If this compounding pressure upon the full charge rates to full-charge patients continues, it seems only a matter of time until it is financially impractical for them to remain in the market place. Once the full-charge patients become less able to pay the full charge and this financial relief valve is not available, it appears that our health care system has these alternatives (and perhaps others): 1. Recognition by reimburser (s) of providers' economic costs (i.e., their total financial requirements). 2. Supplemental funding by the federal government or other sources. 3. Reduction in quality or quantity of care rendered by providers. 4. Bankruptcy of the system. Hopefully, Number One will be the alternative selected. SUMMARY OF RECOMMENDATIONS 1. As part of its oversight functions, Congress should examine who is setting Medicare policy as well as determining whether or not these policies carry out Congressional intent. We believe that in many cases decisions on hospital reimbursement policy are being made solely on the basis of budgetary rather than health considerations. 2. Section 222 of P.L. 92-603, providing for the development of prospective Medicare reimbursement experiments, should be vigorously promoted. We believe that such experimentation will result in incentives to efficient, sound management of health care institutions as well as providing for long range cost containment. Until hospitals and health insurance carriers are encouraged to develop prospective payment methods at the local level under Medicare guidelines which assure that the total financial requirements of institutions are met, the confrontation between providers and government payors will become even more serious. 3. HEW has terminated the 82% nursing allowance for Medicare patients without even the pretense of justifying such an action by a new study. HEW states that greater utilization of special care units by program beneficiaries as well as expanding the scope of Medicare coverage to a large number of below age 65 patients, has greatly reduced the costs to general care units. This is not valid because current cost reimbursement excludes care for patients under age 65 and/or those in special care units in the determination of the nursing allowance. 4. Section 223 of P.L. 92-603 places the ceiling for reasonable cost reimbursement for hospitals at the 90th percentile. Recent regulations designed to reduce this to the 80th percentile are yet another attempt to redefine "reasonable cost" in favor of government payors without attempting to recognize a number of crucial factors which distinguish hospitals. The ceiling on reimbursement applies in the same manner to a hospital built with 1975 dollars as it does to a facility built in 1930. Differences in capital costs and debt equity ratios are fundamental to justification of total operating costs. Separate groups for new facilities should be established and a two year exemption period for high start up costs should be provided. Until the reimbursement system is greatly refined to include these factors, providers will have to continue passing Medicare costs on to non-Medicare patients. 5. The present inflexible regulations dealing with the financial interest question as it affects utilization review must be revised in order to make such review possible. The regulations should be changed to permit a physician with a financial interest in an institution to perform U. R. functions, so long as that interest is insignificant. We also find it difficult to comprehend the validity of a regulation which causes loss of Medicare-Medicaid certification for an institution solely because of medical staff refusal to perform U. R. functions while at the same time imposing no program sanctions on the involved physicians. Such a regulation can destroy an institution's effectiveness by destroying its relationship with physicians. 6. Once limited to cost reimbursement in the accounting sense hospitals must look to non-Medicare patients to pay higher charges in order to average out all reimbursement at a level which equals the institution's economic cost or total financial requirements. Only by changing the basic policy to a prospective system of determining total financial requirements can we prevent future inequity among those who pay for health services. Mr. ROSTENKOWSKI. Thank you, Mr. Bromberg. STATEMENT OF MICHAEL F. DOODY Mr. DOODY. Mr. Chairman, I am Michael Doody and we would like to submit our statement for the record and present oral testimony from that. Mr. ROSTENKOWSKI. Your statement will be placed in the record in its entirety. Mr. DooDY. The American Osteopathic Hospital Association represents osteopathic hospitals that are located in 27 States. These institutions serve as the primary institution health care facility for those patients who choose to receive their health care from one of the approximately 15,000 practicing osteopathic physicians in the country. Osteopathic physicians represent a second school of medicine. The osteopathic profession is politically and educationally an independent field of medicine. Osteopathic physicians represent approximately 5 percent of all physicians in the United States. Approximately 78 percent of all practicing osteopathic physicians are general practitioners or physicians who specialize in the primary care areas. Our community hospitals represent an important health resource. Many of our hospitals are located in rural or semirural areas and provide a very necessary health service. In some instances the osteopathic hospital is the only hospital present within a community. It should be noted that the average-sized osteopathic hospital is smaller is size than the average-sized community hospital over all. According to the 1974 statistics the average-sized hospital in this country is 155 beds and the average-sized osteopathic hospital, 115 beds. This association and its member hospitals have encouraged quality assurance programs within hospitals. In addition, we have consistently supported the concept that the institution has a responsibility for assuring that quality health care. review activity is carried out within the institution and in cooperation with its medical staff. There has been considerable confusion and delay in the implementation of the new utilization review regulations first published in November 1974. The actual date of implementation has been delayed several times and has been made more tenuous by the recent preliminary injunction ruled by a Federal district court judge in Chicago. As medicare-certified institutions osteopathic hospitals throughout this country have compiled with SSA regulations and conditions of participation under the medicare program. We applaud the continued importance attached to utilization review and quality assurance programs. We are very concerned, however, with the singular approach mandated by the Social Security Administration and the Department of Health, Education, and Welfare in reference to the proposed new utilization review regulations. We believe that adverse impact these regulations will have on small rural hospitals will be significant and will add to the increasing cost of health care. The two issues of greatest concern to our hospitals relate to their ability to administratively comply with some of the specific requirements of the regulations as well as to the cost of meeting these regulations. The review and audit functions mandated under these regulations are to be performed by a staff committee of the hospital composed of two or more physicians who are not directly responsible for the patient whose care is being reviewed and who have no financial interest in the hospital. This presents considerable difficulty to small hospitals which oftentimes have small medical staffs and a limited number of physicians available to the institution. This is further compounded in many osteopathic hospitals by the requirement that no physician who has a financial interest in any hospital may participate in the review and audit functions. As in the case in many small institutions, many, if not all, of the physicians on a hospital's medical staff are involved in one form or another in the care of a patient. Therefore, the ability of that institution to be able to identify two physicians who are not involved in the medical care of a particular patient becomes difficult. In an April 22 letter to Representative English, HEW Secretary Weinberger recognized some of the problems small rural hospitals might have in complying with the regulations. He stated that "HEW," and I am quoting, "is preparing to provide every possible assistance to these hospitals in their compliance efforts." To date we are not aware of any material from the Department of HEW to direct or aid small and rural hospitals in this important function. In addition, given slower than expected startup for PSRO, there are few, if any, which have met the necessary requirements to allow them to assume this function as suggested by the Secretary in his letter of April 22. Compounding this issue is the requirement that no physician with any financial interest in any hospital be allowed to participate in the review and audit functions. Many osteopathic physicians have a financial interest in a hospital. It should be understood that most osteopathic hospitals were founded by osteopathic physicians who sought a place in which to practice and sought out communities particularly in rural areas that were without physicians and health care facilities. Thus it is not inconceivable in some communities to find all or a majority of the physicians on a small hospital's medical staff to have a financial interest in that particular institution. Furthermore, many of our hospitals are owned or operated by investor-owned chains of hospitals and it is conceivable that many osteopathic physicians, along with other physicians, hold stock in one or more of these investor-owned chains. Regarding the cost of implementing this program in hospitals we are aware of the fact that in some instances the paperwork required to meet these regulations results in hospitals having to add at least two individuals, oftentimes a registered nurse or a records analyst and a clerical person which, according to the 1974 figures, the average payroll expense per full-time equivalent personnel in an osteopathic hospital was in excess of $7,800. If every hospital were required to add two full-time equivalent individuals to handle the paperwork for this program there would be a minimum added expense in essence of $15,000 per year per institution. When that is multiplied by 210 osteopathic hospitals it represents in excess of $3 million annually in added expense for osteopathic hospitals to comply with the utilization review regulations. Projecting that $15,000 expense per hospital over the more than 5,000 community hospitals throughout the country results in the staggering amount of $75 million added to the cost of the medicare or medicaid programs. Put another way, one small hospital in rural Kansas has estimated that the cost of complying with the utilization review regulations will impact that hospital at the rate of an additional $5 per patient today. It is the position of this association that that cost is directly attributable to the title XVIII and title XIX programs and therefore should be borne in its entirety by those programs. Unfortunately, the Department of HEW does not agree with our logic on this. Contending that such review program is one any quality hospital would have, SSA believes that additional costs could be absorbed by the hospital. This unreasonable and illogical position seems totally contrary to the philosophy and thinking of SSA in regard to other issues such as the 8.5 nursing differential and the revised schedule of limitations on hospital costs. While we do not argue the necessity and value of the UR program for all patients, we believe hospitals should be allowed greater flexibility to implement other equally effective alternatives to UR and medical audit. The apparent confusion that implementation of these regulations has caused within HEW is another matter of deep concern to this association. Initial explanatory information and guidelines which emanated from HEW were late, confusing, and at times contradictory. The fact that implementation of these regulations has been pushed back until July, ĤEW has still to issue more specific guidelines, direction, and alternatives to small and rural hospitals, is indicative of a program not fully and properly mandated and executed. Finally, we believe that SSA, the Department of HEW, and the Congress need to be more sensitive to the differences in hospitals. The average-sized hospital in some areas of this country is far smaller than the national average. For example, as noted earlier, the average-sized hospital in this country is 155 beds. However, in the State of Kansas the average-sized community hospital is only 86 beds and in New Mexico, 88 beds; and in Oklahoma, 94 beds; Texas, 104 beds; and so on. We believe that the development and implementation of regulatory provisions to implement title XVIII must take into account the fact that they will impact on different-sized institutions in different ways. Perhaps consideration should be given to the development of separate regulations depending upon the size and location of the hospital and its scope of services. It is important to reiterate that the American Osteopathic Hospital Association supports continuing efforts to improve the quality of health care in all of our institutions. We support efforts of quality control and the development of suggested mechanisms to perform utilization review, medical audit, and other programs which will assure continued delivery of quality health care. We are deeply concerned, however, with the impact of the proposed UR regulations on our hospitals particularly those in small and rural communities and we urge this committee and the Congress to give specific direction to HEW to prevent a highhanded overly bureaucratic approach to the implementation of these programs. Thank you. [The prepared statement follows:] STATEMENT OF MICHAEL F. DOODY, EXECUTIVE DIRECTOR, AMERICAN OSTEOPATHIC HOSPITAL ASSOCIATION INTRODUCTION The American Osteopathic Hospital Association is pleased to present testimony to the Health Subcommittee of the House Committee on Ways and Means regarding the following issues: 1) utilization review procedures for hospitals and skilled nursing facilities, as conditions for participation in the Medicare program (Federal Register: November 29, 1974 and April 1, 1975). 2) termination of the inpatient routine nursing salary cost differential as a reimbursable cost of a provider (Federal Register: April 3, 1975 and May 23, 1975). 3) revisions in the schedule of limits on hospital inpatient and general routine service costs-reduction from 90th to 80th percentile (Federal Register: April 17, 1975 and May 30, 1975). This Association has had considerable correspondence with the Department of Health, Education and Welfare and the Social Security Administration as well as with members of this Subcommittee and others in the Congress since these issues first surfaced in the fall of 1974. To date we have not received a satisfactory response from HEW. This Association has and will continue to express its concern regarding the adverse impact on our member hospitals of these regulations. AMERICAN OSTEOPATHIC HOSPITAL ASSOCIATION The American Osteopathic Hospital Association, headquartered in Park Ridge, Illinois with an office in the Washington, D.C. area, represents the osteopathic hospitals throughout the country. Osteopathic hospitals, which number 210 in total, are located in 27 states. These institutions serve as the primary institutional health care facility for those patients (individual consumers) who choose to receive their health care from one of the approximately 15,000 practicing osteopathic physicians in the country. Osteopathic physicians represent a second school of medicine. The osteopathic profession is a politically and philosophically separate and educationally independent school of medical practice. Osteopathic physicians represent approximately 5% of all physicians in the United States, but it has been estimated they care for as much as 10% of the U.S. citizenship. Because the majority of osteopathic physicians are in general practice they treat a disproportionately higher number of patients. The 210 osteopathic hospitals represent 23,731 beds and accounted for 842,325 admissions in 1974. During that year there were 394,297 surgical procedures and 6,460,989 inpatient days of care, as well as 3,128,909 outpatient visits. In 1974 osteopathic hospitals had $823,148,645 total expenses while employing 60,852 people. The Medicare program accounts for between 30-35% of revenues in osteopathic hospitals. In addition osteopathic teaching hospitals, which represent almost 32% of all osteopathic hospitals, have approved postdoctoral teaching programs which currently include some 1,000 interns and residents. Osteopathic institutions and physicians are interested in the delivery of quality health care and for the most part are providers which concentrate in the areas of general practice and family medicine. Approximately 78% of all practicing osteopathic physicians are general practitioners or specialize in the primary care areas (internal medicine, family practice, pediatrics, obstetrics-gynecology, general surgery). Osteopathic hospitals are cost conscience institutions whose primary objective is the delivery of quality health care. It is interesting to note |