utilization, maximum reimbursement may be established through agreement reached between third-party purchasers and hospitals."

The 1969 revision of the Association's financing policy, The Statement on the Financial Requirements of Health Care Institutions and Services, re-endorsed the principle of the "reasonable cost" limitation. In that document the Associa tion outlined three mutually dependent requirements for constructing a "reasonable cost" limitation:

1. Objective criteria should be established prior to the rendering of any deci sions about the reasonableness of cost. The penalty should be understood by the health care institution prior to its imposition to provide the opportunity for the health care institution to take corrective action.

2. Health care institutions subject to such judgments must be provided an opportunity to have their situation reviewed and evaluated through an established equitable appeal mechanism. The unilateral imposition of penalties totally vio lates the health care institution's right to due process of law.

3. The basis for evaluating reasonableness of cost should be the total cost of providing institutional health care. Because there are many factors, such as local wage rates, availability of capital, the mix of labor manpower available, etc... which will alter the way an individual health care institution produces its total health care service, it is only the total cost which provides an objective basis for comparison and evaluation.

Recommendations.-Any cost limitation provision incorporated into the law should be in keeping with the above stated principles.

SECTION 225

Establishment of Incentives for States to Emphasize Outpatient Care Under Medicaid Programs

This Section relates only to the medicaid program and would provide an increase of twenty-five percent in the federal matching percentage for outpatient hospital services, clinic services and home health services for medicaid benesciaries. It would provide for a one-third reduction in the federal matching percentage after sixty days in a general or TB hospital, after the first ninety days in a year in a skilled nursing home, and after ninety days in a mental hospital with a total cut-off of federal matching after an additional 275 days of care in a mental hospital during an individual's lifetime. The Administration estimates this Section would bring savings of $235 million annually in the medicaid program.

We have been advised by a number of state hospital associations that this provision will result in very substantial decreases in the funds available for care to medicaid beneficiaries. The impact of this provision will be borne primarily by long term care facilities. We notice that a number of senators have spoker in the Senate in respect to this provision and its impact upon the needy in their states. The decrease of federal funds which will result from this provision wil not be made up by the states and, therefore, the end result without any doubt will be an appreciable cut-back in the care rendered to medicaid beneficiaries The entire history of programs to provide health services to the poor demonstrates that the states will move to meet the need only when there are very sulstantial federal funds to induce their participation. It is without doubt trus that the Federal Government can save $235 million. However, this saving wi be at the price of rendering $235 million less care.

Payment for Services of Teaching Physicians Under Medicare Program This Section would revise the current method for payment for services of teaching physicians. Payment to individual physicians of customary charg would be made only in those instances where non-medicare service patients hating ability to pay are charged. In the instances where physicians are salaries! by the hospital or paid from university complexes, the hospital will be reimbursi on the basis of its cost. This will include reimbursement to the hospital for a amounts which they, by agreement, pay to medical schools for the services of teaching physicians.

"Classes of persons" as used in the bill refers to service type patients and others, including private patients. The Secretary would establish by regulation, criteria defining the method of determining a patient's ability to pay. The committee report indicates that this contemplates the use of income levels and would use as a base the maximum family income limits set for federal matching under medicaid, (one and one-third times the level of aid to families with dependent children.)

As a matter of principle, we believe that the law should provide for the payment of all physician's services rendered to beneficiaries under government health programs.

It is recognized that the administration of this provision under the many varied teaching settings which exist in hospitals is extremely difficult. We urge that the following principles be followed in the development of regulations to implement this Section of the law.

1. In order to provide equity to everyone involved in the various teaching settings, there should be a pluralistic approach to the payment for physicians' services in a teaching setting.

2. The methods followed should assure that there will be no double payment for services provided.

3. The methods should assure that the medical services for which payment is being made were actually rendered.

4. The methods should assure quality of care and that there will not be any double standard of care as between Federal Government beneficiaries and other patients.

5. The methods should assure maximum accessibility of physicians' services to patients.

SECTION 227

Authority of Secretary to Terminate Payments to Suppliers of Services

This Section authorizes the Secretary to terminate payments to suppliers of services under Part A or Part B of the medicare program for making false statements, submitting bills in excess of customary charges or actual costs, or furnishing services the Secretary deems are in excess of medical need, or are harmful, or are of grossly inferior quality. The same authority would also be given the Secretary with regard to the medicaid and maternal and child health programs.

We view this Section with considerable alarm. We believe there is a serious question as to what would be covered by the term "grossly inferior quality" and as to how these determinations would be made. This appears to go into the whole area of medical devices. The government itself is already struggling to determine what is a medical device and has reached no conclusion. In various legislative proposals regarding medical devices it has been recognized that specific exemptions should be provided for experimental and developmental use of devices.

The imposing of any sort of established standards to define "inferior quality" would be very difficult. This difficulty seemed to be fully recognized by Commissioner Ball in his testimony before this Committee.

We believe the provision which permits the Secretary to declare that care was "excessive, harmful, or of grossly inferior quality" is very dangerous and highly questionable as to its application and will set the stage for a multiplicity of malpractice suits.

Our nation's hospitals have voluntarily sought to further improve standards of care through participation in a major revision of the standards established by the Joint Commission on Accreditation of Hospitals. It would be a great mistake for the government to interfere with the authority and responsibility of the medical staffs of hospitals to maintain the quality of patient care.

SECTION 228

Elimination of Requirement that States Move Toward Comprehensive Medicaid Programs

This Section eliminates the requirement that the providing comprehensive medicaid programs. Such backward step and really would remove from the

states must move toward action would be a very Federal Government any

leverage it has to require the states to expand their programs of medical care to the indigent and the medically indigent. Without some kind of federal leverage it is most unlikely that many of the states will develop needed health programs for this group. There is a long history of such inactivity on the part of the states. When the Federal Government through medicare assumed the burden of health care costs for most of the aged, it relieved the states of their responsibility to this group. It was a legitimate expectation that the states would then establish programs to provide medical care for the indigent and medically indigent not covered by medicare.

Recommendation.-That Section 228 be deleted from the bill.

Determination of Reasonable Cost of Inpatient Hospital Services Under Medicaid and Maternal and Child Health Programs

This Section would authorize each state to determine reasonable costs under the medicaid and maternal and child health programs. It means the states would no longer be required to reimburse hospitals under Title XIX on the same basis as under Title XVIII. The amendment would likely eliminate efforts to coordinate: the over-all administration of Titles XVIII and XIX, which we believe is essential. In all probability it would require hospitals to keep two sets of books. The possibility of hospitals developing desirable incentive programs would be greatly minimized. Frequently, a single hospital has patients from more than one state and this would present increased administrative difficulties if the states have different reimbursement formulas. We believe the administration of the programs would become increasingly wasteful and costly if this Section is enacted. It must be recognized that the Section is prompted by the desire of state governments to pay hospitals less than they now pay for care rendered to medicaid patients. The basic purpose of the Federal Government is establishing the medicaid program was to provide needed care for the poor. It was further intended to urge the health field to move to one level of health care in the country, rather than two. It was hoped that this would bring marked improvement in the provision of health services to the poor. All such desirable goals could be killed by this Section.

Recommendation.—

1. That Section 229 be deleted from the bill.

2. That the bill be amended to provide that the term "reaosnable cost" as used in the Social Security Act shall mean that 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 Feders. Government's share of these financial requirements for its beneficiaries under all titles of the Social Security Act shall not be more than or less than the share borne by all other paying patients.

We recognize that the total monetary resources necessary to provide instit tional care must be fairly evaluated to protect the interest of purchasers. We also recognize the shortcomings of a retrospectively determined payment meele anism in which providers of care receive an implicit guarantee of recovery of cost. We have sought to develop programs of prospectively determined rates of payment which would permit effective internal planning and provide proper incentives for the economical delivery of health care by incorporating public review in the approval process. The primary objective of these programs has beer the protection of the quality of care delivered in an economical manner through the development of state-local-community controls and full recognition of the hosiptal's legitimate financial requirements as defined in the Statement on the Financial Requirements of Health Care Institutions and Services.

SECTION 230

Amount of Payments Where Customary Charges for Services Furnished Are Less Than Reasonable Cost

This Section provides that payments under the medicare, medicaid and mater nal and child health programs may not be higher than charges regularly made for these services. Such payments would be the lesser of "reasonable cost" or "cus

omary charges" or "fair compensation" for services furnished free or at only ominal charge by a public provider. To make this provision equitable and dministratively feasible the legislation should clearly state that the provision pplies only to the total annual payment to a given institution and that new nstitutions will be given some safeguards during their start-up years.

nstitutional Planning Under Medicare Program

This Section would require institutions to have a written plan and budget eflecting a detailed annual operating budget and a three-year capital expendiures budget. It would require that the plan and budget be prepared by a comittee consisting of representatives of the institution's governing body, its dministrative staff and its medical staff, if any.

The Association's Statement on Financial Requirements recognizes that health are institutions have the responsibility of providing a plan delineating their uture programs of health service to the people of the community and that the lan should be reviewed regularly with the designated areawide health planning gency to assure consonance of institutional and community health objectives. Recommendations.-That the Committee include in its report on this Section of the bill a statement asuring that the language is not intended to provide the overnment a role in the budgeting and planning process of health care instiutions or to give the government authority to exercise any supervision or control ver the practice of medicine or over operation and administration of medical acilities.

Advance Approval of Extended Care and Home Health Coverage Under Medicare Program

This Section provides for determining in advance a minimum period of coverage y illness categories in an extended care facility or under a home health plan or medicare beneficiaries.

It is not clear exactly what the "plan" referred to in the Section, which the hysician must file prior to the patient's admission to the ECF, is intended to acompass. This, no doubt, would be spelled out in administrative regulations. he responsibilities under this Section would fall mainly upon physicians and would necessitate their outlining in advance why a patient needs the services o be provided and exactly what the plan of treatment is. Physicians will, no oubt, find this Section burdensome. Also, because of the problems the Section oses for physicians, there would certainly be increased administrative probms for hospitals if the Section is enacted.

We recognize, however, the legtimate concern the government has for some etter controls over the admission of patients to extended care facilities and er coverage for home health services.

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SECTION 235

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ilization Review Requirements for Hospitals and Skilled Nursing Homes Under Medicaid and Maternal and Child Health Programs

This Section extends the utilization review process now required under medire to the medicaid and maternal and child health programs.

In our opinion if utilization review in hospitals is to work, it has to apply to patients and so far as we know, hospitals generally do not limit their utilizan review programs just to medicare patients. The accomplishments of this trol mechanism resulting from the efforts of hospitals and their medical staffs beginning to emerge strongly; thus, the length of hospital stay for the elderly s been decreasing since the beginning of 1969 and the volume of care offered nearly 20 million citizens 65 and over has virtually stabilized.

In previous testimony before House and Senate Committees we have expressed r concern about the problem facing physicians who serve on utilization review mittees, namely the potential of personal legal liability resulting from actions The committee. We have urged that the Federal Government study this problem

and initiate any necessary changes to protect physicians serving on utilization review committees.

We have reviewed the amendment proposed by Senator Bennett which would affect this and other sections of the bill, and we propose to comment fully upon this later in the testimony.

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SECTION 236

Elimination of Requirement That Cost-Sharing Charges Imposed on Individuals Other Than Cash Recipients Under Medicaid be Related to Their Income This Section provides that states would be permitted to impose a flat deductible or cost-sharing requirement with respect to persons eligible for health care benefits under the medicaid program, but not eligible for cash public assistance payments. The provision is intended to allow the states to explore methods of cost-sharing by the medically indigent which it is hoped would reduce the overall utilization of services.

The provision might well reduce the cost of the program to the states, but we believe it will increase the cost to hospitals because of the bad debt problem certain to arise in collecting the cost-sharing charges imposed on such patients.

SECTION 237

Notification of Unnecessary Admission to a Hospital or Extended Care Facility Under Medicare Program

This Section would authorize the termination of reimbursement for care of patients where utilization review mechanisms find hospitalization or extended care services for the patient are no longer necessary, or never were necessary. The termination would be effective only after three days notice to the patient, the physician and the institution.

We have been concerned about reports to us that the Social Security Admini-tration has been refusing to reimburse institutions for any part of the cost of care of a patient in an extended care facility, when an utilization review committee finds that the patient should not have been admitted to the ECF. This has been especially disturbing because of the discriminatory application, i.e. physicians are paid for their services while hospitals suffer the retroactive loss of payments.

Recommendation. That the Committee include in its report on the bill a statement clearly indicating their intent that all payment cut-offs will be prospective only and made effective only after three days notice.

Use of State Health Agency to Perform Certain Functions Under Medicaid and Maternal and Child Health Programs

This Section would require state health agencies to perform certain functions under the medicaid and maternal and child health programs related to the quality of health care furnished to beneficiaries.

While we are concerned at the potential increased involvement of state health agencies in the day to day operation of hospitals which might result from the amendment, it appears to us that this amendment moves in the direction which the American Hospital Association has always encouraged, namely placing responsibility for health programs in health departments rather than in welfare departments.

SECTION 239

Payments to Health Maintenance Organizations

This Section would amend the existing law to afford individuals eligible for both Part A and Part B medicare coverage the option of electing to receive their health care through a health maintenance organization. This would include comprehensive health care programs organized and operated by hospitals. This provision favors the use of group practice plans providing comprehensive health