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2. Proposed amendments impose econo ic discrimination on physicians, both self-employed and salaried, relative to other sectors of the economy. Imposition of these regulations appears directed at precluding the possibility of physicians achieving any increase in their real incomes, since they are inextricably tied to costs of practice over which they may have little control and earnings levels of salaried workers over which they have no control whatever.

Hypothetically, real income increases can be achieved through the introduction of further efficiency into the practice of medicine; however, there are limitations in the opportunity to further improve this aspect of medical practice, since such "improvements" may also result in diminishing the amount of attention physicians can pay directly to their patients. Furthermore, patterns of inappropriate utilization of health care services can be encouraged through the application of serviceby-service fee limitations, since physicians are precluded from achieving economic gains in ways other than increasing utilization or, alternatively, increasing the number of hours worked.

3. Section 224 of PL 92-603 specifically states that any limitations in prevailing fees relate to increases "in the aggregate," rather than in each individual service. This concept was further defined by the Senate Finance Committee which, in its report on section 224, repeatedly specified that the use of an index to determine allowable increases in prevailing charges should be done on an aggregate basis. The application of an index to each individual service is a distortion of this concept and indeed should not be considered as an acceptable alternative for implementing the intent. Methods must be developed for evaluating aggregate charge levels rather than levels for individual items, since application of a uniform percentage to each individual service necessarily results in an additional disadvantage to the physician unless he increases his charges equally for every service he renders. An across-the-board adjustment in fees is not customary. Commonly, when physicians increase their charges, it is done on a selective basis rather than universally for all procedures.

4. In its report, the Senate Finance Committee also specifies an intent that "*** the secretary should use *** the most refined indexes that can be developed" for establishing ceilings in prevailing charges. The index that has been developed and proposed could not be deemed "refined" and, should such an index be decided upon, there are many refinements that woud make it more representative and reflective of its true intent. The following are specific examples:

(a) Wages-More appropriately used would be average earnings in medical and other health services, figures for which are collected routinely by the Department of Commerce, rather than the BLS index of earnings in finance, insurance, and real estate.

(b) Office space-The "shelter index" would be more appropriate to represent the occupancy component of physicians' overhead, since it would exclude items such as fuel and utilities, household furnishings and operations which fare also included in the overall housing component. (Office operations will be covered in other surrogate indexes to be discussed below.)

(c) The item for "other expenses of physician practice" should be further classified according to certain identifiable components, rather than treated as a whole, since the surrogate of the total consumer price index is inappropriate for application to a portion of overhead which represents over one third of a physician's costs. The following are examples:

(1) Insurance the CPI component on "insurance and finance" could be used.

(2) Office equipment-the CPI component for "house furnishings" could be used.

(3) Professional and educational expenses-the CPI component for "reading and education" could be used.

(4) Office operation--the CPI component for "fuel and utilities" could be used.

Any additional portions of the cost of physician overhead could then be represented by the total CPI. This would minimize the effect of employing what is at best a questionable surrogate currently proposed to represent a substantial proportion of physician expense.

5. The application of a uniform percentage ceiling in the prevailing charge level for all physicians results in inequity to physicians, who, by the nature of their practice, experience varying levels of overhead. The attached table, using the hypothetical allowable increase of 4.2 percent, illustrates this point.

The table provides examples of three types of physicians with varying overhead percentages, ranging from the anesthesiologist who may have an overhead of approximately 20 percent to an office-based radiologist whose overhead may well be 60 percent or more, due to his high fixed costs. The example is based on an assumption of equal net income during Period I and the change in net income that would be introduced if a physician were being remunerated entirely at the highest allowable point in the prevailing fee spectrum. The data clearly illustrate that application of a uniform percentage results in an increase in net income that is considerably higher for the radiologist (6.0 percent) than for the anesthesiologist (4.5 percent). Thus, the proposed regulations do not provide equity, but rather would impose inequity among physicians in various types of practice. The California Medical Association questions whether this would be an appropriate result of the Commissioner's efforts to restrict increases in levels of charge for physician's services.

6. A reversion to calendar year 1971 for a base period, rather than the use of 1973 data, appears questionable. This technique reintroduces and reapplies fee freezes that were previously imposed on physicians during a significant period of time. Additionally, this methodology raises the question about whether third parties must review amounts reimbursed during the past two years, re-evaluate the level of allowable prevailing charges payable during that time, and seek refunds from physicians if the amount paid exceeded the newly calculated levels. Obviously, this would be extremely burdensome to carriers, as well as antagonistic to providers. Nevertheless, this specific subject is not covered and further direction must be developed. The California Medical Association would hope that if controls such as those under discussion are employed, a 1973 and not a 1971 base period would be implemented. The California Medical Association feels considerable concern about the several points we have raised above and sincerely hopes that the Commissioner will review them before finalizing the proposed amendments. Should there be questions we might be able to answer regarding this subject, we are at your disposal.

Sincerely,

Carl Goetscн, M.D., President.

EFFECT OF NET INCOME OF THREE TYPES OF PHYSICIANS WHEN UNIFORM-PERCENT INCREASE IN PREVAILING CHARGE LEVELS IS INTRODUCED

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1 Rough estimates for illustrative purposes.

* Hypothetical example, based on illustrative material used in proposed regulations.

E.g., internist, general practitioner.

CARBON HOSPITAL,

WASHINGTON PARK,

Price, Utah, June 6, 1975.

Hon. DAN ROSTENKOWSKI,

Chairman, Subcommittee on Health,

Committee on Ways and Means,

Washington, D.C.

DEAR CONGRESSMAN ROSTENKOWSKI: In your deliberations on June 12th con-cerning the elimination of the 82% nursing differential in the Medicare Cost Reimbursement formula please note our objections to this new ruling:

1. Medicare patients often require additional nursing care; not the same amount or less.

2. Medicare patients (disabled and end-stage renal) who are under the age of 65 are so few at this Hospital that no change in the level of care and nursing involvement has been noted.

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3. The administrative ruling to eliminate the 82% nursing differential appears to be contrary to the original congressional intent.

I also have concern about the schedule of limits on hospital inpatient costs (a reduction from the 90th to 80% percentile):

1. Hospital inpatient costs vary according to the type of services given. Example: A hospital might offer an organized Respiratory Therapy service that could, because of an added service, increase the inpatient costs. Another hospital not offering the service may have a lower inpatient costs. To limit the costs to be reimbursed by Medicare could seriously limit the type and quality of service as well.

2. Some hospitals have financial support in addition to patient charges. Such financial support might be from local government, a religious organization, or an endowment. Subsidized hospitals may have lower costs and/or charges than one that is self-sustaining. To group all hospitals together and limit the upper level of costs is most inappropriate.

3. The limiting of costs on a percentile basis is rather arbitrary. Should an individual institution be costing an excessive amount then that individual institition only should be audited or surveyed to find out why the costs appear excessive.

4. There are regional and local differences in the costs of providing services in hospitals, that are not necessarily related to hospital size. Some communities, to attract and hold qualified personnel, must offer more attractive salaries. To eliminate the local option to pay a necessary wage would be a severe disadvantage to some hospitals.

Should you wish detailed explanation; I will be happy to furnish it to you. Yours truly,

DONALD M. FIFIELD, Administrator.

CENTRAL NEW YORK HOSPITAL ASSOCIATION, INC.,
Syracuse, N.Y., June 10, 1975.

Representative DAN ROSTENKOWSKI,
House Office Building,

Washington, D.C.

DEAR REPRESENTATIVE ROSTENKOWSKI: Several of the proposals being considered by your subcommittee regarding Medicare reimbursement are of great concern to the nation's hospitals.

Specifically, I am referring to the proposal to eliminate the 82% nursing differential which has been applicable to nursing costs to Medicare patients for several years. The elimination of this will create hardships on hospitals and subsequent shifting of hospital costs to other segments of the patient complement. In addition, the proposal to use the 80th percentile for routine ceiling comparisons will be very unfair to many hospitals which are doing a commendable job of controlling costs. Using this arbitrary figure will mean the loss of millions of dollars in revenue to our hospitals which are already hard pressed to even recoup their exact costs.

Attached is a copy of a letter sent to our area congressmen on these subjects which will give you further details concerning these vital matters. I trust that all of these factors will be given serious consideration by your subcommittee in your forthcoming hearings. Thank you very much for your attention.

Sincerely yours,

Enclosure.

Hon. JAMES M. HANLEY,

House Office Building,

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Washington, D.C.

DEAR CONGRESSMAN HANLEY: Recently there have been two proposed changes in the Medicare Reimbursement formula which will seriously affect the financial position of most acute care hsopitals.

Reference is made to the request for comment in the April 3, 1975, Federal Register in which the proposal to eliminate the 82% inpatient routing nursing salary cost differential for Medicare beneficiaries was outlined. It was with a great deal of emphasis and effort that this consideration was granted a number of years

ago. It was based on thorough studies which proved that the elderly patient required more routine nursing care than did the non-Medicare patient. În spite of the contention that, with the advent of intensive care units and other such special care units the Medicare patient is now being cared for in these areas, this is not true. Any patient regardless of age who finds himself in one of these special units obviously requires a great deal of intensive acute care. However, the elderly patient who is not found in such a unit still requires a higher concentration of routine nursing care because of the problems of old age. There has been nothing to change this relationship to the other patient; therefore, the ratio is the same and the amount of nursing care provided to the elderly is still considerably more than to other patients.

In addition, the April 17, 1975, Federal Register outlined proposed regulations to go to the 80th percentile in consideration of routine cost ceilings for Medicare patients. This is again an arbitrary decision simply aimed at cutting the cost to the federal government without any consideration of what it is going to do to the health care of the citizens of this country. Here in New York, where we have been under stringent groupings and comparisons for ceiling purposes, we are not under such binding percentiles. It is completely unfair to assume that any hospital which comes over the 80th percentile is not doing an effective job. Before such a decision is made there should be thorough studies conducted in order to determine a valid percentile to use for such comparisions. The whole concept of group comparisions on a national basis is something which is very debatable and could easily be contested.

I strongly urge you to exert your influence on those involved to reconsider these catastrophic decisions which will do nothing more than shift the cost of this care to the remaining segment of the population which can ill afford to pay for it. Thank you very much for your consideration. Sincerely,

RICHARD E. BENOIT, Executive Director.

CENTRAL VERMONT HOSPITAL,
Birre, Vermont, June 5, 1975.

Mr. JOHN M. MARTIN, Jr.

Chief Counsel Committee on Ways and Means,
Longworth House Office Building,

Washington, D.C.

DEAR SIR: The proposed removal of the routine nursing salary cost differential as provided for in regulation section 405.430 is opposed by this hospital. Social Security gives three explanations for the removal of this 8%% cost differential. The first explanation is that since 1972, Medicare benefits have been extended to certain disabled persons and to persons with end-stage renal disease, people who are not the aged. It is true that this program has been extended to these areas but there are 21.4 million aged Medicare beneficiaries and less than 1.8 million disabled beneficiaries and only slightly more than 20,000 with end-stage renal Medicare benefits. It would appear to me that this argument is not valid.

The second explanation is that the aged Medicare patients receive more intensive treatment in the coronary care and other special care units where the higher nursing unit costs for such patients are built into the reimbursement formula for treatment in these units. SSA should realize that the existing regulations expressly take this into account and no routine nursing service differential is now paid for such patients. This is certainly no reason to eliminate the nursing care differential to the aged patients who continue to receive treatment in a regular care facility.

Lastly, the Social Security Administration claims that the 1972 changes in Medicare costs apportionment requirements eliminate the need for the nursing care differential. To the contrary, the 1972 changes in cost apportionment which requires separate calculation of routine costs and special care unit costs assures that the nursing care differential is paid for only routine nursing care for the aged patients. Refined application for the differential is hardly a reason for its elimination and, in fact, is an additional reason for its retention.

The nursing care differential is now paid only where it is required and that is where there are large amounts of routine nursing care required by Medicare beneficiaries. I might point out that when this nursing care differential was adopted the Social Security Administration proposed to undertake further studies to de

termine what variations in differentials should be established in the future, and to obtain other data on nursing care costs in order to assess the continued appropriateness of the 8%% factor. In fact, the SSA stated that these studies would be a condition of any modification of the differential and to my knowledge and others I have talked to there has been no such studies.

I submit that the elderly patient in the acute care setting of a general hospital nursing care per patient day than other patients. If this differential is removed, costs to our hospital will be increased an additional 26¢ per patient day. This cost will be borne by other than Medicare patients which constitute 45% of our patients days. In other words, it would increase our charges to direct payers and third party payers at least 50¢ per patient day.

Hospitals such as ours operate on a no profit basis and our ability to provide charity care and remain fiscally solvent would be jeopardized. With governmental and public concern at an all time high over continuing increased health costs, this bureaucartic proposal borders on the realm of fiscal irresponsibility. Once again we reiterate that we protest the proposed removal of the nursing salary costs differential.

Sincerely,

JOEL H. WALKER, President and Administrator.

STATEMENT OF CHICAGO HOSPITAL COUNCIL, HOWARD F. COOK, PRESIDENT

SUMMARY

1. Name, full address, and capacity of individual submitting statement: Howard F. Cook, President, Chicago Hospital Council, 840 North Lake Shore Drive, Chicago, Illinois 60611, Telephone No. (312) 751-0700.

2. Chicago Hospital Council Membership List: Please see Exhibit 1 of complete statement.

3. Topical outline of comments and recommendations in the full statement. A. Utilization Review Procedures:

(1) The Chicago Hospital Council has long been interested in, and has long supported the conduct of effective utilization review.

(2) The Council has expressed concern about the lack of proof of the cost-benefit and of improvement in health care resulting from implementation of the November 29 regulations.

(3) The November 29 regulations have been implemented in a most disorganized and confusing manner.

(4) The Chicago Hospital Council urges:

(a) Withdrawal of the regulations pending final resolution of the American Medical Association lawsuit. If the regulations are upheld then we urge: (b) Objective evaluation of the efficacy and cost-benefit of the methodology prescribed in the November 29 regulations;

(c) Development of clear guidelines for implementation;

(d) Development of clear lines of responsibility for implementation.

B. Termination of Inpatient Nursing Salary Cost Differential

(1) The arguments used by the Social Security Administration in eliminating the nursing salary cost differential are specious.

(2) The vast majority of Medicare patients require extra care from nurses and other hospital personnel.

(3) Elimination of the differential without advance validation of same via objective study violates Medicare regulations.

(4) The Chicago Hospital Council urges:

(a) Support of the passage of HR 7000 requiring the payment of the nursing cost differential; or

(b) The requiring of the Social Security Administration's conduct of studies to determine if adjustments in the nursing salary cost differential are now appropriate.

C. Limitation of Hospital Inpatient General Routine Service Costs.

(1) Section 223 of P.L. 92-603, the section on Medicare reimbursement ceilings, is extremely difficult to administer.

(2) The Social Security Administration is using Section 223 for purposes other than what was originally intended.

(3) The Chicago Hospital Council urges:

(a) Repeal of Sections 223 and 232 of P. L. 92-603; and

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