is the relationship between the medicare and medicaid system made clear as well.

Mr. BURLESON. If some accommodation cannot be made in the regulations to enable hospitals to comply, what are the consequences? I think I know what the worst might be. But what are the best consequences and how many hospitals would be paralyzed in their ability to render medical services?

Mr. MCMAHON. We have all made references particularly to the problem of the small rural hospitals and, Mr. Burleson, there are 1,500 hospitals with less than 50 beds. That is where the paralysis certainly will begin.

While some recognition has been given to the fact that those small hospitals with limited members of the medical staff will have some problems, they have all been pushed aside and the assumption has been made something will be done. We get right down to, again, setting aside the uncertainty that grows out of the injuction against the implementation of the regulations, putting that aside we get to the point where some of these hospitals are not going to be able to comply with the regulations and presumably that means then that medicare and medicaid beneficiaries may not be taken care of in those hospitals. It has impact on the hospitals because it means a decline in the ability to render service but it has a tremendous impact on the program beneficiaries who then will have no place to go or at least cannot go to the hospital which they usually have related to, hospitals which are providing service to what may be, even with a small hospital, a rather substantial geographic area.

Mr. BURLESON. Could you tell me about how many would be affected?

Mr. MAHON. We are talking about perhaps a relatively small percentage, but you know how percentages work. If you happen to land in that small percentage and you don't have care, it is 100 percent

for you.

Mr. BURLESON. Right. Thank you very much.

Mr. ROSTENKOWSKI. Mr. Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman.

I would like to ask unanimous consent to enter a statement of Dr. Samuel Harrison, chief of staff of the Loudon County, Tenn., hospital, in the record at this point.

Mr. ROSTENKOWSKI. Without objection it is so ordered. [The statement follows:]

STATEMENT OF SAMUEL A. HARRISON, M.D., CHIEF OF STAFF, LOUDON COUNTY MEMORIAL HOSPITAL, LOUDON, TENN.

There are many "guidelines" required by Medicare that are expensive, stupid, time wasting and often impossible to carry out and frequently difficult to accomplish both in the administrative and medical departments of this hospital. This is particularly true in small hospitals where we try to comply with the "guidelines" that are designed for big hospitals.

To be more specific, I will cite you one instance as an illustration of the numerous "guidleines", rules, regulations and limitations that seem to always come from government agencies not only in hospitals but in whatever and "whosever" business the government (i.e. Congress) chooses to vote itself into. This particular "guideline" imposes a hardship on the patients, taxpayers. Federal Government, doctors, administrative and nursing personnel connected with the Loudon County Memorial Hospital.

During an inspection by Medicare "inspectors" under Mr. Joe Zinor the hospital Administrator and the Chief of Nurses were told that "under no circumstances

could nurses give anesthetics to anyone even under the direct supervision of a doctor or Medicare would "punish" the hospital by withholding funds." Nurses have been giving anesthetics here under the doctor's supervision since before my grandfather began to practice here in 1900. The seven doctors here on the staff represent over 200 years in the practice of medicine and none of us can remember any complication or death from a nurse's giving an anesthetic under our supervision. I think you will agree this is a remarkable record. They have been used mostly in delivering babies, setting fractures, and in emergency situations. Medical doctors or a certified Nurse Anesthetist give the anesthesias in surgery.

Now, the point is that for this small hospital to keep available anesthetist (if we can find them, 24 hrs. a day, 7 days a week) will cost the hospital from $30,000 to $60,000 per year. We don't do enough work to justify this; so either we stop all of it or let the patients and the taxpayers pay for it-something that they haven't heretofore had to pay and something they don't need.

We, "us country doctors", on the "frontline" (or maybe behind lines) feel we are better qualified to decide what's the best for our patients down here in Loudon County, Tennessee, than some bureaucrat in Washington.

Personally, I hope you people up there in the Congress can learn to say "No" and VOTE NO. If you don't, I and a majority of us folks down here will vote NO.

Mr. DUNCAN. Do you find greater utilization of medicare in some sections of the country than in some other areas? Can someone answer that?

Mr. BROMBERG. I think, Congressman Duncan, certainly in an area of the country such as Florida where there are elderly people, hospitals are running over 50 percent medicare population where nationwide that figure may be in the 30 percent area. In those you will find that a hospital has to double what it would ordinarily have to provide by way of increased charges to nonmedicare patients to make up for the differences we have been talking about.

When it is 50 percent of your patient load, you have twice as much to make up in terms of loss reimbursement.

Mr. DUNCAN. I understand there is greater utilization in the urban centers of hospitalization than in the rural areas; is that correct?

Mr. MCMAHON. Mr. Duncan, geography as well as economic circumstances have always had some deterrent to the seeking of care and I suspect we would find a lower utilization per thousand beneficiaries, for example, among the lower economic groups, again as much because of ignorance on their part as to when to seek care as for the economic circumstances themselves, though there is some deterrent in the deductible presumably or probably more fear than anything else.

When you get to the geographic problem, inconvenience of access, you might find a reduction. But generally it seems that it goes pretty much across the country in terms of the number of people per thousand medicare beneficiaries who do seek care in any period of time.

Mr. DUNCAN. I understand it is greater, for example, in New York than it would be in rural Tennessee or Georgia or Mississippi. Are you aware of that?

Mr. MCMAHON. Well, other than the geography-—well, the other thing is there is the relationship between the medicaid program and medicare, medicaid being more ready in some cases to-under the medicaid program in a given State to pick up the deductible and coinsurance aspects that medicare leaves to the patient.

Mr. DUNCAN. How many people pay directly for hospitalization on a percentage basis?

Mr. MCMAHON. You are not talking about over 65 now?
Mr. DUNCAN. Completely across the board.

Mr. MCMAHON. 10 percent?

Sister HARNEY. Self-pay? I would say 15.

Mr. DUNCAN. And the rest is government and private plans?

Mr. MCMAHON. Yes.

Mr. DUNCAN. Do you have a higher utilization by those that have prepaid coverage than those who pay directly?

Mr. BROMBERG. I think, Congressman, that would depend on the geographical area of the country. In terms of whether your medicaid population is higher, such as you pointed out in New York City, you might have a higher medicaid population in a facility than you would in other parts of the country. Generally on a nationwide basis we find that you may run 30-percent medicare and 10- to 15-percent medicaid and 15-percent private pay, and the balance split between Blue Cross and commercial insurance companies and there would be a big difference between the two of them.

Mr. DUNCAN. Have you had to increase room rates because of the increase in malpractice insurance rates?

Mr. MCMAHON. Yes; indeed.

Mr. DUNCAN. On the average, what would you say?

Mr. MCMAHON. Well, a lot is going to depend-and I will ask the others because I suppose while it is difficult today to single out the greatest problem that hospitals face, certainly right now malpractice is right up at the top not only with hospitals, but physicians as well. We have seen increases in malpractice insurance go from what would be the equivalent of 50 cents per patient-day to $3 and $4 in some cases and there are a couple of hospitals in Mr. Rostenkowski's city that have now gone to $7, $8, and $9 per patient-day. Thus the rapid increase in malpractice insurance premiums for hospitals over the course of the last year have had a substantial impact on cost increases not only in terms of dollars per patient-day, but the percent age of the increase in hospital costs themselves.

Mr. DUNCAN. Would any other member of the panel care to elaborate on that?

Mr. LEWINE. Yes, sir, I can. It is like my own hospital. We are trying to

Mr. DUNCAN. Which is that?

Mr. LEWINE. We have 540 beds, the Mt. Sinai Hospital in Cleveland. However, the last 3 years we have gone from a liability insurance premium of $80,000-some to $120,000. Last year it was $179,000. This year we believe it will be $620,000.

Now, I say we believe because we have only secured $345,000 premium cost and that covers us only for $250,000 and $500,000 for the $345,000 premium. We are at the moment self-insured above that level and will have to fund any insurance potential above that level. We are currently seeking an umbrella policy and the one that we tentatively are offered will cost $275,000 above the $345,000.

Mr. DUNCAN. I read yesterday that in Springfield, Mass. $75,000 coverage was quoted as a rate of a $850,000 premium. Are any of you in a position to say whether or not you consider these increases in rates justified to that extent?

Mr. LEWINE. It is very hard to say. The St. Paul Co. in its last annual report which covers a good deal of insurance in our area, simply said that it was unable to make an actuarily sound projection. Therefore, they shifted from occurrence to a claims-made basis, which means that any hospital or physician that is satisfied to buy insurance that will cover an event in this year can buy from St. Paul. However, it is known that only about 20 percent of the occurrences emanate

from an event from medical care in a hospital according or in the doctor's office in that given year and that 80 percent are brought in the way of suits in subsequent years.

So, in effect, that hospital or that physician is uninsured to about 80 percent of the occurrences.

Mr. DUNCAN. Would not the American Hospital Association and the Federation of American Hospitals and any other associations be able to determine the number of claims that have been filed or the suits filed and determine whether or not-the reason I ask this is I have heard some groups say that it is actually-has not been justifying the increase.

I read that a former officer of one company who has no longer with them said it was certainly unjustified. The insurance company had increased their rates and although, as you say, it is hard to determine because these things are unusually controlled on a State-toState basis, but it is

Mr. MCMAHON. Mr. Duncan, the American Hospital Association has over the course of the last year taken a very hard look at this entire situation. We have retained legal counsel as well as actuarial counsel to advise us in this area as to the rating structures. We have investigated the possibility even of the creation of a captive reinsurance company. The actuaries tell us that were we to do it, we would certainly have to provide rates that are comparable to those that are filed by the companies and probably more because when you go into the insurance business for the first time, you need to develop a reserve situation pretty promptly for protection purposes.

Therefore, in the course of that advice nothing has come to our attention that leads us to conclude that the rates being given to homes are excessive. I think the reason for it is you can't make the converse statement either. We cannot prove that they are adequate because what we have is a 15-year guessing game against a relatively short trend.

The trend in the last couple of years has shown a marked increase in the number of claims filed per year and a marked increase in the cost of claims settled. So when you have a trend line that takes a sharp upward curve, you almost from the actuarial point of view have so say, "Well, the likelihood is that trend will continue for 15 years, but nobody knows."

So that the best answer that we can give you is that we do not think the answer lies in the rates. We do think that the long-term answer, and where we are putting the bulk of our attention now in working with State hospital associations and through the American Medical Association and State medical societies, the solution lies in a correction of some of the problems with the existing tort system and that will bring the whole malpractice area into a more insurable and risk-determining position.

Mr. DUNCAN. I have one final question and I think I have consumed enough time. Since this matter is interstate and not intrastate and since it also involves medicare and medicaid payments, would you think it would be useful for this committee to inquire into this problem, into the rates of malpractice insurance?

Mr. MCMAHON. We suppported from the outset the chairman's approach, Mr. Rostenkowski's direction early in this session to ask for some studies of it, because I think that would give us the basis then on which appropriate discussion can then take place.

Mr. DUNCAN. Some of the insurance commissioners in States are saying they can't go beyond their own States to determine whether the costs are justified or not.

Mr. MCMAHON. I think this is true.

Mr. DUNCAN. But we could in this committee.

Mr. MCMAHON. You could, but, Mr. Duncan, the situation takes its setting in the tort laws of the various States and those are matters for determination by each State. This is the reason that we think the State is the proper place to take a look at that, because some States in the determination of what they want to do maybe are willing to live with a shorter statute of limitations than others. Some, like Indiana are ready to live with a limitation on the amount of recovery in any malpractice situation. Others are more dedicated to the use of mandatory arbitration or at least an arbitration that then becomes evidence in court.

Some are more willing to eliminate the dual payments that sometimes develop, the imposition of a collateral source rule, and some are more ready than others to deal with contingent fees. We think we should have this experimentation take place, not to deal with it yet as an interstate problem.

Mr. DUNCAN. I think it should be on the State basis, if possible, but what I was concerned with was where the State insurance commissioners were taking advantage of a State situation and saying they couldn't go beyond their borders.

Mr. ROSTENKOWSKI. Mr. Cotter will inquire.

Mr. COTTER. Thank you, Mr. Chairman.

We did have a bill on the floor and I apoligize for arriving late. I missed the testimony, but there are a few questions I would like to pose if one of the panelists would reply.

How many hospitals have trouble complying with each regulation now? Could you give me an estimate?

Mr. MCMAHON. All of them have difficulty with the elimination of the 8.5-percent nursing differential. During the course of the testimony that was brought out. It looks as though 10 to 15 percent will have difficulty complying with the limitations on reasonable costs under section 223.

The smaller rural hospitals have far more difficulty with the utilization review regulations, though all of them have problems complying with those to some extent because of the confusion and lack of certainty.

Mr. COTTER. All right.

Mr. BROMBERG. In the last regulation, utilization review, I would think that well over 50 percent, if not more than that, would have trouble complying.

Mr. COTTER. What steps have been taken by your various associations to work this out with HEW? Are you at an impasse now, is that the real problem?

Mr. MCMAHON. Certainly we are at an administrative impasse. Only the court could tell us, because all three of these matters are now before the courts.

Our administrative remedies and the opportunities for discussion and useful dialog have been exhausted. We have no recourse but to go to court in all of these matters and they are all now before the courts.

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