HEALTH CARE EXCEPTIONS MANUAL

(Preliminary Draft)

INTERNAL REVENUE SERVICE

ECONOMIC STABILIZATION PROGRAM

In fiscal year 1971, Americans spent $75 billion for medical care averaging about $320 for every man, woman and child in the United States. Inflation in the Health Services Industry has been increasing in excess of 6 percent per year.

The upward spiral in hospital costs has been one of the major factors contributing to medical care inflation. Two fifths of total health care expenditures went for hospital services which have been increasing in cost at a rate of about 12 percent a year. For the 10 year period from 1960-1970, hospital daily service charges, the most representative hospitalcharge, increased 155 percent. This increase is more than three times the rate of increase in the Consumer Price Index, excluding medical care.

The other major contributor to medical care inflation is the cost of noninstitutional health providers such as physicians and dentists. These two specific providers accounted for one fourth of the total health care expenditures in 1971. During the ten year period 1960-1970, the cost of an office visit to the family doctor increased 62 percent.

The Health Services Industry has been subject to specific restrictions and constraints under the Economic Stabilization Act due to the unique nature of the industry and its effect on the individual consumer and the consumer price index. The lack of knowledge by the consumer, the absence of price competition and the usual immediacy of the need for the service all combine to isolate this entire industry from the controls that normaly operate in a "free" economy to set prices. One of the primary goals of the Economic

Stabilization Program has been to cut the rate of inflation in the health care industry by one-half. However, the imposition of undue financial hardship

on hospitals and other health care providers, and the diminution of needed health services would be counter productive to the overall goal of the program. Therefore, to maintain necessary health services and to provide equity

the administration of the stabilization program, provision was made for exception to the restrictions on the health care industry through an Office of Exceptions Review.

To qualify for Exception an applicant must adequately demonstrate serious hardship or gross inequity caused by the Economic Stabilization Program. This manual contains the guidelines and procedures to be utilized in processing a case and in determining whether an alleged serious hardship or gross inequity actually exists. Included in these procedures is guidance for structuring appropriate financial relief in those instances where Exceptions are warranted.

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