The resultant of these actions is simply a transfer of responsibility from Title XVIII to the Title XIX Programs. Any savings that are realized in the Title XVIII Program are being borne by the Title XIX Programs with the States having to assume a portion of the additional cost. In the case of Rhode Island, 49.74% of the additional expenditure must be met with State funds.

It is my impression that the current thinking in relation to welfare and Medicaid expenditures is to bring relief to the States by the Federal Government assuming more responsibility for funding these programs.

Question No. 4: H.R. 1 encourages State Medicaid Programs to use HMO's by providing increased matching grants to the States. Do you favor the use of HMO's? Answer: The Department of Social and Rehabilitative Services, through Medical Standards and Review, is currently negotiating with two health maintenance organizations-The Rhode Island Group Health Association and The Providence Health Centers, Inc. Numerous sessions have been held with officials of these two organizations and, to date, these meetings and negotiations have proceeded smoothly.

The viability of Health Maintenance Organizations is predicated on the assumption that they can and will provide comprehensive health care on a significantly more economic basis than the procurement of these services on an individual fee-for-service basis.

It is our intent to negotiate capitation fees with these two Health Maintenance Organizations which will be at a level at least equivalent to, if not less than, the cost of providing similar services on a fee-for-service basis.

We support the concept of Health Maintenance Organizations provided that they meet certain criteria:

1. Easy access to medical services on a continuous basis.

2. Comprehensive health services.

3. Comparable health services can be obtained less expensively than the same services on a fee-for-service basis.

4. The Health Maintenance Organizations must fulfill their responsibility to participating third-party paying agencies and its eligible recipients on a responsible and total basis.

This means that these services must be available through the HMO mechanism and its staff on a 24-hour basis; that the eligible recipients are not placed in the position of having to seek essential services from other sources simply because the responsible HMO staff is not available to them at the time of their medical needs.

5. Providing that the HMO does not become so engrossed in its efforts to demonstrate provisions of services at less cost that it will fail to insure the provision of necessary expensive medical services and supplies.

What happens when the HMO finds itself in financial hardship and decides to alleviate this hardship by a reduction of services?

What happens when the HMO finds that it cannot, in fact, provide a constellation of health services at an established premium and, therefore, simply raises its premiums without concern for the ability of eligibility recipients to pay these higher premiums?

These are but a few of the questions to be answered before we can determine the validity of the HMO concept. The fact remains that all HMO's will not attain the degree of high quality performance attributed to the Kaiser Permanente Plan.

ITEM 2, LETTER FROM WADE C. JOHNSON, EXECUTIVE DIRECTOR, HOSPITAL ASSOCIATION OF RHODE ISLAND, IN RESPONSE TO SPECIFIC QUESTIONS RAISED BY SENATOR PELL

November 18, 1971.

DEAR SENATOR PELL: I hope you will forgive my tardiness in responding to your letter of October 15, with which you enclosed four questions in followup of our September 20 testimony in Providence before the Senate's Special Committee on Aging. We have been unusually busy with a number of activities including our Association Annual Meeting last week. In that connection, let me take this opportunity to express appreciation for the telegrams which you sent to the three recipients of our Association's first Distinguished Service Award. These telegrams were read by our President at the Annual Dinner, and I know that they were sincerely appreciated by the Award recipients.

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Now, to get on with the responses to the four questions you sent us:

You ask whether we foresee a 50% increase in hospital costs in Rhode Island in the next year or two. In answering this, I think I should begin by saying that if some wholly new comprehensive health care plan were to be adopted within the next two years which completely changes and greatly enlarges the scope of that which is included in hospital costs, perhaps we could conceivably see increases of that magnitude. But if during the next two years, we continue to have more or less the present scope of hospital services and the present general pattern of delivery of health care, I think we can safely say that an increase in hospital costs of 50% is highly unlikely. If the system changes, the increase in costs of hospitals will depend on the nature and the timing of the changes, and the extent to which they were implemented between now and 1974-all of which are matters in which the Government and the Congress will obviously have a considerable voice, and which are by no means wholly within the power of hospitals to determine.

Your second question asks the position of our Association concerning health maintenance organizations and the role of hospitals therein. As I believe you are aware from our testimony, the Board of Trustees of the Hospital Association (representing all of the hospitals in Rhode Island) has endorsed, in principle, some time ago, the "Ameriplan" report of the American Hospital Association which advocates the establishment of health care corporations.

While the Ameriplan concept includes the characteristics of the health maintenance organization, the Ameriplan health care corporation covers a broader range of responsibilities which might or might not be hospital based. Our Association, therefore, has not taken a position on the question whether each of our hospitals should or should not be developed into a component of a health maintenance organization. But as a general observation, our Association is anxious to be supportive of changes in the health care delivery system if such changes will best ensure the proper level of quality health care being made accessible to all Rhode Islanders in an acceptable manner.

In answer to your third question, I think you would agree that there are some very definite similarities and also some differences between the Ameriplan proposal which our Association has endorsed on the one hand, and your bill, S. 703, on the other hand. I believe you are aware that the American Hospital Association, despite some debate within its ranks, has advocated non-profit health care corporations as distinguished from for-profit corporations. The Hospital Association of Rhode Island has not thus far taken any position on this particular issue of profit versus non-profit.

In response to your fourth question, our Association definitely does not favor the provision in H.R. 1 which would, in effect, allow each of the states to dictate rates of payment to hospitals under Medicaid which might be substantially less than the "reasonable cost" basis of reimbursement to hospitals presently in effect under Medicare. In fact, we are on record as favoring the development of an agreement between the hospitals and the State of Rhode Island whereby the State would reimburse hospitals on a negotiated, prospective rate basis comparable to that which we have in recent months worked so hard to put into effect between hospitals and Blue Cross in Rhode Island. It is our belief that prospective rating with incentives for cost economy are a much more desirable basis than any cost reimbursement.

Again, we appreciated the opportunity to testify on September 20 and we also appreciate this further opportunity to answer questions which time did not permit you to ask on September 20. If you feel that any of the responses to your questions need clarification, or if we can be of service in any other way, please do not hesitate to call upon us again.

ITEM 3. LETTER FROM ALBERT V. LEES, PRESIDENT, RHODE ISLAND ASSOCIATION OF FACILITIES FOR THE AGED, IN RESPONSE TO SPECIFIC QUESTIONS RAISED BY SENATOR PELL

November 4, 1971.

DEAR SENATOR PELL: In response to your letter of October 20, raising questions concerning Medicare and Medicaid, we would like to answer these as follows. Question 1. What changes in Medicare and Medicaid would you suggest to cover the intermediate level of care problems?

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Answer. We recommend the Geri-Care program as outlined by the American Association of Homes for the Aging, and would like to call to your attention the recommendations as contained on page 2 and page 4, especially the recommendation covering the request that this program be federalized and transferred to the Social Security Administration for administration and regulation. Enormous benefit would be derived from such a transfer, both in cost due to present duplication of staff and in efficiency of administration.

Question 2. Could you give us examples of problems caused by the current deficiencies in Medicare and Medicaid in this area?

Answer. The major problem in this field is the insufficiency of monies appropriated by the state. For example, the total reimbursement at the present time is $15.00 per day, which consists of $7.50 state funds matching federal funds of $7.50. However, just within the East Providence area there are no homes that provide care at $15.00 per day. We have personally surveyed five nursing homes within the area and the daily rates range from $17.00 to $33.00 per day. GeriCare also points out some glaring deficiencies within the Medicare program. Question 3. How do the non-profit facilities cover costs not now met by Medicaid?

Answer. The non-profit organizations have no other alternative but to conduct charitable drives, use income from endowment funds left their homes, and make appeals to their affiliated churches and organizations within the state. We also rely on volunteer groups to raise funds for our institutions as well as conducting our own fairs and bazaars to raise additional funds.

Question 4. Is it realistic to expect that Medicaid can pay for these costs in full?

Answer. As long as the state does not appropriate the necessary monies we certainly can not expect these costs to be paid in full. Therefore, we feel that the whole program has to be revised concerning the funding of both Medicare and Medicaid. For example, under present conditions the patient who is able to pay full cost in our skilled nursing homes is over charged as he or she has to underwrite the cost of the indigent person due to the insufficient cost reimbursement formula that is now being applied.

I personally enjoyed participating in the hearing in Providence and considered it quite an honor to be invited. If there is anything that I can do or that our Association can do, please call upon us. We will be very happy to oblige. [Enclosure.]

GERI-CARE

A program of legislative and administrative goals advocated by AAHA which are designed to provide for the needs of today's aged in the area of institutional care and services.

I. Recommendations for improvement in health-care for the aged in the United States

NATIONAL HEALTH INSURANCE

Recommendation.-Any program of National Health Insurance should contain at least a provision which would require the Secretary, within an appropriate amount of time, to not only study but also develop a long-term care benefit which would provide total comprehensive care and services to the aged and chronically ill.

Comment.-It is possible that actuarial considerations will limit the amount, scope and duration of long-term care which can be provided for at the outset of a program of National Health Insurance. This, however, should not preclude planning and programming by the Secretary which will look to the eventual phasing-in of a long-term care benefit.

Because the lead-in time required for such a phasing-in would probably be considerable, it is now exceptionally critical that perfection and expansion should be pursued in the existing disparate programs, namely, Medicare, Medicaid, Intermediate Care and Housing for the Elderly, which together comprise a kind of national program of long-term care for the aged and chronically ill. There is great danger that the pursuit of perfection in present programs will be lost sight of or diminished while National Health Insurance is being necessarily pursued. The best insurance that the problem of long-term care in a program of National Health Insurance will be resolved expeditiously is to perfect and expand existing programs. Everything is gained and nothing is lost by this approach. When National Health Insurance is effected, the present pro

grams can be absorbed into it as the long-term care benefit or they can be gradually phased-out as separate programs while being phased-in as an integral part of National Health Insurance. The essential and all important point is that today's aged will be provided for as well as tomorrow's aged.

MEDICAID

Recommendation.-Transfer the program of care and services in Intermediate Care Facilities from Title XI to Title XIX.

Comment.-Presently under Title XI, this program is limited to the categorically-needy and by HEW interpretation, each State is free to determine the rules and regulations which shall apply to its program of Intermediate-Care. By transferring this program to Title XI as a part of Medical Assistance, two major items in the public interest could be obtained (1) the number of aged persons eligible for such care would be increased because the medically-needy aged would become eligible in addition to the already eligible categoricallyneedy aged, and (2) the confusion over whether the State or the Secretary has the authority to establish rules and regulations would be dispelled since the force of Sections 1901 and 1902 of Title XIX would come into play and the Secretary would thereby have the clear authority to regulate intermediatecare. This would result in a uniform program of intermediate-care for the aged across the 50 states.

Recommendation.-Apply the present Medicare reimbursement formula to Title XIX skilled nursing home care and to intermediate care as is already the case with Title XIX hospital care.

Comment. The medicare reimbursement formula is designed to determine with a significant degree of accuracy the cost of care and services to the individual Medicare recipient and thus to the Medicare program. The formula can and should be refined and efforts in this direction should be continued. Nevertheless, of all the methods of reimbursement presently employed in programs of care for the aged, it represents the single best effort to determine the cost of care and services received by the individual patient. As such, it possesses a high degree of public accountability.

As presently constituted, the reimbursement methods employed in Title XIX skilled nursing home programs as well as those employed in Title XI intermediate care programs are characterized by their singular lack of any significant degree of public accountability. It is this lack of public accountability which more than any other element has contributed to not only the inefficient cost of these programs but also to the several abuses which mark these programs. If by efficiency, it is meant that the largest amount of necessary care is being purchased by the Federal health dollar, then methods of reimbursement such as prospectively negotiated rates, per diems, rates by patient-classification, point systems, rates by category of facility and the like are universally characterized by their lack of any assurance that the patient will receive the care and service which the program is thus buying.

The only proven method of reimbursement which offers any assurance that the health dollar is buyinig the largest amount of care and that the program is receiving the care for which it is making expenditures is a system which pays the reasonable cost of the care and services actually received by the individual patient, that is, a retrospective reimbursement based upon the auditable reasonable cost of care and service.

It is true that such a system may encourage "over-care," but this is to be preferred to a system which encourages "under-care" while making payment for "maximum-care" at a rate previously negotiated. While the total cost of the program is harmed by "over-care," at least the program would have purchased such care at the reasonable cost of the over-care. However, the important factor is that the patient is not harmed by the "over-care." Whereas, both the patient and the program are harmed by "under-care" purchased at "maximum-care" rates. Further, the abuse to the program of over-care at reasonable cost is more susceptible to policing, detection and elimination than is the immoral abuse of "under-care" and the fraudulent abuse of such "under-care" purchased at a "maximum-care" reimbursement rate previously negotiated.

There are those who argue that applying the Medicare reimbursement formula to Title XIX skilled nursing home care and to Title XI intermediate care would not only increase the costs of these programs but would cause such costs to skvrocket. This argument is made despite the absence of any study which would

substantiate the argument. To the contrary, there are those who maintain most vigorously that program costs would certainly not skyrocket, and some even argue that program costs would not increase but would remain where they are now. However, if cost reimbursement were to increase program costs, there is reason to expect that the increase would not be substantial and such an increase as there might be would be more than offset by both the tremendous increase in the cost-effectiveness of the programs and by the substantial gain in the care received by the aged patient. In short, there would be a greater health-return for both the Medicaid and the Intermediate Care dollar. Hence, from one point of view of cost effectiveness, the programs would gain in efficiency.

Finally, the application of the Medicare Reimbursement formula to other programs of institutional care of the aged would eliminate the need for a distinct part ECF in these facilities. This would then work to eliminate the audit overkill presently at work in Medicare. This, too, would be a gain in efficiency and would reduce costs. What's more, this would eliminate the needless movement of patients as well as reduce the fragmentation of care.

Recommendations.—Authority should be granted to the Secretary to determine norms for care regimens, length of stay required by diagnosis, and area-wide cost factors. Payment would be guaranteed whenever such norms were not exceeded. However, whenever such norms were exceeded, payment for the excess would be denied unless the facility or its utilization review committee or the attending physician, as the circumstances would dictate, could justify the excess. Comment. The record is replete with substantiating arguments for this change and its feasibility. Suffice it to state, that this change would go a long way to curb the abuse of "under-care" purchased by "over-reimbursement" as well as the abuse of "over-care." This would also work to achieve necessary care. Again. program efficiency would be increased.

Recommendation.-Federalize the present programs of care for the aged contained in the Social Security Act, in addition to the already Federalized Medicare, and transfer them to the Social Security Administration for administration and regulation. The funding of this combined program of health-care to the aged, other than that of Medicare, should be by general revenues. Under this arrangement, Medicare benefits would continue to be paid from the trust fund while all other health-care for the aged, such as the present Medicaid and Intermediate Care, would be paid from general revenues. All, however, would be administered by the Social Security Administration.

Comment. This recommendation is predicated on the assumption of national, rather than local, responsibility for the health care of the aged. The inevitability of old age and its attendant health vulnerability is not attributable to the communities in which the aged reside. There is not a Kansas physiology of aging as distinct from a California physiology of aging. Old age and in its infirmities are attributable to no other cause than that of the nature of man which is universal and as such is the same in all the 50 states and their communities.

Further, financing the health-care of the aged from the comparatively progressive Federal income tax, as distinct from splitting the bill 50-50 with the States who largely raise their funds with regressive taxes, is a step forward in the direction of a more equitable way of sharing what is a common responsibility because of the universal human need thus involved.

Again, because the human need thus involved is universal, federalizing healthcare for the aged would provide a uniform program across the 50 states. Hence, it would no longer be better to be old in one state rather than in another. Conversely, it would no longer be more tragic and a greater agony to be old in one state rather than in another.

Finally, federalizing health care for the aged should result in greater public accountability; in a more efficient program (audit over-kills and inspection overkills would be eliminated); in greater quality in care and services; and, hence, greater security for America's aged.

Recommendation.-Section 1908 (b) should be amended to provide that Boards of Examiners for the Licensing of Nursing Home Administrators should be precluded from having among their members a majority of members who have a direct or indirect financial interest in nursing homes or a majority composed of a combination of members who are employees of nursing homes with members who have a direct or indirect financial interest in nursing homes.

Comment. The purpose of Section 1902 (a) (29) is to raise the quality of care in nursing homes by raising the quality of nursing home administration and the