as a permanent means for controlling costs. Prospectively determined payments provide an incentive for staying within certain cost limits consistent with providing quality health care. Instead of the mandatory cost controls proposed in H.R. 13206 we urge the institution of prospective payment systems as a feasible method of containing price increases. In a recent decision handed down by the U.S. District Court for the District of Columbia, the COLC was permanently enjoined from enforcing Phase IV controls in regard to nursing homes. The District Court was of the opinion that such controls were arbitrary and capricious. We urge this Committee to affirm that conclusion of the judicial branch by rejecting H.R. 13206 or any other proposal which would permit the Administration to impose controls on a single industry or on a minority of industries. We urge you to end all economic controls. In the event that you decide to extend them, we urge you to limit any extension of Presidential authority in this area to the imposition of similar controls on most sectors of the economy to assure fairness and to prohibit any selective controls without specific Congressional authorization. We vigorously support the decontrol of all sectors of the economy, and that most assuredly includes the health sector. Health cannot be subjected to unwarranted discrimination without a general decline in the high quality of health care delivery. The Federation thanks the Committee for consideration of our remarks. AMERICAN OSTEOPATHIC ASSOCIATION, The Honorable WRIGHT PATMAN DEAR MR. CHAIRMAN: On behalf of the American Osteopathic Association, I would like to submit our views on H.R. 13206 and S. 3032, to extend the Economic Stabilization Act beyond the April 30, 1974, deadline. In addition, we would like to offer for the record our endorsement of testimony by the American Osteopathic Hospital Association. The osteopathic profession delivers qualified, efficient, and uninterrupted medical treatment to thousands of patients each year through 15,000 D.O.'s and 250 osteopathic hospitals providing 25,000 patient beds. It is our goal, as it is with other health care institutions, to render to the sick proper professional treatment and needed hospital services. While we appreciate the intent of this program to stabilize inflationary trends within the economy, we cannot embrace any plan which will continue and expand discriminatory economic stabilization controls on the health care industry. The health care industry has sought throughout the various phases of the Economic Stabilization Program to cooperate fully with the Cost of Living Council and comply with the regulations. In doing so, physicians and hospitals have been confronted with tremendous burdens and patient care has been unduly jeopardized. Since the beginning of Phase II, the medical community has been under restrictions far more onerous than those applied to other elements of the economy. Hospitals have found themselves impaired in financing their daily operations. Furthermore, physicians have not only been limited in their fee increases but they have been, in effect, forced to partially subsidize Title 19 (Medicaid) recipients as those charges have not been allowed to increase since the programs inception in 1967. The Administration's bill, S. 3032, seeks not only to continue the authority but expand controls on the health care industry which we feel are discriminatory. While H.R. 13206 does not expand the control authority of COLC, we cannot support its enactment. As proposed, it would result in the continuation of a program which is increasingly burdensome to the administration of quality health care and threatening to the effective operation of health care institutions throughout this nation. Very simply, we do not feel that such stringent regulations should be applied to any single sector of the economy and that in an industry as vital to the nation as health care services, the consequences of such discriminatory action are not only vexatious to the provider but inimical to patient care. In conclusion, we strongly urge your committee to consider the vast ramifi cations which the extension of the measure could have upon the quality of health care rendered by physicians either in the office or the hospital. Sincerely yours, WALLACE M. PEARSON, D.O., Chairman, Council on Federal Health Programs, HUMANA, INC., THE HOSPITAL COMPANY, The Honorable JAMES O. EASTLAND, Washington, D.C. DEAR SENATOR EASTLAND: Thank you for your letter of February 28, 1974. Having given a great deal of thought to Phase IV, I believe there probably is some merit in the idea that there should be a limitation on the increase in cost for each admission, rather than trying to hold down the cost or charge for each separate procedure. However, this makes sense only in the context of a regulated economy. It obviously makes no sense at all to have health care regulated when all of those from whom we purchase, are not regulated. There is no way that the program will work, and it is imperative that controls be lifted from our industry if essentially all other industries are to be freed from controls. The most serious single problem in maintaining controls on our industry while removing controls from other industries, is the fact that our employees will be limited to pay raises of 52%, while inflation may continue at its present rate of 12% or more per year. Our employees cannot be treated in this way, and, of course, they will not stand for it. Rather, they will move either from company to company, causing all of us to-lose good, trained employees, or else they will move out of the industry altogether. It sounds so easy for Professor Dunlop, who knows nothing about the operation of a hospital, to say that he will keep us under controls and do great things for the society. Actually, he will strip the hospital industry of its major productive asset, its key employees, and this will be a disaster for the industry and for society. If for some reason which I cannot now understand, controls are to be kept on our industry, then it is absolutely imperative that the 7% limitation on increase in cost per admission, be raised in direct proportion to the level of inflation actually experienced as opposed to that which was contemplated when Phase IV Regulations were written. Also, it is necessary that the 5% limitation be increased so that workers in our industry may be paid at the same level as others in society. That is, if 8% raises turn out to be the rule in 1974, then we must have the power to do the same for our workers, or the industry is going to get in tremendous difficulty. I appreciate your interest in this specific problem, and am most happy to give you my candid viewpoint. Cordially, DAVID A. JONES. OCHSNER CLINIC, New Orleans, La., March 7, 1974. HON. LINDY BOGGS, 1507 Longworth House Office Building, Washington, D.C. DEAR MRS. BOGGS: We at the Ochsner Medical Center would like to enlist your support in removing restrictions imposed on the health field under the Economic Stabilization Act. Since 1971, we have of course been under the various phases of the Economic Stabilization Program and have cooperated fully and complied with all restrictions. We feel it important to point out, however, that our restraint in the matter of professional charges long antedated the Economic Stabilization Act. Between 1965 and the onset of the Economic Stabilization Program in August, 1971, there was only a single rise in fees at the Ochsner Clinic. This was an increase of approximately 10%, which occurred in late 1970 to meet the pressures of the economy. Our rate of increase has, therefore, over the past nine years been only 1.1% per year, which is far less than other segments of the economy. All items in the Consumer Price Index have risen nearly 14% in the past two and a half years alone. At present, there are no effective controls on our business expenses or on our supplies; nor are there apparent restrictions on the highly inflationary economy in which our employees and physicians are consumers. Restrictions on wages within the health fields have been especially hard on our employed physicians. This has gravely distorted our previous pattern of sharply increased rewards as a young physician proves himself before entering the partnership. This has been and will continue to be a factor in driving some of the better young men from group practice, if these restrictions are long continued. The Ochsner Foundation Hospital is an important component of the Ochsner Medical Center. The proposal that hospital charges be based on the average revenue per admission from one time period to another could seriously impair the upgrading of hospital services, remove the flexibility necessary to deal with the needs of patients if a shift occurs in the mix of illnesses within the hospital, and actually force a cutback in the level of care as expenses to the hospital from uncontrolled segments of the economy rise. We understand that legislation has been drafted which will extend the controls on the health field beyond April 30, 1974. We urge your assistance in defeating this extension. With best wishes. Sincerely yours, FRANK A. RIDDICK, Jr., M.D., STATEMENT BY ROBERT S. HATFIELD, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, CONTINENTAL CAN Co. Mr. Chairman and members of the Committee, I greatly appreciate this opportunity to discuss this most important question: whether or not to extend the Economic Stabilization Act after it expires on April 30th. What this Committee recommends will have great influence on the future of the economy of the United States and the efficiency and competitiveness of its industries. I come before you as the Chief Executive Officer of the Continental Can Company, but I like to think that I am also speaking for the packaging industry. Because it is so diverse, the importance of the packaging industry is not generally recognized. The business of producing packages and filling them with goods for consumption is the third largest in the United States and provides more employment than any other industry. About 75% of all consumer goods are packaged, and in 1971 it was estimated that about 277 billion dollars was spent on packaged goods. The value of the packages produced in this country annually exceeds 20 billion dollars. Packaging is also one of the largest consumers of many raw materials, e.g., 53% of our paper and paperboard, 70% of our glass, 15% of our aluminum, 21% of our plastics and 9% of our steel production is used for packages. Therefore, I think it fair to say that packaging is involved in almost every aspect of the economy of our country and is affected importantly by government economic policies, including price and wage controls. I wish to state at the outset that I, and my company, and I believe my industry, are firmly committed to the removal of all wage and price controls. Thus, we would urge that the Economic Stabilization Act be allowed to expire at April 30th. My strong inclination towards an uncontrolled economy is based on both my personal economic philosophy and on the experience of both the packaging industry and my company under price controls. I need not go into detail with you gentlemen on the economic theory and reasoning which demonstrate that the freer the economy, the greater will be the level of economic efficiency and consumer satisfaction. A free pricing economy is the most effective instrument for the best allocation of our resources, whether labor or materials. It avoids an enormous bureaucracy which any serious and prolonged attempt at controls always creates. It encourages investment to take care of both our domestic needs and to take advantage of export opportunities to maintain a strong position in world markets. In saying this, I do not in any way wish to indicate that were controls lifted, the American economy would conform to the perfectly competitive model, but rather that the controls only move it that much further away. The adverse short-term effect of wage and price controls is already evident in our economy. These controls are preventing adjustment for the constant changes which occur in the market-place. Înequities and distortions which would normally be corrected in a free market are becoming built in. These short term dislocations are costly enough, but it is the long run effects of controls that I fear the most. Today the production of important basic materials used by the people of the United States is insufficient to meet the demand. The investment in new production facilities required to supply the demand in this country is not being made. It is not being made because the rate of return on the new investment is unattractive at today's controlled prices. As demand for these materials increases, the shortages grow almost on a cumulative basis. This will produce ever greater inflationary pressures requiring ever more controls and eventual broad rationing of both the supply and demand for goods. Then the economy of our country will have reached stagnation. It also follows that with shortages in this country we will have no supplies available with which to compete for world markets. Instead, foreign producers will make the investment in production facilities to meet the demand of world markets including the U.S. market as well. As a result, our country will become a second rate industrial power with an impossible imbalance of payments. The failure to develop energy supplies to meet the growing demand is creating severe dislocations and disruptions in our economy. I believe it to be generally understood now that new sources of energy are not developed quickly. It takes years to engineer and build an energy producing system of any size. There is no shortcut. This same lead time requirement is present in the capital intensive systems for producing steel, aluminum, paper and petrochemicals just to mention basic materials we use in our business. So there is no quick shortcut to overcoming the developing shortages of these basic and vital materials. As in the case of energy, the disruptive crunch that shortages of such materials will bring to our entire economy is inevitable. Thus, it is critically urgent that the incentive for a free market be created without further delay so that the decisions to add productive capacity to overcome the shortages will be made promptly. I should like to make a point about what constitutes an attractive rate of return. Rates of return per dollar of sales are important but, standing alone, they are not a comprehensive measure of profitability of a particular business. Neither are rates of return on the present assets, investment or equity of a particular enterprise. Nor are year-to-year gains in profitability if the base year's earnings on rate of return were depressed. A key factor in determining the attractiveness of making a new investment in production facilities is the return which the new investment will produce at forecasted price levels. Why? Because there are alternative uses for available money, not the least of which is to simply loan it out at interest. No Board of Directors, acting on behalf of a company's stockholders, would approve new investments which do not offer a potentially attractive return over the life of the facility. A price-controlled economy discourages new investment, and it adds one more imponderable, a negative one, to the decision-making process. The paper industry, in which my Company is an important factor, offers a dramatic example of an industry where shortages of capacity abound, both here and abroad, and where investments are not being made to meet present and future requirements. The American Paper Institute, on behalf of the industry, had prepared and filed with the Cost of Living Council an excellent presentation outlining the industry's need for freedom from price controls in order to encourage the huge investments required to meet our domestic needs and take advantage of opportunities in the world markets. I have included a copy of that presentation with the one I am making today. The report shows clearly the problems the industry faced and how price and profit margin controls which freeze the return on investment at low levels inhibits new investment in the paper industry. New paper mills were simply not good investments before the recent partial decontrol announcement and are still not at today's price levels. The Cost of Living Council announcement on the paper industry was most welcome and was certainly a step in the right direction. The situation will not, however, be fully rectified until all controls on the industry are lifted. We are beginning to run short of capacity in other basic industries, and only a fair return will provide the necessary investment dollars to prevent equally serious shortages in other materials. The metal can business is a highly competitive business in which Continental is a major participant. Our production planning is being disrupted by the un certain availability of our key raw materials, and we fear that the situation will get worse in the ensuing years. Tin mill products are in very tight supply. World prices are 20 to 30% higher than the controlled domestic prices. The steel industry, I am told, also postponed increasing its capacity in the face of growing demand because of unsatisfactory profit margins and rates of return on investment. As a result, we are finding it more and more difficult to meet the demands of our customers. The market for aluminum, of which we use great quantities is very similar to the steel situation; exports have risen, imports have fallen, and all users cannot get what they need. The supply of many of our coating materials, such as enamel, lacquers, coatings and varnishes, has also been disrupted both because of controls and the energy shortage. Under Phase IV, increased costs cannot be included in prices until at least 30 days after they become effective. As a result, with profit margins in the industry at severely depressed levels we must file for another price increase every time we have a major cost increase. This causes resistance and resentment by our customers, who, in turn, are forced to follow the same procedure. Profit margins in the U.S. can manufacturing industry have deteriorated all through the price control period, and while price controls remain in effect, there is no way in which we can improve profit margins except by making heavy investments in modernization and cost reduction programs. Today we are reluctant to do so when we find many more attractive areas in which to invest our money, both here and abroad. In our plastic operations a shortage of resins continues because of the shortage of petroleum feedstock but price controls added to the problem. Some manufacturers were discontinuing production of some types of resin because of unsatisfactory profit margins. Öthers exported more because of artificially low domestic prices. Black markets were rumored and unscrupulous dealers capitalized on the situation. Petro-chemical companies were reluctant to increase capacity without assurance of better prices. The situation in this industry remains confused even though the basis material resin, was decontrolled. This is because the companies which convert the resin into plastic products are still under price controls. Another cost affecting all of our products, which I have not mentioned, is labor costs. Here too, distortions are growing. The official guideline for wage settlements continues at 5.5%, but Union settlements are obviously higher. This causes serious problems among salaried workers who are held to the guideline. I do not know how much longer, we can justify to our salaried workers a strict guideline on their increases while we continue to ignore, with government sanction, much higher wage increases, including cost of living clauses for our wage earners. I feel certain that you gentlemen are aware of the inequities and distortions that result from regulations required to police wage and price controls, and I will not dwell on that subject. They must of necessity be arbitrary and their burden varies widely from one industry to another, and one company to another. In summary, I believe that history has shown that no managed or controlled economy has ever served the citizens of any country as well as has our own free market economy. Continuation of the wage and price controls can only lead to more and more controls of various types to try to undo the problems which wage and price controls create. Eventually, this could lead to the destruction of our entire competitive system. I fully realize that the pains of the initial inflationary impact of the withdrawal of controls may be severe. But, unless you gentlemen believe that we are heading for complete government control of our economy with all of the loss of individual freedom that implies, we had better take the cure now. The longer we wait, the more painful it will be. STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION RE: EXTENSION, OF THE ECONOMIC STABILIZATION ACT, PRESENTED BY JOHN C. DATT, DIrector, CONGRESSIONAL RELATIONS On behalf of more than 2,293,000 Farm Bureau member families in forty-nine states and Puerto Rico, we express appreciation to this Committee for the opportunity to present our views on the extension of the Economic Stabilization Act. This is one of the major issues now pending before Congress. The real issue, however, is whether Congress and the Administration are going to take effective action to control inflation or are going to continue to try to avoid the issue by concentrating on the symptoms of inflationary monetary and fiscal policies-i.c., rising prices. 30-463 O-74-43 |