For discussion purposes, the health industry can be considered as an isolated economic unit which functions within itself in exactly the same way that the national economy does. As such a unit, it is subject to the same laws of the market place. Such an economy tends toward a state of equilibrium between supply and demand, and the prices of goods and services to the consumer are reflected in this equilibrium by remaining fairly stable.

If, in this state of relative equilibrium, there is an intrusion of hitherto unavailable money, there occurs an immediate disequilibrium. In the general economy the increased demand caused by the influx of new money is met (at least for awhile) by an increase in productivity and a rise in prices, which tends to return the market toward a state of equilibrium again.

As long as the producers can profitably increase their productivity by raising their prices, then supply and demand will continue to tend toward equilibrium. This holds true for the general economy and it holds true for the health industry as long as the inflation is general. But when a massive increase in the supply of money is suddenly injected into the isolated economy of the health industry, there is an entirely different situation. The health industry can cope with general inflation because its internal equilibrium is not greatly disturbed. However, when a secondary inflation is imposed on the industry by a sudden vast increase in the supply of money within its isolated economy, the disequilibrium which occurs between supply and demand has immediate and serious consequences throughout the industry. The medical market cannot react as the general market reacted for the obvious reason that in the general economy, sunnly has been relatively flexible and could adequately respond to demand: but in the medical economy, supply, particularly in the vital area of physician's services, is relatively inflexible and cannot respond adequately to great increases in demand.

SUBSIDIES TO MEDICAL SCHOOLS

The first major instrusion of government into the health industry began with World War II and the subsidization of medical schools. This intrusion did not cause an immediate disequilibrium in the medical market. It was concentrated in the area of what may be termed a producer's market and had no appreciable direct effect on consumer demand. However, when coupled with some of the consequences of general inflation, it did cause major changes in the distribution of physicians, thus affecting their supply in the vital area of service to the

consumer.

The initial effect of the use of fiat money to subsidize medical schools was to cause an inflation of research activity. There was first of all, a great increase in the size of the faculty of medical schools. With continued subsidization, and through the device of tenure, the number of teachers and research fellows tended not only to grow but to become permanent, thus greatly increasing the costs. Since the chief source of funds from the government was earmarked for research purposes, the schools tended to be diverted from their main purpose-to teach students-and to become more and more preoccupied with research. As the research programs grew, more and more physicians were diverted into research, thus adversely affecting the supply available for private practice.

Thirty years of war and the continuous mobilization of huge numbers of men in the armed forces; the tremendous growth of bureaucratic health agencies, state and Federal; the mushrooming of research programs in the medical schools and in the so-called "think tanks"; all of these, made economically possible only because of fiat inflation of the money supply, have increased the demand for physicians. The entry of doctors into these artificially created areas of demand hos, in terms of the supply available to private practice, negated completely the increased production of physicians by the medical schools.

CONTROLS UPSET BALANCE BETWEEN DEMAND AND SUPPLY

The net result of government intervention in medical education has been (1) the Federal government has gained virtual control of medical education; (2) in terms of an increasing demand for services there has been a relative decrease in the supply of physicians available to render services through entry into private practice.

The passage of the Hill-Burton Act initiated the sccond major intrusion by government into the medical market. The rapid increase in the number of hospitals which resulted, coupled with the growing demand for medical services

generally, caused a hyper-acceleration of demand for trained auxiliary medical personnel of all kinds. Supply of personnel has not been adequate to meet the demand, and a spiral of wage increases has resulted throughout the industry. It is significant, as a reflection of this disproportionate increase in cost, that until the advent of Medicare, hospital fees were the only prices throughout the health industry which increased significantly faster than price levels in the general economy.

With the advent of Medicaid and Medicare the already straining health market was immediately forced into a state of marked disequilibrium. In this instance, vast sums of unearned and hitherto unavailable dollars were suddenly poured into the demand side of the ledger.

The immediate effect was not just an increase in demand. There occurred a psychological hyper-inflation of demand. The consumer, released from all the restraints imposed by "cost" and "afford," develops, rather quickly a whole new spectrum of complaints which demand attention. Chronic ailments which were not disabling, with which he had lived and been productive for many years without seeking medical aid, now become more and more emergent. He begins to demand attention for increasingly trivial complaints. His calls upon the physician become more frequent and his hospital admissions more frequent. He demands more sophisticated and more luxurious services and facilities than he was willing and/or able to pay before. The physician once had difficulty keeping him in the hospital long enough; more and more the problem now is getting him to leave. As we have already proved, with the vast and never-ending expansion of welfare programs over the past 30 years, there is no end to the growth of needs and demands when they are unrestrained.

As long as the government continues to stimulate demand, and supply remains inelastic, acute shortages will continue and wages will continue to rise. Attempts to further improve efficiency by more mechanization and increased paramedical personnel will only increase capital investment and operational costs. Physicians and hospitals, who must pay their bills or close their doors, have no choice but to increase fees and to continue increasing them with each new spiral of wage, price, and tax increases. This, in general, is the situation in the medical market today. As long as inflation continues, this will remain the situation, and no combination of managerial talent under the sun can do anything constructive about it.

FURTHER INTERVENTION NO CURE

What happens when the medical market becomes a government controlled monopoly, administered by a politically oriented bureaucracy? It seems unlikely that the situation will improve under the least competent and least efficient form of administration which man has yet devised.

The only thing that can possibly be achieved by government intervention is a drastic reduction in the over-all quality of medical care at a tremendous increase in cost to the consumer. The program will be entirely dependent on a continuation of inflation in spite of massive increases in taxation for the already overburdened taxpayer, and in spite of wage and price controls which will be applied throughout the industry. The demise of competition, the eradication of "fee for service" contract between the physician and the individual patient, the distortion of freedom of action and freedom of choice, must all have an almost lethal effect on physician motivation and incentive. The art of medicine under these circumstances must degenerate into a sterile and grossly distorted caricature. There may, for awhile, be luxury care but the element of quality will, all too often, be lacking.

FURTHER STUDY

Further study and evaluation of these fundamental problems is, in my opinion, imperative. No useful purpose can be served by minimizing a serious situation. Just how serious our situation is becomes immediately apparent when we realize that the problems of medicine are but one set of symptoms of a disease which threatens our entire social structure.

The situation is by no means hopeless. On the contrary, we have every reason to be hopeful. There is more awareness, more concern, more intensive study, more understanding of fundamental issues today than at any time in the past 30 years. Disillusionment with government policy, its profligate spending, its gross inefficiency, its monumental failure to improve society, is growing rapidly. Inflation cannot last forever. It must end, as historically it always has, in

economic and social disaster, but this will not be the end of the world. Our form of government may not survive, but we will. If we know and understand enough, we can, in our turn, and in our sphere, help recapture a heritage which we have somehow lost.

Our heritage cannot be recaptured by piling another catastrophy upon Medicare and Medicaid which is 10 times worse.

This is the real "crisis" and the people had better be told the truth now. Inordinate costs of government not medical care is the problem America must solve.

As the public sector is bloated with more and more spending, with more and more waste and less and less performance, the private sector is becoming weaker and weaker.

You are in a position to help avoid a total collapse of our system by fearlessly seeking the truth.

LEGISLATIVE PROPOSAL USURPS POWER

All of the legislative proposals on health care pending before this Committee asks you to usurp power through the central government which would violate the intentions of the founders of the Constitution. Specifically, you're being asked to authorize increased taxation and government control over all individuals demanding and supplying goods and services related to health and medical care. This would give less competent people (government clerks) authority to push around competent people! (Patients, doctors, hospitals, pharmacists, etc.) This is a tragedy! Because First you have the apparent power to grant the request. Second, individual liberty, here of all places in the world, is being so abused that power seekers think the time is ripe to nail shut its coffin lid as has been done elsewhere. Third, the legislative situation is so confused and obscure that few individuals understand what is being done TO their individual liberty. So much emphasis is being placed on what is being done FOR people through governmental promises of benefits impossible of delivery that the people are confused about what is being done TO their responsibility and freedom upon which their happiness depends.

If the central government has power to subsidize and control medical service for everyone then by the same reasoning, it can do the same for food, clothing, housing, autos, recreation, and any other goods or services. Obviously, such an absurdity negates any limitation of the central government to destroy our system of willing exchange.

The proponents of this tragedy are asking you and your constituents to believe that: (1) All of the citizens can get all of the medical care which they wish without cost to themselves; (2) The American system of individual responsibility through which goods and services are willingly exchanged without government coercion has failed; (3) You should substitute for the brilliant success of the decentralized, flexible and innovative American system, the failures of the centralized rigid and politicalized European system.

The burden of proof for destroying “private” medicine and substituting public “politicalized” medicine is on the proponents and cannot be instituted legally without a Constitutional Amendment.

The proponents assert there is a "crisis" in health care in the U.S. This language is an effort to scare citizens into supporting drastic central government intervention into areas not delegated to it by the U.S. Constitution. If there were a real crisis people would be waiting for weeks and months to get into hospitals or days to see physicians-as they do in other countries having politicalized medicine such as Britain.

We believe you should reject the requests, and explain to your constituents, as we shall do, why the requests are against their interests.

PURSUIT OF POWER

We shall explain to them that Wilbur J. Cohen, former Secretary of Health, Education and Welfare is a symbol and leader of forces which have worked for years to nationalize medical care in the U.S.A. He has set forth "goals for an acceptable national health insurance scheme." (New Physician, December, 1970). It is a matter of common knowledge in Washington that he masterminded the Kerr-Mills Law which injected the federal government into medical care by way of state governments. His actions show he opposes our basic system of willing exchange and favors an elite group substituting collectivism for in

dividualism. (See Marjorie Shearon's book, "Wilbur J. Cohen, The Pursuit of Power.")

From the position of Assistant Secretary of H.E.W., Mr. Cohen led the fight to establish the principle that it is legal despite the intentions of the founders of the U.S. Constitution to the contrary, for the federal government to pay medical and hospital expenses of everyone merely because they are over 65 years of age, regardless of need or financial affluence.

FOOT IN THE DOOR

This was the Medicare part of the Medicare-Medicaid Act of 1965. The proponents of this phase of collectivising America said, “If we can only break thru and get our foot inside the door, then we can expand the program after that."

Mr. Cohen and the other collectivists who agree with him, got their foot in the door, and are now attempting to expand the program. Many of the employees in the Department of H.E.W. were put in office by him and are still there. Accordingly, it makes sense to examine the main proposals for "national health insurance" in the light of Mr. Cohen's standards. In this way we can cut through the confusion and better understand how each proposal contributes to working against our system.

His first principle is "Breaking the barrier between paying for health care and eligibility for service." This standard is an innocent way of saying the U.S. system of "paying for what you get" is to be destroyed. This is the key to collectivism. Miraculously, everyone is to receive medical services (Health Security Act) without paying for them.

Every pending proposal fits this first Cohen requirement. Comments by many of the sponsors attack our U.S. system of willing exchange. For example, Mr. Kennedy in promoting (S-3) says "The real challenge to us. . . lies in creating a new system ... We need legislation which reorganizes the system. . . Our entire way of doing business." "We trail twelve other nations in infant mortality." (This is a false and misleading statement promulgated by Mr. Cohen when he was in the Johnson administration and is being repeated by the Nixon administration despite its untruth and the fact that it has been repeatedly called to its attention.) The AAPS, through a pamphlet by Dr. John R. Schenken, has exposed the truth about infant mortality statistics. A copy of which is attached for your information and is Appendix V.

The Nixon administration's program fits Mr. Cohen's requirements and the President has attacked our system in these words. "We have, however, spent this money poorly-reinforcing inequities and rewarding inefficiencies and placing the burden of greater new demands on the same old system which could not meet the old ones." He then goes on to promote federal subsidization of closed-panel prepayment per capita group practice plans calling them "Health Maintenance Organizations". This is unfairly called providing “competition". This is what the government interventionists have worked for since 1932. The Nixon administration statements are being readily used to prove there is a "crisis."

The American Hospital Association plan called "Ameriplan", the Health Insurance Association of America Plan, the Javits Plan, as well as the others meet Mr. Cohen's first requirement. Senator Javits joins in the attack on our system saying "Perhaps most serious of all, there is no federal program and almost no system of private prepaid care to change the dangerously haphazard organization of health care in America." His bill would establish a Congressional finding that "the medical care system is not organized in a manner which encourages the provision of medical care at reasonable cost." See Appendix IV.

We should look behind these attacks on our system. Labor union leaders want national health insurance to eliminate the hassle at the bargaining table over health fringe benefits, which have taken increasingly larger bites out of the wage package. “. . . labor is desperate to find ways to augment wages. Relegating health insurance to the government leaves more dollars and cents for wage increases." Big business is flirting with national health insurance. Falsely reasoning that it can shift the labor costs for health care from management to government and not suffer the consequences of undermining private responsibility.

Local and state governments seeing rising costs welcome any program that apparently shifts the burden from them.

Obviously those who seek to destroy our system are pleased with the efforts of everyone who are seeking to impose some kind of national health insurance

scheme on the American public. There is no reason why patients or doctors should. collaborate with any of these schemes, all of which will decrease quality, increase costs, curtail freedom, and lead to more and more controls until cruel collectivism destroys all individual freedom. Mr. Harry Schwartz is quoted as saying: "If the revolutionary proposals for transforming medicine are adopted, medical care in this country will cost more while providing less satisfaction and poorer treatment for millions." See Appendix VI.

ECONOMICALLY UNSOUND

Why should we plunge headlong into more intervention only to repeat the mistakes of Europe and Britain?

We should take heed of the mistakes we've already made in this direction. Medicare and Medicaid are mistakes. Medicare is not a good federal program, neither is Medicaid. Both have greatly inflated demand, increased costs, diverted scarce physican manpower from patient care, and placed unreasonable strains on our willing exchange economy. However, Medicaid is being condemned by federal interventionists not because it is inflationary but because it has some semblance of state direction and control connected with it.

Both ostensibly were conceived to help the "poor." Clearly Medicare "transfers" money through the force of taxation from wage earners, many at lower income levels, to many well to do individuals for the sole reason of being 65 years of age.

To force expensive assembly-line gold bricking politicalized medicine upon the entire nation disguised as helping the poor is absurd.

The Griffiths-Kennedy Bill (S. 3, H.R. 22) supported by labor union officials abandons the pretense of providing for the "poor" with a compulsory centralized scheme covering almost all medical expenses, without limitations, co-payments or deductibles for all Americans. Every proposal before you would subsidize everyone to some degree regardless of income. Now the mask is off. The "illegitimate grab for power" over all citizens is unmistakable and clear. The administration's white paper is based on the "poor" when the "poor" is no longer the issue but only the excuse.

The real issue is "Will the Federal Bureaucracy destroy individual freedom in America?" (See exhibit-attached Editorial 10/25/71, The Indianapolis NewsAppendix II.)

MORALLY UNSOUND

The proposals usurp power. They use the police power of the central government to forcibly take the earnings of citizens and use them to destroy the opportunity for private contracts between citizens.

The assumption underlying all of the legislation before you is that normal individuals acting voluntarily on their own initiative or together with their family, friends, church and city, county or state government are incapable of deciding and doing what is best for themselves about medical care. Furthermore that for some unexplained reason many layers of central government employees using money forcibly taken away from citizens and operating through ponderous questionnaires, voluminous, enervating, minute rules and regulations with certifications and re-certifications and layer after layer of inspectors can bring about a better result for less cost.

The assumptions are invalid and immoral.

The system in the U.S. is based upon a more reasonable assumption of the capacity of the normal individual acting voluntarily upon his own behalf as compared to responding to coercion by government employees. You and I know regimentation is not the better system despite the propaganda to the contrary. The experiences from ancient Sparta to modern dictatorship and control under tyrents like Hitler. Mussolini. Lenin and his successors prove they are immoral and not in the best interests of everyone concerned.

COMPROMISE A "TRAP"

Congressional observers do not consider it probable that either the Kennedy or Javits Bills with almost complete monolithic control by government will obtain legislative approval at this time. Now, the real danger to patients and doctors is that arother gradual step will be taken toward more central government subsidy and control in the disguise of being more reasonable than the Kennedy or Javits