11. There is less tendency for a rigidity of nationwide benefit scope to downgrade the entire spectrum of health care services by central control, to the level of the lowest common denominator through establishment of nationwide norms. 12. There is better balance between carrier and enrollee, or between carrier and Government, or between Government and hospital or physician, which, in normal insurance practice allows both sides to negotiate as equals. Under a Government plan with fiscal agents, the Government administrator has all the power and can dictate all decisions rather than participate in bilateral negotiations.

13. It permits the carriers to renegotiate with Government on the basis of experience in the interest of the enrollee the scope, cost, premiums, fees, and other features.

14. There is greater autonomy and self-determination which can permit the highest possible standards of care with the greatest professional freedom and responsiveness to the local point of view.

15. It supports rather than destroys-for a large population segment which uses a substantial portion of the medical services of the Nation, existing voluntary prepayment and insurance systems.

Origin

SANTA BARBARA PLAN CONCEPT

1. STRUCTURE OF THE PROGRAM

The program was promulgated on February 1, 1963, after 2 years of development and negotiation between the county medical society and county and State governments. It was conceived by the physicians of Santa Barbara County as an expression of their conviction that public supported medical care programs can operate best if they create conditions that make available to the welfare recipients the full medical resources at the disposal of the entire community; and if they vest the fullest measure of local control in those who ultimately provide the care. The program therefore has important new ingredients, which are philosophical as well as fiscal and operational: It is considered the first, though not necessarily the final, step toward a new concept which seeks to finance care of the highest quality under conditions which assure dignity to the patient, freedom of professional practice and participation in program design and control to those who serve the program-and to do so at the least cost to the taxpayer, be he at the Federal, State, or county level.

Benefit structure

The program parallels the benefit provisions of the public assistance medical care and medical assistance for the aged program, and covers under the prepaid plan the benefits which are provided by physicians. The other components of the programs, such as, for instance, dental services, drugs, hospital, and nursing home care, are administered by CPS under the conventional fiscal agency arrangement. By unifying the two arrangements; namely, prepayment and fiscal agency, under one administrative roof, it is possible to maintain fully coordinated administrative control over the utilization of the total program without costly and inefficient fragmentation.

Contractual relationship

The agreements were entered into between the county of Santa Barbara and California Physicians' Service with the concurrence of the State department of social welfare. In order to accommodate to the county's fiscal year, the first contract period covered February through June 1963, and subsequent contract periods cover the 12 months commencing July 1. The program is now in its third period. Almost 7,000 beneficiaries are presently covered.

The agreement for the prepaid plan provides for fixed rates per recipient per month for medical care, and separately for administrative expenses, broken down into the various categories of aid and MAA. It provides for review and renegotiation annually, but includes special provisions which automatically modify the agreement should the State plan change its benefit criteria or its professional fee structure. Thus, the prepaid program has a predictable medical and administrative dues structure, subject to renegotiation each year, while the fiscal program follows the conventional open ended arrangement, using the advance funding concept under which CPS is reimbursed for administration on a formula identical to that in other fiscal agency counties.

Fiscal provisions

The physicians of Santa Barbara County are in a sense "underwriting" the fiscal stability of this plan. They have undertaken the weighty commitment to a temporary fee reduction should the fiscal stability of their prepaid program make this necessary. On the other hand, a surplus, if it develops, is placed into a special program reserve which is earmarked exclusively for the benefit of the plan. CPS, as prepayment plan, provides its services on a no-proft-no-loss basis. The adequacy of rates, for medical care as well as for administrative expense, is reassessed annually.

Professional fees

Participating physicians are remunerated at the same level level as prevails elsewhere in the State under these programs. As described above, this level could be temporarily reduced until contract renegotiation in case of adverse financial experience.

Relationship to the county welfare department

Administration of the prepaid plan, as well as the fiscal agency portion, is closely coordinated with the local welfare department, and liaison with the medical consultant to the welfare department is in no way diminished by the prepaid concept. The consultant is a participant in the advisory and review activities of the medical society.

Advisory, review, and quality of medical care committees

Perhaps the outstanding feature of the Santa Barbara plan is the scope of its medical supervision. An advisory and review committee, made up of the leaders of the local medical society, extends its concern well beyond the activities normally carried on by local review committees. It adds to the traditional adjudication of problem cases and fee problems abroad, overall review of the program, its utilization, its trend and its future potential. It receives rather elaborate technical support from CPS, and works with a broad array of source materials in its continuous program evaluation. In addition, a separate committee was established for the review of the quality of care, which works in close collaboration with the CMA Bureau of Research and Planning.

Administrative mechanics

The prepaid plan seeks to incorporate as many features of a voluntary prepayment plan as possible under a publicly financed program. Beneficiaries receive identification cards similar to those of any other CPS member, and are therefore afforded the dignity of being unsegregated from the rest of the community seeking medical care. Physicians use the simple CPS billing form under the prepaid plan. Payments to physicians are made in conjunction with any other CPS payments in one simple, consolidated check.

Physician participation

Prior to promulgation of the plan, the county medical society contacted by mail each physician in the county with full particulars of the prepaid plan and of the commitment expected of each participating doctor. Each physician was individually given the right to indicate that he wished to abstain from participation. This resulted in an affirmative expression of opinion on the part of 97 percent of the doctor membership. Only one additional cancellation out of a membership of over 300 has since been recorded.

II. AN ASSESSMENT OF THE PROGRAM'S PERFORMANCE

To evaluate whether the plan has attained the objectives originally set for it, we must assess the quality and cost of care, the general satisfaction of the patient, the support of the plan by the great majority of physicians, the financial stability of the plan and its general acceptability to government. A number of research projects which will probe into these components in great depth are still under way. But a number of significant observations can already be made in a general assessment of this concept.

Physician acceptance

This is one of the important yardsticks of the program's performance, because the degree of the physicians' commitment is an essential prerequisite for a plan which seeks to demonstrate that a responsible profession, given freedom and the right administrative framework, can serve its community best. At the inception

of the plan 97 percent of the doctor community backed the program. The real test of support, however, must be found in the number of doctors actually treating beneficiaries of this plan. This was studied last year and it was found that about 90 percent of the privately practicing physicians had seen such patients. When it is borne in mind that the specialty of some physicians precludes their participation due to the program's benefit limitations, this is indeed an impressive figure. Formal withdrawal from the program has been confined to one or two physicians. These figures would indicate that we have in Santa Barbara County what might be termed "total" professional support.

Dispersal of patients

Another test of performance is seen in the utilization of the full spectrum of medical resources in the community through the eligible welfare recipients. Prior to promulgation of the prepaid plan, the great majority of welfare recipients was seen by a relatively few doctors. When a research team of the State department of social welfare first reviewed the prepaid plan, based on the initial few months' experience, it was found that this concentration had diminished, but that the majority were still seeking care through relatively few physicians. This was, of course, inevitable, inasmuch as the steady transition to more conventional patterns of care was just beginning at that time. Location of practice alone will continue to cause certain concentration, and certainly the Santa Barbara community is not entirely immune to factors which create similar conditions elsewhere. What is really significant is that there is afoot a continuing trend of patients previously concentrated among a few physicians to avail themselves of the total medical resources of the county.

Advisory and review activities

To the quality of care rendered, and to the best use of public funds which finance such care, this activity has been most significant. To begin with, the committee has to assess customary patterns of medical care such as they would apply to the community as a whole. Such norms, combined with a direct, personal acquaintance with the medical community, and with the peculiarities of practice on the part of individual physicians, gave the committee a yardstick whereby to evaluate the program in its entirety.

Particularly during the early meetings, the committee obtained from CPS a complete and detailed review of the utilization on the part of each physician. This represented the raw material which led into two main areas of committee investigation:

First, it made possible an assessment of the financial solvency of the program, the dispersal of the patients to the medical community, the apparent adequacy of care as compared to that which other segments of the community would be expected to receive, the use of consultants in treatment and the utilization of ancillary services. In other words, it allowed a continuous assessment of the basic criteria to which this plan was especially committed: Broad physician participation, ready availability of care, and quality at the lowest cost compatible with it. And it made possible corrective measures if they became necessary long before an insoluble crisis.

Secondly, this evaluation brought to light treatment patterns by individual physicians which warranted further investigation. This is a more customary committee activity, but here the activity is generated in two ways, through the committee's total program records and, as usual, through the administrator's claims department.

The high level of committee intervention has not been created by an unusual level of potential problem cases. They are here an expression of the complete meshing of the advisory function with the operations of the program, a composite of evaluation, guidance and self-discipline which is the cornerstone of the plan. Patient satisfaction

The plan was to assure dignity, accessibility and quality of care. No poll has been taken of the patient's viewpoint, but we are told that the members are pleased, appreciate the absence of welfare identification, are not being embarrassed by unwarranted doctor demands for supplemental payments, and receive care readily and conveniently without discrimination.

Fiscal stability

At the end of the first contract period, it was possible to set aside a fairly substantial reserve, and it is expected that the second contract period which ended June 30, 1964, will again add to this reserve, which is fully vested in the program

and is earmarked for its exclusive use. As the medical care rate structure, which has remained unchanged, was based originally on the experience of surrounding counties, the experience is indicative of prudent use through the local medical community. It also underscores in financial terms the basic merits of a prepaid plan under enlightened local medical guidance. In fact, it might warrant the conclusion that more adequate fees would be feasible without additional drain on public funds under this system. As to the cost of administration, CPS was able to pass on the economies feasible during the renewal year through a reduction of its administrative rates by about 27 percent as of July 1, 1964. Research

An important ingredient of this program is to be joint research on the part of the State department of social welfare, the California Medical Association, and CPS into the validity of this concept. This activity is being pursued vigorously, and some very meaningful results may be seen before the end of the year. In the meantime, preliminary research rata are available and are the basis of this report. In addition, certain of the basic research activities are channeled into the advisory and review committee for their program assessment and utilization control.

Acceptability to government

It is essential that any publicly supported program must be acceptable to those in whom control of public funds is vested. At the county level it is our hope that the plan reduces involvement with a highly specialized activity to the barest minimum. At the State level (the source of about half the funds), we believe that quality and availability of care and predictable expenditures are important. And at the Federal level similar criteria appear important. All components of government are obviously interested in a structure which facilitates care undifferentiated because of financial circumstances, and which brings forth and cultivates the best that a responsible medical profession can offer to the community.

Average monthly medical care expenditure per recipient, April 1963 to March 1964-Public assistance medical care program

Senator ANDERSON. Thank you, Doctor. I appreciate very much the fact that in your manuscript you indicated what you were going to read and speak about and what you were going to leave out, and without objection, the full text of the statement-as has already been done the full text of the statement will appear in the record.

Doctor, how about the section where you list the reasons why the use of carriers as full insuring underwriters is better than their use as limited fiscal agent administrators; would you like that also?

Dr. TEALL. Yes, sir. The reason for that is covered in our supplemental statement, and that is the reason why we believe the Federal employees health benefits program which does use carriers as full-risk sharing underwriters rather than as fiscal administrators is a better approach. These were our study documents.

Senator ANDERSON. The Santa Barbara plan concept, I assume you wanted that too?

Dr. TEALL. Yes, sir. This has been introduced in our supplemental testimony. It has been a unique experience by direct carrier administration, and we believe it would be of some interest to you.

Senator ANDERSON. Without objection, they will all be included. Thank you very much.

Dr. TEALL. Thank you.

Senator SMATHERS. May I ask one question? In your last paragraph you say:

We urge continuation of the present exception from self-employment coverage for services performed as a doctor of medicine.

Dr. TEALL. Yes, sir.

Senator SMATHERS. Do you, at the same time, recommend as a corollary recommendation an improvement of the law with respect to taking care of private pension programs?

Dr. TEALL. Yes, sir.

Senator SMATHERS. And retirement programs?

Dr. TEALL. Yes, sir. I would think this is a separate matter, and we certainly believe there should be more attention given, as you have already given, in your previous legislative record.

Senator ANDERSON. Thank you, Doctor.

Dr. TEALL. Thank you.

Senator ANDERSON. Senator Sparkman?

Senator SPARKMAN. Thank you, Mr. Chairman and gentlemen of the committee.

I simply wanted to introduce my friend here, Dr. John Chenault, who is the spokesman for the Alabama Medical Association. He is accompanied by Dr. Burlison and Dr. Donald. They, together with Dr. Chenault, constitute the committee representing the Alabama Medical Association.

Senator ANDERSON. Thank you, Senator Sparkman.

We will be very glad to hear from you, and if you will be seated with your associates there, you may present your statement.

STATEMENT OF DR. JOHN M. CHENAULT, MEDICAL ASSOCIATION OF THE STATE OF ALABAMA; ACCOMPANIED BY DR. PAUL BURLISON AND DR. JAMES DONALD

Dr. CHENAULT. Thank you, sir.

Mr. Chairman and members of the committee, I am Dr. John M. Chenault, a practicing physician from Decatur, Ala., a member of our State committee of public health, State board of medical examiners, and board of censors of the Medical Association of the State of Alabama. I am here representing that association, which is composed of some 2,200 physicians in Alabama. We are grateful for your invitation to appear before your committee, and for the opportunity to express our views and conclusions concerning this extremely important legislation, H.R. 6675.