, Mr. Harry Williams, chairman of the American Insurance Association and chairman of the board and president of the Hartford Insurance Group.

STATEMENT OF HARRY V. WILLIAMS, CHAIRMAN, AMERICAN INSURANCE ASSOCIATION; ACCOMPANIED BY DeROY THOMAS, STAFF, HARTFORD INSURANCE GROUP; AND ANDREW KALMYKOW, COUNSEL, AMERICAN INSURANCE ASSOCIATION

Mr. WILLIAMS. Mr. Chairman, my name is Harry V. Williams. I am chairman of the board and president of the Hartford Insurance Group, and chairman of the American Insurance Association, on behalf of which I have the privilege of appearing before you today.

I have with me two associates, Mr. DeRoy Thomas of the Hartford staff, and Mr. Andrew Kalmykow of the American Insurance Association staff.

The American Insurance Association is a national nonprofit organization composed of 106 stock insurance companies writing all lines of casualty and property insurance, including workmen's compensation throughout the United States.

It is my purpose to deal with only one important aspect of H.R. 17550. That is, the adverse impact it will have upon our workmen's compensation system and upon injured employees and their depend ents who are protected by that system as well as their employers and insurance carriers.

Our member companies are vitally concerned with the satisfactory operation of the compensation system. They feel it is important that social security and workmen's compensation be coordinated so that the proper development of each system be not impeded. They and many others are firmly convinced that the overlap of social security and workmen's compensation must be kept to a minimum if irreparable damage to the latter is to be avoided.

We believe that a substantial advance towards this objective was made when, as a result of the recommendations of this committee in 1965, the extent of the overlap was limited-section 224, Social Security Act, section 424, United States Code Annotated. Under this provision, social security disability benefits when added to workmen's