5. Use of approved relative value schedules We genuinely believe that the development of a common language to describe the kinds of services covered under public and private health benefit plans will provide a more rational basis for evaluating benefit plans and the fees charged for services. The development of a terminology system will go a long way to support the salutory effects of the uniform reporting systems. 6. Establishment of health care financing administration The NAM shares the concern of the eminent chairman of this Committee for the efficiency of the new health care agency that the original aims of this reorganization may be lost. So we support the standby powers this bill contains. This existence may do much to ensure that they are never needed. We are particularly concerned that the cost of containing health care costs not exceed the money saved. Therefore, we reiterate our previous recommendation that budget and staffing for the Central Fraud and Abuse Control Office be tied to a percentage of the recoveries achieved through that office after its first three years of operation. 7. Disclosure of aggregate payments to physicians We also support the provisions of Section 44 which prohibit the release of the names of physicians who have been paid large amounts for treating Medicaid patients. Publication of such a list implies some abuse where in most cases none exists. Without it, the physicians who honestly are devoting their professional hours to those on Medicare would risk their reputations that most and many doctors may be discouraged from accepting any Medicare patients. Beyond that it is contrary to the American system of justice to make implications about a person's honesty without affording that person a chance to reply. 8. Spillover effect We deeply appreciate the fact that the sponsors of this bill have included in this version of the bill language which prohibits health providers from passing on to the private sector any excess expenses which result from tightened cost control under the Medicare and Medicaid programs, which we asked for in our comments on S. 3205 last year. However, the bill does not contain a mechanism for enforcement of that restriction. We believe that if such mechanism is not developed for controlling the spill-over effect, NAM wil be unable to support the bill. In summary, the NAM supports many of the objectives of S. 1470. We do believe that the absence of a mechanism for enforcement of the restriction for spill-over to other health providers is so serious and of such concern to industry that an adequate provision must be included before we can support S. 1470 in its entirety. Sincerely, Senator HERMAN TALMADGE, RANDOLPH M. HALE, NIGHTLETTER FOR AMERICAN MEDICINE, Subcommittee on Health, Senate Finance Committee, Senate Office Building, Washington, D.C. DEAR SENATOR TALMADGE: "Apple Pie & Everything Sweet" which appeared in V. II, #1 of the Nightletter for American Medicine is an analysis of S. 370 which I believe is germane to your interests and to those of the Subcommittee on Health. You have already noted in your perspicacious remarks on S. 1470 that good ideas may become "bogged down in the quagmire of bureaucratic self-interest." That is what has happened also with S. 370. Here's how: HEW is so anxious for new tiers of bureaucracy that it is has helped erect an entirely new Board within the confines of S. 370-this new Board is to be the Board of Maternal and Child Health, or, as it now stands, the Maternal and Child Health Board which will operate within the confines of HEW, or within the constraints of HEW's allowances and tolerances. Note that Secretary Joseph A. Califano of HEW has no great worries in setting up this still another level of "red tape." What has happened to President Jimmy Carter's promise to eliminate "red tape"? HEW is so anxious, in fact, for these new levels of bureaucratic red tape that it has in most unseemly fashion collaborated with vested academic interests within medicine to achieve its ends. For instance, key provisions within S. 370 appear to have been dictated by the New York Academy of Pediatrics (Sen. Javits' Jake Cutler apparently doing the actual direction of the subsequent drafting) and by the American College of Obstetrics & Gynecology. In allowing vested interests within the academic framework of medicine (but not necessarily one bit more scholarly because of the academic association) to develop key parts of S. 370, Secretary Califano has at least guaranteed that HEW will have some support for S. 370 from within the framework of organized medicine. Bureaucratic self-interest is served in this way-with a piece of the pie sanguinely tossed to a very limited spectrum of self-serving academic interests, too. Yours truly, ROBERT L. WEINMANN, M.D. Editor and Publisher. STATEMENT OF THE PUBLIC CITIZEN'S HEALTH RESEARCH GROUP INTRODUCTION AND SUMMARY The Health Research Group opposes the enactment of S. 1470. Although some of its provisions, notably the allowance of Medicare and Medicaid reimbursement for the closing and conversion of underutilized hospital facilities, have merit, we believe the scope and significance of the reforms contained in the bill are much too limited to have any appreciable impact on the billions of dollars now being wasted through unnecessary or inefficiently delived hospital services. S. 1470 makes only extremely minor changes in the open-ended, retrospective, cost-based, fee-for-service reimbursement system which is the root cause of waste in the health care system. Following is a brief summary of our comments on selected provisions of the bill: 1. Any cost containment strategy which applies only to Medicare and Medicaid will not save money but will penalize Medicare and Medicaid recipients. 2. Section 2: The changes in hospital reimbursement apply only to a small fraction of the hospital budget, exclude those services which are inflating most rapidly, encourage increases in length of stay and admission rate, use inappropriate classification criteria, and retain most incentives for higher spending. We support the establishment of a uniform accounting system. 3. Section 3: Payments to promote closing and conversion of underutilized facilities are desirable but should be subject to approval by state and local planning agencies. 4. Sections 10 and 11: The minor changes proposed for Medicare physician reimbursement will not solve existing problems in the assignment system or geographic disparities in fees or physician distribution. 5. Section 12: While elimination of the percentage payment system for hospitalbased physicians is desirable, fee-for-service payment should also be eliminated in favor of salaries. 6. Section 43: The waiver of the application of human experimentation protections to Medicare and Medicaid must be deleted. 7. Section 44: The prohibition on public disclosure of aggregate payments to physicians must be deleted. GENERAL COMMENT A general and fatal problem with S. 1470 in its present form is that it applies only to Medicare and Medicaid, which together account for only about one third of all hospital spending. Experience with cost controls limited to public programs, particularly with state Medicaid programs, demonstrates that aggregate health care expenditures are not contained. Instead, access to services needed by the poor or elderly is restricted and/or the costs of providing care to the poor are merely shifted to local taxpayers or private patients. Providers will respond to limitations on reimbursement for public patients by refusing to serve them, by providing additional unnecessary services to compensate for lower fees, or by charging private patients more to subsidize their Medicare and Medicaid patient load. In short, there will be no overall cost containment, public patients will be arbitrarily denied needed services, and private sector costs will increase more rapidly than ever. Section 2. Criteria for determining reasonable cost of hospital services This provision is intended to encourage hospitals to be efficient by basing the reimbursement system on the average costs of comparable hospitals. However, because of the way payment rates are calculated, which only slightly modifies the reasonable cost system, there is no assurance that any money will be saved or that the incentives created are more desirable than those now in existence. Aside from the fact that these reforms apply only to Medicare and Medicaid, they suffer from the following flaws: 1. The reimbursement changes apply only to "routine operating costs." Estimates are that only 30-40 percent of all hospital costs are covered. Since Medicare and Medicaid only pay for about one-third of all hospital care, the component of aggregate hospital expenditures which is covered is only about 12 to 13 percent. Only about 7 or 8 billion dollars, or about 5 percent of all health care expenditures, could possibly be affected by the bill. The Congressional Budget Office estimated that if S. 3205 (the 94th Congress bill with essentially the same reimbursement provisions) had been in place during fiscal 1977, only $150 million would have been saved. To put this amount in perspective, consider that it is equal to about 70 cents per capita at a time when total annual health care costs are about $700 per capita-i.e., spending would be reduced by 1/10 of 1 percent. Furthermore, what is excluded from routine operating costs contributes disproportionately to hospital cost increases. One study found that more than onethird of all hospital spending increases are a result of increases in volume of nine ancillary services (not counting increases in cost per unit).1 Therefore, routine operating costs account for much less than 35-40 percent of the increase in hospital costs. Indeed, it would be far more effective to control such items as ancillary services and capital costs and exclude routine operating costs rather than vice versa. 2. The payment system is based on a per diem rate. Although this is intended to encourage reductions in cost per patient day, it will also create an incentive to increase the volume of patient days to compensate for the price controls. There are no incentives included in the bill which would discourage volume increases (as there are in the Administration Cost Containment bill, for example), nor is there any limit on the aggregate hospital budget or any component thereof. Thus, this approach is likely to have the counterproductive result of increasing average length of stay and perhaps also the hospital admission rate. Because of such increases in utilization, some state rate-setting programs were initially ineffective. Lower per diem rates were offset by an increase in patient days, and no savings were achieved. 3. The criteria used for hospital classification-bed size and medical school affiliation-are at best indirectly related to legitimate differences in costs. Both are surrogates for variations in the sickness of patients. There is no intrinsic reason why bigger hospitals or medical school hospitals (when teaching costs are excluded) should have higher routine operating costs. Until HEW has the necessary data to classify by diagnosis and perhaps age of patient, it is questionable whether a system which locks in existing cost differences by hospital size should be implemented. 4. The reimbursement system of Section 2 is based on the average per diem routine operating cost of reach category of hospital with an adjustment for geographic variations in wage rates. Hospitals will continue to be paid on the basis of reasonable costs, except that they cannot be paid more than 120 percent of the average for their category. If their costs are less than average, they can retain half the difference, up to 5 percent of the average rate. While this approach would seem to contain desirable incentives, its actual impact on costs is problematical. The bill assumes that some hospitals are inefficient but fails to recognize that these inefficient hospitals artificially inflate the average. Also, it is not at all clear that a hospital manager has an incentive to reduce costs. 1 Redisch, "Hospital Inflationary Mechanisms," October 1974 (unpublished). Indeed, there are several reasons why most hospitals will continue to want to spend more rather than less. First, it is in the collective interests of the hospitals in any category to increase spending in order to raise the average used to calculate next year's rates (which are re-calculated each year). Second, the "spend-more-get-more" system is still operative up to 120 percent of the average (which, as mentioned above, is already too high). Third, all the non-financial incentives to increase the intensity of services, such as pressure from medical staff and trustees, are still present. On the other hand, the incentive for spending less is comparatively weak. The largest bonus that the typical hospital can retain will be 5 percent of routine operating costs for Medicare and Medicaid (about 12 percent of the total budget, as discussed above) or about 6/10 of 1 percent of the total budget. Also, since most hospitals are non-profit, the incentive payment can't be extracted from the hospital in the form of dividends in any event. It could only be used to provide a minor subsidy for money-losing services or accumulated for capital expenditures, which may be unnecessary. Thus, it would appear that, with the possible exception of those hospitals already 10 percent or more below average and those more than 20 percent above average, hospitals will continue to have both monetary and non-monetary reasons to spend more. Finally, the new system would not take effect until fiscal 1981. In the interim, all hospitals will have a powerful incentive to elevate their spending in order to maximize the average used to determine the initial payment rate. It is likely that the rate at which hospital costs inflate, already intolerably high, would be even higher for fiscal 1978, 1979, and 1980. 5. We do support the requirement which would be established by section 1861 (aa)(1)(A) for an accounting and uniform functional cost reporting system. We recommend that it include clear identification of how much charity care, as opposed to bad debts, the hospital is providing. Section 3. Payments to promote closing and conversion of underutilized facilities We support the concept of providing the reimbursement necessary to cover the costs of closing or converting underutilized hospital capacity. However, we believe that no facility conversion should be qualified unless and until it has received the approval of the State Health Planning and Development Agency, after review and recommendation by the local Health System Agency. Also, consideration should be given to an amendment which would discontinue all federal reimbursement except for the "transitional allowance" to any service which is found inappropriate by the SHPDA under section 1523 (a) (6) of the Public Health Service Act. States are not required by that provision to sanction services found inappropriate. Section 10 and 11. Physician reimbursement under medicare While we support the attempt to encourage physicians to accept assignment for Medicare patients, we would recommend that assignment be mandatory (as it is for Medicaid) and that the physician reimbursement system be reformed in other ways to assure that all Medicare and Medicaid patients will have access to physician services. The other changes in physician reimbursement contained in section 11 would make the calculation of allowable physician payment even more complicated than it already is, without significantly alleviating geographic disparities or maldistribution or achieving significant savings. All of these issues are dealt with in much greater detail in our report "Why Not the Most?", a copy of which has already been made available to Senator Talmadge. Section 12. Hospital-associated physicians We agree that percentage or lease arrangements between hospitals and hospital-based physicians have resulted in exorbitant payments to physicians often unrelated to actual services directly provided by the physician to patients. The percentage system also creates strong incentives for the hospital-based physician to maximize the volume of services he delivers. The volume of ancillary services such as lab tests and X-rays has increased at an alarming rate in recent years, as discussed above, in response to this incentive. However, the bill preserves the fee-for-service system, which contains exactly the same incentive. In fact, to the extent that fees are lower than percentage payments, hospital-based physicians are likely to respond by increasing volume even more. 92-202 O - 77 - 38 The best solution would be to recognize that hospital-based physicians are monopolists with considerable ability to control the volume of services their departments deliver and to require any hospital participating in Medicare and Medicaid to pay them on a salary basis. Section 43. Waiver of human experimental provision for medicare and medicaid This provision would prevent the application of the law requiring protection of human experimental subjects to Medicare and Medicaid. The change was motivated by a court ruling which held that a Medicaid cost-sharing program in Georgia was a human experiment to which this law applied. This proposal demonstrates a callous insensitivity to the poor and elderly people who must rely on Medicare and Medicaid. The bill would subject the most vulnerable group of people in the population to any human experiment conducted with Medicare and Medicaid funds without the protections mandated by Public Law 93-348. Not only must this provision be deleted, but the provision in Title XIX which allows cost-sharing in state Medicaid programs should be amended to prohibit costsharing. Medicaid recipients are by definition without ability to pay. Costsharing denies them needed services on the basis of their income. Section 44. Disclosure of aggregate payments to physicians It is unfortunate that disclosure of aggregate payments to physicians under Medicare and Medicaid has been characterized by inaccuracies and has sometimes misled the public to believe that the amounts were net income rather than gross income and that all physicians on the lost were abusing the programs. However, we strongly oppose any provision which would prevent public disclosure of information about the charges, quantity, or quality of services of any physician participating in Medicare and Medicaid. Indeed, we believe that disclosure of physician-identifiable data should be expanded to include customary fees for particular procedures and data on utilization and quality collected by PSROS. We urge that section 44 be deleted from the bill. WASHINGTON, D.C., May 11, 1977. DEAR SENATOR TALMADGE: I have read with interest your remarks in the Congressional Record of May 5, 1977 on introducing S. 1470-the MedicareMedicaid Reimbursement Reform Act. I have no doubt that the substance of your legislative proposal is a rational and far-sighted effort to deal with pressing domestic health problems. I am concerned, however, that some of your introductory remarks may be interpreted as critical of the integrity and commitment of the "bureaucrats" who ultimately must turn your proposal into operating reality. As a taxpayer and an occasional "victim" of the sometimes mindless ways of local, State, Federal and Congressional bureaucrats, I can readily applaud the efforts of President Carter and Secretary Califano to reform and reorganize the Federal Government. But as a career civil servant, I am increasingly apprehensive that present efforts to reorganize may fail if they are based upon the wrong industrial model. Government organizations in the health and welfare area do not stamp out unique industrial products which are produced by unskilled, interchangeable workers (although the results sometimes seem to indicate the latter). The business of such Government agencies is service, not products. In your remarks, you expressed concern for the manner in which the new Health Care Financing Administration is organized and staffed. It is of course true, as you have frequently pointed out, that Government organizations with overlapping positions and unclear lines of authority are wasteful and inefficient. I personally do not have sufficient information to know whether the design of the new agency meets your objectives, but I am convinced that creating an organization on paper which avoids these mistakes is less than half the battle. Ultimately, the service performed by these agencies will only be as good as the skills and morale of the "bureaucrats" make them. It seems to me that the emphasis of your comments focuses on where the staff of the new agency may come from rather than upon their individual competence. This has very negative implications for the morale and effectiveness of the new agency's staff. |