of 5 or 7 minutes in accordance with, I believe, the staff request to wit nesses. Mr. JOHNSON. Thank you. I might mention that I do have a written statement. Senator PELL. It will be printed in full in the record.* STATEMENT OF WADE JOHNSON, EXECUTIVE DIRECTOR, HOSPITAL ASSOCIATION OF RHODE ISLAND Mr. JOHNSON. I will not completely read it, I will try to stay within the time limit. I will begin by mentioning that I am here as the chief staff person of the Hospital Association of Rhode Island, and that the membership of our Association consists of all of the voluntary nonprofit hospitals and all of the State government hospitals in Rhode Island. And I am going to confine my remarks mainly to the concern shared by the hospitals in Rhode Island about the problems of Medicare and Medicaid and some thoughts about the existing pending legislation that might affect those programs. At the outset, I'd like to make a couple of general observations. I assume that all of us here are going to not look at certain health programs in themselves, but are concerned for the net effect of all of the programs on the quality of life to people who we call the elderly in this country. As you surely know better than I and as we have been hearing very distinctly this morning, this quality of life is affected by many variables: economic, social, environmental, as well as the important one of health services, which society needs to evaluate both by study and observation and by hearing from the elderly themselves. MEDICARE ERASES WELFARE LABEL So having sounded this note of caution, I can now say it is our general impression that Medicare, despite its problems, has made a significant contribution toward improving the quality of life for the elderly in this country. The Medicare program committed the Federal Government to the responsibility of financing most health services for this major segment of the population; in so doing, Medicare relieved the elderly of both the financial roadblock to some extent and of the welfare label as it had become their right to expect. As you so well know, it is now widely accepted that health care is no longer a privilege for only those who can afford it, but rather it is an inherent legal right of all individuals. Also, we think it can be said without contradiction that Medicare, more than any other single development in the health field in the past 5 years, has served to bring into focus the weaknesses and problems as well as the strengths of the health care delivery system in this country. In doing so, however, it has exacted a high price, both in terms of the cost to the taxpayer and in terms of additional problems in the health care system generated by the program itself. Now, in my written statement I delved into the severe inflationary effect Medicare itself has had on health care costs, the underestimated cost projections of the program that were given to Congress when it enacted Medicare, * See appendix 1, p. 315. and into a few of the many administrative problems for both Medicare and Medicaid or welfare patients, which have resulted from the way the law was written. In this connection, one specific suggestion we make in our written testimony is that we believe H.R. 1 should contain a precise definition of reasonable costs for providers, specifically in this case, hospitals, and the determination of reasonable costs should be uniform among the Medicare, Medicaid, and other health programs. It is only when the precise agreed upon definition of reasonable costs is stated that we believe progress can be made toward an effective and efficient reimbursement formula. PROPOSED GUIDELINES FOR HEALTH CARE Now, our written testimony* at this point introduces and discusses at some length a set of principles for financing health care which have been developed by the American Hospital Association, and which we believe are sound and should be reflected in any future legislation. The passage of Medicare and Medicaid underscored the fundamental weaknesses of health care financing. The programs assume the burden for the payment of health care bills of a large segment of the population, but explicitly renounce any obligation to share in the meeting of the total needs of our health care system except as that system meets the need of the particular beneficiary. So it is out of a deep concern for the broader community interest in the financial stability of the health care system that the American Hospital Association, with which our Rhode Island Hospital Association is affiliated, issued the above mentioned guidelines, called the Statement on the Financial Requirements of Health Care Institutions and Services. These guidelines declare that collectively all purchases of health care, particularly all major third party purchasers, have an obligation to recognize and share in all the financial requirements and needs of institutions providing this care. The entire list of these financial requirements and their components is appended to our written testimony as an appendix. Now, this statement of financial requirements I have been referring to takes into account such things as the institution's responsibility to the community, the need for systematic financing of all their operating and capital needs, a rationale for proper planning of facilities and services with due regard for variations, and incentives for economy and efficiency of high quality health care. In our written testimony we develop each of these key points in more detail. Now, on the last of the aforementioned points, incentives for economy, our statement goes into the importance of encouraging new methods of reimbursement and the promising experience to date with prospective rating as one such new method. We are very encouraged to see that section 222 of H.R. 1 would authorize the Secretary of Health, Education, and Welfare to experiment with methods of reimbursement designed to increase efficiency and economy. Additionally, this same section of H.R. 1 calls for experimentation with the method of payment to providers of health care on the pros * See appendix 1, p. 315. pectively determined basis. The Hospital Association of Rhode Island and its member hospitals wholeheartedly endorse the concept of the prospective rating and strongly encourage the Federal Government to continue to speed up the experimentation with methods of reimbursement. We would like to point out for the record that the voluntary hospitals of Rhode Island are all presently operating under the prospective reimbursement contract with Blue Cross. Rhode Island was the first statewide group of hospitals since Medicare to come under the prospective rating method where rates are negotiated between the payer and provider. We think it is worth noting that the agreement between the two parties was reached voluntarily. Although the prospective rating method is only partially in effect in this present fiscal year ending October 1, 1971, we already have some indications it is having a favorable effect on costs. STATE MADE PARTY TO NEGOTIATION Based on preliminary data recently gathered by the Hospital Association, the hospitals in Rhode Island are presently "under budget" when actual costs are compared with budgeting costs. It appears significant dollars will be saved in this 1 fiscal year alone as a result of the prospective rating method. A recent development in the prospective reimbursement picture here in Rhode Island was the passage of a bill by the Rhode Island General Assembly making State government through the State budget director a party to hospital budget negotiations between all voluntary hospitals in the State and Rhode Island Blue Cross. This will begin for the fiscal year that starts a year from now, October 1, 1972. In addition to making the State a party to the budget negotiations, the new Rhode Island law paves the way for the State to enter into a contractual agreement with the hospitals to determine prospective rates it would pay as a major purchaser of health care for Medicaid and other patients. Presumably this would come about with the passage of H.R. 1 and section 222. Medicare and Medicaid principles of reimbursement are inadequate to the extent they do not comply with the AHA statement on financial requirements, specifically in nonreimbursement of their respective share of bad debts and failure to recognize working capital needs of health care institutions. As a way of concluding our testimony this morning, I would like to address myself to that which I feel is necessary for changing the present health care system to insure the proper and adequate delivery of health care to the aged and indigent as well as to all Americans. We have discovered the hard way through Medicare and Medicaid that to pour additional money into the existing system will not solve our Nation's current health care problems. What is really needed is a basic restructuring of the entire health care delivery system and a realinement of financing mechanisms. Plans, which we feel can bring about these changes, are contained in Ameriplan, the national health care program recommended by a special committee of the American Hospital Association. Unfortunately, Ameriplan is but one of many national health insurance proposals to be considered by Congress during the coming year. Each of the proposals attempts to provide a minimum level of health care benefits for the entire U.S. population. Where they part company is on the issues of the needed reforms that should be carried out and how they should be financed. Ameriplan offers a proposal to restructure the entire delivery of home-care services as well as financing. HEALTH CARE IS RIGHT OF ALL INDIVIDUALS At the very outset of our testimony we said health care is no longer a privilege of the few who can afford it, but is the inherent right of all individuals. It is on this principle that the goals of Ameriplan were founded. The corollaries of this principle, as stated in the AHA health plan, declare that the dignity of the individual and better community life are functions of health care, that government must assure preservation and maintenance of health, that health services must be delivered without regard to the ability to pay or to race, creed, color, sex, or age, and that health services must be accessible to all. Some of the proposals call for long-range planning and increased national expenditures for health care. Others require little change in the way that health care services are presently delivered. One far reaching goal is that delivery of health services much provide comprehensive health care, the five components of which are health, primary care, specialty care, restorative care, and health-related custodial care. Another goal which reaches into the future is that the system must provide incentives to health care providers for keeping people well. At the heart of Ameriplan are health care corporations organized to manage and coordinate health care services at the community level. The health care corporation would be responsible for providing the five components of care, either through its own resources or through contracts with providers. It would be approved for operation in providing its services to a defined population group in a specified geographic area by a newly formed independent agency. This agency would be known as the State health commission. NATIONAL HEALTH COMMISSION This commission in turn would be answerable to a National Health Commission having the responsibility at the Federal level for establishing standards of quality and regulations for the scope of benefits and comprehensiveness of services. Senator PELL. I hate to interrupt. There is no better friend I have than the American Hospital Association, but I am trying to limit the witnesses, if they would, to 5 or 7 minutes. Otherwise this means no questions. Mr. JOHNSON. The plan is admittedly difficult of explanation briefly, but it is one we hope certainly Congress will give consideration to. Realistically speaking, I am sure none of the specific programs right now is to be the final proposal enacted. In this connection, I'd like to mention the fact that we are well aware of your own national health plan before Congress at the present time and that it embodies some of the elements that I have been talking about. We'd like to take this opportunity to publicly applaud you for the outstanding direction and leadership that you have provided in behalf of better health care delivery, not only nationally, but in the State of Rhode Island, particularly in the areas of medical education, health manpower, and neighborhood health centers. Again, thank you for this opportunity to testify here. [Applause.] Senator PELL. Thank you very much. One very brief question here. As you know, as a result of an amendment that I put in one of the health bills, an HEW cost study predicted a 50-percent increase in health costs by 1974. Do you see the cost of hospitalization going up by 50 percent by 1974? Mr. JOHNSON. I think it depends on how we define hospitalization. I would hope and expect that the total expenditures for medical care would not go up 50 percent. I think some of the unit costs could well go up 50 percent. Senator PELL. I agree with you and I think we both have the same concept that the hospital should be the central unit in providing health services to the people and that we should phase people out to increasingly lower levels of health care as they attain better health. Mr. Gustin Buonaiuto is the next witness, and I had the pleasure, 2 weeks ago, of being accompanied by him as I went through various nursing homes in Warwick. He does a great job as president of the Rhode Island Nursing Home Association. Although he got out of the job a couple of years ago, he has been drafted and again is president. STATEMENT OF GUSTIN L. BUONAIUTO, PRESIDENT, RHODE ISLAND NURSING HOME ASSOCIATION Mr. BUONAIUTO. Thank you very much, Senator Pell, for the opportunity to be here today. As a provider of service for Medicare and Medicaid, I would like to touch briefly on a few basic points that can give some direction to this hearing. While we have made great strides in the field of health care, there needs to be a revamping of the entire health care system. One of the problems in our present programs is the lack of total patient care. BENEFITS NEEDED FOR CHRONICALLY ILL The title XVIII program allows extended care benefits for acutely ill people only. Unfortunately, many of our elderly are also chronically ill. In many cases, benefits have been retroactively denied because the patient does not meet the written definition for being acutely ill, even though he may need extensive nursing care. The Federal Medicare program also has no provision which would allow posthospital care because of a sociological problem. It seems rather basic that an elderly person might need posthospital care in an extended care facility because there may not be anyone to care for him at home. This program will deny benefits to anyone in this situation. It would seem in the interest of good health care that benefits should be allowed in cases such as this. Under the current program the patient has a tendency to remain in the more costly hospital bed for a longer period of time because he may need some minor nursing care and cannot be sent home to care for himself. If regulations were loosened to allow |