Further, on page 15, we note that section 228 eliminates the requirement that States must move toward providing comprehensive medicaid programs. Such action, we believe, would be a very backward step, and we recommend that this entire section be eliminated. We turn now to our comments on section 229, at the bottom of page 16. This section, section 229, provides that the States would no longer be required to reimburse hospitals under title XIX on the same basis as under title XVIII. We believe that the administration of the medicare and medicaid programs would become increasingly costly and wasteful if this section is enacted, and what is most important, its enactment would vitiate the basic purpose of the Federal Government in establishing the medicaid program which was to provide needed care for the poor. We recommend, at the bottom of page 17, No. 1, that section 229 be deleted from the bill. No. 2, that the bill be amended to provide that the term "reasonable cost" as used in the Social Security Act shall mean the total monetary resources that a health care institution or service needs or will need to fulfill its role in meeting community health service objectives; and to provide that the Federal Government's share of these financial requirements for its beneficiaries under all titles of the Social Security Act shall not be more than, nor less than, the share borne by all other paying patients. Please turn now to page 23 for comments on section 237. Senator BYRD. Mr. Chairman, may I ask a question at that point? Senator ANDERSON. Senator Byrd. Senator BYRD. You recommended both sections 228 and 229 be eliminated? Dr. STEINBERG. Yes; we do, sir. Senator BYRD. Thank you. Thank you, Mr. Chairman. Senator ANDERSON. You might amplify on some of these at a little later time. You have done very fine so far. Dr. STEINBERG. Yes; we will, sir. On page 23, section 237 deals with notification of unnecessary admission to a hospital or extended care facility under the medicare program. We recommend, as stated in the second paragraph of page 24, that the committee include in its report on the bill a statement clearly indicating their intent that all payment cutoffs will be prospective only and made effective only after 3 days' notice. Please turn now to our comments on section 239, on the next page, page 25. Section 239 deals with payments to health maintenance organizations. We recommend, as stated on the next page, page 26, that the concept of the HMO, the health maintenance organization, and the encouragement of experiments and demonstrations in the development of the concept as proposed in this section be promptly and fully implemented. While we fully support the concept of the health maintenance or ganizations, we think Congress should be fully aware of the considerable problems that will be encountered in the development of health maintenance organizations. The enactment of section 239 will not, in our opinion, result in any sudden development of health maintenance organizations across the country. The costs of setting up such programs will be very large. Also, there are very few incentives in the proposal which would encourage consumers to join the new organizations, and very few incentives to the providers of health care to create such an approach to the provision of health care. On pages 27, 28 and 29, we set forth six suggestions regarding the HMO proposal which we feel merit your consideration. Please turn now to the second paragraph on page 29. We suggest to the committee that the objectives sought under section 239 of the i bill; namely, the provision of comprehensive health care to the aged, ! might more effectively be achieved by combining parts A and B of the medicare program. Our specific recommendation, at the bottom of page 30, is that parts A and B of title XVIII of the Social Security Act be combined in a single program to provide institutional health care services and physicians' services; and that the social security tax structure be amended so that future beneficiaries will be able to prepay the cost of physicians' services in exactly the same manner as they presently prepay the cost of institutional health care services. Turn, please, to the next page, page 31. Section 253, Exemption of Christian Science sanitoriums from certain nursing home requirements under the medicaid program. We can see no reason why any institution should be exempted from compliance with established standards. Turn to page 32, please. Section 254 deals with physical therapy services under the medicare program. This provision would only increase the fragmentation of services and would not be in the best interests of the patients. We recommend, therefore, as stated in the second paragraph on the next page, page 33, that subsections (a) (1), (2), (3), and (4) of section 254 which provide for physical therapy services by physical therapists in independent practice, be deleted from the bill. If you would turn now, please, to the next page, page 34, that contains our comments on section 263 which calls for a study of chiropractic coverage. As stated at the top of page 35, we note that the Department of Health, Education, and Welfare has previously conducted an extensive study of chiropractic which resulted in the Department's enunciation of the position that chiropractic does not come within the healing arts. In view of the determination, we see no necessity for any additional studies, and we recommend that section 263 be deleted from the bill. When we appeared before your subcommittee on May 26, we recommended a number of other changes in the law which we felt would simplify the administration of, and otherwise improve, the medicare and medicaid programs. We shall restate but not elaborate on these recommendations, and have set them forth on this page and on page 36, and the top of page 37. Please turn now to page 37. Here we discuss the establishment of professional standards review organizations as proposed in an amendment by Senator Bennett. The amendment introduced by Senator Bennett is, as he stated, based upon a proposal urged on him by the American Medical Association. The proposal would establish professional standards review organizations in each county of the country to conduct ongoing reviews of the maintenance and regular examination of the patents, practitioners, and provider profiles of care and services. While we feel the overall purpose is laudable and is intended to accomplish what we believe is desirable in terms of effecting improved utilization controls, the proposal has very serious implications as far as the operations of hospitals and their medical staffs are concerned, and we would strongly oppose the amendment in its present form for a number of reasons, as set forth on pages 39, 40, 41, 42, and 43. Please turn now to page 42. We say there that if the Bennett amendment is to be activated, serious consideration should be given, first, to developing some demonstrations of the idea which would reveal its possible accomplishments, the costs involved, the administrative problems and its effect on the delivery of quality medical care. Please turn now to the heading at the bottom of page 43, "Comments on Recent Changes in Regulations Dealing With Reimbursement." On pages 43, 44, and 45, we call to the committee's attention two recent actions by the administration concerning medicare and medicaid reimbursements. These actions illustrate the reasons for our members' concern about the fairness of the reimbursement principles that have been established for the program. Finally, Mr. Chairman and gentlemen, we appreciate the opportunity to appear and present the views of the hospital field on the proposed changes affecting the medicare and medicaid programs. We regret deeply the necessity to excerpt our full statement because of time limitations. We know it has been difficult for you to follow our departures from the full text and we do hope you can take the time to read it in its entirety. We wish to cooperate fully with the committee to make necessary improvements in the legislation. (The complete statement of the American Hospital Association follows. Hearing continues on page 984.) TESTIMONY OF THE AMERICAN HOSPITAL ASSOCIATION, PRESENTED BY Mr. Chairman, I am Martin R. Steinberg, M.D., Professor of Administrative Medicine at the Mount Sinai School of Medicine in New York City and a member of the Board of Trustees of the American Hospital Association. With me is John M. Stagl, Director of the Passavant Memorial Hospital, Chicago. Illinois. Also with me is Kenneth Williamson, Deputy Director of the American Hospital Association and Director of its Washington Service Bureau. On May 26, 1970, we appeared before your Subcommittee on Medicare and Medicaid. At that time we reviewed the over-all operation of the medicare program in some depth and expressed our concerns in respect to the program as well as our specific comments on the various recommendations embodied in the staff report. We will not at this time repeat our general comments but rather direct our testimony to the specific provisions incorporated in H.R. 17550 as passed by the House of Representatives. We think there is no doubt that the medicare program has been an outstanding success in terms of providing needed health services to the aged people of the country. Experience gained to date points the way to changes that need to be made in the program to insure its improvement and continued success. Our testimony is directed to that purpose. 47-530-70-pt. 3-5 SECTION 221 Limitation of Federal Participation for Capital Expenditures This Section authorizes the Secretary to enter into agreements with the states under which designated planning agencies would evaluate and find for the See retary whether any proposed capital expenditure is inconsistent with state er local health facilities plans. The language seems to permit the use of existing P.L. 89-749 planning agencies or the establishment of a new "super agency. The role of this body is to evaluate the plans proposed as a basis for controlling capital expenditures. Though we fully support the establishment and use of health planning agencies, we would caution that such agencies do not yet exist in all parts of the country | A major reason for this is the lack of essential financing as well as acute shor ages of qualified planning personnel. Though the Congress has provided in other legislation for the use of planning agencies, it has yet to assure the financing essential for their operation. Recommendation. We see no need to establish a new agency superimposed on planning agencies within the states and we have been assured that it was not intended that such an agency be established. Therefore, the language of this section should be amended to make absolutely clear that no new "super agency is to be established to evaluate planning and the existing planning mechanisms are to be utilized. Further, the language should specify that this section shall not apply to any expenditures for which approval has been given under a state eertification of need law. Subsection (f) of the Section 221 states that determinations by the Secretary that a capital expenditure is not reimbursable under the medicare, medicaid. and maternal and child health programs, shall not be subject to administrative and judicial review. In reality, this means there is no appeal from such decisions Such denial of administrative or judicial review is doubly onerous inasmuch as the capital expenditures involved are part of the cost of providing services unde? a contract. This is quite different from any government grant program. We believe there should be provision for administrative and judicial review of decisions of the Secretary disallowing capital expenditures as an element of reimbursement to hospitals under these three programs. Recommendation. We recommend that the last sentence of paragraph (e) of ) this Section be deleted and that there be added the following: "A determination by the Secretary under this Section shall be subject to an administrative hearing to the same extent as is provided for in Section 205 (b) of the Social Security Act and if the capital expenditure in question exceeds $100,000, it shall be subje to judicial review to the same extent as is provided in Section 205 (g) of such Act." We have for some time been concerned at the inability of hospitals under the law to appeal from determinations made by the Social Security Administration or the intermediary on reimbursement matters. We, therefore, also recommend a similar appeal provision be included for such deteminations. Recommendation.-Amend Section 1815 of the Act to include the following provision: "Determinations by the Secretary under this Section shall be subject administrative hearings to the same extent as is provided for in Section 205050) of the Social Security Act and in the case of a determination involving payme to a provider of $1,000 or more or in the case of an expenditure, regardless of the amount which by agreement between the provider or his representative and the representatives of the Secretary constitutes a principal reimbursement & mon to all providers to judicial review of the Secretary's final decision after suc hearings as provided for in Section 205 (g) of such Act." Under Section 221 reimbursement would not be made with respect to capita expenditures which (1) exceed $100,000, (2) change the bed capacity of th facility, or (3) substantially change the facility's services, if such cap expenditures are determined to be inconsistent with state or local health facilita plans. As currently written, these limitations would apply to all replacements of capital equipment within a hospital, even routine replacements. This wol constitute a serious interference with the operation of existing hospitals. Recommendation.-Add at the end of Section 1122 (g) as added by this Secti the following: "However, in the absence of a determination by the appropriate planni agency that the hospital or the particular service involved has been designat for phasing-out expenditures for the routine replacement of non-clinical ite shall not be deemed to be capital expenditures for the purpose of this Section. This Section shall not apply to any expenditures for which approval has been given under a state certification of need law." * * * * SECTION 222 Experiments and Demonstration Projects in Prospective Reimbursement and To Develop Incentives for Economy in the Provision of Health Services This Section authorizes the Secretary to contract with or provide grants to organizations to experiment in reimbursement methods involving negotiated rates, group practice, comprehensive care, payment for teaching activities and patient care, and areawide utilization and medical review mechanisms. It calls for the Secretary to develop and carry out demonstration projects designed to determine the relative advantages and disadvantages of various alternative methods of reimbursing hospitals on a prospective basis. We believe that methods of payment based on prospectively determined rates have very real opportunities for meeting the objectives of public accountability, predictability, and preservation of institutional autonomy. Last May the American Hospital Association urged its member institutions to make immediate efforts to develop workable methods of prospective payment and the full text of the Association's policy on this was made a part of our May 26 presentation. The Section further provides that such experiments and demonstration projects may be initiated only after the Secretary obtains the advice of specialists and after a written report containing a full and complete description of each project has been submitted to the House Ways and Means Committee and the Senate Finance Committee. We are concerned that this provision will cause the Secretary to await approval by the committees, or at least indications that the committees do not disapprove a proposed project of this kind, before initiating it. The result can be an undesirable delay in undertaking promising demonstrations and experiments. Because of the very nature of experiments and demonstrations and the fact that they are of limited duration and involve limited financial outlays, we believe they should not be impeded by burdensome and restrictive requirements. We recognize the desire of the Committee to encourage the development of promising projects and to insure that they are undertaken as expeditiously as possible and without undue administrative delay. Recommendation.-Delete the last part of the last sentence of paragraph (3) after “completed or in process” and add the following new sentence: "The Secretary shall submit to the Congress on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate, quarterly reports containing full and complete descriptions of each and every such experimental project which has been recommended to the Secretary for approval, has been approved, or has been placed in operation." Limitations on Coverage of Costs Under Medicare Program This Section states that costs for purposes of provider reimbursement under the medicare program will be limited to "the cost actually incurred, excluding herefrom any part of incurred cost found to be unnecessary in the efficient elivery of needed health services." This Section proposes in numerous ways to pply the "prudent buyer" concept to hospitals and other providers of services or purposes of reimbursement under Part A of the medicare program. The Secion appears to give the Secretary of the Department of Health, Education and Welfare authority to disallow costs which he deems in some manner result from efficiency or which he deems arise from the provision of unnecessary services. We believe this whole Section constitutes a most dangerous and unwarranted vasion of the administrative authority and prerogatives of hospitals. Even efore the inception of the medicare program, the American Hospital Association pported the principle that the reimbursement of hospital costs should be limed to only those costs which are reasonable. In our Statement on the Principles • Payment for Hospital Care, August 1963, we stated: "If a hospital's costs part substantially from other hospitals of a similar size, scope of services and |