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to influence the manner in which the production of health services is organized. A rather bold attempt to use the insurance mechanism in this way was incorporated in an early version of the Kennedy-Griffith bill which would have provided for a massive shift away from the traditional fee-for-service reimbursement of physicians (and full-cost reimbursement of hospitals) toward prepayment to providers (HMO's) in return for a promise to deliver comprehensive care when and where needed. The theory was that health-care providers who operate under a prepayment formula have every incentive to prescribe the most efficient bundle of health services capable of treating a given medical condition and to produce whatever services are prescribed in as efficient (least-cost) manner as possible. Whether a nationwide system of health-maintenance organizations would actually service these goals is as yet an open question inviting sustained empirical analysis. A priori it can be argued that if an HMO is permitted to package one year's costs into the next year's capitation premium, the incentive to minimize the cost of health maintenance may be considerably blunted. How acceptable the prepayment regime will ultimately be to the typical American physician and patient also remains an open empirical question.

Whatever the merits and demerits of the HMO concept will ultimately turn out to be, as a practical matter the designers of the nation's health insurance system ought probably to be prepared to work primarily with the traditional feefor-service system. Such a system was incorporated into the Canadian health insurance program and it has also now been widely adopted in West Germany, after decades of experimentation with capitation payments.2 There is every reason to believe that it will predominate in the United States for decades to come.

The question policymakers must resolve at the outset is whether the determination of the fee schedules to be used under national health insurance are to be left to the good offices of physicians individually and collectively-as is the case where physicians are reimbursed on the basis of "customary local fees"—or whether these fee schedules are to be subject to strong public control. If the former approach is adopted, as might well be the case in the United States, policymakers willingly forego a potentially powerful lever through which the delivery system can be influenced. If the latter approach is used, policymakers ought to explore ways in which that fee schedule can be developed to serve society's interests.

Without dwelling at length on the potential role of fee schedules in a national health insurance system, it may be worth mentioning at least two concrete ways in which these schedules could be used to reshape the health-care delivery system. First, under a national health insurance system it may be possible to introduce interregional differences in the absolute level of fees with the objective of encouraging a redistribution of medical manpower toward currently under-doctored areas. Relative to the customary local fees now paid under part B of Medicare, the new fee schedules should enhance hourly physician remuneration in lowincome urban centers and rural areas and depress it in areas traditionally preferred by physicians. Lest it be argued that such a policy would not be administratively feasible, it may be noted that medical fees in West Germany, for example, are calibrated toward precisely this objective. The degree of success attained under the West German system merits further investigation.

A second objective that might be pursued with officially administered fee schedules relates to the issue of health-manpower substitution. Current policies are to encourage the substitution of paramedical personnel (physician extenders and allied health manpower) for the time of physicians in the production of health services. Toward that objective, the public sector has subsidized the training of increased numbers of physician substitutes without, however, providing physicians with strong incentives to engage in the desired health-manpower substitution. Bluntly put, upward flexibility of medical fees has enabled even phycicians who make wasteful use of their time to earn attractive incomes. Why such physicians would engage in more extensive task delegation is certainly not obvious.

Under a national health insurance system, attempts could be made to set the relative fees for particular medical services so as to provide physicians with strong financial incentives toward more extensive task delegation. More specifically, fees for services whose production could safely be delegated predominantly to lower skilled (and less expensive) manpower should be set in the fee

2 Actually, the reimbursement scheme adopted in West Germany resembles what would be known in the United States as a "medical foundation" with each foundation covering one entire state. In this connection, see the attached paper on the West German health system.

schedule on the assumption that they are so delegated in every instance. Clearly, under such a schedule a physician who performed a delegatible service himself would effectively price out his own time at the imputed wages of a physician assistant. One suspects that, over time, such a fee schedule would tend to encourage physicians towards greater efficiency in the use of their own time. It would clearly also serve to reduce the overall transfer of income that society at large has to make to the medical-care sector in return for the receipt of medical services. (For a more extended discussion on the potential role of fee schedules in a national health insurance system, see "Alternative Reimbursement Schemes for Non-Institutional Providers of Health Care," a paper left with the Committee's

staff.)

CONCLUDING REMARKS

Since this is the first in a series of panel discussions on the issues surrounding national health insurance in this country, the objective of this statement has been to offer one potentially useful framework within which these issues can be discussed in orderly fashion. The objective has decidedly not been to furnish the Committee with a blueprint for an "optimal" national health insurance system. A plethora of such proposals already exists. At the very most, the author of this statement would be prepared to recommend a few quite general guidelines for the design of a health insurance system. These recommendations are:

1. Whatever the particular form of national health insurance may be, Congress should offer the American public at least one comprehensive health insurance policy whose provisions are easily understood by the average American and whose language removes any uncertainty concerning the maximum financial risk to which the insured is exposed. Congress may either mandate that each private insurance company offer such a policy, or facilitate the public provision of such policies, perhaps in competition with the private sector. Whatever the case may be, a minimum goal for national health insurance should surely be to free American citizens from unnecessary anxiety.

2. It is important that, at the outset, the public sector (or its intermediaries) gain effective control over the determination of the fee schedules on which noninsitutional providers of health care are reimbursed under national health insurance. Failure to gain control over these fee schedules would mean foregoing one of the more important fiscal levers policymakers can have over the organization of health-care delivery.

3. Congress should shy away from attempts to couple with national health insurance bold attempts to introduce direct regulatory control over the healthcare delivery system. This recommendation is based not only on the lack of a good performance record of public regulation elsewhere. More important is the fact that the ultimate impact of many of the organizational changes now being proposed is ill understood at this time. No social scientist with integrity could, for example, assert at this time that group medical practice is unambiguously superior to fee-for-service reimbursement, that salaried physicians practice medicine superior to that of fee-for-service practitioners, or that health-manpower substitution will ultimately reduce the cost of health services in this country. Until more is known about these issues, it is probably best to defer drastic changes of this sort and to design this Nation's future health insurance system primarily towards objectives 1 and 2 listed earlier.

4. In designing a national health insurance program, policymakers should search the experiences of other nations for potential lessons. It is surprising, indeed, that in recent debates over national health insurance the highly relevant experiences of Canada. France and West Germany are hardly ever referenced. These countries now operate national health insurance systems not unlike those most compatible with the American setting. Furthermore these countries have implemented a good many of the changes now proposed as panaceas for the shortcomings of the American system. In some instances these changes have yielded expected improvements; in others, there were unexpected and often undesirable side effects. In addition to the health services research now underway on aspects of this country's health system, much can be learned from cross-national comparisons.

Mr. ROSTENKOWSKI. I think the Chair owes the panel an explanation of what is happening here.

When the bells ring, we have to answer a quorum, when the bells ring on three occasions. Something took place on the floor of the

House of Representatives that I have never seen in 18 years. They vacated a quorum. I didn't know that they could do that. I don't know that anybody in Congress knew that they could do that until today, but it has been done. So when the bells ring, members of the panel leave.

If we leave, it is only because we have to answer either a rollcall or a quorum call.

Mr. Pike?

Mr. PIKE. If the gentleman will yield, I would like to say you talk about the monstrosities of the medical system, and I might just mention you are observing one of the monstrosities of the legislative system whereby 435 Members walk over to the House of Representatives, put a card in the slot, push a button marked present, and promptly leave.

I have long since made the determination that I had more important things to do, and, at the moment, this is one of them.

Mr. ROSTENKOWSKI. At this point, for the purposes of writing the record, I would like the panel to understand that any conversation that you have will be in the record, the interchange, plus the fact, that I am sure that we will join in questions in the not-too-distant future. So if there is any comment that any of the doctors would like to make with respect to the comments that another panelist has made, please feel free to make your observations.

Doctor Wynder?

Dr. WYNDER. I listened to the economist with great pleasure. I would like to ask myself what is the key thing I learned. Perhaps it might be the Sutton law applied to medical care; namely, we have that type of medical care where the money is.

In whatever we do we need to consider that in our kind of society the Sutton law is as likely to apply to medical care as to any other care or any other endeavor.

Second, Dr. Reinhardt mentioned the German system. Sometimes certain languages are perhaps more perceptive to a given issue than our own.

When Bismarck originated the system in Germany, they did not call it health insurance, they called it Krankenkassen. That means it is disease insurance. This is more or less what we have in this country. It was not until 1971 that, by parliamentary law, Germany created for the first time a cancer detection program for which this health insurance would pay.

Thus, historically we have to recall that one reason why the German. system, in terms of preventive medicine, had not operated very successfully in the past, is because it dealt with disease insurance.

Let me give you a specific example that may relate to the maternal and to the infant mortality that Dr. Reinhardt referred to.

At one time the German system paid for prenatal care only, the gynecologists and obstetricians and at that time the GP, who did not want to lose a patient, said: "Well, I am not going to send them to an obstetrician-gynecologist, I will do the first examination and I will deliver the baby."

The German system had to change the system to also pay the German practitioner for prenatal care. All of a sudden all mothers were examined during pregnancy.

The final point I would like to make relates to the fact that most of the major diseases that we suffer from in our Nation today are manmade.

Let's take heart attack. Some time ago I had the pleasure to serve on a National Task Force for Arteriosclerosis. After meeting weekend after weekend here in Washington, in the final weekend we said to ourselves: "What's the most important finding we learned during our deliberation?"

The most important thing we learned was that heart attack and arteriosclerosis are not an inevitable consequence of being born or becoming aged. In other words, the leading cause of death in our country is manmade and is therefore man-preventable.

It seems to me that in a system where we are quite willing to pay for all kinds of coronary care units, but are unwilling to pay for preventive programs directed to the prevention of coronary disease, we put the cart in front of the horse.

Preventive services will never be better applied in this country as they are today or in any other country until we give economic incentives for such preventive services to be conducted properly.

Mr. ROSTENKOWSKI. Dr. Freymann?

Dr. FREYMANN. I would like to take issue with Professor Fein. Maybe we can bring some controversy into this discussion. I put this out for his reaction. He stated that producer behavior is the issue in health care costs. I agree superficially that it is. It is the doctor who sends the patients to the hospitals, who writes orders and writes the prescriptions.

There is no question that, at the operation level, producer behavior is a very important component of the cost of health care.

But I submit that there is a deeper level which is beyond the control of the physician. This is really a point of social decision.

Let me use a homely analogy to get across the point I am making. Let's say the health care system is like a dutiful housewife. The dutiful housewife is being told by her husband, which is society-and the Congress is representing society-"You have spent all you are going to spend on groceries. You had an open-ended grocery budget, and you have been spending more every year. This year we are going to crack down. We are going to have planning and be very rational about how you are spending the grocery money. I am not going to cut it back, but you are not going to get any more."

And the health care system says dutifully, "Yes. We will do that." But when it is agreed that we are going to be rational and we are not going to spend any more money, the husband says, "By the way, Honey, don't stop serving steak."

Now I submit, as an example of "steak," the provisions in Public Law 92-603, which opened medicare benefits to anyone with end-stage renal disease.

I am not against people with end-stage renal disease, please understand. As a physician I can understand their need. But that was another billion dollars a year on our health care bill.

This was not a medical decision. There were respective physicians in the lobby which got that law through Congress, but this was Congress' decision.

Congress was, I think, reflecting the public, which was saying, "We know there are facilities for keeping people alive with renal disease, and we want them to be available to everybody."

But we can't have everything. We can have steak every night for dinner or we can have economy, but we can't have both.

The ultimate decision, I submit, is not up to the producer or the provider, the physician. The decision is ultimately a social one, and I think it lies in the hands of Congress how it is to be interpreted.

Mr. ROSTENKOWSKI. Professor Fein?

Mr. FEIN. I don't know that we disagree. In the first instance I said producer decisions, and in the second instance I said these are not in fact scientific decisions. They do require allocation of resources and those are heavily influenced by the way legislation is written. It is in that sense that I would differ somewhat, perhaps, with some of the language used by Professor Reinhardt, although I suspect that even here we will end up agreeing rather than disagreeing.

If I heard Uwe correctly, he indicated that there are many things we don't know about the direction that we would like the health care system to go in, and we ought to not only recognize that explicitly, but perhaps recognize it in our legislation.

It would seem to me that in the past, and it is likely to be the case in the future, we will find it virtually impossible to write what we would think, what we would term neutral legislation. The legislation that we write inevitably will direct resources and the more explicit we are about preventive care or early treatment or other areas where we want those resources to go, the better off we will be.

Your reference to the renal dialysis or renal care does prompt me to make one admissional remark on the question of equity. Earlier I said that I started with that perspective, and perhaps I can illustrate it with a story that appeared in the New York Times, December 28, 1970.

It was datelined, Richmond, California, a State that Mr. Corman comes from. It told about a young boy who on December 25th, Christmas Day, was very happy because, in fact, 800,000 coupons had been collected which had been transmitted to one of the cereal manufacturers in the United States as payment for a kidney machine, which would enable him to receive treatment at home instead of going to San Francisco three times a week at $200 per treatment.

It was a very warm story. It was a very marvelous Christmas Day, the child was happy, and the parents were pleased.

I suspect that many of us read that story and said, "It's a great country."

I would like to think that many of us stopped afterward and said, "What the hell kind of system is this that a little boy had to worry Christmas eve whether or not there are going to be enough people across the United States to provide the 800,000 coupons?"

What if they had not? So I think that my objective in National Health Insurance is to take care of that kind of a situation, not at the expense, however, of the situation which arises for many Americans every day, and for all Americans every year of primary care, the kind of things that most of us go to the physician about most of the time, the worry and the concern that arises. I agree with Professor Reinhardt on the importance of that psychic component.

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