6. The limit on fee increases fails to take into consideration cost increases experienced by the physician. Physicians are discouraged from making investments in more productive equipment and facilities, if they increase costs because a large part of these costs cannot be reflected in price increases. Thus, innovations which would allow increased services to be provided to the public are discouraged by excessive restrictions on fees. 7. Physicians continue to be subject to the discriminatory revenue margin limitation which acts as a deterrent to increased productivity and to improvement of health care. Severe penalties may be imposed on a physician if, after raising fees, he also increases productivity sufficiently to increase his profit margin. Thus, increased efforts to meet the health needs of patients and maintain quality care may result in large fines or refunding of medical fees collected. 8. Physician owners of corporations are still limited to salary and fringe benefit increases up to 6.2%, regardless of increased earnings of the corporation. Surplus earnings must either be retained by the corporation or distributed as taxable dividends. This means double taxation. This situation exists because incorporated practices are not eligible for the "small business" exemption afforded other professions in other sectors of the economy. 9. If controls are maintained on the health sector after April, 1974, certain employees of medical practitioners will continue to be subject to the wage and salary guidelines, despite the fact that the same class of employees in other sectors are decontrolled. Such regulations are unfair to those employed by physicians. They also limit the ability of physicians to retain employees necessary to provide needed services to patients: If physicians cannot offer competing salary increases to retain their employees, the output of their practices will decline, i.e., they may be forced to see fewer patients. Such discriminatory wage regulations, resulting in the loss of employees, may force practitioners to substitute their own services for the services of allied health personnel. If so, diseconomies will result since high cost services of highly trained professionals will be used in lieu of low cost services of allied health personnel with less training. Mr. GETTYS. Thank you, Dr. Sammons and Dr. Roth. I believe it might be in the best interest of procedure to permit each of the members on the panel to testify, and then have interrogation on the part of the members. Is there objection on that procedure? I would like to exercise a prerogative at this point. I have been chairman of the lower row for about 8 years and I am now sitting in the chair here. I am going to suspend the rules and exercise a prerogative to let the gentlemen on the lower row proceed first. Mr. Burgener, we will give you exactly 30 seconds. Mr. BURGENER. Thank you very much, Mr. Chairman. I would first like to congratulate you on your meteoric rise. [Laughter.] Mr. BURGENER. I hope it lasts. But I am very privileged to introduce a distinguished witness in case he gets away or I get away, I do not want to fail to take this opportunity. I am very proud to have a constituent here today from my district from the beautiful city of La Mesa in the county of San Diego, Calif., the president of the American Dental Association, Dr. Carlton Williams. I want to on behalf of the committee issue a very special welcome, in spite of the fact there are few of us here today. We will try to make up for it in quality. Thank you, and it is nice to have you here, doctor. Mr. GETTYS. Thank you. I also want to associate myself with the remarks of Mr. Burgener in welcoming his Californian. We will now hear from Mr. Crittenden. I might say at this point, Mr. Crittenden is president of the American Nursing Home Association, and while he is not a resident of my district, he is from Greenville, S.C. Mr. Crittenden and I have been friends for many years and I am delighted to have the opportunity to present him to our committee. STATEMENT OF WILEY CRITTENDEN, PRESIDENT OF THE AMERICAN NURSING HOME ASSOCIATION Mr. CRITTENDEN. Thank you, Mr. Chairman. I do not feel like a stranger here because this is my second time to testify before this distinguished committee. Mr. GETTYS. May I say, Mr. Crittenden, and I might without repeating it to each member of the panel, we will be glad to have your statement incorporated in the record of the committee. However, in the interest of time would you be good enough to summarize your statement as briefly as you can? It would serve the interest, I think, of the panel and of the committee. Mr. CRITTENDEN. Will do, Mr. Chairman. We have a very brief summary of the actual testimony here. I am very grateful for the opportunity of being here for the purpose of opposing an extension of the Economic Price Stabilization Act. Mr. Chairman, the American Nursing Home Association opposes any extension of the Economic Stabilization Act. The administration itself has proposed legislation in the form of S. 3032 which would drop mandatory controls over every sector of the economy except health care. The only virtue of this proposal is that it exposes the real motivation of the administration in their exercise of price controls over the health care sector generally and over nursing homes in particular. The reason given for maintaining mandatory controls over the health sector is to prepare the way for the administration's proposed national health insurance program. The purpose of continued price controls over the health care sector is, therefore, not inflation control, but Federal budget control. The policy to be implemented by this legislation is not an economic policy, but a health policy. With respect to nursing homes, this is nothing new. In fact, S. 3032 is no more than a belated request of congressional authority for action in which the administration has long been engaged. Seventy-five percent of all nursing home revenues are derived from the medicare and medicaid programs, and are therefore already controlled under the reimbursement provisions set out in the Social Security Act. By setting price ceilings below the reimbursement level to which nursing homes were otherwise entitled, the COLC has in effect impounded the difference between the two amounts. The U.S. District Court for the District of Columbia recently struck down COLC price controls over the nursing homes, citing their conflict with the intent of Congress as set forth in the Social Security Act and in the antiimpoundment provisions of section 203 (j) of the Economic Stabiliza tion Act. Copies of the court's two opinions in that case have been submitted as attachments A and B of my prepared statement. The administration has taken an appeal from the district court decision. In the meantime, they have proposed S. 3032, section 3(h) of which would grant specific authority to the COLC to override the reimbursement provisions of the medicare and medicaid programs. Perhaps COLC should be commended for finally requesting from Congress the authority which they have unilaterally exercised for so long. As an element of economic policy, as opposed to Federal budget policy, a continuation of COLC controls over nursing homes is simply unnecessary. Nursing home prices are not inflationary. The inability of COLC to show inflation in nursing home prices formed a second basis for the district court's decision to enjoin controls. Having failed to show that inflation exists, COLC controls lack a rational basis and were declared arbitrary and capricious. Although not needed to control inflation, COLC controls have not been without economic effect. Typically the effects have been harmful. The COLC's own staff has concluded that by retarding the growth of nursing homes which provide a less expensive form of health care, COLC controls appear to be sowing the seeds of future inflation. COLC's staff report is included in the attachment C of my prepared statement. A more immediate problem is that by denying increased reimbursement for higher quality care COLC controls discourage the upgrading of the facilities. It is for this reason that a limit on medicaid reimbursement a similar approach to COLC's controls, was recently rejected by the Congress. Far from encouraging higher standards, COLC controls have made it difficult for nursing homes to avoid a decline in existing standards. This results directly from the fact that prices which nursing homes must pay for food, labor, and virtually all other items have continued to increase while a rigid ceiling has been held on the prices nursing homes could charge. Mr. Chairman, the American Nursing Home Association particularly opposes an extension of the Economic Stabilization Act which singles out the health care sector for mandatory controls. But we also oppose any extension of the act. In view of the record of the COLC with respect to nursing homes, we have no illusions about what to expect if any extension of the Economic Stabilization Act is approved by Congress. I thank you for the opportunity of letting my views be known. Mr. Chairman, I have two memorandums, not included in my prepared statement, which I would like to request be put into the record. They are from Elliot Richardson of July 16, 1971, and Secretary Casper Weinberger of December 7, 1973, which in effect, tells our industry and hopefully this distinguished committee, that we are dealing not with inflationary matters but budgetary matters. [See page 438.] Mr. GETTYS. Without objection your memorandums will be placed in the record immediately following your prepared statement. [Mr. Crittenden's prepared statement on behalf of the American Nursing Home Association, and the memorandums referred to in his statement from Elliot Richardson and Secretary Casper Weinberger, follow:] PREPARED STATEMENT OF WILEY CRITTENDEN, PRESIDENT, AMERICAN NURSING HOME ASSOCIATION Mr. Chairman and members of the committee, I am Wiley Crittenden, of Greenville, S.C., president of the American Nursing Home Association. ANHA is a nonprofit organization which represents approximately 7,000 nursing homes throughout the United States with more than 500,000 patient beds. It is the Nation's largest nursing home organization, with a membership made up of both proprietary and nonproprietary facilities. I am grateful for the opportunity to appear here today to express the views of our Association concerning the proposed extension of the Economic Stabilization Act. The Economic Stabilization Program conducted for the past two and one-half years under the authority of this Act is, we believe, the best possible evidence against its renewal. While failing to stem inflation, it has contributed substantially to the recessionary trends which now threaten us. ANHA, therefore, opposes any extension of the Economic Stabilization Act beyond its current April 30 expiration date. As you know, Mr. Chairman, the Administration itself has proposed legislation in S. 3032 which would drop mandatory controls over every sector of the economy except health care. The only virtue of this proposal is that it exposes the real motivation of the Administration in the exercise of price controls over the health care sector generally, and over nursing homes in particular. The reason given for maintaining mandatory controls over the health sector is to prepare the way for the Administration's proposed National Health Insurance program. The purpose of continued price controls over the health care sector is, therefore, not inflation control, but federal budget control. The policy to be implemented by this legislation is not economic policy, but health policy. With respect to nursing homes, this is nothing new. In fact, S. 3032 is no more than a belated request of Congressional authority for action in which the Administration has long been engaged. Prior to a recent court decision striking down controls over nursing homes, the COLC had set rigid price ceilings at a level generally below the reimbursement level to which nursing homes were entitled under the Medicare and Medicaid programs. The COLC persisted in its attempt to maintain its controls even though 75% of all nursing home revenues are derived from Medicare and Medicaid. The statutory and regulatory framework in which these programs operate strictly controls the reimbursement nursing homes receive, limiting it to the reasonable costs of the services provided. The effect of COLC controls was to impound the difference between the COLC ceiling and the payment allowed under the reimbursement system mandated by the Congress in the Social Security Act. While the term impoundment was not used, the United States District Court for the District of Columbia in striking down COLC price controls over nursing homes cited their conflict with the intent of the Congress as set forth in the Social Security Act and in the anti-impoundment provision of section 203(j) of the Economic Stabilization Act. The court also found the COLC's controls arbitrary and capricious since no showing was made that nursing homes had contributed to inflation. Copies of the Court's two opinions in that case have been submitted as Attachments"A" and "B" to my statement. The Administration has taken an appeal from the District Court decision. In the meantime, they have proposed S. 3032, section 3(h) of which would grant specific authority to the COLC to override the reimbursement provisions of the Medicare and Medicaid programs. Perhaps COLC should be commended for finally requesting from the Congress the authority which they have unilaterally exercised for so long. On the other hand, we wonder how their previous exercise of controls over Medicare and Medicaid reimbursement can be justified in light of section 203(j) of the current Economic Stabilization Act which specifically prohibits the use of price controls as a vehicle for impoundment. Mr. Chairman, the type of inflexible controls imposed by the COLC over nursing homes have been considered by the Congress (at the urging of the Office of Management and Budget) and ultimately rejected. Referring to the inability of such controls to properly reflect the quality of patient care, the Senate Finance Committee stated: "The committee believes that [this provision] is inconsistent with an upgrading of care in facilities which may result in additional costs for the facility. The provision would be difficult to administer and inequitable in that it does not take into account many uncontrollable expenses and places an arbitrary limit, unrelated to services rendered, on payments to a facility." 1 Having been rebuffed once by the Congress and frustrated by the courts in an effort to simply assume the authority to impose such controls, the Administration has now returned to this Committee with the same shopworn and discredited proposal. As I stated earlier, this proposal is not one concerned with economic policy. It is an element of the Administration's health policy directed at federal budget control. No other formulation would explain a proposal which frees the giants of our economy from controls while retaining controls over nursing homes which receive only 4 percent of the annual health care dollar. We believe that the perversion of the Economic Stabilization Act in the manner proposed can have only injurious effects on both our health and economic policies. As an element of economic policy, the continuation of COLC controls is simply unnecessary. Nursing home prices are not inflationary. The government's own attorneys have admitted in open court that: "... there are no statistics to show that the nursing home industry is in fact an inflationary factor in the economy requiring such stringent and discriminatory restrictions on cost reimbursement." 2 The Court, after its own review of the evidence—or rather the lack of evidencethat nursing homes were contributing to inflation stated: "The [COLC] does have an obligation to establish a rational basis to support its position that the industry is inflationary To provide the [COLC] with every opportunity to present reliable evidence, this Court has twice allowed the government to supplement the original record. After a careful review of all the additional evidence, the Court finds that the government has failed to show a rational basis for these regulations . . 11 3 While nursing home prices are not inflationary, COLC controls over nursing homes have not been entirely without economic effect. Typically, the effect has been harmful. By discouraging the growth of the nursing homes, the COLC is sowing the seeds of future inflation in health care cost. After a review of the relevant statistics, the COLC own staff stated that the data: ... would seem to indicate that the net of effect to date of the Economic Stabilization Program on this sector of the health industry has been to severely retard its rate of growth. If nursing home care is viewed as a less expensive alternative to acute care institutionalization and is, therefore, to be encouraged, the impact of the Economic Stabilization on the growth of this sector thus far would appear to be deleterious." 4 The COLC appears unconcerned by the possibility of future inflation caused by discouraging the growth of nursing homes. It appears equally unconcerned that its policies discourage improvements in the quality of care by preventing providers from being reimbursed for the added costs of better care. It certainly is not concerned by the plight of nursing homes caught between higher prices for food and labor and a fixed price ceiling which does not reflect those increased expenses. The COLC has ignored its own staff. It has also ignored the recommendation of two advisory groups which it established to assist it in connection with Phase IV. The Ad Hoc Committee on Long Term Care which was composed of both consumer representatives and providers unanimously recommended the complete exemption of nursing homes from controls. The Health Industry Advisory Committee, which does not include a single nursing home representative also favored decontrol of nursing homes. The Cost of Living Council ran roughshod over the intent of the Congress until the District Court stopped them citing both Congressional intent and the Council's failure to show that nursing homes are inflationary. Mr. Chairman, the American Nursing Home Association particularly opposes an extension of the Economic Stabilization Act which singles out the health care sector for mandatory controls. But we also oppose any extension of the authority to continue the Economic Stabilization Program. In view of the record of the 1 S. Rept. No. 92–1230, 92d Cong., 2d Sess. 324 (1972). 2 Attachment A. 3 Attachment B. 4 Attachment C. |