Bear in mind that New York City medicaid has been spending $11 million annually for clinical laboratory work. As I had predicted to the New York City Office of the Mayor, the bids came in for $5.6 million, or about 50 percent less than we had been paying. Certainly all this 50 percent did not reflect savings realized through economies of scale alone. Surely some portion of this 50 percent represented the inflated costs of kickbacks and attendant overutilization.

Now, members of the Subcommittee on Health, you might expect that the initiative shown here to save the taxpayer substantial sums of expenditure would be rewarded with commendation on the Federal level or if not with commendation, at least with harmless indifference. After all, $5.4 million saved each year means about $1.25 million returned to the city, $1.25 million returned to the State, and $2.5 million returned to the Federal Government.

Well, disabuse yourself of the notion that we received official written commendation from the Federal level. Instead HEW has zealously testified as amicus curiae against us in the current litigation. Incredible as it may seem, HEW takes the position that to put medicaid laboratory work out on bid violates the medicaid principle of "freedom of choice."

As a former private practitioner in Massachusetts, a board-certified internist, I never encountered a single patient who exercised preference for one clinical laboratory over another. Patients are incapable of distinguishing between the relative competencies of two laboratories with respect to the technical performance of a serum uric acid, blood urea nitrogen, blood glucose, complete blood count, or urinalysis. To apply the concept of "freedom of choice" to clinical laboratories is to stretch the meaning to absurd lengths, beyond all connotations ever envisioned by the original framers of the medicaid legislation.

This attitude of HEW, if maintained, may cost the taxpayer $5 million and more per year in New York City in clinical laboratory work alone. But this HEW attitude will impede other initiatives as well. For example, we also want to move into nursing home pharmaceuticals. We know that we can effectuate substantial savings by putting the purchase of proprietary nursing home drugs out on bid as well. Is this plan to die because of HEW's interpretation of "freedom of choice"?

In short, if the subcommittee wishes to bring about some overdue economies and simultaneously elevate quality of care, the subcommittee would do well to scrutinize the entire concept of "freedom of choice." Similarly the subcommittee might review the accompanying papers in the appendix, which derive from our 9 years of medicaid experience in New York City.

FINAL COMMENTS

With the passage of National Health Insurance covering the total population, not only the poor, we may assume that the middle class will be much less docile than the lower socioeconomic class in hanging onto legislated benefits. In contrast to the lamentable history of medicaid, it is likely that there will be no giving of services followed thereafter by a taking away of services. The political penalties that ensue from angering the American middle class would be formidable.

Once promulgated then National Health Insurance will not be repealed. Therefore, it is imperative to avoid the medicaid and medicare administrative absurdities that have promoted so much publicly subsidized overutilization, poor quality, and fraud. We are obliged to assign the job of quality and cost control standards to the health department, or we are obliged to invent another publicly accountable agency like it.

But will this happen? It remains to be seen whether we have learned substantive lessons from the accomplishments and follies of the past decade.

Thank you.

[The additional material follows:]

FORESHORTENED FRANK MEMOIRS OF A FORMER MEDICAID ADMINISTRATOR

(By Lowell Eliezer Bellin, M.D., M.P.H., Professor of Public Health, Head of Division of Health Administration, Columbia University School of Public Health) Elsewhere I have commented on the desirability of preparing case studies on the implementation of quality control programs of health services-with concentration of those sociological, psychological, political, and organizational variables that are relevant and generalizable. (11) Case studies on implementation are to be distinguished from the anthological abundance of descriptive reports on technical refinement and day to day administration of such quality control programs.

How to prepare case studies on implementation? Ideally a competent historian participating in none of the administrative decisions but privy to all their evolutionary details would have to record events as they happened in the manner of military company historians who write up skirmishes and battles. But such a convenient confluence of intellectual talent and current events within one agency is unlikely. The best we can realistically hope for are after-the-fact case studies similar to those in the professional literature of business and public administration. In the meanwhile, pending the preparation of such case studies, participant observers in implementation of quality control programs would do well to record their own administrative memoirs are candidly as they dare.

Of course, autobiographical history authored by protagonist tends to suffer from generic defects: (1) partisanship; (2) subtle self-adultation with the author and his cadre as heros; (3) polemical special pleading; and (4) the perceptual blindness of the single observer as to what actually happened. Yet, these defects need not necessarily inhibit the penning of memoirs, for, to be candid, any paper on any subject develops similar defects, as soon as it departs from the objectivity of charts and graphs to the subjectivity of interpretation. And even the charts and graphs themselves may be deemed objectively suspect because of the selectivity inherent in including some details and excluding others. Often the potential author is reticent for fear that the memoirs will reveal as much about himself as about the program he is retrospectively describing.

It is probable that my collaborative associates would differ from me in summarizing and interpreting the events that we shared. Unquestionably opponents would differ even more. The Rashomon phenomenon certainly will be evident in this very personal document of my impressions of almost five years of administrative responsibility for New York City Medicaid.

MEDICAID ADMINISTRATION IN NEW YORK CITY HEALTH DEPARTMENT

Suffice it to say that New York City Medicaid translated the terms of the Title 19 legislation into a pioneering municipal health department program of promulgating, monitoring, and enforcing standards of publicly funded health care. There was unprecedented on-site auditing in the private offices of private health care practitioners. There was review of the quality of Medicaid care provided by specific practitioners. We applied fiscal leverage by withholding reimbursement whenever we found the quality of care provided to be in violation of our standards. Monitoring and enforcement meant educating the health professionals, the State legislature, the Congress, the public. Enforcement meant in

house hearings, imposition of financial penalties, and suspension from the program. And, of course, enforcement meant periodically antagonizing the professional societies and the individual practitioners.

This paper will not rehash all the activities of the New York City Medicaid program. Many of these have already been described in their technical and administrative detail in the public health and medical care literature. (1-10; 12-21) Instead, this paper will present representative material that normally is confined between the lines in prudent, invisible ink.

POLITICAL INTERFERENCE AND HOW IT WAS APPLIED

"Did the Mayor or any other higher up ever apply pressure on you or your staff on behalf of anybody?"

To answer the question explicitly: never did the Mayor, his associates, or any superior of mine in the City government ever to my knowledge communicate an order or a hint to me or my staff to "lay off" anybody during my 42 years of administrative responsibility for New York City Medicaid.

Even when crass political intervention does occur in the United States, it is typically episodic and self-limited. Substantive political interference uses more durable budgetary means to achieve its ends. Pleasure or displeasure with the specific administration of a program is communicated by granting or withholding public funds. In public administration paranoia is an occupational hazard. One must beware of reading signals of hostility when none in fact exist, when the budgetary cuts are designed to impose austerity in its own right, rather than to punish blundering. But each time we failed to receive all or most of the budgetary support we had sought, we could not help but wonder whether forces in opposition to our administration of Medicaid had finally assembled a working coalition to thwart us.

Where were the "hostiles?"

The daily workings of New York City Medicaid policy predictably provoked consternation and counter-measures among professional organizations and individual practitioners. Representative but by no means comprehensive examples follow:

New York City Medicaid carried out a program of on-site auditing of the office practices of physicians, dentists, optometrists, podiatrists, pharmacists, and chiropractors. Initial practitioner hostility to this unprecedented heatlh department behavior was reflected in a formal resolution of censure by the AMA. (0)

New York City Medicaid made a certain number of hours of annual continuing education a requisite for participation by practitioners in the program. (50 hours for physician-general practitioners, and 25 hours each for dentists, optometrists, and podiatrists.) The local medical and dental societies registered public opposition. The dental societies brought injunctive action against the program of compulsory continuing education. (10)

Of the 3 chiropractic organizations, one challenged us in the courts because of our decisions (1) to limit the chiropractic fee per visit to $3, and (2) to tighten up administrative procedures to constrain chiropractic overutilizaton. (3, 9, 12, 13)

Aside from these conflicts with practitioner organizations, each time a staff decision was made to enforce standards of health services on the part of individual practitioners, we made another enemy.

Tension between Albany as state capital and New York City as metropolis has been a political constant for centuries, no matter which personalities or which political parties occupied the State House and City Hall. But superimposed on this historical conflict between state and city was the nationally publicized, peculiarly abrasive relationship between Mayor John V. Lindsay of New York City and Governor Nelson A. Rockefeller of New York State. In Romeo and Juliet, the servants of the warring Montague and Capulet familles fight one another and spill blood, although the servants themselves are not necessarily committed to the ideological viewpoints of their masters. A similar syndrome inevitably manifests itself in government among some public administrators who identify themselves with the boss' proclivities.

Any Medicaid budget required both State and City approval. At best budgetary procedures involving both the State and City are lengthy and cumbersome. An additional complication is the fact that the State and City fiscal years do not coincide.

Did the budgetary cuts we encountered constitute political interference? Was frugality the motivation behind the cuts? or was the covert motivation the desire to clip the wings of a politically embarrassing program? or was there a complicated mix of both? These quesions automatically came to mind once when the State refused to support our request for a budgetary increase despite the fact that we had conclusively demonstrated during the previous year that every dollar spent for New York City Medicaid auditing returned many more dollars to the general fund.

To some extent the true motivation was irrelevant. Ordinarily we would have abided by the customary procedures and courtesies of private negotiation. But these regrettably had failed. We believed we had persuaded the staff of the New York City regional office of the State Health Department, but the main office at Albany was adamant. Some of our own staff speculated that the Albany office of the State Health Department had concluded that we had co-opted their New York City local staff.

Accordingly I decided to go public. In newspaper and radio interviews I ridiculed the State's purported frugality in holding us to the previous year's budget. I likened such spurious economies to a policy of Tiffany & Co., jewelers saving money by getting rid of its expensive door locks. I appealed to certain State legislators not only of the political left but of the political right as well.

After a few months of this campaign, we were notified that the State had reconsidered our budgetary request and we were to be granted precisely what we had originally asked for.

OUTWITTING THE SYSTEM

Yet we needed to expand our monitoring and enforcing capabilities beyond the budgetary limit imposed upon us. It was clear that in the future we would receive negligible monetary increases either from the State or from the City. Quality of care was not the only issue. Cost control was operationally intertwined with quality control. Every time we constrained fraud, poor quality, and particularly overutilization-the troika of abuses in every health care programwe saved money far in excess of the cost of auditing. Nevertheless, during our negotiations we encountered the political reality that budgetary authorities are loathe to approve a larger operational budget, even though that larger operational budget generates a return of moneys that in effect more than offsets the budgetary investment. In the fiscal interchange the additional moneys recovered or saved by auditing do not accrue on paper to the credit of the agency itself but are ultimately pooled elsewhere in the general fund. On the State level we never found anyone with the grasp to appreciate our argument about the potential economies to be realized and the political power to give us the auditing in house capability we always sought. On the City level we were more fortunate, although not consistently throughout the length of the program.

Almost at the onset of Medicaid in 1967 time was already running out. If constraints on provider abuses were not to be applied promptly and vigorously, the New York State Legislature would in its wrath eschew its initial generous definition of medical indigency and benefits for Medicaid enrollees, and cut back on both.

Because we could not get the moneys, we looked for another way to expand our monitoring and enforcement capabilities. There was on incongruity that might be utilized. Medicaid was so structured budgetarily that expenditures for service benefits could expand almost indefinitely-at least until the State Legislature might choose to redefine eligible Medicaid beneficiaries and Medicaid reimbursable benefits. At the same time there was no similar financial carte blanche for local health departments to support in house monitoring and enforcing activities of these ever expanding health care services.

Suppose we could reclassify such auditing activities as Medicaid reimbursable services? If so, we could then contract with specific professional schools to audit quality by re-examining patients who had already received health care services elsewhere. We would reimburse the schools on the basis of a Medicaid visit. We made a preliminary check with the State to determine if there would be legal objection. There was none. We promptly contracted with the Optometric Center of New York and the H. J. Levi College of Podiatry in New York City, each to examine patients respectively in optometry and podiatry.

We chose the patients whose previous Medicaid services we wanted audited. The schools in question examined the patients and sent us the reports. Medicaid

paid for this under the budgetary category of services rather than that of office personnel. Throughout my official association with Medicaid, I had the persistent fear that either the State or the City would renege on the deal and would one day decide to condemn these "patient visits" as a palpable fiction, on the grounds that Medicaid should not pay the schools, since such extra visits, strictly speaking, represented overutilization.

There were other benefits of this maneuver as well. When evidence of poor quality and overutilization in optometry and podiatry ultimately emerged from these auditing activities, the practicing optometrists and podiatrists on an individual basis and through their professional organizations dared not protest the validity of these findings. After all, the alma maters of the majority of New York City's practicing optometrists and podiatrists had collected these data on the professional performance of their own alumni. This muteness of the optometrists and podiatrists contrasted with the strident criticism by the dental societies about a year earlier after we had released similar damaging data on the professional performance of New York City Medicaid dentists. In the dental study the Health Department rather than a dental school had originally collated the data. In turn the dentists and their societies had evinced less hesitation about attacking the competence and good faith of a public agency with presumably an ideological axe to grind.

CONFLICT OF INTEREST OUTSIDE THE AGENCY

One group of providers who we alleged had rendered poor quality care and had committed fraud and overutilization hired a prominent member of the New York State Legislature as counsel. This is legal in New York State. It was to the credit of the State legislator in question that he seemed somewhat embarrassed about his role. He assured us, and with evident sincerity, that he supported our quality control activities and wanted to arrive at a disposition that would satisfy the New York City Department of Health.

Nevertheless we wondered how a State legislator who votes on appropriations for Medicaid, on definitions of Medicaid enrollee eligibility, and on expansion or shrinkage of Medicaid benefits can with propriety represent a Medicaid provider. There is nothing new about this problem. Private law firms in which State legislators and Federal congressmen are members of partners have been representing clients whose interests more than occasionally conflict with the official roles of the incumbents in public office.

In this case even the most sensitive among our staff detected no attempt to bring pressure directly or indirectly upon us. But the absence of an overt attempt to influence the enforcement procedures of a regulatory agency does not exclude the workings of operative influence. No one ever forgets that the legislator-attorney represents the power to fund, and, therefore, to destroy the regulatory agency in question.

CONFLICT OF INTEREST WITHIN THE AGENCY

A routine review of professional activities of the Medicaid auditing staff of part time practitioners disclosed that one staff member was currently engaged in a type of private practice that could be interpreted as a conflict of interest in relation to his official duties. Although his professional activities were legal, strictly speaking, I felt uncomfortable (1) because the behavior was wrong, and (2) be cause any perceived conflict of interest could jeopardize our credibility as an ob jective regulatory agency.

Discussion with the practitioner revealed that he had been engaged in this activity for about a year. He had done so, he insisted only upon receiving the formal permission of his then organizational superior, X.Y., (not the real initials) who either had acknowledged or had implied that such a policy concession was necessary to attract and retainable practitioners for the Medicaid auditing staff. Working for Medicaid manifestly meant a substantial financial loss to any practitioner who sacrificed the opportunity cost of moneys that otherwise would have been earned in affluent practice.

Now I had the utmost respect for the ability, integrity and judgment of X.Y., who allegedly had granted the initial permission. But the dimensions of Medicaid had changed enormously since then. Policy had to be modified to keep pace. I explained all this to the practitioner and offered him two choices: (1) either he remain on the Medicaid staff but discontinue the professional activities, or (2) continue the professional activities but resign from the Medicaid staff.

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