patients are automatically processed through those departments instead of going directly to routine care areas where their needs could be satisfied. I believe that statement to be extremely unfounded and a most unreliable position for anyone to assume. Again, I see this as a way for the Federal Government to free itself from an area of cost with which it should be concerned.

Need I remind you that Medicare presently is not meeting it's full financial obligation to the health care providers, and the providers need to obtain their full financial requirements to enable it to meet its obligation to the total patient populace that it keeps its doors open 24 hours a day for. Specific areas where Medicare falls short relates to considering its fair share of chairty expenses, bad debts, amortization of existing debt, provision for funds for future expansion programs, and price level depreciation. Obviously each one of these areas are a lengthy topic of their own.

I would also remind you quickly that any decreases in the financing of Medicare program expenses will fall back on to the patient who pays his own bill, the commercial insurance carrier and the State Medicaid programs.

I have appreciated the opportunity in being allowed to make this expression, which I feel is strongly made in the best interests of the patients which we serve. I would earnestly encourage and support the continuation of the nursing salary cost differential as an element of cost in the Medicare program.

Sincerely yours,

RICHARD E. CLARK,
Business Manager.

Mr. ROSTENKOWSKI. Congressman Pickle? It is always nice to have a colleague who has just assumed great responsibilities on the Ways and Means Committee appear before this subcommittee. We know Mr. Pickle is one of the harder working Members in the Congress of the United States, and we anticipate a very in-depth, knowledgeable statement, and are looking forward to it. We congratulate him on the work he is doing on the Ways and Means Committee. Welcome.

STATEMENT OF HON. J. J. PICKLE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. PICKLE. Thank you, Mr. Chairman. You may continue. [Laughter.]

Thank you for the opportunity to testify. I regret I wasn't here at the time of the appointed hour, but you have moved a little faster than we expected.

I know your testimony may be aimed mainly at PSRO legislation, but I have two or three problems, and I believe I would stay with my prepared text and answer any questions, if I may.

The proposed regulations published in the 1975 Federal Register, volume 40, No. 104, part II, setting limits of reimbursement for medicare are of great concern to me and to my constituents living in Austin, Tex.

I believe that these regulations are inappropriate and do not fairly classify hospitals so that they can be reasonably reimbursed for medicare patients as the law intended. The regulations classify hospitals into groupings that can be used for cost comparison. Within the States, standard metropolitan statistical areas are grouped on a basis of per capita income. This has resulted in a patently unfair situation in my home city, Austin, Tex.

Austin ranks sixth in population in the State of Texas and has five outstanding, modern hospitals equipped to handle all kinds of the latest medical care. Yet, it is classified in the lowest category in the State, category V, solely on the basis of its per capita income. I submit that this is neither an adequate or a just way to determine the reimbursement levels for that city.

Austin has a low per capita income not because it has a low lifestyle or poor public services. It has a low per capita income because it has maintained the lowest cost of living of any major city for the past several years. It also has a very large student population. Total population according to the 1970 census was 251,808. But Austin also houses the University of Texas, with over 40,000 students, as well as St. Edward's University, Concordia College, Austin Community College, and Huston-Tillotson College, which add a few thousand more totaling around 57,000 students in all. The large student population obviously dilutes our per capita income. The Department of Commerce itself points out that a student population "tends to understate the per capita income of counties in which colleges are located by what appears to be amounts ranging from 1 to about 8 percent.'

Moreover, Austin is one of the most rapidly growing major cities in the State. Just since the 1970 census, the per capita income has jumped from $3,014 to $3,741, even according to the medicare officials. In sum, anyone remotely familiar with Texas would know that to rank Austin as 17th in the State is not only an untrue statement—it is patently unfair.

Mr. Chairman, I would like, if I may, to include here letters from the five Austin hospitals which detail the flaws in the Commerce Department methodology in this case.

Mr. ROSTENKOWSKI. Without objection, so ordered. [The letters referred to follow:]

Congressman J. J. PICKLE,
Austin, Tex.

AUSTIN, TEX., June 10, 1975.

DEAR CONGRESSMAN PICKLE: We are presenting this joint letter from Administrators of hospitals in the Austin, Texas area in the hope that you will take note of and represent our objections to the Department of Health, Education, and Welfare's recently published limits of reimbursement for Medicare. These regulations_published in the May 30th, 1975 Federal Register, Vol. 40, number 105, part II are, we believe, inappropriate and do not fairly represent their

self-avowed intent.

The following summary represents the compilation of objections voiced by hospitals in the Austin, Texas area.

I. The reduction of the reimbursement percentile from 90% to 80% is not in keeping with the basic law of 1966 (PL 89-97) which clearly states: "The costs with respect to individuals covered by the insurance program. . . will not be borne by individuals not so covered." Reference Section 1861 (V) (1).

II. HEW has chosen to utilize per capita income data generated by the U.S. Department of Commerce in support of its contention that per capita income may be used as a reliable predictor of the cost of medical care in a given area. It is noted that marked differences exist between the Bureau of Census ranking of per capita income and that of the Bureau of Commerce. Enclosure I lists Texas cities and ranks them according to the Bureau of Census data and the Department of Commerce data. Significant areas of divergence may be readily

1 Survey of Current Business (Local Area Personal Income), May, 1974, Vol. 54, #5, Part II. U.S. Department of Commerce/Social & Economic Statistical Administration/Bureau of Economic Analysis.

noted by comparing any of the two sources for a given area. However, special note is made of the following:

There appears to be no logical explanation for the disparity in ranking of incomes between the two sources. It seems doubtful that a two-year long period between the two sources would produce the resultant jumble of rankings.

Of additional concern is the fact that the Department of Commerce methodology's employed "estimates" were not derived from surveys or personal records. Instead, they were "constructed mainly from business and governmental records which show various types of income.

The Department of Commerce admits, "The local area personal income estimates are the product of a complex estimating procedure in which county series for about 325 income items were assembled, processed, adjusted, converted into income measures, and then combined into the tables shown in this article." 3 Since multiple sources utilizing different disciplines and approaches were used, it seems highly doubtful that the results produced are valid. Indeed, the Department of Commerce states with regard to the various methods "none were designed specifically for local area income measurement".

Additionally, it is revealed that the Department of Commerce included college students in its calculation of population, but failed to take into account the income of the supporting parents. The Department of Commerce points out that this mismatch of income "tends to understate the per capita income of counties in which colleges are located by what appears to be amounts ranging from 1 to about 8 percent.

Austin, Texas SMSA is one such area. Its student population being currently estimated at 57,000.

If one then accepts the HEW postulate that per capita income is a predictor of area medical costs, we submit that the methodology used to determine per capita income must be consistent and without internal bias. Failure to do so will produce the cacophony of rankings offered by HEW.

III. A final concern regarding the HEW methodology deals with the range of permitted per capita incomes within each grouping. Enclosure I demonstrates this point. A brief glance will reveal that, for instance, the nation-wide range of income for Group III is $365.00, while in Texas Group V alone an income range of $1,398.00 is permitted. The end result is what appears to be an artificial structuring of the reimbursement system rather than the natural result of a responsible statistical analysis.

IV. While all hospitals who submitted comments prior to May 19th were guaranteed consideration of their objections, one Austin area hospital received a response from Mr. Cardwell dated May 28th assuring them that their objections would be considered prior to final publication of regulations. Since these final regulations were printed and published on May 30th, it is difficult to understand how these comments were considered by Mr. Čardwell.

V. To our knowledge, HEW has never published or disclosed the basic statistical study of validity which supports the contention that per capita income is a reliable predictor of area medical costs. We are not satisfied with assurances and wish to see these data produced.

Source: Survey of Current Business (local area personal income), May 1974, vol. 54, No. 5, pt. III, p. 1., U.S. Department of Commerce, Social and Economic Statistical Administration, Bureau of Economic Analysis.

Sincerely,

JESSE V. HAYES,

Executive Director, Holy Cross Hospital.
SISTER DAMIAN WETZEL,
Administrator, Seton Hospital.

Administrator, Brackenridge Hospital.
BOB LLOYD,

Executive Director, St. David's Hospital.
WILLIAM S. DYER,

Adm., Shoalcreek Hospital.

SETON MEDICAL CENTER,

DAUGHTERS OF CHARITY OF SAINT VINCENT DE PAUL,

Mr. JAMES B. Cardwell,

Commissioner of Social Security Administration,
Department of Health, Education, and Welfare,
Baltimore, Md.

May 16, 1975.

DEAR COMMISSIONER CARDWELL: Further study has been made by the staff of this hospital as to the methodology contained in Federal Register Volume 40, Number 75, pages 17190 through 17193, the subject of which was-Social Security Administration, Hospital Costs, pertaining to a revised Schedule of Limits on Hospital Inpatient General Routine Service Costs in the Medicare program.

A review of the source data for the per capita income as contained in Survey of Current Business-Local Area Personal Income, developed by the Department of Commerce; Volume 54, Part II, May 1974 which was used by your administration as the basis on which cities (hospitals) were grouped is totally unacceptable by this hospital.

The methodology as stated on Page 3 of the subject Survey is based on an "Estimate" without regard to survey, or questionaire. In addition, and I quote, "the local area personal income estimates are the product of a complex estimating procedure in which series for about 325 income Item were assembled, processed, adjusted, converted into income measures, and then combined into the tables shown in this article."

The very idea that hospitals are to be limited reimbursement based on a methodology that is based on estimate is totally unacceptable.

Again, in arriving at the per capita income as explained on page 5 of the subject Survey, population census was obtained from the Bureau of Census which included college students but did not include the Income of said parents, thus diluting the per capita income. Quote, "The Census Bureau includes college students in the population of the county in which the school they attend is located. The income received by the parents of many, perhaps, most of these students is allocated to a different county. This mismatch of income and population tends to underestimate the per capita of counties in which colleges are located by what appears to be amounts ranging from 1 to about 8 percent. At present no data are available with which to adjust for this mismatch."

The City of Austin has four colleges within the city limits, plus one additional within the SMSA classification with a student population in excess of 57,000+. This further gives credence to the fact that the methodology of assigning Austin to Group V within the SMSA area by per capita income is totally unjust to Austin.

We also object to the wide range between the lowest income and highest in Group V for Texas. There is a range of $1,398 between the lowest per capita income of McAllen-Pharr-Edinburg-$2,343 and Austin $3,741. These wide ranges do not exist in the other Texas Groupings. By virtue of lowering the percentile limits from the 90th to the 80th percentile will naturally produce a lower reimbursement limit in Group V.

If this inadequacy in statistical base is allowed to become part of the permanent regulation the recipients of health care in this SMSA will be the one to suffer for without proper reimbursement, service may need to be curtailed.

As stated in my first letter to you regarding this same subject matter, dated May 13, 1975, I object to this entire regulation and propose to you that it be withdrawn.

Sincerely,

SISTER DAMIAN,

Administrator.