for physician's services under those circumstances. But present law provides that we pay only for necessary medical services. If the physician is giving him services that he should not have or does not need, then he should not be reimbursed under present law.

Senator ANDERSON. The House bill authorizes the Secretary to exclude certain hospital and extended care costs from reimbursement to the extent they are excessive in relation to the cost of comparable care in the same area. Why should not the limitation on what's reasonable also include a limitation on the percentage increase in cost from one year to the next that is acceptable with respect to comparable facilities, providing comparable services, in the same geographic or medical service area?

I might point out that that is a feature in my bill, S. 1195. Secretary RICHARDSON. I certainly think this is a sound principle, Senator. The exclusion of costs that are excessive on a comparable basis should be reviewed from year to year to redetermine what costs are reasonable and comparable. I would see no reason in principle why this could not be made explicit or at least understood.

Mr. BALL. I would like to study your exact provision a little further, Senator. Does it allow for leeway in the percentage increase if the program of the hospital has expanded so that you are not stuck with just a percentage increase? If it does, I think it moves very much in the direction that we are thinking of when we talk about moving toward a prospective rate approach.

Secretary RICHARDSON. It does that, I believe, and of course, if the focus is kept on comparability, then it would automatically take into account improvements in the quality of service, because they would simply be held up against a new standard of comparison.

At any rate, we would certainly be glad to look more closely at this proposal to see whether and how it can be reflected in the legislation.

PRESENT CARRIER PERFORMANCE UNDER MEDICARE

Senator ANDERSON. We are concerned as you are with carrier performance under medicare. What has been your specific experience with the thoroughness and quality of carrier followup on your request for a detailed review of payments of $25,000 or more to physicians with unusual payments characteristics? This is the group about which the committee inquired last year.

Secretary RICHARDSON. With your permission, Senator, I would like to ask Commissioner Ball to answer that.

Mr. BALL. Senator, I think I should begin by making the obvious point that the carrier performance is uneven. Some carriers have done a much better job than others. But taking the group as a whole in relation to the specific project of following up on the $25,000 group. I would say that we have not been satisfied, and that we have had to keep after them, reexamine their performance, and follow up, and we are still doing that in some instances. If you would like a more detailed statement on this whole process for the record, we would be glad to furnish it.

Senator ANDERSON. For the record, that would be fine.

(Information supplied follows:)

On April 8, 1970, a detailed report on the effectiveness of the carriers' performances on their review of payments to physicians whose total payments were un

usually high was furnished to the Senate Finance Committee Staff. In this report the Bureau of Health Insurance of the Social Security Administration evaluated the carriers' performances generally and, as requested by the Committee Staff also evaluated the performance of individual carriers. In making this evaluation the Bureau of Health Insurance considered basically whether the particular carrier handled the project in a positive way and the extent to which this was demonstrated by the actions taken, i.e., prompt replies, suspending payments, determining and recovering overpayments, etc.

Any evaluation of the effectiveness of the carriers' responses to our request for individual reports on the 1328 cases of "higher than usual part B payments" should take into consideration several factors, some of which directly affected certain of the carriers' performances, and others of which help to explain some of the apparent differences in the results.

The 1328 cases which were the subject of this project were identified from the original list of some 4500 billing numbers to which carriers had paid $25,000 or more in 1968 by the application of criteria intended to screen out unusual patterns of practice or billing. The criteria were designed to identify cases in which there were higher than usual numbers of hospital and ECF visits, laboratory tests, injections, or surgery, larger than usual numbers of Medicare patients treated, and higher than usual payments for particular services; reports were requested on all billing numbers to which carriers paid $75,000 or more during 1968.

The total amount of money paid under part B during 1968 to these 1328 billing numbers was almost 100 million dollars. However, investigations revealed that approximately 200 of those numbers are used by two or more physicians. Fifteen carriers account for approximately three-fourths of the 1328 cases and total amount paid. However, the distribution of the 1328 cases both in terms of numbers and amount of payments involved was generally proportionate to the distribution of the part B workload nationally.

The carriers were asked on July 25, 1969, to report their conclusions concerning the propriety of the payments made in each of the identified cases, and to support those conclusions with an explanation of the method of analysis used and the investigative steps taken. As could be expected, the performances of the carriers varied considerably. Some carriers responded promptly with complete information and conclusions supported by facts and good rationale; others responded promptly with reports which were incomplete or inconclusive, but they cooperated thereafter and submitted the additional information or undertook requested additional development; and, finally, still others responded very slowly to our initial request and repeated followups and sent in reports that were not responsive to our requests. A basic consideration in making an evaluation of carriers' performances is the variance among their actual capabilities to perform this kind of in-depth analysis of payments to physicians. While many of these organizations routinely perform post-payment studies to identify broad aberrant patterns and trends among participating physicians and also do special reviews of claims submitted by identified physicians, no carriers had previously been required to completely document and report their conclusions on a large number of individual cases at one time. Our request placed an added burden on the carriers' personnel and machine capabilities at a time when they were responding to numerous other requests for information which required the use of the same resources. Carrier capabilities also vary in the size and effectiveness of their utilization review departments, availability of medical staff or consultants, computer capability, and other reSources necessary to achieve the kinds of results envisioned by our requests. For example, some carriers already had personnel trained to review claims against provider records and to discuss questionable cases with physicians and provider personnel, while others did not. Some carriers had the capability to quickly retrieve recorded part B charge and payment information needed for the investigations while others could not readily compile the information.

A lack of prior experience with this type of investigation makes exact evaluation of the carriers' performances, even as a group, exceedingly difficult. However, given all the surrounding facts and circumstances discussed heretofore, such as varying capabilities and cooperation, we have concluded that most of the carriers' performances were adequate, some were good or very good and a few were poor. Based on the importance we had placed on this project we were not satisfied with the large number of performances which we found to be fair or less. As mentioned previously an evaluation of each individual carrier's performance was submitted to the Committee Staff.

Carriers will soon begin their review of the "higher than usual" payments made during calendar year 1969. With the experience gained from last year, we

anticipate that this year's review and subsequent carrier reviews, will be more effective in eliminating payment for excessive medical services.

PROPORTION

OF CASH BENEFIT TAXES ALLOCATED TO DISABILITY
PROGRAM

Senator ANDERSON. The proportion of social security cash benefit taxes allocated to the disability insurance program has been raised again in the House bill, as it has a number of times before. What's the reason for this?

Secretary RICHARDSON. Again, Senator, I think Commissioner Ball could answer that question better than I.

Mr. BALL. Senator, as far as this year's bill is concerned, the changes are partly related to the fact that the size of the disability insurance fund would increase rapidly. In order to avoid this rapid increase, the bill would move from a fixed percent to a graduated schedule under which the allocation would be lower in the near future and higher in the longrange future than under present law. Nothing in these changes relates to the change in incidence of disability. Some of the earlier-year changes in allocation did relate to that. But you see, the allocation is a percentage of payroll for disability and a percentage of payroll for OAST. Generally, when benefits are increased, the amount that is allocated to the disability fund must be increased. This was done, for example, in the 1969 amendments.

Senator ANDERSON. Thank you very much.
Thank you, Mr. Chairman.

The CHAIRMAN. Senator Williams?

FINANCING OF BENEFIT INCREASES SEEN ON A PAY-AS-YOU-GO BASIS

Senator WILLIAMS. Mr. Secretary, as I understand this bill, when you take it into consideration with the previous 15-percent acrossthe-board increase, coupling the two together means that we are adopting a new formula for the financing of social security in that you are now embracing the pay-as-you-go basis. Is that not true?

Secretary RICHARDSON. No, I do not think so, Senator. The 15percent increase was partly catchup, partly a small increase in real benefits. The 5-percent increase in this bill would go into effect in January 1971, and roughly cover the cost-of-living increase during calendar 1970.

Senator WILLIAMS. Perhaps you misunderstood me. I was not questioning the merits of the proposal. I am just speaking of the mathematic results. Have we not moved, if we approve this bill coupled with the other, are we not approving here a pay-as-you-go basis and abandoning the basis that you build up some type of surplus over the future?

Secretary RICHARDSON. You are referring, I think, Senator, to the deferment of the scheduled rate increases for the financing of the system on the cash benefit side. In that regard we are, in the short run, putting the system more nearly on a pay-as-you-go basis. But I do not understand that we are abandoning the general principle of accumulating a trust fund. And indeed, the scheduled rate increases that are in this bill, or rather, the scheduled provisions applying to rates, cover a deferment of the increase to 4.6 percent only to 1974

but incorporate an increase to 5 percent in 1975 and one to 5.5 percent in 1980. So the result would still be to build up a very large trust fund before the end of the present century and then continue to build a still larger fund during the early decades of the 21st century. But the general profile of the trust fund buildup has similar characteristics to those in past projections for present law.

Senator WILLIAMS. Well, I am not sure I quite concur in that. I realize that under your projections from 1980 on, you go back to the old formula of accumulated surplus. But between now and then you are on a pay-as-you-go basis. I notice that in 1970, with this increase, your benefit payments are estimated at $33.1 billion, and your income will be $36.6 billion. In 1971, $38.5 billion benefit payments and you had an accumulation of about $1.6 billion, and a contribution of $40.1 billion; and in 1972, it is $42.6 billion contributions, $40.5 in benefit payments; and right on down the line, you are keeping it on just about a pay-as-you-go basis.

Now, whether we call it that or not, that is the mathematical results of the formula you projected at least for the next 10 years. Is that not correct?

Secretary RICHARDSON. Yes; it is true for the next 5 years. It certainly is a move in that direction, Senator.

Senator WILLIAMS. Well, it is not a move, it is just

Secretary RICHARDSON. There is still a buildup, but it is closer to pay as you go.

Senator WILLIAMS. That is what I am saying, you are pretty much on a pay-as-you-go basis. And the accumulation surpluses after 1980 are largely premised on the hope that Congress between now and then will not raise the benefit to offset those possible surpluses.

Secretary RICHARDSON. Yes, that is true.

Senator WILLIAMS. Which is a rather mild hope.

Secretary RICHARDSON. Well, I have been impressed in the years. since I last was confronted in detail with the operation of the Social Security system that the Congress, the Social Security Administration and Department of HEW together have on the whole preserved a feeling toward the system that it should be maintained on a sound fiscal footing. I think this is certainly being done.

Senator WILLIAMS. I am not raising the point of whether we should or should not go on a pay-as-you-go basis. I am just raising the point that this is the mathematical result of this bill coupled with the other bill and that at least for the next 10 years, you are on a pay-as-you-go basis.

HEW TECHNICAL ASSISTANCE TO NEBRASKA IN SETTING UP DRUG PROGRAMS UNDER MEDICAID

In the hearings last July 1 and 2 here, our staff in its report called to the attention of the Secretary that we had recommended that HEW provide technical assistance to the States in setting up the medicaid control programs. The Secretary told us that he was providing such assistance and cited as such specific example the assistance being extended to the State of Nebraska and said he hoped to extend it to other States. On page 428 of those hearings, he included in the record a letter from the Governor of Nebraska acknowledging the

receipt of this technical assistance that was going to help them solve their problem.

(The letter referred to follows:)

Mr. ROBERT H. FINCH,

Secretary, Department of Health, Education, and Welfare,
Washington, D.C.

DEAR MR. SECRETARY: Cooperative effort between the Federal and State levels of government can result in lower costs and better utilization of the tax dollar. A dramatic illustration of this point is the recently completed Drug Utilization and Control Program undertaken by the Nebraska Department of Public Welfare with the assistance and advice of Dr. Bradley Neer of your staff.

Dr. Neer coordinated the development of methodology which has resulted in a considerable degree of control in our Nebraska Title XIX Medicaid Program. The savings because of this assistance is projected to be approximately $500,000 over the next biennium.

We express our appreciation to you, your staff, and particularly to Dr. Neer for this worthwhile effort.

Sincerely,

NORBERT T. TIEMANN, Governor.

Senator WILLIAMS. Now, who did you send out there to help on that project and what kind of an operation did he set up and how did it work out?

Secretary RICHARDSON. May I, with your permission, Senator, ask Mr. Howard Newman, who administers that program, to answer the question?

Senator WILLIAMS. Yes.

Mr. NEWMAN. Senator, the employee's name was Dr. Bradley Neer. He was in the Technical Assistance Division of the Administration. He assisted the State in the establishment of its drug program. That was the assignment in which he was

Senator WILLIAMS. Would you use the microphone, please?

Mr. NEWMAN. The employee's name was Dr. Bradley Neer. He was assigned as a member of the Technical Assistance Division of the Medical Services Administration to work with the State of Nebraska and its welfare department in the establishment of a drug program in the State's medicaid program.

Senator WILLIAMS. How did he go about establishing that and how did it work out? Was it very satisfactory?

Secretary RICHARDSON. I did not realize, Senator, when you talked about providing technical assistance to the State of Nebraska, that you were alluding to the misconduct that was involved

Senator WILLIAMS. I had not alluded to anything. I am just asking a question. I just wondered. That was cited as a specific example. Secretary RICHARDSON. The answer is that it was not satisfactory. Senator WILLIAMS. That was cited as a specific example of how they were going to help the States. This was a test case. I was wondering if you could give us specific results of what he did, how he did it, and how it worked out.

Secretary RICHARDSON. It turned out to be an unfortunate example which did not develop in a way which I am sure had been hoped for both by the Department and by the State of Nebraska. We would be glad to-I am not sure at the moment how far I should go into detail on this.

Senator WILLIAMS. I think we can discuss it. Let's go right ahead and discuss it.

Secretary RICHARDSON. Let me seek the advice of counsel here for just a moment, Senator.