Chairman STARK. Dr. Foreman.

STATEMENT OF SPENCER FOREMAN, M.D., IMMEDIATE PAST CHAIR, ASSOCIATION OF AMERICAN MEDICAL COLLEGES, AND PRESIDENT, MONTEFIORE MEDICAL CENTER, BRONX, N.Y.

Dr. FOREMAN. Mr. Chairman, I am Spencer Foreman, the president of Montefiore Medical Center in the Bronx, N.Y., and immediate past chairman of the Association of Medical Colleges; and I am here to speak on their behalf.

The Nation's teaching hospitals and medical schools recognize their great responsibility in the health care system and are confident that, given the necessary tools, they can provide a competent, properly balanced physician workforce. The AAMC appreciates the administration's leadership in proposing comprehensive, high quality, cost-effective coverage for every American, and is particularly pleased that the Health Security Act has as an underlying policy requirement all payer support of the academic mission. The principal portions of my written testimony focus on the workforce and academic health center provisions of the act. My oral comments will, as well.

With respect to manpower development, the AAMC agrees with the need to train more physicians in generalist disciplines and supports an overall national goal of having at least 50 percent of graduating physicians entering generalist careers. However, we are concerned that the act's timetable for achieving that goal may be overly ambitious and that the government will move too quickly to a regulatory approach to accomplish it. We strongly urge allowing time for the new incentives now coming into play in the marketplace to work.

Managed care and revised fee schedules are reducing the demand for specialists and shrinking their income, while the same forces are enhancing the status of generalists and improving their income. We are already seeing significant shifts in specialty preference among graduating medical students. Furthermore, the AAMC is very concerned that a national physician manpower regulatory body would have a great deal of difficulty making the thousands of equitable allocation decisions required to regulate 82 specialties and 7,000 training programs.

I call your attention to tables 3 through 7 in my written statement, which attest to the complexity of the problem and the need for flexibility. Nevertheless, the AAMC is prepared to support a more regulatory approach if there is insufficient progress toward meeting the national goal.

With respect to financing workforce development, the AAMC enthusiastically endorses all-payer support of physician training, but is very concerned that the funding proposed in the Health Security Act is inadequate. The workforce account, which is designed to support the operating costs of graduate medical education, uses as a basis for payment a cost-finding methodology which omits real and presently recognized costs of training including those now covered by Medicare in its direct graduate medical education payments. Furthermore, payments from this fund are to be made based on the national average cost of training.

We are very concerned that moving to an average payment will cause a marked and unwarranted redistribution of support among training programs and will have very serious consequences for those programs which lose substantial amounts of funding.

Chairman STARK. Back up on that 1 minute. Just before the average payment, the preceding paragraph.

Dr. FOREMAN. The workforce account which is designed to support the operating costs of graduate medical education uses as a basis for payment a cost-finding methodology which omits real and presently recognized costs of training, including those now covered by Medicare in its direct medical education payments. Furthermore, payments for this fund are proposed to be made on the basis of national average cost of training.

We are concerned that moving to an average payment will cause a marked and unwarranted redistribution of support among training programs and will have very serious consequences for those programs which lose substantial amounts of funding.

Chairman STARK. In the aggregate institutional support and in programs within the institution?

Dr. FOREMAN. In the aggregate institutional support and in programs within the institution. That is, presently those costs are paid on a cost-finding basis, which is institution specific. If you move to an average, the ones that get high amounts of reimbursement will lose it and those that are low will be unanticipated winners.

Chairman STARK. It is not a popular program in New York?

Dr. FOREMAN. No, sir, it is not. Finally, the AAMC does not support payments being awarded directly to training programs. The Association believes that payments from the workforce account should be made to the entity that incurs the cost.

The second major fund is the academic health center account, and while the AAMC is pleased that the act would create a stream of support for academic health centers, the pool is seriously underfunded at $3.8 billion. Preliminary results from an analysis conducted by Lewin/VHI indicates that the real 1991 inpatient and outpatient cost difference between teaching and nonteaching hospitals, excluding the direct costs of education, was between $9 and $11 billion.

Looking back at that 1991 period, Medicare's $4.2 billion in indirect medical education expenditure served as a proxy payment for those costs. The balance was obtained by cross-subsidization from other payers or in rate regulated States, explicitly as payment adjustments. But with managed competition shrinking payments from other payers, it becomes increasingly difficult to sustain a cross-subsidy system. If the Medicare indirect medical education adjustment is eliminated October 1, 1995, as is proposed in the act, without a substantial enhancement of the academic health center adjustment, there will be a huge hole in the funding required to assure that Medicare beneficiaries and others have access to services provided by teaching hospitals.

The final concern of the academic community is that managed competition is likely to unravel the system of cross-subsidization through which faculty professional services income helps to underwrite medical education. Note on table 2 of my testimony that

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America's medical schools rely on clinical faculty professional services income for one-third of their overall revenue.

Clinical faculty operate in the same markets and on the same terms as other physician providers and are subject to the same price pressures. Managed care organizations are aggressively using discounted price arrangements and utilization controls to reduce their costs at the expense of providers, which will inevitably result in less medical service plan money being available to support educational efforts.

The AAMC believes that a complete and adequate financing system for academic medicine must be provided and would be pleased to work with Members of the Congress and the administration to remedy this last situation.

Thank you.

[The prepared statement and attachments follow:]

STATEMENT OF SPENCER FOREMAN, M.D.

PRESIDENT, MONTEFIORE MEDICAL CENTER

IMMEDIATE PAST CHAIR, ASSOCIATION OF AMERICAN MEDICAL COLLEGES

Mr. Chairman and members of the subcommittee, I am pleased to appear before you today to comment on two proposals of particular interest to academic medicine in the Health Security Act, HR 3600 (HSA). I am Spencer Foreman, M.D., Immediate Past Chair of the Association of American Medical Colleges (AAMC) and President of Montefiore Medical Center, Bronx, New York. The AAMC represents the nation's 126 accredited medical schools, 400 major teaching hospitals, the faculty of these institutions through 92 constituent academic society members, and the more than 140,000 young men and women in medical training as students and residents.

The AAMC appreciates the administration's leadership in initiating legislation to extend universal comprehensive health coverage while improving quality and constraining growth in health care costs. Mr. Chairman, the association commends your commitment to these goals as well. As early as 1969, the AAMC called for universal access to health care, and since then has advocated a number of other positions on reform of the overall system, including the need to: balance the provision of a basic benefits package with available resources; provide access to primary, preventive, and specialty care; support pluralistic financing systems with appropriate beneficiary cost sharing mechanisms; and develop planned community health care programs.

In June 1993, the association adopted a set of five goals and supporting principles that should guide health care reform. These goals are: 1) giving all Americans the chance for a healthy life; 2) providing universal access to health care; 3) recognizing that once health care excellence is achieved, the necessary resources must be provided so that quality and capacity are maintained; 4) instituting cost containment measures that do not compromise health care quality; and 5) supporting the essential roles of medical and other health professional education and of biomedical, behavioral and health services research. (Appendix A provides a complete list of goals and principles.)

Health care reform will test the entire health care system, and academic medicine in particular will face special challenges. These institutions and their faculties constitute the cornerstone of the health care system, as educators of physicians and other health professionals, creators and evaluators of scientific knowledge and its transfer into practice for the benefit of society, and major providers of primary, secondary and tertiary care in their local communities--often to indigent patients--and on regional, national and international levels. These special responsibilities are highly interdependent in both their missions and financing, and increase the costs, and therefore the price that teaching physicians and teaching hospitals must charge for their services, making it difficult or impossible for them to compete in a price conscious environment. Additionally, the contributions of academic medicine depend on multiple sources of financing, each of which is increasingly constrained. If medical schools and teaching hospitals are to sustain their roles as ultimate guarantors of the effectiveness of the health care system, health care reform must recognize the special roles these institutions play in society.

The AAMC is interested in many issues in the proposal, ranging from broad areas such as anti-trust, to more narrow concerns, such as the provision for contracting with academic health centers. There are many policies in the HSA that deserve enthusiastic support, ranging from reforming the Medicaid program to altering the malpractice system. The AAMC is particularly pleased that the HSA recognizes the critical missions of teaching physicians and teaching hospitals in the health care system: educating physicians, research scientists and other health professionals; developing new medical technology; treating rare and unusually severe illnesses; providing specialized patient care; and caring for special populations. However, the association must call to the attention of this committee and others that the HSA, as proposed, represents a severe threat to the financial viability of the nation's medical schools. Medical school financing is based on a fragile structure of internal cross-subsidies; a very substantial portion of medical school expenses are borne by revenue derived from patient services provided by medical school faculty members. Managed competition, by creating a medical care market highly sensitive to price, will tend to reduce revenues available for this purpose. Simultaneously, it will demand radical shifts in educational emphasis, from specialist to generalist, from hospital to ambulatory focused care. Thus, traditional revenue generating activities will be curtailed or become less rewarding while revenue consumptive activities will increase. Faculty income promises to be reduced, while greater reliance for

educational purposes must be placed on community physicians. The income of community physicians will be constrained and medical schools will be without income to compensate them for the additional contributions to professional education asked of them.

Currently, the HSA makes no provision for revenue lost to medical schools, no provision for supporting costly new activities that must be undertaken and makes no allowance for a transition to a new and highly uncertain future. Thus, as a medical school dean, I and my colleagues anticipate health care reform with considerable trepidation.

The legislation's provisions for physician workforce priorities, academic health centers (AHCs), health research initiatives, health programs of the Department of Veterans Affairs (VA), and hospitals serving vulnerable populations give the association an opportunity to continue a dialogue in these areas. They are of special concern to academic medicine and are crucial to the overall viability and quality of the health care system. Today I will focus my comments on two specific provisions in the legislation: the health professions workforce and the academic health center proposals. I will then return to the theme of the financial viability of medical schools.

The HSA has an underlying policy requiring support for the missions of academic medicine from all insurers or sponsors of patient care programs. The level of financial support, the purposes for which the funds are intended, and how money is allocated are all matters that will be subject to debate. However, the AAMC wishes to emphasize the fundamental importance of the principle that all payers must support education and the training of the workforce as well as providing an environment in which education and clinical research can flourish. Our commitment to this principle will not waiver.

The Health Security Act: The Workforce Planning and Allocation Provisions Summary of the Act. The HSA would establish a national council on graduate medical education within the Department of Health and Human Services (DHHS) to designate annually the total number of residency training positions in each specialty and allocate positions to approved training programs. The national council, to be appointed by the Secretary of the DHHS, would include consumers, medical school faculty and other practicing physicians, and officers or employees of regional and corporate alliances and health plans.

The national council would make its first annual designation of training positions in each specialty for the three-year period beginning July 1, 1998, notifying programs of their approval no later than July 1, 1997. At least 55 percent of the class entering residency training in July 1998 (and classes thereafter) must, in the aggregate, complete training in the primary care specialties of family medicine, general internal medicine, general pediatrics and obstetrics/gynecology. Thus, 55 percent of the physicians starting their graduate training in 1998-99 would complete their training at the end of the 2000-01 academic year as generalists.

For each of the academic years 1998-99 through 2002-03 (a five-year period), the national council also would adjust the total number of positions by a percentage that it would determine. The HSA states that the annual number of positions should bear a relationship to the number of U.S. allopathic and osteopathic medical school graduates in the preceding academic year.

In making its annual designation of the number of positions, the council would consider the need for additional practitioners in each specialty based on the incidence and prevalence of diseases and disorders with which the specialty is concerned; the number of practicing physicians in the specialty currently and five years from the start of the academic year; and the recommendations of physician specialty and consumer groups. The council would allocate positions based on the historical distribution and quality of training programs; the extent to which programs train under-represented racial and ethnic minorities; and the recommendations of private physician specialty and consumer organizations.