medicaid and medicare, I am pleased the proposed HEW regulations include the expansion of home health services under the medicaid program. It is gratifying to know the administration shares our conviction that a national commitment is long overdue to guarantee quality, a cost-effective home health care for those who need it.

However, I am concerned that the accomplishment of this goal not be a pyrrhic victory for those of us who advocate it. Recent testimony before your subcommittees and State legislative committees across the country has documented a grim story of inadequate care, corruption, and fradulent practices in nursing homes. One central fact underscores these disclosures. Most abuses are directly traceable to the laxity and inadequacy of administrative procedures and policies in a system of government creation. Let us assure that a similar chapter of fraud and corruption is not written with the expansion of home health care, whether by administrative action or by legislation. Both the Congress and the administration face a similar challenge in structuring Federal legislation or administrative regulations to expand and safeguard home health care benefits. It is how to reconcile the established concept behind the medicaid program of allowing participating States broad policy latitude while enforcing Federal regulatory curbs on prevalent abuses. A delicate balance must be struck. In one respect, a State must have sufficient control over medicaid to permit the tailoring of the program to its medical needs and fiscal resources. At the same time, we must insist on sufficient uniform regulation to allow effective quality control in a program so heavily supported by Federal money. The regulations proposed by the Department of Health, Education, and Welfare are unequal to these important objectives in two major respects.

First, the proposed regulations would preempt a State's authority to determine the fitness of an individual provider to wit, a proprietary home health agency, to render the quality of care for which it will be reimbursed.

I want to make clear the basis of my opposition to mandated licensure of commercial enterprises. I do not believe profitmaking is, of itself, necessarily a bad mode in health care. Nor would I, as some would, grant the voluntary, nonprofit organizations exclusive domain over the delivery of home health care. My concern is that the proposed regulations respect that authority which properly belongs within the province of the States, consistent with the intent of the Congress. In four major legislative acts, Congress has left it to the States to determine the extent to which commercial enterprises can participate as providers in federally funded health care programs. In their respective wisdom, some 40 States have chosen not to license home health agencies or commercial health providers. I submit that neither the Congress nor the Department of HEW has any business imposing licensure of proprietary agencies on the States, who, after assessing local experience and conditions, have concluded such action is not in the public interest.

The words of Governor Hugh Carey of my State of New York, in his message vetoing legislation which would have licensed proprietary home health agencies under medicaid, bear repeating:

"Although I recognize the quality of care that existing home health agencies are providing, I consider that the implication of opening up medicaid funding to a new class of profitmaking providers have not yet been fully explored."

CONGRESS GIVES STATES RESPONSIBILITY

In recent years, the Congress has placed on the States increasing responsi bility for planning and regulation of health care institutions of all types. To effectively discharge this responsibility, the States must have the authority to determine on the basis of local needs and capacities, the composition of the health care delivery system, including whether or not commercial home health agencies should be licensed for medicaid reimbursement. I urge the subcommittees to insure that this authority not be abrogated by the proposed regulation. The proposed regulations are deficient in a second respect whose ramifications are potentially more deliterious.

The medicaid program has primarily been a State responsibility with a modicum of Federal regulation. If, from the States' perspective, this is the medicaid system's principal attribute. from a Federal point of view it is the program's potential nemesis. For the simple fact is that most States have failed to develop surveillance machinery to safeguard against fiscal abuse and inadequate care. As a consequence, fraud, corruption, and malfeasance is widespread among medicaid programs today.

Given this reality, it is shocking that the proposed regulations do not contain stringent requirements for financial audits, surveillance of utilization, and inspection and enforcement of standards of care as well as the sanctions to make the potential effectiveness of these tools actual. Without them, the same uncontrollable abuses will be fostered in home health care as have scandalized nursing home care.

The proposed regulations should begin the overhaul of the regulatory process of the medicaid system. This is particularly urgent, in light of the unique problem of policing the quality and appropriate utilization of services that are not rendered in a single facility but in individual homes.

I have introduced legislation (H.R. 6494) to provide accountability and the financial incentives for good care in nursing homes. The bill's principal provisions are contained in sections 9 and 10 of my home health care legislation. H.R. 9829, and should, I believe, be included in any Federal regulations expanding home health benefits.

The administrative reforms enumerated in H.R. 6494 and H.R. 9829 are aimed at two broad areas. First, the survey and certification process through which a home health care provider is licensed and regulated. Second, a State's fiscal audit authority to determine whether the services rendered warrant reimbursement and how and when these reimbursements will be made.

Permit me to separately deal with each area.

When a health facility or program opens for business, it applies to either the medicaid or medicare programs for reimbursement, or both. Section 18 (medicare) facilities and program are subject to survey and certification by the medicare intermediary operating the program. for instance, Blue Cross, and ultimately by the HEW Office of Long-Term Care. Under section 19 (medicaid), however, the survey and certification function is handled exclusively by the State. While each program nominally follows the same rules, the control and enforcement under the medicare program has proven far superior to that under medicaid. Not surprisingly, nursing home operators guilty of abuse are almost invariably enrolled under medicaid and not medicare. My legislation aims to end this two-standard system by requiring the same audit of medicaid home health agencies and nursing homes that is now mandatory for medicare facilities and programs. The proposed regulations should include a similar proviso.

But even this improved oversight is not fully adequate if the incentives for abuse are to be eliminated. Regulators of medicaid reimbursed health programs and facilities across the Nation are hampered by serious limitations on their power. My bill would eliminate these limitations and I would urge that the following two provisions be incorporated into any Federal regulations concerning home health care.

Currently, when a State medicaid agency chooses to cut off reimbursements to a health facility or program, which has violated its agreement to provide quality, cost-effective care, the state agency may not terminate payments until the process of judicial review is completed. My bills would vest State medicaid agencies with the power now enjoyed by Federal medicare officials to suspend reimbursement payments pending court review.

AUTHORITY RESTS WITH STATE

In addition, medicaid State administrators now have no choice but to close a facility or program entirely or leave it open upon a determination that care has been inadequately provided or not provided at all. The key to effective enforcement is the utilization of appropriate sanctions short of decertification. My bills would equip the medicaid administrator with two other remedies: the authority to bar new patients, thereby putting gradual financial pressure in a home health care program and, the authority to order that certain services in which a program's performance has been particularly deficient be transfered to a hospital or another home health care program. The task of insuring that home health care program are of uniformly high quality cannot be satisfied unless Federal regulations vest such authority in medicaid administrators.

Now permit me to turn to the second area in need of administrative reforms: the fiscal audit procedures of medicaid.

Under medicaid this area of responsibility falls within the province of the States. This power includes both the right to determine the method of reimburse

ment computation and the power to decide whether the services delivered warrant reimbursement.

To date, the States have used their ratesetting power to develop one of two, systems: fixed cost rate programs in which reimbursement is offered at a preset rate up to total reimbursement ceiling per patient or, as New York State has done, a cost-plus formula in which all costs are reimbursed except for those specifically disallowed by a post audit. The problems with the New York cost-plus system have received ample publicity in recent months, but the fact is that neither system offers the kind of fiscal control essential to cost effective delivery of services. States using a per diem flat rate leave themselves open to lower quality care and usually set unreasonably low payment levels. States like New York that pay on the basis of costs don't ask whether the costs incurred were reasonable, only whether they were incurred. In failing to ask the former question, they leave themselves open to massive overcharges.

The legislation I have introduced would steer a middle ground between the overly rigid fixed cost and overly flexible cost-plus mechanisms. It requires medicaid home health agencies and nursing homes to utilize cost-related, prudent buyer methods of purchase, so as to reflect reasonable costs. After certification of the cost basis by the State agency, the Secretary of HEW has the power to revise future reimbursement if necessary to reflect reasonable costs. By recommending that the proposed Federal regulations include a similar provision, you will insure that the States ask not merely what did it cost, but what should it have cost.

A number of other limitations in the regulatory procedures of the medicaid program would be remedied by my legislation and I would urge the subcommittees to recommend that Federal regulations contain similar measures. The control of the medicaid post audit is difficult to exercise due to the frequent absence of attachable equity by the nursing home operator. Hence, my bill would require a nursing home operator to post a bond. Federal regulations should require the same of home health agencies. This will avoid the increasingly common situation in which medicaid audits a home and finds it owes money. but when medicaid trys to collect, the operators close down and leave the bill unpaid. Through such a requirement in the proposed regulations, States will be certain to recoup reimbursement that cannot be justified by the services provided.

A second limitation exists in the definition of the requisite arm's-length relationship between a service provider and facility or program operator. Many States place no restrictions in this area. In the case of the States that do. usually only persons who are related to one another or who have mutual interests in a common nursing home or health program are barred from buying or selling to one another through "sweetheart deals." My bill would prohibit reimbursement for transactions between persons engaged in a third business, no matter what the field. It will also require disclosure by nursing home or home health agency owners or operators of any interest in businesses providing goods or services to nursing homes or home health agencies.

The legislation also mandates disclosure, for all medicaid and medicare nursing homes and home health agencies, of any persons with ownership interest in a home or agency, or in the land or building housing the home or agency.

In short, Chairman Moss and Chairman Pepper, reform of the administrative and regulatory processes of State medicaid programs is long overdue. The proposed regulations were not intended to begin this task. But at the very least, the expansion of home health care benefits through administrative regulations must coincide with the implementation of the basic reforms I have outlined. Without these safeguards, the incentives for abuse implicit in most State medicaid programs will not be eradicated once and for all.

Senator Moss. We would appreciate it if our first panel for today

comes up.

Dr. Amitai Etzioni, professor of sociology. Columbia University, and director for the Center for Policy Research. Dr. George Warner, M.D., special assistant to the commissioner of the New York State Health Department, Albany, N.Y. Mr. Gerald A. Hawes, audit manager, office of the auditor general, Sacramento, Calif.

We would like to have you proceed, and we will hear from you, with your direct statements first, and then we will have questions that may go across the panel.

Dr. Etzioni, you may proceed first.

STATEMENT OF DR. AMITAI ETZIONI, PROFESSOR OF SOCIOLOGY, COLUMBIA UNIVERSITY, AND DIRECTOR, CENTER FOR POLICY RESEARCH

Dr. ETZIONI. Thank you, Senator Moss. I would like to compliment you on calling this series of hearings.

I believe it would be desirable if you could invite the Secretary of HEW and his staff to come before you and take a Hippocratic-type oath, because these regulations which they propose are harmful, and many, many older Americans and disabled Americans will suffer severely.

I would like first to cover some of the main arguments given by HEW officials for the introduction of profitmakers into this particular service, and I would like to show why these arguments simply do not hold.

In part, one argument has been made by an HEW official, according to a quote, that the position that proprietaries should not be allowed is a "Communist" position. That is a famous, clearly identifying line of abuse. It is, however, a fact also that most of human services in this country are not provided on a for-profit basis. Most of our schools, public and private, are not profitmaking. Most of our short-term hospitals are not for profitmaking. The language is confusing. You call them private hospitals, but they are mostly voluntary. It is only in the nursing home area where most of the service is provided on a for-profit basis. And this is the area of human services which is most rampant with abuse.

Second, like Congressman Koch, I am in favor of the private sector, but I must report to you that this particular area of service has not attracted the IBM's, the Xerox's, even the McDonald's or the Lockheed's.

What we have here is an unusual concentration of real estate manipulators and quick-buck artists.

There are exceptions-there are some decent hardworking people. However, most proprietaries in this particular area are a shame to American business, and, therefore, should not be allowed in.

The study already referred to, which HEW refused to release to the public, is said to have an insufficient sampling. You can always study the matter more. The fact is that the present study of HEW is the biggest, most systematic study ever done in the field, and it suggests that proprietary nursing homes provide poorer care and more abusive care than the voluntary.

Let HEW release the findings, with the note that a bigger study is still needed. But we certainly ought to have the partial findings, based on the very expensive study, since these are better than no findings at all.

It is argued that you can point to abuses in the voluntary. That confuses the argument. Yes, you can find a few serious abuses in the voluntary agency.

First of all, some voluntary agencies have been abused by proprietaries, and we will have a suggestion in a future paper, as to additional regulations necessary to prevent proprietaries from using voluntary agencies as coverups, to get around regulations.

PROPRIETARIES ARE "ABUSE LEADERS"

In some cases, the voluntaries sin too, but across the board, statistically, there is no doubt that the proprietaries have been, in this particular area, the abuse leaders. Therefore, I very much hope that you prevent HEW at this point from allowing them to further extend their grip.

The final argument which has been made by HEW officials is that, if we have regulations which would prevent abuse, they could be applied to both voluntary and proprietary. The answer is we do not have effective regulations for either cost or quality control-especially for quality control.

We have not developed quality mechanisms, and the effect is we cannot correct the abuses of persons buying Cadillacs instead of medication, and when we do catch them, they then move to the next State under a different name.

I would like to take 2 minutes to suggest an alternative, positive system, very much in line with Congressman Heinz' suggestion, where we should allow older persons to have effective control of services.

I would like to see a voucher system which allows older persons to cash in, at voluntary agencies only, for specific amounts.

If it is taxable, it means that rich people will keep little of it, while poor people will keep all of it. Thus, while everybody will get the same amount, the poorer people would benefit.

Second, the voucher system allows the consumer to choose, and it removes the funds from agencies which provide poor services, because the aged person would not go there to cash the vouchers.

Finally, I think the vouchers should be allowed for specific services. The more you push on your clients in the nursing home, the more Congress shells out.

People come to you each time, and they say that they have a service that would cost less, and, therefore, you should shift people from nursing homes to at-home health service.

I say this is misleading. Home health services will cost more, not less, than nursing homes, for the simple reason that for every old person in a nursing home, there are at least 19 in the community. Perhaps as many as 40 percent of those now in nursing homes could be discharged-that is the highest figure ever cited.

However, 40 percent of 4 percent-the proportion of aged in nursing homes-is very little. Out there in the community at large is a sizable number of persons, I would think at least twice as much, who need nursing home services, because they are not able to move around. So even if you would get a perfect selection system, you could not discharge as many people from nursing homes to home health services as would need to be institutionalized.

Second, even if you provided a minimum amount of home health services just think about it, there are 19 people out there to every