We believe the process for selection of intermediaries has worked well. It has served the purpose of the Government and facilitated relationships with providers of services. We believe the cost of such administration has been reasonable, and the Government has the advantage of the services of organizations dealing with many millions of the population in addition to medicare beneficiaries. RECOMMENDATION We recommend that the providers of services continue to be given the right to select their intermediaries. Research and Demonstration in Reimbursement: The law at present provides that the Secretary may authorize experiments with various methods of reimbursement which offer incentives for controlling costs. The association has worked closely with the administration in seeking out and encouraging such developments. Several such demonstrations are in progress. The difficulty is that under present language, if the demonstration proves successful and is deemed to be desirable as a basis for further reimbursement by both the providers of services and the administration, there is no authority under the present law for medicare to continue reimbursement on the basis demonstrated. RECOMMENDATION We recommend that the law be amended so as to authorize the Secretary to adjust the reimbursement formula on a continuing basis where experiments in methods of reimbursements are found advantageous and where both the providers of services and the Social Security Administration are in agreement as to such continuation. Coverage for All Over 65: At the present time the law limits medicare coverage to those persons who are eligible to receive cash benefits under the social security program and railroad retirement beneficiaries. Thus, a group of the elderly continue to be deprived of the benefits of the medicare program. We believe that many of these elderly are especially in need of such protection. Inasmuch as medicare is a social program, we feel it should be amended so as to encompass all persons over 65. As we look forward to the long range future of the medicare program we think this committee should give full consideration to the ways and means of combining parts A and B of the medicare program. We see little justification for treating the needs of aged persons for hospital care differently from their needs for physician services. When we look at the annual income of large numbers of the over 65 and realize that in order to have protection against the costs of physician services an aged couple must pay $96 a year, it is difficult to justify. We note the administration has just announced that this figure will be increased to $120. The fact that approximately 1 million of the aged have not joined the part B program is evidence that cost of doing so is for many prohibitive. There would appear to be merit in providing that the working population would prepay the cost of physician services during their working years just as they do for institutional services so as to be assured of such services upon reaching retirement. In numerous respects the present separation of the program into two parts is cumbersome and likely quite wasteful in terms of administrative costs. Combining parts A and B into a single program would likely facilitate the understanding which aged persons have of the benefits to which they are entitled and would improve overall utilization of health care facilities. The current requirements in respect to establishing eligibility, the enrolment periods, the procedures for increasing premiums resulting from late enrollment, and the varying periods for provision of benefits are a source of much confusion. The present disruptive procedures for relating hospital costs under part A and physician charges under part B would be eliminated. AMBULATORY DRUGS The purchase of drugs by elderly patients constitutes a major item in their budget. For a great many of them this provides real hardship. For many of them this is a continuing problem. The situation of millions of elderly has been described as "medicated survival" with the cost of their drugs constantly eating away at their limited incomes. We believe, however, that the cost to the Government for providing such benefits will be very large and that it could only be done sensibly with a carefully worked out program of controls. To our knowledge, there has not yet been sufficient study or experimentation which would provide the guidance needed to initiate such a program or of the ways and means for meeting the need. RECOMMENDATION We make the following recommendations: 1. That any list of drugs to be provided use generic names. 2. That the Government establish a limited list of specific drugs which are most needed by aged patients and which constitute for them the greatest financial outlay. There are various sources that could provide guidance in the development of such a list. 3. That a specific annual dollar limit be established for the purchase of such listed drugs for each beneficiary. Unless the Government does take procedures such as we have suggested, we do not believe it is in any position to determine the cost of a program to provide ambulatory drugs. MEDICAID PROGRAM-TITLE 19 We are awaiting with great interest the thinking of the task force recently appointed by Secretary Finch to study the medicaid program and make recommendations concerning the whole future of this program. This program, of course, will have potentially far greater impact on the provision of health service to the Nation than the medicare. program. We have provided materials to the task force and are presently undertaking an in depth analysis of the experience of hospitals in each State with medicaid. President Nixon has enunciated a new and far-reaching concept for meeting the needs of indigent persons. We are not clear as to how this new concept is intended to relate to the provision of health services to these people. We will be much interested to see specific recommendations in this regard. We wish to stress particularly that hospital services envisioned under any program developed by the Federal Government must assure full reimbursement to hospitals. There is absolutely no way for these services to be provided unless the Government assures hospitals that they will meet the full costs involved. We were, therefore, particularly appreciative of the Congress including in the medicare law the provision that hospitals under title 19 would have to be reimbursed for inpatient care on a reasonable cost basis just as they were under title 18. We believe this provision is in keeping with the philosophy enunciated by the Congress that the Government did not intend to burden other patients with any of the costs involved in providing services to its beneficiaries. At present a number of States are attempting through various means to avoid paying hospitals reasonable costs for medicaid patients. This problem has been presented to the Secretary of HEW and the administration continues to delay in providing any resolution of the problem, though we feel, and the legal counsel of the administration has at various times in the past emphasized that the Federal law is quite explicit as to the responsibilities of the States to pay reasonable costs. RECOMMENDATION If there is any doubt as to the requirement for the payment of reasonable costs to hospitals for care provided medicaid beneficiaries, we urge the law be amended to make this requirement absolutely clear. REIMBURSEMENT IN EXTENDED CARE FACILITIES At the present time the law provides that hospitals will be reimbursed on the basis of reasonable costs. This provision does not apply to extended care services of extended care facilities, and we feel that the providers of such services should be assured of receiving essential reimbursement. RECOMMENDATION We recommend that reimbursement for services provided in extended care facilities and in skilled nursing homes be made on the basis of reasonable costs. THE HEALTH COST EFFECTIVENESS AMENDMENTS OF 1969 These amendments proposed by the administration are concerned with various aspects of the operation of the medicare program. These amendments were submitted after your committee started its hearings, and we wish to offer the following comments: 1. The bill would provide that where a State agency or comprehensive planning group determines that a capital expenditure does not conform to the overall plan for health facilities, the Federal Government will withhold or reduce reimbursement for depreciation, interest and return on investment related to such facilities. We have previously stated our full support of planning and recommended an amendment which provides that reimbursement agencies will be guided by the recommendations of planning organizations in determining the reimbursement to be made to health care facilities. However, we cannot approve of such controls unless hospitals are given assurance that their full financial needs are to be provided for. In fact, this is an underlying principle of the association's statement on the financial requirements of health care institutions and services. 2. The bill would require as a condition of participation in the medicare program that provider institutions have written plans with respect to proposed operating expenses and capital expenditures. The association's statement on financial requirements recognizes that health care institutions have the responsibility of providing a plan delineating their future programs of health service to the people of the community and that the plan should be reviewed regularly with the designated areawide health objectives. However, there will be great uncertainty as to what is intended by a written plan for proposed operating expenses. Is this intended to give the Government authority to dictate the operations of hospitals? It appears to us that this provision may well be in conflict with the declared purpose of the Congress in section 1801 of title 18 which expressly provides that the Government will not exercise any supervision or control over the practice of medicine or over operation or administration of medical facilities. There is a likelihood that approval of such operating review will result in the elimination of a sizable number of hospitals from the program. 3. The bill also provides for more flexibility in the authority of the Secretary to develop and engage in incentive reimbursement experiments and demonstration projects. We wholeheartedly support the desirability of such experiments and demonstrations. We have already recommended a change in language which would further the value of the results of such experiments and demonstrations which are felt to be worthwhile. We do not believe, however, that the onus of establishing hardship should be placed on providers of services, as in the bill, in order to escape mandatory participation in such experiments and demonstration projects. Furthermore, if as many as 20 percent of the health care institutions in an area feel a proposed reimbursement experiment or demonstration project is undesirable, this raises serious questions as to the possible success of the project. 4. The bill would provide authority to bar further payments for services where there is evidence of fraud and other abuses. We are in complete agreement that the Government should eliminate from participation institutions or individuals who engage in such practices. We believe, however, that the law at present gives the Government authority to discontinue participation agreements with institutional providers of services. Apparently, the law does not provide sufficient authority to the Government to eliminate from participation individual practitioners who engage in such abuses. 5. The bill would provide authority to limit reimbursement to a facility's customary charges if such charges are less than costs. As a matter of principle we believe the charges for institutional care should reflect the full financial requirements of providing such care. We believe that no provider of care should expect to receive greater reim 36-662 0-70-pt. 4- -4 bursement than the customary charges for the care provided. Similarly, no purchaser of care should pay less than the customary charge. 6. The bill would broaden the provisions of the present law with regard to decisions made by a utilization review committee. We have previously expressed our strong support of the utilization review process and recommend actions to be taken by the Federal Government in order to make more effective the functions of such committees. The section by section analysis which the administration has prepared of their bill does not support the language of the bill. The Secretary in his October 15 statement to the committee proposes "with holding payments where utilization review finds admission is not warranted," and the bill appears to support this position. This can be interpreted to mean that payments will not be made for services provided a patient who has admitted in good faith if at a later time the utilization review committee determines that the admission or treatment was not warranted. We strongly oppose hospitals being left holding the bag. Further, hospitals admit patients on the advice of physicians and must be protected from later determinations that the physician's decision was in error. The retroactive penalty proposed would, without doubt, cause hospitals to alter their admission policies. 7. The bill would expand the authority of the Secretary to withhold further payments to a supplier of services in order to recoup overpayments made to the supplier. The law at present permits the Government to offset overpayments against current bills, and we have no objection to this provision. However, we understand the current proposal would allow the Secretary to estimate the amount of presumed overpayments for past periods of time and to offset such presumed amounts from the hospital's current reimbursements. We see no justification for such a provision. Certainly the Government is entitled to recover overpayments but we feel such overpayments must be clearly established by proper accounting procedures. We find this provision curious in light of the extended delays by the Social Security Administration in making final settlements and payments to hospitals for services rendered to medicare beneficiaries. We greatly appreciate the opportunity of presenting these views of the American Hospital Association to the committee. We will be glad to answer any questions or furnish any additional information which will be helpful to the committee in its deliberation. The CHAIRMAN. We appreciate very much your bringing to us the position of the American Hospital Association. Are there any questions? Mrs. Griffiths? Mrs. GRIFFITHS. Have you made any estimate of how much additional tax revenue would be necessary to pay for the proposals you make? Mr. BERKE. To pay for what? Mrs. GRIFFITHS. To pay for the proposals you have made. What will it cost us in tax revenue? Mr. BERKE. No, I don't think we have. Dr. GRAHAM. No. Mrs. GRIFFITHS. In another committee a week or so ago some very good witnesses appeared before me who stated that they believed that it was not necessary to build any additional hospitals in America, |